CSA Notice of Consultation: Draft Regulation to Amend Regulation 23-101 Respecting Trading Rules

CSA Notice of Consultation
Draft Regulation to amend Regulation 23-101 respecting Trading Rules Draft Changes to Policy Statement 23-101 respecting Trading Rules January 23, 2025 Introduction The Canadian Securities Administrators (the CSA or we) are publishing for comment draft Regulation to amend Regulation 23-101 respecting Trading Rules (Regulation 23-101) (Draft Amendments) and accompanying draft changes to Policy Statement 23-101 respecting Trading Rules (Policy Statement 23-101) (Draft Policy Statement Changes). The Draft Amendments and Draft Policy Statement Changes are being published for a 60-day comment period to solicit feedback and, if adopted, will amend section 6.6.1 of Regulation 23-101 to lower the active trading fee cap1 applicable to trades in securities that are listed on both a Canadian recognized exchange and a U.S. registered national securities exchange (U.S. Inter-listed Securities) and make related changes to Policy Statement 23-101. We are publishing the text of the Draft Amendments and Draft Policy Statement Changes with this notice, together with certain other relevant information. The text of the Draft Amendments and Draft Policy Statement Changes will also be available on the websites of the CSA jurisdictions, including:
www.lautorite.qc.ca www.asc.ca www.bcsc.bc.ca https://nssc.novascotia.ca/ www.fcnb.ca www.osc.gov.on.ca www.fcaa.gov.sk.ca www.mbsecurities.ca In a related initiative, the Canadian Investment Regulatory Organization (CIRO) published for comment a proposal to amend subsection 6.1(1) of the Universal Market Integrity Rules (UMIR) to align Canadian trading increments for U.S. Inter-listed Securities with U.S. market trading increments (Proposed UMIR Amendments). 1 An active trading fee refers to the fee applied for executing an order that was entered to execute against a displayed order on a particular marketplace. 2 CIRO’s Proposed Amendments Respecting Trading Increments

Substance and Purpose
The Draft Amendments would continue to align the maximum fee for executing an order involving a U.S. Inter-listed Security priced at CAD 1.00 or more with the reduced trading3 fee caps adopted by the U.S. Securities and Exchange Commission (SEC) on September 18, 2024 and originally planned to be implemented on November 3, 2025. On December 12, 2024, the SEC announced an order granting a partial stay on the implementation of the rules pending judicial review of the proposals by the United States Court of Appeals for the District of Columbia Circuit. If approved, it is intended that the Draft Amendments, Draft Policy Statement Changes and Proposed UMIR Amendments would come into force on the implementation date for the SEC rules or as soon as practicable thereafter. The Draft Amendments and Draft Policy Statement Changes will not come into effect before the SEC’s stay is lifted and its rules are implemented. Background SEC Proposed Amendments On December 14, 2022, the SEC published for comment four proposals to change certain fundamental elements of U.S. market structure (SEC Proposed Amendments).4 Among these were proposals to establish a variable (and in many cases smaller) minimum trading increment for securities (SEC Tick Size Proposal) 5 and, in conjunction, reduce the trading fee caps charged in the U.S. (SEC Trading Fee Proposal). CSA and CIRO staff reviewed the SEC Proposed Amendments and considered their impact on Canadian equity market structure. In October 2023, the CSA and CIRO sought feedback from stakeholders in joint CSA/CIRO Staff Notice 23-331 Request for Feedback on December 2022 SEC Market Structure Proposals and Potential Impact on Canadian Capital Markets (Staff Notice 23-331). The purpose of Staff Notice 23-331 was to solicit views and to seek comments on certain aspects of the SEC Proposed Amendments, with a focus on the potential impacts on Canadian capital markets and potential policy responses. Twelve comment letters were received. A summary of comments can be found here. Generally, commenters were of the view that the most pertinent SEC Proposed Amendments to the Canadian capital markets were the SEC Tick Size Proposal and the SEC Trading Fee Proposal. Given the interconnectedness of U.S. and Canadian equity markets, most commenters were of the view that Canadian trading increments for U.S. Inter-listed Securities, contained in CIRO’s 3 In the U.S., trading fees are known as access fees. 4 For background on the four SEC Proposals, refer to the following: Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders; Regulation Best Execution ; Disclosure of Order Execution Information; Order Competition Rule 5 SEC Rule 612 sets a minimum trading increment of one cent.

UMIR, should be harmonized with the SEC Tick Size Proposal as finalized. As such, in a related notice, CIRO published for comment the Proposed UMIR Amendments. In conjunction with the reduction of the minimum trading increments, commenters also broadly supported harmonizing Canadian equity trading fee caps established under Regulation 23-101 with the SEC Trading Fee Proposal. This is the subject of the Draft Amendments and Draft Policy Statement Changes. As part of this notice, we are also publishing in Annex A a detailed summary of comments on Staff Notice 23-331 with respect to SEC Tick Size and Trading Fee Proposals. With respect to other SEC Proposed Amendments – regulation best execution, disclosure of order execution information and an order competition rule – most of the commenters were of the view that these proposals were either not relevant to the Canadian markets or further analysis was required prior to proposing any rule changes. Please refer to the summary of these comments here. Final SEC Rules On September 18, 2024, SEC adopted its final rules with respect to the SEC Tick Size Proposal and the SEC Trading Fee Proposal. With respect to the SEC Trading Fee Proposal, for securities priced USD 1.00 or more, the U.S. access fee cap will be lowered to USD 0.001 per share. For U.S. securities priced less than USD 1.00, the U.S. access fee cap will be 0.1% of the quotation price. The SEC also adopted its final rules with respect to the SEC Tick Size Proposal. As part of CIRO’s Proposed UMIR Amendments, the trading increments for specific securities will be adjusted semi-annually to align with increments applicable to U.S. marketplaces. Summary of the Draft Amendments and Draft Policy Statement Changes Subsection 6.6.1 (2) of Regulation 23-101 will be amended to align the maximum fee for executing an order involving a U.S. Inter-listed Security priced at CAD 1.00 or more with the reduced access fee cap adopted by the SEC. As such, for U.S. Inter-listed Securities priced at CAD 1.00 or more, the trading fee cap will be CAD 0.001 per share. Accompanying changes will be made to section 6.4.1 of Policy Statement 23-101. Background information on the Canadian trading fee cap regime is provided in Annex B. Non-U.S. Inter-listed Securities The Draft Amendments will not apply to non-U.S. Inter-listed Securities – securities that are listed in Canada and could also be listed on any foreign exchange other than a U.S. registered national securities exchange. There is currently an intentional differentiation between the fee caps for U.S. Inter-listed Securities and non-U.S. Inter-listed Securities. When fee caps were first proposed in 2016, many stakeholders expressed concerns with respect to the U.S.- aligned fee

caps being too high and not reflective of the lower average prices of Canadian securities. To address these concerns, a lower fee cap of CAD 0.0017 was proposed and approved for non-U.S. Inter-listed Securities priced at or above CAD 1.00. In response to Staff Notice 23-331, some commenters suggested considering extending the reduced fee caps to non-U.S. Inter-listed Securities. However, most of these commenters also cautioned against doing so without extensive analysis and consultations. As such, given the importance of maintaining Canadian and U.S. markets harmonized with respect to U.S. Inter￾listed Securities, it was decided to focus on such securities for these Draft Amendments and Draft Policy Statement Changes. The CSA intend to review the fee caps for non-U.S. Inter-listed Securities but are not proposing any changes at this time pending further analysis. Related amendments The Draft Amendments will include the following related amendments:

1. The defined term “inter-listed security” in Regulation 23-101 will be clarified by adding
   a reference to U.S. This is being done to align the name of the defined term to its corresponding definition, which only includes those securities inter-listed on a U.S. registered national securities exchange. Also, the term will be made consistent with the analogous definition in the Proposed UMIR Amendments.
2. Section 6.6.2 of Regulation 23-101 will be repealed. Currently, this section is ensuring
   that once a security ceases to be a U.S. Inter-listed Security, the exchanges have enough time to lower the trading fees provided such fees are higher than a prescribed trading fee cap for non-U.S. Inter-listed Securities. Once the Draft Amendments are in effect, this
   section will not be needed as the trading fee cap applicable to U.S. Inter-listed Securities
   will now be lower than the trading fee cap applicable to non-U.S. Inter-listed Securities. Alternatives to the Draft Amendments and Draft Policy Statement Changes We considered maintaining the current trading fee cap, which is not a viable option as a per￾share trading fee that is too high can distort calculations of whether a price on one marketplace is “better” than on another marketplace. Given that the Canadian equity market is highly integrated with U.S. equity market, and there is significant trading activity in equity securities listed in both Canada and the U.S., concerns arise about potential negative consequences for the Canadian equity market from establishing a trading fee cap for U.S. Inter-listed Securities that is significantly different than comparable regulatory requirements in the U.S. Our view is reinforced by the responses to Staff Notice 23- 331. 6 See notice of approval: https://lautorite.qc.ca/fileadmin/lautorite/reglementation/valeurs-mobilieres/23-101/2017- 01-26/2017janv26-23-101-avis-publication-en.pdf.

The Draft Amendments will enable Canadian trading fee caps to remain harmonized with U.S. access fee caps for U.S. Inter-listed Securities at CAD 1.00 or more. As such, the Draft Amendments are necessary to maintain the competitiveness of our capital markets, so that lower trading fees in the U.S. do not create an incentive for Canadian dealers to direct order flow in U.S. Inter-listed Securities to U.S. marketplaces. Consultation Questions Question 1:
a) Do you agree with the proposal to align the maximum fee for executing an order involving a U.S. Inter-listed Security priced at CAD 1.00 or more with the reduced access fee cap adopted by the SEC:
i) at CAD 0.0010, as proposed above, without consideration for the current foreign exchange rate, or ii) at CAD 0.0014, which approximates the SEC’s adopted access fee cap with consideration for the foreign exchange rate (USD 0.0010 x 1.44)?7 b) Alternatively, do you support aligning the access fee cap for U.S. Inter-listed Securities with the current fee cap for non-U.S. Inter-listed securities (CAD 0.0017)? c) Do you support any alternatives not listed above? Please provide rationale in support of or against any alternatives above. Question 2: Will the competitiveness of the Canadian capital markets be impaired if only the trading fee caps are lowered for U.S. Inter-listed Securities? Please provide supporting rationale. Question 3: Should the trading fee caps apply to trading fees paid by passive orders in inverted (taker-maker) markets? Please provide supporting rationale. What would be the costs and benefits of applying the cap to inverted markets? Question 4: As part of the final rules adopted on September 18, 2024, the SEC rules prohibit a national securities exchange from imposing any fee or providing any rebate for the execution of an order in an NMS stock unless such fee or rebate can be determined at the time of execution. Please discuss whether we should take a similar approach in Canada. Anticipated Costs and Benefits of the Draft Amendments and Draft Policy Statement Changes OSC staff conducted a costs and benefits analysis of the Draft Amendments and Draft Policy Statement Changes. This analysis included consultations with Canadian marketplace operators seeking input on the expected costs each marketplace would incur to implement the Draft Amendments. In summary, it is anticipated that marketplaces will incur minor costs to comply with the Draft Amendments, ranging between $5,700 and $10,700 per entity. It is also anticipated that a reduction in the trading fee cap could lead to a $101 million decrease in total fees collected by marketplaces and, depending on the net capture earned by marketplaces, reduced marketplace 7 The CAD/USD exchange rate is approximately 1.44 at the time of publication.

revenue. However, the net capture earned by marketplaces should not change significantly, as the lower passive rebates paid ($101 million) should offset the decrease in fees collected. Although we are unable to quantify the impact of many of the benefits of the Draft Amendments, we anticipate that these benefits might reasonably be expected to be proportionate to the estimated costs to the extent that the Draft Amendments preserve the relative competitive position of U.S. and Canadian marketplaces. Unpublished Materials In developing the Draft Amendments and Draft Policy Statement Changes, we have not relied on any significant unpublished study, report or other written materials. Local Matters Certain jurisdictions are publishing other information required by local securities legislation with this notice. Annexes

• Annex A – Summary of responses to Staff Notice 23-331 relating to SEC Tick Size and
  Trading Fee Proposals
• Annex B – Background on regulation of trading fee caps in Canada
  Authority of the Draft Amendments and Draft Policy Statement The securities legislation in each of the CSA jurisdiction provides the securities regulatory authority with rule-making or regulatory authority in respect of the subject matter of the Draft Amendments. How to Provide Comments We welcome your comments on the Draft Amendments and Draft Policy Statement Changes and invite comments on the specific questions written under title “Consultation Questions”. Please provide your comments in writing by March 24, 2025. Please send your comments by email, attached in Microsoft Word format. We cannot keep submissions confidential because securities legislation requires publication of a summary of written comments received during the comment period. All comments received will be posted on the website of each of the Alberta Securities Commission at www.asc.ca, the Ontario Securities Commission at www.osc.ca and the Autorité des marchés financiers at www.lautorite.qc.ca. Therefore, you should not include personal information directly in comments to be published. It is important you state on whose behalf you are making the submissions. Please address your submission to the CSA as follows:

British Columbia Securities Commission
Alberta Securities Commission
Financial and Consumer Affairs Authority of Saskatchewan Manitoba Securities Commission Ontario Securities Commission Autorité des marchés financiers Financial and Consumer Services Commission, New Brunswick Superintendent of Securities, Department of Justice and Public Safety, Prince Edward Island Nova Scotia Securities Commission Office of the Superintendent of Securities, Service NL Northwest Territories Office of the Superintendent of Securities Office of the Yukon Superintendent of Securities Superintendent of Securities, Nunavut Please send your comments only to the following addresses. Your comments will be forwarded to the remaining jurisdictions:
Me Philippe Lebel
Corporate Secretary and Executive Director, Legal Affairs Autorité des marchés financiers Place de la Cité, tour PwC 2640, boulevard Laurier, bureau 400 Québec (Québec) G1V 5C1 Fax: (514) 864-8381 Email: consultation-en-cours@lautorite.qc.ca The Secretary Ontario Securities Commission 20 Queen Street West 22nd Floor Toronto, Ontario M5H 3S8 Fax: 416-593-2318 Email: mailto:comment@osc.gov.on.ca Questions Please refer your questions to any of the following:
Xavier Boulet
Senior Policy Advisor
Direction de l'’encadrement des activités de négociation Autorité des marchés financiers xavier.boulet@lautorite.qc.ca Serge Boisvert Senior Policy Coordinator Direction de l’encadrement des activités de négociation Autorité des marchés financiers serge.boisvert@lautorite.qc.ca

Kim Legendre
SRO Analyst
Direction de l’encadrement des activités de négociation Autorité des marchés financiers kim.legendre@lautorite.qc.ca Tim Baikie Senior Legal Counsel, Trading & Markets Ontario Securities Commission tbaikie@osc.gov.on.ca Alex Petro Trading Specialist, Trading & Markets Ontario Securities Commission apetro@osc.gov.on.ca Mark Delloro Senior Accountant, Trading & Markets Ontario Securities Commission mdelloro@osc.gov.on.ca Jesse Ahlan Senior Regulatory Analyst, Market Structure Alberta Securities Commission jesse.ahlan@asc.ca Navdeep Gill Senior Legal Counsel British Columbia Securities Commission NGill@bcsc.bc.ca Michael Grecoff Securities Market Specialist British Columbia Securities Commission MGrecoff@bcsc.bc.ca

ANNEX A
SUMMARY OF RESPONSES TO STAFF NOTICE 23-331 RELATING TO SEC TICK SIZE AND TRADING FEE PROPOSALS List of Commenters

1. Canadian Securities Exchange
2. BMO Financial Markets
3. Virtu Financial
4. TD Securities
5. Investment Industry Association of Canada (IIAC)
6. Canadian Security Traders Association, Inc (CSTA)
7. Scotiabank Global Trading & Markets
8. Tradelogiq
9. TMX
10. Cboe
11. Nasdaq CXC Limited
12. National Bank Financial Markets

Summary of Comments
Question 1: If adopted as proposed by the SEC, please provide your views regarding whether Canada should harmonize with an amended SEC rule, including with respect to:
a) the methodology used to calculate minimum trading increments, including, source of data (which marketplaces and what entity should be responsible for calculation) and time periods during which the metrics are calculated, b) securities to which any amended Canadian price increments would apply (e.g., inter￾listed securities only or all or some classes of securities, exchange-traded funds and/or other exchange-traded securities), c) treatment of situations where the use of an aligned methodology results in different trading increments between inter-listed securities traded in Canada and the U.S. (i.e., where the time-weighted average quoted spreads in Canada and the U.S. are different for the same security). a)

• Some commenters supported harmonizing with the U.S. and among the Canadian
  regulators the methodology used to calculate minimum trading increments.
• One commenter noted that Canadian listing exchanges should identify which inter-listed
  stocks are affected and therefore subject to reduced tick sizes – for example, through start of day symbol status messages. b)
• The vast majority of commenters supported harmonizing Canadian price increments for
  Inter-listed Securities. Not a single commenter expressed outright opposition to harmonizing price increments for U.S. Inter-listed Securities. On the issue of non- U.S. Inter-listed Securities, most commenters urged caution, or outright opposed harmonizing trading increments for non- U.S. Inter-listed Securities. Only one commenter supported harmonizing trading increments for these securities. c)
• A commenter noted that if the regulators cannot harmonize their data sets, Canadian
  regulators should apply SEC data over Canadian data.
• Another commenter argued that in case of having different trading increments for U.S.
  Inter-listed Securities, the trading increment chosen for Canada should be the narrower of (1) the U.S. increment and (2) the increment calculated through the Canadian method. Question 2: If Canadian requirements as related to minimum trading increments are not amended in response to an amended SEC rule as proposed:
  a) Would marketplace participants send less order flow to Canadian marketplaces in favor of U.S. trading venues? b) Does the difference in value between the Canadian and the American dollars matter in your analysis?

a)

• The majority of commenters believed that order flow to Canadian marketplaces will drop
  if Canadian requirements are not harmonized with SEC amendments.

• Two commenters expressed doubts with respect to the order flow drop at Canadian
  marketplaces; one commenter called for a more detailed, data-driven study to be undertaken. b)

• The vast majority of commenters who responded to this question did not believe that
  trading increments and access fees should be viewed through the lens of foreign exchange rate. The general preference was to have those harmonized to the greatest extent possible. Question 3: Concerns have been raised in relation to:
  a) operational resiliency and systems readiness should the number of trading increments be increased, especially where they would be periodically adjusted on a per-security basis, and b) increase in message traffic (i.e., electronic order and trade messages) that will result from an increase in the number of pricing increments. Please discuss whether you share these concerns.

• The majority of commenters shared the identified concerns. However, the general view
  was that the benefits of harmonizing trading increments for U.S. Inter-listed Securities outweighed the technology-related risks. One commenter noted that the regulators should provide the industry with sufficient time to adjust their technology to smaller trading increments. Question 4: It has been suggested that any Canadian proposal to amend minimum pricing increments would introduce complexity in managing orders. Please provide your views in this regard, including as related to:
  a) complexities associated with the frequency at which minimum trading increments could change, b) the necessary lead-time between establishment and implementation of new minimum trading increments both initially and on an ongoing basis, c) challenges with management of existing orders entered on marketplaces at prices that have become invalid trading increments (may be particularly relevant for orders of retail investors that are entered with longer expiry dates (i.e., Good-till￾Cancelled (“GTC”) orders)), d) investor education challenges associated with an amended approach to minimum pricing increments.

• Some commenters believed that such a Canadian proposal would introduce complexity in
  managing orders.

• Some commenters thought that GTC orders may need to be repriced and/or possibly
  canceled.

• In terms of the timeline of implementation, one commenter preferred infrequent and
  predictable changes where needed; another commenter preferred to stagger the implementation.

• One commenter expressed concerns regarding the timing: under the SEC proposals,
  calculations, dissemination and changes of tick sizes would all have to take place between one day’s close and the next day’s open. Such a compressed schedule might affect markets’ ability to conduct adequate quality control and testing; also, brokers may not have sufficient time to discuss and address order management issues with their clients.

• Some commenters believe that investor education associated with an amended approach
  to minimum trading increments might be a challenge.
  Question 5: As modifying trading increments in Canada would impact the determination of a “better price” under UMIR, please discuss whether Participants (as defined in UMIR 1.1) would still be providing meaningful price improvement in circumstances where a “better price” is required.

• Some commenters believed that UMIR should not change its definition of a “better price.”

• Some commenters thought that there would still be meaningful price improvement with
  modified trading increments. On the other hand, one commenter believed that a “better price” at sub-penny levels is almost immaterial, and this would not be meaningful price improvement.

• Other commenters expressed different opinions:
  o One commenter suggested redefining the concept of “better price” to an absolute amount (per share), dependent on stock price and potentially order quantity. Further, any displayed orders which do not represent a “better price” relative to round trading increments should lose order protection. o One commenter argued that maintaining a single general standard for “better price” as the amount by which one can improve the quoted better price would make for a simple and practical standard but is open to establishing a higher threshold.

• One commenter urged the regulators to consider the policy rationale behind the
  determination of “better price” and whether smaller trading increments would still be providing meaningful price improvement. Question 6: Please provide any views on expected outcomes (positive and negative) associated with any changes to minimum trading increments, including as related to expected quoted volume at each price increment. Additionally, please provide your views on what metrics could be used to evaluate whether any new approach to minimum trading increments results in positive or negative outcomes.

• A number of commenters had various views on expected outcomes that would result with
  any changes to minimum trading increments:
  o In terms of positive outcomes,

• Several commenters noted that decreased minimum trading increments will
  result in tighter bid-ask spreads, leading to the lower institutional trade execution costs,

• One commenter provided that trading volume will likely increase,

• One commenter noted that reducing minimum trading increment would lead to
  increased potential for more precise price discovery processes for a small number of tick-constrained stocks,

• Two commenters suggested that aligning minimum trading increments with
  the U.S. would allow Canada to maintain competitiveness with the U.S. market. o In terms of negative outcomes,

• Some commenters believed that reducing tick size would reduce quoted
  volume available at the National Best Bid and Offer (NBBO),

• Some commenters noted potential issues with increased message traffic, such
  as less ability for slower traders to quote and trade passively on the near side of the quote and the need for infrastructure upgrades, as well as increased costs to the industry,

• A couple of commenters submitted that proposed tick size buckets are too
  granular, which will lead to flickering quotations, increased price instability, less aggregated liquidity, wider spreads, greater market fragmentation and ultimately will weaken the NBBO,

• One commenter cautioned against reduced top of book size, disadvantages to
  liquidity providers through loss of queue priority, more challenging trade￾through management due to finer tick increments and more rapid quote updates.

• Some commenters proposed the following metrics to evaluate the effect of a change in
  trading increments:

• message traffic rates

• volume traded (e.g., on inside bid/offer vs current volume; at top of book;
  within a one-increment spread; comparison between Canada and U.S. for U.S. Inter-listed Securities)

• fill/cancelation rates and time to fill or cancel

• average displayed order size and market depth

• ratio of displayed share trading vs non-displayed share trading

• market impact experienced by participants

• stock quote stability and price volatility
  One commenter noted that it may be challenging to determine which metrics are appropriate given the high number of variables at play and, therefore, metrics may need to evolve over time and should be periodically reassessed.

Question 7: Please discuss whether fee caps should also apply to “taker-maker” fee models and, if so, whether their fee caps should be different.

• Some commenters supported applying fee caps to taker-maker fee models, while four
  oppose fee caps in these cases.

• Two commenters emphasized their view that the access cap in Rule 610 of Regulation
  NMS only applies to fees for accessing (removing) liquidity, and not to the level of rebate to remove liquidity/the fee to provide liquidity.

• One commenter expressed its view that the degree of distortion permitted through rebates
  must be limited symmetrically for both traditional and inverted markets. Question 8: Generally, the exact fee or rebate for an order cannot be determined until after an execution occurs, as discounted fees or credits are determined by marketplaces at the end of the month, based on trading during the month of a Participant. To be able to calculate the full cost of a transaction at the time of execution, the SEC also proposes to require that all exchange fees and rebates be determinable at the time of execution. U.S. trading venues would be required to set such volume thresholds or tiers using volume achieved during a stated period prior to the assessment of the fee or rebate so that market participants are able to determine what fee or rebate level would be applicable to any submitted order at the time of execution. Please discuss whether we should take a similar approach in Canada.

• Some commenters supported such a requirement, while others opposed setting this
  requirement.
  Question 9: If adopted as proposed by the SEC, please provide your views on a Canadian approach to fee caps, including with respect to:
  a) harmonization with an amended SEC rule, including with respect to application to inter-listed and/or non-inter-listed securities, b) methodology used, including with respect to:
  i. application to all securities, regardless of price,
  ii. consideration of a fee cap that reflects tick size, similar to the methodology
  proposed by the SEC, and
  iii. consideration of a percentage-based fee cap for securities priced under
  CAD1.00.

• Numerous commenters believed that harmonizing fee caps with an amended SEC rule
  would be beneficial for U.S. Inter-listed Securities.

• Some commenters suggested considering extending the reduced fee caps to non- U.S.
  Inter-listed Securities. However, most of these commenters also cautioned against doing so without extensive analysis and consultations.

• One commenter believed that if the decision is made to reduce tick sizes for Canadian
  non- U.S. Inter-listed Securities, a maximum access fee should be capped at 50% of the Regulation NMS requirement for the same trading increment; also, a fee for posting liquidity on inverted markets should be limited to the maximum access fee for the same stock.

• One commenter submitted that:

• if the SEC lowers both the minimum tick size and access fee, Canadian fee
  caps for U.S. Inter-listed Securities should be harmonized with non-U.S. Inter￾listed Securities, currently at CAD 0.0017, or be higher, in case SEC’s cap is at or above that number.

• if the SEC lowers the minimum tick size but maintains the current access fee
  cap, Canadian regulators should increase the fee cap for non-U.S. Inter-listed Securities to CAD 0.0030 to harmonize it with the cap for U.S. Inter-listed Securities.

• if the SEC maintains the current minimum tick size but lowers the access fee
  caps, the Canadian fee cap for U.S. Inter-listed Securities should be harmonized with those for non-U.S. Inter-listed Securities, currently at CAD 0.0017, or be higher, in case SEC’s cap is at or above that number.

• if the SEC maintains the current minimum tick size and current access fee, fee
  caps for non-U.S. Inter-listed Securities should be increased to be harmonized with fee caps for U.S. Inter-listed Securities.

ANNEX B
BACKGROUND ON REGULATION OF TRADING FEE CAPS IN CANADA
Section 6.6.1 of Regulation 23-101 sets out the active trading fee caps for securities (which
include units of exchange traded funds (ETFs)). In 2016, they were originally set at CAD 0.0030 per share for securities traded in a continuous auction and priced CAD 1.00 or more, and CAD
0.0004 per share for securities priced below CAD 1.00.8 The fee caps were imposed because of
concerns that marketplaces would take advantage of the order protection rule9 (OPR) to charge high fees for execution of orders that are required to be routed to the marketplace to comply with OPR regardless of the fees charged by the marketplace displaying the better-priced order.10 The caps were imposed on all visible marketplaces, including ones that were not protected (and therefore not required to be accessed as a result of the OPR) because of a view that caps should be applied equally from a fairness perspective and because of concerns that fees charged and rebates provided by unprotected markets could be set at a level that may encourage inappropriate trading activities and thereby negatively affect market integrity. In addition, although OPR does not apply to unprotected marketplaces, dealers may need to access those marketplaces to comply with best execution obligations. The CAD 0.0030 fee cap mirrored the fee cap then in place for U.S. marketplaces under the SEC Rule 612. The cap represented an established baseline that was created in the U.S. in the context of similar order protection requirements. Securities below CAD 1.00 For the cap on active trading fees for securities priced below CAD 1.00, the CSA considered applying the U.S. cap for similarly priced securities, which was 0.3% of the trade price. However, when comparing marketplace fee levels for securities priced under $1.00, trading fees were for the most part already below what would be charged if the U.S. cap was applied. Additionally, imposing a cap applied as a percentage of value traded diverged from conventional billing practices, which are to charge at a per share or unit rate. As a result, the cap for securities priced below CAD 1.00 was set at the highest rate then being charged, which was CAD 0.0004 per share or unit traded. The rationale for not implementing a similar cap as the U.S. for trades in securities priced under CAD 1.00 remains relevant. 8 See notice of approval: CSA Notice of Publication, Regulation to amend Regulation 23-101 respecting Trading Rules, Amendments to Policy Statement to Regulation 23-101 respecting Trading Rules. 9 Part 6, Regulation 23-101. 10 CSA Notice and Request for Comment, Regulation to amend Regulation 23-101 respecting Trading Rules, https://lautorite.qc.ca/fileadmin/lautorite/reglementation/valeurs-mobilieres/23-101/2014-05-15/2014mai15-23-101- avis-cons-en.pdf (May 15, 2014).

Non-U.S. Inter-listed Securities
To address concerns that the CAD 0.0030 fee cap appeared high for non-U.S. Inter-listed Securities11 (whose trading prices are generally lower than Inter-listed Securities), in 2017 fees for non-U.S. Inter-listed Securities were capped at CAD 0.0017 per share for securities priced CAD 1.00 or more. This was done to ensure that the trading fee reflected the value of the security traded. The CAD 0.0030 cap for U.S. Inter-listed Securities represented 1.2 basis points of the volume-weighted average price for those securities. The CAD 0.0017 cap represents the basis point equivalent of the volume-weighted average price for non-U.S. Inter-listed Securities. Maker-taker and taker-maker fee models The fee caps only apply to maker-taker fee models12 and do not apply to inverted (taker-maker) markets, as these do not create the same risk of excessive fees to take advantage of OPR creating captive consumers. The fees the marketplaces charge for posting or providing liquidity will not directly affect a dealer who needs to trade with an order on that marketplace to comply with OPR or best execution; the dealer will either receive a rebate or not be charged a fee.13 As liquidity providers are not required to post orders on any inverted market, we believe that competitive forces will limit the fees that can be charged by these marketplaces. 11Securities, including ETF units, that are not also listed on a national securities exchange registered under section 6 of the 1934 Act. 12 The “maker-taker” marketplace fee model charges a fee for the execution of an order that removes liquidity from an order book and pays a rebate to the provider of liquidity for the same transaction. 13The size of the fee would indirectly affect the size of any rebate.