CANADIAN SECURITY TRADERS ASSOCIATION, INC.
                                          P.O. Box 3, 31 Adelaide Street East
                                          Toronto, Ontario    M5C 2H8

December 7, 2006

James E. Twiss
Chief Policy Officer
Market Policy and General Counsel’s Office

Market Regulation Services INC.
Suite 900, 145 King Street West
Toronto, ON    M5H 1J8

Dear Sirs:

Re:  Provisions Respecting Competitive Market Places No. 2006-19

The Canadian Security Traders Association, Inc. is pleased to have this opportunity to respond to the request by Regulation Services for comments on Provisions Respecting Competitive Market Places No. 2006-19.

The Canadian Security Traders Association, Inc. (CSTA) is a professional trade organization that works to improve the ethics, business standards and working environment for members who are engaged in the buying, selling and trading of securities (mainly equities).  The CSTA represents over 700 traders nationwide in Canada, and is led by Governors from each of three distinct regions.  The organization was founded in 2002 to serve as a national voice for our affiliate organizations.  The CSTA is also affiliated with the Security Traders Association (U.S.A.), which has 6,000 members globally making it the largest organization of its kind in the world.

We often comment on industry developments and form opinions on trading issues based on input from our membership

Best Execution of Client Orders and Best Price Obligation

The CSA has proposed the following section be added to Companion Policy 23-101 CP:

“In order to meet best execution obligations, we (the CSA) expect that a dealer will take into account order information from all marketplaces where a particular security is traded (not just marketplaces where a dealer is a participant) and take steps to access orders, as appropriate.”

The CSTA believes that there could be a number of factors that could be harmful to the Canadian investment community as a result of this CSA proposal, some of which are listed below:

- In order to meet best price/best execution obligations the CSTA is of the opinion that there is a need for a consolidated quote display which would also provide previous trades from every market in Canada in which a security trades. 

- Marketplaces that provide pre-trade transparency should be required to link up with the principal marketplace and disseminate true bets bid and offers before allowing them to come online. The costs associated with this start up should be absorbed by the Marketplace similar to the SEC decision, “that it is the ATSs’ responsibility to provide access to trading for best prices by supplying links between the markets. A full service dealer would have no choice but to subscribe to every new marketplace which could lead to artificial success of these marketplaces, but this could be avoided if the ATS had to absorb the link-up costs.”
- A trader should not be mandated to access orders on all other transparent marketplaces; a nominally better bid/ask price on another marketplace may not result in best execution for a client.

- Best price will now be the factor that most often characterizes best execution, to the exclusion of other determinants such as speed, market impact and certainty of fill.  These determinants are much more important than best price in the execution of larger orders.

Other Competitive Marketplace Issues:

- With no automated order routing system currently in place it will result in manual intervention which undoubtedly will have an impact on timeliness of execution, cost, audit trail and the firm’s ability to monitor their best execution obligations.
- Open orders/stop loss orders/short selling – these types of orders are entered into the primary exchange’s trade allocation system. How will a participant continuously monitor all markets to ensure these trades are not missed? Traders will be required to manually intervene more for execution of these types of orders.

Hours of Operation

- The CSTA is aware that market hours have expanded as a result of new entrants to the marketplace and we have a concern that any further expansion of market hours would lead to a working day that would start well before 6am on the West Coast.

Summary

Under current regulation proposals Participants will be required to pay some fee to gain access to marketplaces to ensure they meet best price/best execution obligations.  As well, they will need to develop other technologies, i.e. order routers, etc. to ensure timeliness of execution and a comprehensive audit trail. The increased costs will make it less likely that many firms can compete with larger ones and would have a dramatic effect on price discovery, competition and liquidity as it would effectively reduce the number of brokerage firms that the Canadian investor/institution can choose.  Ultimately, clients will subsidize the cost of these requirements i.e. new information systems, fast routers, access fees, jitney fees, etc. in the way of increased commissions, due to lack of competition.  Requiring Participants to meet the proposed regulations without a system of consolidated market displays and routing systems will result in higher costs, inefficiencies and inconsistent standards.  As mentioned previously, the new marketplaces that provide pre-trade transparency should fund the link-up to a centralized system which would provide full transparency to all Canadian marketplaces and would provide order routing to the best available market as is with the NASD ruling which requires all Alternative Display Facilities (ADF) to provide direct electronic access to all other ADF trading centers and provide such access to all NASD members that request it.  This should ensure that brokers can compete on an equal basis and deliver the best competitive execution to the investor.

The CSTA would also endorse the views expressed by Scotia Capital, Raymond James and BMO Financial. 

In closing, the CSTA appreciates the opportunity to submit our views on the proposed amendments to the Canadian securities markets and look forward to working closely with regulators on future issues.

Best regards,
Colin Fraser
Chair, Trading Issues Committee
Canadian Security Traders Association, Inc.

c.c. Ms. Cindy Petlock
Capital Markets Branch
Ontario Securities Commission
Suite 1903, Box 55
20 Queen Street West
Toronto, Ontario   M5H 3S8