CIRO Bulletin 26-0066 — IDPC Rules — Proposed Amendments Respecting Client Delivery Obligations

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Letter Summary

CIRO is proposing amendments to its Investment Dealer and Partially Consolidated (IDPC) Rules that would require applicable investment dealers to establish, maintain and apply policies and procedures reasonably designed to detect and address client failures-to-deliver following the sale of a listed security on a marketplace, where the security is not held or controlled by the dealer. Where the failure relates to a short sale, dealers would be required to commence remedial action no later than five business days after settlement.

Overview of the Council’s comments:

The CAC submitted a comment letter on CIRO Bulletin 26-0066, which proposed amendments to client delivery obligations for short sales. The CAC supported CIRO’s conduct-based and principles-based approach, noting that it responded constructively to prior concerns about mandatory close-out requirements by focusing on dealer conduct rather than the outcome of continuous net settlement processes. The CAC also emphasized that short selling supports price discovery and liquidity, and encouraged CIRO and the CSA to develop better data infrastructure for failures to deliver and securities-lending activity so future calibration of the rules could be evidence-based. The CAC supported the proposed amendments and encouraged CIRO and the CSA to pair them with a proportionate, industry-supported utility for collecting and publishing data on failures to deliver and securities lending, so future short-selling regulation could be refined based on Canadian evidence.

Highlights by Question:

Q1: The CAC did not recommend additional remedial steps, stating that the proposed options—purchasing shares, requiring the client to deliver borrowed shares, lending shares to the client, or borrowing shares from a third party—were adequate and appropriately flexible.
Q2: The CAC agreed that responsibility should rest with the investment dealer holding the client relationship, as that dealer was best positioned to engage with the client and this approach avoided duplication, ambiguity, and potential inaction.
Q3: The CAC supported the proposed five-business-day timeline as workable and consistent across dealers, but recommended that CIRO review and recalibrate the period once Canadian failures-to-deliver data became available.
Q4: The CAC supported shortening the extended failed trade reporting timeline under UMIR 7.10 to align with the five-business-day period, noting that earlier reporting would improve surveillance and simplify administration.
Q5: The CAC did not identify omitted provisions in CIRO’s Impact Assessment, but observed that the assessment was qualitative and that better data collection would allow for future quantitative analysis.
Q6: The CAC agreed with the general direction of CIRO’s qualitative assessment, accepting that the amendments were likely to strengthen settlement discipline at modest incremental cost, while reiterating that quantitative data would better demonstrate the expected benefits.
Q7: The CAC supported an implementation period of at least three months, given existing dealer escalation practices, and indicated that a modest extension would be acceptable if some dealers needed more time.