Trading Policies and Procedures           

Coinsquare Capital Markets Ltd.                   

[MONTH] XX, 2022

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TRADING POLICIES AND PROCEDURES

Background and Purpose

    Coinsquare Capital Markets Ltd.  (“CCML” or the “Firm”) has adopted these policies and procedures (the “Trading Policy” or “Policy”), which outline the requirements for the Firm’s trading activities, and the supervision thereof. Questions regarding the Trading Policy should be directed to the Firm’s Chief Compliance Officer (the “CCO”). All trading at CCML must be in accordance with, among other legislative and regulatory requirements, the applicable Rules, including the Universal Market Integrity Rules (“UMIR”) of the Investment Industry Regulatory Organization of Canada (“IIROC”)and any applicable rules or policies of any accessed marketplaces.

1. Purpose and Approach

In accordance with UMIR 7.1 and UMIR Policy 7.1, Part 1, this Trading Policy was developed to serve as a clearly defined set of policies and procedures, reasonably designed to prevent and detect violations of UMIR and other trading-related regulatory requirements. CCML, through its board of directors (the “Board”), is committed to ensuring a strong trading supervision system through the implementation of this Trading Policy. This Policy is intended to foster a high standard of business conduct and good market practices for transactions in the digital asset markets.

Moreover, in accordance with UMIR Policy 7.1, Part 3, CCML’s supervision system for the Firm’s trading activities is risk-based, which is to say that it identifies and prioritizes those areas that pose the greatest risk of regulatory violations for the Firm. Accordingly, CCML’s supervisory and compliance personnel focus their reviews on the areas that pose a higher risk of noncompliance.

1. Scope

This Policy is applicable to all employees who engage in the trading of digital assets and/or securities at the Firm or who supervise, monitor, or are otherwise responsible for the trading activities of the Firm, and sets forth the principles which govern the conduct of such employees at all levels of CCML. Throughout this Policy, any reference to “employee” or “employees” includes full-time and part-time salaried personnel of the Firm, as well as independent contractors, officers, and directors duly appointed and/or authorized by the Firm to act on its behalf in a trading-related function. Furthermore, similar to the interpretive approach set out in IIROC Rule 1102(3)(i), any reference to the “Firm” or “CCML” includes all employees who engage in the trading of digital assets and/or securities at the Firm or who supervise, monitor, or are otherwise responsible for the Firm’s trading activities, if the context requires.

1. Supervisory Responsibility

The Board is responsible for the overall stewardship of CCML, with specific responsibility to supervise the management of the Firm. On an ongoing basis, the Board must ensure that the principal risks for non-compliance with UMIR and other trading-related regulatory requirements, including any applicable rules or policies of any accessed marketplaces, have been identified and that appropriate supervision and compliance procedures to manage those risks have been implemented.

The Ultimate Designated Person (the “UDP”) is responsible for ensuring that CCML’s supervision system and, in particular, this Policy, is being effectively carried out. The UDP has designated a senior supervisor responsible for trading (the “Supervisor”), who shall perform certain supervisory reviews on his or her behalf, but the responsibility for the reviews remains with the UDP.

The Supervisor and any other registered employee who has authority or supervision over, or responsibility to CCML for an employee of the Firm shall fully and properly supervise such employee as necessary to ensure the employee’s compliance with this Policy, UMIR and any other applicable trading-related regulatory requirements. 

The CCO and other compliance personnelare responsible for monitoring and reporting adherence to rules, regulations, requirements, policies and procedures. To that end, the CCO and other compliance personnel use a compliance monitoring system that is reasonably designed to prevent and detect violations and they must report relevant and material results of their monitoring to CCML’s management and, where appropriate, the Board. 

The CCO shall provide and present directly to the Board a summary of compliance results on no less than an annual basis. The Board shall have the opportunity to discuss any significant issues and/or compliance recommendations. Please see section II.B.2 of the Supervisory Procedures and Compliance Manual for additional details. 

The Supervisor is responsible for the following activity review:

• New Account Opening Review, account KYC detail changes, and annual client account review
• Preapproval of Advertising, Sales Literature and Marketing materials
• Review of Trade Desk reviews by the compliance analyst

The Supervisor will review and approve any material change to the client New Client Application Form (NCAF) data which forms the Know Your Client (KYC) details. An IR will take the new information, and pass it to the Supervisor to review and to ensure proper changes to any internal reporting such as Account Appropriateness, Investment Limits and Client Limits.

The Supervisor and CCO shall ensure that CCML employees responsible for trading in securities are appropriately registered and trained so that they are knowledgeable about the trade-related regulatory requirements that apply to their responsibilities. New IIROC Investment Representatives (“IRs”) who have never been so registered must complete a 30-day training program, as well as complete the Canadian Securities Course (“CSC”) and Conduct Practices Handbook (“CPH”), offered by the Canadian Securities Institute (“CSI”). Ongoing training shall consist of three (3) major elements:

• CCML IIROC requirements
• Anti Money Laundering (“AML”)
• Cryptocurrency training 

1. Referrals

CCML may offer referral programs for customers to refer prospects to CCML. There will always be a referral agreement covering the terms, which can be made available to all parties, and referred clients will get notification in advance of the first trade of the referral amount or method. Referral arrangements will be done in accordance with Part 10.9 of NI 31-103.

1. Prohibited Activities

In carrying out the supervisory and compliance procedures set forth in this Policy, all references to “digital assets” and/or “securities”, and the related oversight and supervision of same, applies with necessary changes required by the fact that the IIROC Rules were not drafted with digital assets specifically in mind or in scope.

For greater certainty, in this section 4, the words “order” and “trade” shall include, respectively, any order or trade entered on the CCML alternative trading system (the “CCML ATS”)–or any other Canadian regulated marketplace, if applicable–by the CCML dealer; either for itself on a principal basis, or as agent on behalf of a client.   

1. Manipulative and Deceptive Activities

1. Manipulative or Deceptive Method, Act or Practice

In accordance with UMIR 2.2(1), CCML shall not, directly or indirectly, engage in or participate in the use of any manipulative or deceptive method, act or practice in connection with any order or trade on a marketplace if CCML knows or ought reasonably to know the nature of the method, act or practice.

Part 1 of UMIR Policy 2.2 provides the following as examples of the types of activities which, when undertaken on a marketplace, would constitute a manipulative or deceptive method, act or practice:

1. making a fictitious trade;
2. effecting a trade in a security which involves no change in the beneficial or economic ownership; and
3. effecting trades by a single interest or group with the intent of limiting the supply of a security for settlement of trades made by other persons except at prices and on terms arbitrarily dictated by such interest or group.

1. False or Misleading Appearance of Trading Activity or Artificial Price

In accordance with UMIR 2.2(2), CCML shall not, directly or indirectly, enter an order or execute a trade on a marketplace if CCML knows or ought reasonably to know that the entry of the order or the execution of the trade will create or could reasonably be expected to create:

1. a false or misleading appearance of trading activity in or interest in the purchase or sale of the security; or 
2. an artificial ask price, bid price or sale price for the security or a related security.

Part 2 of UMIR Policy 2.2 provides several examples of the types of activities which, when undertaken on a marketplace, would create or could reasonably be expected to create a false or misleading appearance of trading activity or interest in the purchase or sale of a security or an artificial ask price, bid price or sale price. The following are examples from Part 2 of UMIR Policy 2.2 that CCML has determined to be relevant in the context of digital asset trading and for which CCML will monitor:

1. entering an order or orders for the purchase of a security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price for the sale of that security, has been or will be entered by or for the same or different persons;
2. entering an order or orders for the sale of a security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price for the purchase of that security, has been or will be entered;
3. making purchases of, or offers to purchase, a security at successively higher prices or in a pattern generally of successively higher prices;
4. making sales of or offers to sell a security at successively lower prices or in a pattern generally of successively lower prices;
5. entering an order or orders for the purchase or sale of a security to:
1. establish a predetermined sale price, ask price or bid price, or
2. maintain the sale price, ask price or bid price within a predetermined range;
6. entering an order or a series of orders for a security that is or are not intended to be executed;
7. entering an order for the purchase of a security without, at the time of entering the order, having the ability or the reasonable expectation to make the payment that would be required to settle any trade that would result from the execution of the order;
8. entering an order for the sale of a security without, at the time of entering the order, having the reasonable expectation of settling any trade that would result from the execution of the order; and
9. effecting a trade in a security, other than an internal cross, between accounts under the direction or control of the same person.

1. Additional Guidance on Artificial Pricing

Pursuant to Part 3 of UMIR Policy 2.2, an ask price, bid price, or sale price will be considered artificial if it is not justified by real demand or supply in a security. Whether or not a particular price is “artificial” depends on the particular circumstances. By way of example, a price of a security may be considered not justified by real demand or supply if:

1. the price is higher or lower than the previous price and the market immediately returns to the previous price following the trade; and
2. the bid price is raised or the ask price is lowered by an order which, at the time of entry, is the only order at that price and the order is cancelled prior to trading.

Some of the relevant considerations in determining whether a price is artificial are:

1. the prices of the preceding trades and succeeding trades;
2. the change in the last sale price, best ask price, or best bid price that results from the entry of the order on a marketplace:
3. the recent liquidity of the security;
4. the time the order is entered, and any instructions relevant to the time of entry of the order; and
5. whether CCML or the account involved in the order:
1. has any motivation to establish an artificial price, or
2. represents substantially all of the orders entered or executed for the purchase or sale of the security.

In accordance with Part 1 of UMIR Policy 2.2, if a person knows or ought reasonably to know that he or she is engaging or participating in these or similar types of manipulative or deceptive activities, he or she may be found in breach of UMIR 2.2, irrespective of whether the activity in question results in a false or misleading appearance of trading activity or interest in the purchase or sale of a security, or any artificial ask price, bid price, or sale price for a security or a related security.

1. Frontrunning

    CCML shall not buy or sell any security for any account in anticipation of a price change resulting from a contemplated or pending block transaction in the security for another account. Knowledge of a contemplated or pending block account transaction may be considered material nonpublic information regarding the relevant security.

Employees must disclose through the following Google Form each account they hold for trading any digital asset that is offered by CCML: 

https://docs.google.com/forms/d/e/1FAIpQLScGsMPTNUiqQThecdZPd3OOXFM0fW-IeSTy9pecXOhrU4Z0EQ/viewform?usp=pp_url

Prior to executing a transaction in any digital asset that is offered by CCML, employees must get pre-approval from the Compliance Department using the following Google Form:

https://docs.google.com/forms/d/e/1FAIpQLSe4MvFpoRum2UXsEKpBhlGH3oO9xsE12PTaxlstyLD30Q6lkQ/viewform?usp=pp_url

    For additional details on the requirements for account disclosure and pre-clearance of employee trades, please refer to the Employee Trading Policy.

Employees are advised as to what constitutes frontrunning and are advised on a regular basis (at least annually) of the prohibition against trading on the knowledge of digital assets transactions ahead of the execution of orders in such digital assets. Employees are also advised that sharing the knowledge of such a potential trade with anyone who does not have a “need to know” is also a frontrunning violation.

1. Improper Use of Client Funds or Digital Assets

    CCML shall not make any improper use of a client’s digital assets or funds, including any business conduct that would be unbecoming or contrary to just and equitable principles of trade (in violation of IIROC Rule 1402).

1. Disciplinary Action and Enhanced Supervision

Engaging in any prohibited activity, or causing the Firm to engage in any prohibited activity, may result in disciplinary action against the relevant employee(s), up to and including sanctions on trading or termination from CCML and reporting of the prohibited activities to IIROC and, if appropriate, provincial securities regulatory authorities.

In addition, CCML will conduct enhanced supervision of trading by registered employees who have had a history of questionable conduct. Evidence of such conduct can include trading activity that frequently raises questions in account reviews, frequent or serious client complaints, regulatory investigations, or failure to take appropriate remedial action on account problems identified.

1. Vulnerable Clients, Client Exploitation and Trusted Contact Person (TCP): 

CCML, as an Order Execution Only (“OEO”) firm, does not assign specific IRs to specific clients and, therefore, IRs do not maintain a close relationship with any clients. However, as a means of safety, CCML offers clients the option to provide a Trusted Contact Person (“TCP”) should their trading activity or requests appear to be out of character. In that instance, the IR shall contact the CCO to review the proposed activity, and if deemed warranted, may temporarily freeze the account from further any activity until the IR reaches the TCP to get assurances that everything is in order with the client. If the TCP cannot confirm everything is in order, then the latter will be referred to Legal as to next steps as this can become a legal matter.

Like all IIROC dealer clients, CCML clients can be subject to exploitation. Should CCML  have actual knowledge or a reasonable suspicion that exploitation is happening, the CS representative or IR will refer the matter to a fraud investigator, who will ask appropriate questions to determine if there is a potential fraud or con. The account can be frozen temporarily, e.g., until it is determined that no explanation, fraud, or other wrongful conduct is occurring; if it is, CCML will promptly inform the client. If the client insists on executing the transaction that triggered the review, but the transaction is ultimately found to be fraudulent, CCML will report this accordingly to regulators and contact the dealer or financial institution from where the funds came originally to determine if they may need to investigate as well.

CCML reserves the right to disallow withdrawals of digital assets to private wallets if they suspect the client is a possible fraud target. New clients over 60 years old will have such withdrawals suspended, unless they provide assurances to CCML that they are not being coached and they know the digital wallet destination, and thus would not be scammed.

1. Monthly Review of Client Statements

    On a monthly basis, the Supervisor will conduct “First-Tier” reviews of client account statements and shall select certain accounts for a “Second-Tier” review, in accordance with IIROC Rule 3945 and IIROC Guidance Note GN-3900-20-001, Account Supervision Guidance (Oct. 14, 2021). An electronic log or audit trail of such reviews will be maintained, noting the accounts examined, any problems discovered, and the resolution of any investigations surrounding any irregularities identified. While conducting such reviews, the Supervisor will examine client accounts for, among other areas of concern: 

• manipulative and deceptive activities (in violation of UMIR 2.2), including any manipulative or deceptive method, act, or practice or any false or misleading appearance of trading activity or artificial price (see UMIR Policy 2.2);
• frontrunning (in violation of UMIR 4.1) or trading that involves any conflict of interest with a CCML client;
• parking digital assets;
• account number changes;
• unauthorized transactions or any other improper employee trading;
• excessively large positions in proportion to the account size or other high-risk trading strategies;
• substantial trading profits or losses;
• unusual or excessive transactions, including trades or trade cancellations; 
• the “specific unacceptable activities” described in subsections (2)(b), (2)(c) and (3) of UMIR 2.1;
• insider trading, based on information collected at account opening regarding any ability the client has to materially influence the price or supply of any digital asset(s) available for trading through CCML, and ongoing monitoring of that client’s account for suspicious trading in that (those) particular digital asset(s); and 
• any other trading-related action or omission that is contrary to just and equitable principles of trade (in violation of IIROC Rule 1402) or is otherwise improper.

Please note that CCML has determined that the following potential areas of concern listed in UMIR 2.1 and/or IIROC Rule 3945 are not relevant to CCML’s business, and therefore no policy or procedure for the detection of such areas is necessary:

• transactions for the purpose of rectifying a failure in connection with a failed trade prior to the time that a report must be filed in accordance with UMIR Rule 7.10 if the client knows or ought reasonably to know that such transaction will result in a failed trade;
• trading of a security on a marketplace that is subject to Marketplace Trading Obligations (as defined in UMIR 1.1);
• quality downgrading of client holdings;
• excessive or improper crosses of digital assets between clients; and
• concentration of speculative digital assets;

As part of the account review, the Supervisor will discuss any accounts flagged for follow-up (“Second-Tier”) review with the registered employee of record, if any, and, when appropriate, the Supervisor will review the new account form to ascertain whether the account has any unusual investments or excessive activity in light of the client’s “Know-Your-Client” information. The Supervisor will utilize professional judgment as to when to contact the client directly to verify the activity in the account or update the new account form.

At a minimum, every “First-Tier” monthly review should encompass (1) the activity of all clients charged gross commissions or fees of $1,500 or more for the month, and (2) all non-client accounts showing any activity other than receipt or payment of interest. 

At a minimum, every “Second-Tier” monthly review should encompass (1) allaccounts of clients charged more than $3,000 in commissions or fees during the month and (2) all client and non-client accounts for which more than $1,500 in commissions or fees was charged during the month and which were not already subjected to a “First-Tier” review.

All monthly reviews should be completed within 21 business days of the period covered, unless precluded by unusual circumstances.

1. Review of CCML Employee Trading Activity

CCML employees shall provide disclosure of all their accounts,  including those at CCML and any other Digital Asset trading  platform via a Google Form (referred to as the “Personal Account Disclosure of Accounts” or “PADA”):

https://docs.google.com/forms/d/e/1FAIpQLScGsMPTNUiqQThecdZPd3OOXFM0fW-IeSTy9pecXOhrU4Z0EQ/viewform?usp=pp_url

Filling out the PADA will populate the Google Sheet maintained by the Compliance Department.  

Employees shall also provide duplicate trade confirmations and monthly account statements for every account, either personally or by requesting that the Digital Asset trading platform deliver the  documents directly to CCML Compliance, if possible. Employees will also pre-clear all trades with Compliance via the  following Google Form:

https://docs.google.com/forms/d/e/1FAIpQLSe4MvFpoRum2UXsEKpBhlGH3oO9xsE12PTaxlstyLD30Q6lkQ/viewform?usp=pp_url

These processes are spelled out in greater detail in the standalone Employee Trading  Policy.

1. Review of Daily Blotter on Metabase

1. Contents of Daily Blotter on Metabase

CCML uses a cloud-based suite of dealer supervision reports found here: http://metbase-035-873819259.ca-central-1.elb.amazonaws.com/collection/184

These daily reports are as follows:

• Daily Transactions Blotter
• Average Daily Volume
• Dealer Supervision Alert Log
• Double Printing
• Flooding
• Front Running
• High Frequency Trading
• Large Orders
• Large Trades
• Layering 
• Order Handling
• Promoter Check
• Ramping
• Spoofing
• Spread Review
• Wash Trading

 For every transaction executed through CCML, the Firm will create a trade blotter reflecting, at a minimum, the following information:

• the terms and conditions of the order or instructions, and any modification or cancellation thereof;
• the account number or other identifier for the account for which the order was entered;
• the employee, if any, responsible for the account, or who entered or accepted the order on behalf of the client;
• the time of execution or cancellation; 
• the time the order was received and, if the same as the time of entry (i.e., the time when the order was transmitted for execution), a notation to that effect, or, if different, the exact time of entry;
• the price at which the order was executed.

1. Daily Review of Blotter for Activity

    The Supervisor will promptly (by the next business day) conduct a “First-Tier” review of all digital asset transactions and shall select certain accounts for a “Second-Tier” review, in accordance with IIROC Rule 3945 and IIROC Guidance Note GN-3900-20-001, Account Supervision Guidance (Oct. 14, 2021).

 In carrying out a “First-Tier” daily review, the Supervisor will review the blotter described in section 9.A above for the same areas of concern set forth in section 7 above. 

At a minimum, every “Second-Tier” daily review will cover the following:

• trades with a value over $20,000;
• non-client trading;
• trade cancellations;
• trading in restricted accounts;
• trading in suspense accounts; and
• account number changes.

Daily reviews shall be completed no later than the first business day following the activity, unless precluded by unusual circumstances. Trades occurring on Friday, Saturday and Sunday shall be reviewed on Monday. CCML shall maintain an audit trail of all supervisory reviews described above here:

https://docs.google.com/spreadsheets/d/1n1ozx2V7qB-OxxDSItsSbcUWKTJ7drPLSEhEdWi6TcM/edit#gid=0

1. Quarterly Review of Daily Reviews of Blotter

    On a quarterly basis, the CCO or their delegate will review a sample of the Supervisor’s daily reviews against the daily trade blotter provided by the Metbase to ensure that the Supervisor’s daily reviews are being conducted effectively and appropriately, and the CCO or delegate shall evidence this review in writing. Quarterly review results are  found here:

https://docs.google.com/spreadsheets/d/1n1ozx2V7qB-OxxDSItsSbcUWKTJ7drPLSEhEdWi6TcM/edit#gid=0

1. Vigilance and Escalation

    The Supervisor is required to exercise vigilance whenever an indication of irregularity reaches his or her attention, and to bring questionable activities to the attention of the CCO. The Supervisor may elevate any questionable situation to the attention of the CCO and/or the UDP, as necessary.

1. Gatekeeper Obligations

1. Internal Reporting

Pursuant to UMIR 10.16(1), directors, officers, and employees of CCML are required to immediately report to their Supervisor or to the CCO if they become aware of activity in a principal, non-client, or client account of CCML or a related entity, which they believe may be in violation of any exchange requirements, securities laws or any of the following IIROC Rules:

1. UMIR 2.1(1) respecting specific unacceptable activities;
2. UMIR 2.2 respecting manipulative and deceptive activities;
3. UMIR 2.3 respecting improper orders and trades;
4. UMIR 4.1 respecting frontrunning;
5. IIROC Rule 3120 respecting best execution of client orders;
6. UMIR 5.3 respecting client priority;
7. UMIR 6.4 respecting trades to be on a marketplace; and
8. Any other requirement designated by IIROC for purposes of UMIR 10.16(1).

1. Procedure

Pursuant to UMIR 10.16(3) and (4), it is the responsibility of the Supervisor and/or the CCO to promptly review any matter escalated, discovered, or otherwise reported in accordance with section 10.A of this Policy. Prior to concluding the review, the Supervisor should consult with the CCO to provide a summary of the significant facts and intended resolution, if any.

With respect to errors involving order markers, in accordance with UMIR 6.2, error corrections are provided by CCML to IIROC in the form and manner, prescribed by IIROC, which shall be (until otherwise directed by IIROC) by submitting a spreadsheet to IIROC Market Surveillance (surveillance@iiroc.ca) containing data elements for the errors similar to those that would be required for an error correction reported via the IIROC Regulatory Marker Correction System (“RMCS”). The RMCS will be reported in via the spreadsheet found here:

https://docs.google.com/spreadsheets/d/1al4EQGoxtUahec1RjxFA_TdT0C-nc41nl5e7v8Y2v4c/edit#gid=0

If the review concludes that there is a violation of one of the rules listed in section 10.A above, the Supervisor or CCO shall make a written record of the report, review, investigation and findings of the investigation, and report the findings of the investigation to the Market Regulator (i.e., IIROC). Such a report shall be provided to IIROC no later than the 15th day of the month following the month in which the findings were made

The Supervisor or CCO should also consider whether further action is required. Such actions may include cancellation of the trade in question; increased supervision of the employee(s) or business activity involved; internal disciplinary measures of the employee(s); or reporting the violation to provincial securities authorities or other regulatory organizations.

1. Record Keeping

In accordance with UMIR 10.16(5) (and consistent with CCML’s Record-keeping Procedures), a written record of the report, the review, and the findings described above must be retained by CCML for a period of not less than seven years from the creation of the record. The investigation log shall be stored with the related RMCS spreadsheet:

https://docs.google.com/spreadsheets/d/1al4EQGoxtUahec1RjxFA_TdT0C-nc41nl5e7v8Y2v4c/edit#gid=0

1. Death of a Client

All pending orders of a client should be canceled upon notification of death. CCML employees should not take any further action until the Firm receives instructions from the administrator or executor of the estate, along with proof of his/her authority to act on behalf of the estate. Questions as to required documentation of a deceased client should be referred to the Legal Department.

1. Joint Tenant with Right of Survivorship

    The surviving joint tenant must present a death certificate before the digital assets or funds can be released. Upon presentation of the death certificate, the surviving joint tenant may be considered as the sole owner of the account.

1. Tenants in Common

Digital assets or funds should not be released from the account unless instructions from the surviving joint tenant and the executor or administrator of the decedent’s estate are obtained.

1. Partnership Account

    When a partner dies, it is necessary to obtain supplemental authorization from the surviving partners before executing any further orders through the partnership’s account.

1. Power of Attorney

    The death of a client terminates any power of attorney as a matter of law, regardless of whether the individual holding the power of attorney was aware of the death or not.

1. Unacceptable Accounts

CCML reserves the right to refuse to accept any new account. It is the policy of the Firm not to accept the following accounts:

• minors acting in their own capacity;
• persons determined to be mentally or legally incompetent, unless a valid power-of-attorney or other authorization was validly entered into prior to the onset of the mental or legal incompetence; 
• employees of another securities dealer, unless prior written approval is obtained from such other dealer; and
• any prospective new account that does not pass the “Account Appropriateness” assessment that CCML is required to perform under the exemptive relief Order granted to CCML by the Canadian Securities Administrators (the “CSA”). 

The CCO or supervisor reviewing new account documentation will enforce this policy. 

To ensure accuracy, and as is common with most online onboarding applications, CCML’s onboarding workflow is designed to allow prospective clients to carefully review and edit their answers while they are still in the onboarding flow, before they submit the application.  If a prospective client completes the appropriateness assessment questions, and the client’s responses determine that the client is to be appropriate to trade on the platform, and then exits the onboarding flow, their answers can only be changed by contacting the CCML Customer Success team. Where a prospective client completes the appropriateness assessment questions and is deemed not to be appropriate to trade on the platform, regardless of the reason, CCML will provide the client with such notification as well as certain curated educational links. These educational links will be compiled from third-party sources and will provide general information aimed at giving users a high-level understanding of crypto assets and crypto trading.  After having at least 24 hours to have an opportunity to read these articles, and other articles the client may find,  such clients may adjust their appropriateness assessment answers regarding knowledge/experience, income, assets, and ability to evaluate the suitability of their investments.  If a prospective client is prevented from opening an account because they cannot do their own research and evaluate the suitability of their investments, such client may contact the CCML Customer Success team who will explain that CCML operates a self-directed, suitability-exempt, Order Execution Only (OEO) platform. Consequently, to operate an OEO account, and to use it, the prospective client must be able to assess their own suitability.  In this situation, after speaking with the CCML Customer Success representative about the nature of the platform, the prospective client could initiate a change to their answer after 1 hour. The client’s self-assessed risk tolerance factor is a purely personal and subjective concept and should be available to change at the will and direction of the client. 

Regardless of having educated themselves, prospective clients will not be accepted onto CCML’s platform if they: 

• do not believe they can do their own research or evaluate the suitability of their investments or  
• have low risk tolerance or
• have zero or negative net assets and no income.

Should a prospective client be determined to be inappropriate for a CCML account, such client will be able to redo the appropriateness assessment after:

1. They have been provided with links to educational materials and
2. The predetermined amount of time (as specified above) has elapsed. 

1. Trade Errors and Error Account

1. General Requirements

If CCML must take a position in a digital asset as a result of any trading error, CCML will utilize an “error account” to facilitate the correction of the error and unwind the position in order to provide a verifiable audit trail. If CCML has made an error in the trading of a client order, the Firm generally will be obliged to take a position in the digital asset within the error account. Once the position has been transferred to the error account, CCML shall:

1. unwind the position, by executing a trade as Principal (i.e., through the inventory account) in the market or against a liquidity provider at the prevailing price, then ticketing to the client the correct transaction at the prevailing price at the time of the client order, with any profit and loss (“P&L”) reflected on the books of CCML, or 
2. retain the position, by transferring the digital asset to an inventory account.

Generally, an erroneous trade occurs when a client order is missed, or is executed with one or more details of the execution contrary to the client’s original instructions.

Any client trading errors resulting in a realized profit or loss greater than $2,000 CAD shall be reported promptly to the Supervisor. All errors shall be submitted to compliance using the following Google Form: 

https://docs.google.com/forms/d/e/1FAIpQLScYOx0SkxKm837rjeos0t4CY1T8cDHihS9837sImO6W1_EmaA/viewform?usp=pp_url

The accurate and timely reporting of erroneous trades is the responsibility of the individual trader(s) involved. Upon being notified of the trading error, the Supervisor (or delegate) and/or the trader must follow the following review procedures:

1. thoroughly investigate the circumstances of the error; 
2. clearly document the error;
3. provide a detailed narrative describing the circumstances surrounding the error, including information relating to any “close-out” transaction; 
4. ensure that the Supervisor formally acknowledges the error in writing; and
5. retain documentation evidencing all aspects of the review procedures described above. 

All errors are to be flattened/corrected in a timely fashion in order to minimize market risk. Trading personnel are required to follow the instructions of the Supervisor, if any, with respect to how they are to exit their position.

All such errors will run through a dedicated error account for audit purposes.

CCML will retain a written record of all errors, regardless of dollar amount. CCML uses a Google Form to capture all errors related to client accounts. The data will populate a Google Sheet maintained by the Finance Department, which will be reviewed by the CCML Risk Committee (including the CCO and CFO) on a monthly basis; the CCO and CFO (or their delegates), in particular, shall monitor the monthly report and/or the information obtained via the Google Form for any trends or other “red flags” of potentially improper trading activities.

1. Trade Error involving Non-Client Order

Any erroneous transaction that is not related to a client order should be immediately disclosed to the Supervisor.

1. Errors Involving Order Marker

All order marker corrections need to be reported to IIROC. Unless directed otherwise by IIROC staff, following the discovery of any order marker error(s), CCML will promptly submit a spreadsheet to IIROC Market Surveillance for IIROC approval (surveillance@iiroc.ca) containing data elements for the error(s) similar to those that would be required in a report filed to the RMCS. 

The CCML Google Form for error tracking requires the following information: 

(1) CCML employee name;

(2) trade details;

(3) P&L;

(4) cause of error;

(5) remediation steps; and 

(6) any further steps to prevent future errors.

The Google Form is available here:

https://docs.google.com/forms/d/e/1FAIpQLScYOx0SkxKm837rjeos0t4CY1T8cDHihS9837sImO6W1_EmaA/viewform?usp=pp_url

Compliance shall submit the corrections to IIROC via an email submission with the elements captured in the following Google Sheet: 

https://docs.google.com/spreadsheets/d/1al4EQGoxtUahec1RjxFA_TdT0C-nc41nl5e7v8Y2v4c/edit#gid=0

Please contact the Supervisor or the CCO in connection with reporting an order marker correction to IIROC.

1. Noncompliance

CCML considers the reporting of trade errors very important and will take appropriate disciplinary action in the event that this policy (and the related processes) is circumvented.

1. Best Execution

CCML adheres to the following policies and procedures to achieve “best execution” in compliance with IIROC Rules 3119 to 3129 (as applicable):

1. CS Trade (CSX)

  When the CS Trade application (the “App”) receives a request to trade an asset/currency or asset/asset pair from a client, it provides an estimated rate for the pair. If the client then requests a quote (for an exact order amount), the app obtains a quote for the pair, direction, and exact amount from the CS Trade bot (“Flourish Trader”). Flourish Trader uses the Talos execution management system (“EMS”) to observe market prices and formulate the best price available for the client at that moment, which it arrives at by calculating an estimated cost for CCML to execute the trade, based on aggregated price and liquidity from our Liquidity Partners (as defined in the Liquidity Partner and Reference Price Provider Selection Policy), to which it adds a spread within the range disclosed to the client. The client either disagrees with the quote and no action is taken, or accepts the quote, which results in the client balances for the trade being locked, and an order being sent to Flourish Trader for execution.

The quote is guaranteed for ten (10) seconds; provided the client accepts the quote within that 10-second period, the order will execute at the original quote. However, after 10 seconds, that original quote is stale and is immediately replaced by a new quote to the client. Flourish Trader will only provide a client with a quote within the target spread range of 50 bps (or 0.5%) to 250 bps (or 2.5%), as is disclosed to clients in the “Best Execution Disclosure.” (See Appendix A, under the heading “How Coinsquare Establishes a Quote for CS Trade”). An executed order is traded from the Flourish Trader bot’s inventory and the App performs immediate trade reconciliation to fund the trade. Flourish Trader monitors its positions and reduces them subject to pre-configured hedging rules.

1. CS Pro (CSX)

When CS Pro is used, client orders are routed to the CCML ATS. Transaction fees charged to the client are disclosed to clients in the CCML Fee Schedule, which is referenced in other documents; fees are also disclosed in trade confirmations. 

1. CCML OTC Desk (CSX)

Clients can request a quote from the CCML OTC trading desk via phone, text message (SMS), instant chat, or WhatsApp. Through third-party vendors, strictly to review any possible client miscommunications, CCML collects and retains for 30 days:

• audio recordings of all phone calls made or received via OTC trading desk work phones; and 
• all text messages and instant chats of the OTC trading desk. 

There is no prescriptive regulatory obligation in Canada to retain phone call recordings, so they are not retained for regulatory purposes.

When a quote is requested, the responsible trader must verify the client by querying and confirming the asset/fiat balance(s) in the account.  Account balances are also used to verify that the client has the requisite assets and/or fiat in their account to complete the requested trade. The OTC desk uses the EMS to calculate an estimated cost to execute the trade based on aggregated prices and liquidity from our Liquidity Partners, then adds a spread, and provides an all-in quote to the client. The desk reserves the right to withdraw and provide a fresh  quote at any time based on changes in the market and/or liquidity. Once the client accepts the last given live quote, this creates a binding execution between the OTC desk and the client. Where possible, the OTC desk immediately hedges the resulting principal position and trade details of both the client-principal trade and the hedging trade are submitted to CSX for trade reconciliation. No additional transaction fees are charged to the client, as disclosed to clients in the CCML Fee Schedule.

The graphic on the following page illustrates the processes described in sections 14.A through 14.C above:

1. Fair Pricing on Principal Transactions with Clients

The following section describes the operating procedures as relates to fair pricing on CS Trade principal transactions against client orders.

 CCML will record a benchmark price for each transaction and review the variance between the traded price and the benchmark price for all automated (CS Trade) principal transactions as part of the CCML fair price review using the Metbase spread exception report, which looks for any spreads above 250 bps. The Compliance Department will have the responsibility to review, investigate, and retain documentation for any OTC Desk and CS Trade transactions where the executed price with the client is 250 bps away from the benchmark price at the time of the transaction.

1. Client Requested Exceptions in Volatile Periods

CCML maintains a spread range of  50 to 250 bps. However, if the volatility is extreme, and CCML cannot maintain a quote in that spread range, then CCML may stop providing quotes to clients. If a client insists, in writing, on a quote, even at a less favourable price to ensure execution, CCML could make an exception based on the client’s written request. This request must be sent to the Compliance Department for its records prior to execution.

CCML shall provide clients with a means to read and accept the terms in these exceptional periods, and allow for client orders to thus be processed in time priority. 

Further, if (a) CCML experiences network or hosting issues, (b) the trading bots experience a malfunction, (c) CCML loses the ability to hedge with its trading counterparties,  (d) CCML loses access to its Talos EMS, and/or (e) any kind of risk or loss threshold is breached, CCML may stop providing quotes and filling orders on CS Trade and/or withdraw orders from the ATS.

1. CCML Benchmark Pricing for Trading on the ATS

CCML as an IIROC dealer trades as principal on its ATS to provide liquidity. In doing so, CCML will take the benchmark price in order to ensure orders are not sent too far off the benchmark at the time of order submission.

CCML uses a third-party system called Talos, which aggregates third-party quotes from various liquidity sources to arrive at a price for particular digital assets, which CCML uses as a global pricing benchmark.

CCML’s trading bot uses this benchmark to price principal orders displayed to various counterparties in the ATS. The orders are priced to make a profit that sufficiently compensates CCML for the risk of its principal trading activities.

CCML agrees to configure its bot so that by Q4, 2022 it will price its principal orders at values that are no more than 20% inferior to the benchmark price at the time of pricing. CCML will review the impact of this pricing approach and may adjust it in light of experience in consultation with IIROC or in unusual circumstances.

For example, if the fair price benchmark is $1.00 per digital asset, CCML’s trading bot will place principal buy orders at no less than $0.80 and sell orders at no more than $1.20.

CCML’s Compliance Department will create an exception report by Q4 2022 to monitor principal orders placed to ensure that at the time of placement, the orders are within the threshold price from the fair price benchmark.

Benchmark Price Requirements:

1. CCML will record a benchmark price for each client quote at the time of (a) the display of the original quote to the client, provided the quote has been confirmed by the client within the first ten (10) seconds of being displayed, or (b) execution of the client’s order where the quote is confirmed by the client more than ten (10) seconds after being displayed. The record of the benchmark price will include a tag that indicates the source of that price, plus the spread.

2. In the case of a reference price being provided by an aggregator of marketplace data (e.g., Talos), the reference rate provider will be marked as the aggregator itself, and not any of the underlying venues from which the aggregated prices are composed.

3. The reference rate includes an estimated execution spread range provided by the liquidity providers that would be paid by CCML, where applicable. 

4. In the case of asset pairs for which there is no quoted price, the price benchmark will be recorded as a calculated price, as well as two “leg” prices which represent the prices used to calculate the price benchmark. The legs will have their source pair and source venue recorded as well. 

5. Where the requested quote amount exceeds the top of book in the reference price feed, the price quoted to the client is derived from actionable and available trade liquidity at multiple price levels (i.e., beyond the top-of-book price). The reference rate stored will reflect the expected total cost of execution for the quote size, including the estimated cost of accessing liquidity deeper than the top-of-book volume-weighted average prices expected on the fill, based on sweeping multiple levels of one or several venues.

6. CCML will retain the benchmark price, along with the client execution data, in a spread execution exemption report retained for at least seven years. The backup, Recovery Time Objective (“RTO”), and Recovery Point Objective (“RPO”) of the underlying database to comply with this data retention policy is the responsibility of the CCML DevOps team. The RTO is defined as the max acceptable time for the system to be unavailable during a disaster (i.e., loss of hosting site). The RPO is defined as once that disaster happens, what is the acceptable state to recover to, and in particular, the acceptable data loss prior to the disaster.

1. Review of Best Execution Policies and Procedures

The CCO will conduct a review of the “Best Execution” policies and procedures set out in this section 14 and will revise them or any part thereof, as appropriate, on at least an annual basis, or more frequently, including whenever:

• a valid client complaint related to best execution is received; 
• a potential issue as to best execution is identified by CCML personnel; or
• there is a material change to the trading environment or market structure that may impact CCML’s ability to achieve best execution for its clients.

For all principal (CS Trade and OTC) transactions, the historical data retained for fair-pricing reviews (see section 14.F above) will be used to generate an exception report, which the CCO shall rely on to determine whether any concerning patterns are evident. Where any such pattern is identified, further analysis will be conducted to determine the possible cause, and remedial action will be taken (e.g., system changes) to correct or mitigate any issue(s) identified.

For all agency (CS Pro) transactions, the CCML ATS system will be tested to confirm that it is working as intended. Where this is not the case, remedial action will be taken (e.g., system changes) to correct any issue(s) identified.

CCML uses a Trade Cost Analytics third-party report by Talos to review various  factors, such as fill rates, hedging destinations, volume, and fees. Separately, the Compliance Department reviews the spread report to  ensure clients are getting a fair price based on the benchmark prices from the  various non-Canadian destinations used for quotes. 

The CCO will deliver to the Board an “Annual Best Execution Report” detailing the process conducted, any findings, and any remedial action taken. The Board, in consultation with the CCO, will assess whether the Best Execution policies and procedures are effective and whether any changes are required.

CCML will retain all reviews, as well as any material decisions and/or changes made to these policies and procedures, for at least seven years. 

1. Disclosure

A summary of the policies and procedures set out in this section 14 will be clearly disclosed on the CCML website, and such disclosure must be reviewed and updated on an annual basis or more frequently as necessary.

Any change made to the public disclosure posted to the CCML website must be identified within the public disclosure itself and maintained there for a period of 6 months after the change has been made.

See Appendix A for the current “Best Execution Disclosure.”

1. Client Priority

1. General

Pursuant to UMIR 5.3(1), CCML must provide execution priority to client orders over principal and non-client orders. As such, CCML’s trading personnel shall refrain from manually entering any principal or non-client order where the trader knows or reasonably ought to know that the order will execute (or has a reasonable likelihood of executing) in priority to a client order for the same digital asset that is (a) at the same price or a lower price than the client order, in the case of a purchase, or the same or a higher price than the client order in the case of a sale and (b) on the same side as the client order. 

1. CCML Market Making 

CCML engages in market-making trading, which is a form of proprietary or principal trading, using CCML capital and putting CCML capital at risk, and sometimes providing liquidity, without any formal obligation to provide liquidity, on the CCML ATS. Refer to section 24 below on Market Making Trading Procedures. Such orders are permissible under the exception to client priority set forth in UMIR 5.3(2)(b)(ii), which permits CCML not to give client order priority where the principal order is “automatically generated by a system operated by [CCML] […] based on pre-determined order and trading parameters established, programmed, and enabled for trading prior to the receipt of the client order”. The market-making principal orders generated by CCML in accordance with the procedures described in section 24 below meet this requirement; as such they may incidentally execute in priority to client orders for the same digital asset at the same (or a better) price and on the same side, although they are not purposely designed to do so.   

CCML will use its Legal Entity Identifier (“LEI”) on its ATS for IIROC to identify orders traded as Inventory or Principal (marked as “IN”) on its ATS.

1. No Suitability Determination

Similar to other IIROC OEO firms, CCML does not make any recommendations to clients regarding specific digital assets, nor does it provide any order-by-order suitability determinations for its clients. However, CCML is required by the CSA and IIROC to conduct an assessment of account appropriateness, as described below in this section 16. In cases where an account for digital assets may not be appropriate for a particular client based upon such assessment, CCML reserves the right to not onboard a client.

The test for account appropriateness will be determined at the client onboarding stage, and opening an account for digital assets will be deemed not to be appropriate for an individual who indicates that they:

• have no knowledge of or experience with digital assets and the risks involved; 
• cannot perform their own research and evaluate the suitability of any investments they may make; 
• have a low risk tolerance for losses; or 
• have negative net assets and no income.

CCML will provide links to educational materials/resources regarding digital assets to such individuals. Should the individual choose to educate themselves and re-apply after having done their homework and deepened their understanding of digital assets, CCML will re-assess whether it is appropriate to open the account at that point.

Furthermore, CCML does not offer any investment tools, such as interactive charting, which could be misconstrued as providing clients with the means to make an investment decision. 

The Compliance Department reviews electronic communications, which are captured in Global Relay, to ensure CCML staff do not provide investment advice. Any instances will be flagged, reviewed, and addressed with a Supervisor, and appropriate disciplinary or other action will then be taken. 

There are limited phone conversations on the OTC desk that are recorded via Dialpad; these recordings will be reviewed monthly by the Compliance Department. CCML will not keep the recordings, but the Compliance Department will note (keep a written record of) the details of what was reviewed: Date, Time, CCML rep, Client, Trade, Discussion Points, Was there a recommendation made?

1. Investment Limits (applicable in all CSA jurisdictions except Alberta, British Columbia, Manitoba and Quebec)

At present, there are four digital assets for which there are no investment limits: Bitcoin; Bitcoin Cash; Ethereum; and Litecoin.

For all other Digital Assets, CCML will apply investment limits to clients based upon their classification into one of three possible account profiles, as defined in CCML’s exemptive relief Order granted by the CSA. The following associated limits on net purchases of digital assets in a 12-month period will apply:

1. Accredited Crypto Investors: No investment limits.
2. Eligible Crypto Investors: Limit of $100,000 in net purchases in a 12-month period.
3. All Other Investors: Limit of $30,000 in net purchases in a 12-month period.

Clients will be informed of the limit that applies to their account(s) at account opening and can apply to have their account profile revised should their circumstances change in the future.

Accredited Crypto Investors

Clients who are sophisticated, have significant experience and assets, and a high risk tolerance, may be deemed to be accredited investors, and thus will not have any investment limits ascribed to their OEO account.

Accredited Crypto Investors Clients who fit the CSA’s definition of “Accredited Crypto Investor”, which is mirrored on the definition of “Accredited Crypto Investor” in NI 45-106, will not have any investment limits ascribed to their OEO account. The clients provide the data which CCML will use to determine their status as an “Accredited Crypto Investor”. But CCML will not externally or independently verify this information provided by the client.

Client Limits (applicable in all CSA jurisdictions):

CCML will monitor all unrealized gains and losses (client limits) in all client accounts and, when it becomes aware of any unrealized loss that reaches or breaches a certain client limit threshold in a client’s account(s), CCML shall promptly inform the client, via email, of the loss limit threshold having been reached or breached with the following message:

“IMPORTANT CLIENT ACCOUNT LIMIT NOTIFICATION:  Please be advised that, based on current market value, versus your Average Cost Base (ACB), you have lost X% or more of your aggregate investments in crypto assets.  If you wish to take any action, please log into your Coinsquare account at https://coinsquare.com/”. 

Nevertheless, the client always bears the full responsibility to monitor their Order Execution Only (OEO) account(s) which are suitability exempt, and to make their own investment decisions, and CCML, as an OEO dealer, cannot make any trading recommendations.

The client limit is based on the average cost base (“ACB”) of all assets held by the client, determined by executions at CCML and the value of digital assets brought into the client’s CCML account(s) (if any) at that time. The client warning threshold table is as follows:

Warning at 70% loss of ACB for clients with:

• excellent experience / knowledge, and 
• high risk tolerance

Warning at 50% loss of ACB for clients with:

• good experience / knowledge, or
• medium risk tolerance

Warning at 30% loss of ACB for clients with:

• poor experience / knowledge 

The following table summarizes the application of account appropriateness and loss limits:

1. No Credit 

All CCML accounts operate on a “fully funded” basis. CCML does not loan fiat or digital assets, nor does it extend margin or any other form of credit to clients under any circumstances.

1. System Access and Security of Terminals

CCML will safeguard access to sensitive order systems by limiting physical access to the hardware on which the systems reside and by allowing access to those systems only with password‐protected entry. All trading personnel will take reasonable steps to prevent access by unauthorized personnel. The CCO will maintain a blotter of user ID’s and limit system access to only those who have a business reason for access.

1. Time Synchronization

UMIR 10.14 (Synchronization of Clocks) requires that every securities dealer synchronize the clocks used for recording the time and date of any event that must be recorded pursuant to UMIR to the clock used by the Market Regulator.

CCML shall use Coordinated Universal Time (“UTC”) administered and offered by the National Research Council (“NRC”) or UTC as administered and offered by any other recognized contributor to UTC, as the common reference time for synchronization purposes. CCML’s monitoring tools check CCML servers every 60 seconds and provide alerts to the network monitoring team if there is any significant time drift.

Clock times may differ from the common reference time. These drifts, in part, are due to system delays during load handling, general network delays, and network delays specific to time synchronization processes. To ensure that systems clocks do not drift more than +/- 50 milliseconds from UTC, CCML will conduct daily synchronization utilizing Network time protocol (“NTP”) offered through NRC.

More information on NTP can be obtained through the website of the NRC at:

https://www.nrc-cnrc.gc.ca/eng/services/time/network_time.html  

Under NTP, the default setting is to check every 1,024 seconds and then automatically adjust the system time if a variance with the NRC’s Cesium Clock is detected. Based on information provided by the NRC, continual adjustment should provide accuracy to within a few milliseconds.

CCML will receive and monitor alerts regarding any issues relating to clock synchronization, and any such issues will be escalated to senior management for resolution. For any time drifts that are detected to be beyond the allowable drift levels, CCML will provide immediate written notice to IIROC Surveillance (by email to surveillance@iiroc.ca) with a full incident report.

1. Authorized Communications from Clients

    In relying on clients’ informed consents and acknowledgments, CCML will verify with reasonable assurance that electronic communications delivered from clients are authentic.  The Firm will only send electronic information to, and receive client acknowledgments from, the client’s account online and/or the client email address specified when the client supplied informed consent during the account opening process.

CCML shall ask clients if they wish to provide a Trusted Contact Person (“TCP”) upon account opening, should the client later seem to make uncharacteristic account activity.

The TCP is not mandatory, and if provided, CCML shall verify via email that the TCP understands their role.

The TCP does not provide any Power of Attorney over the account to place trades, make changes to the account, or withdraw funds.

If the TCP informs CCML that the client is exhibiting/experiencing a diminished capacity issue, the account shall be frozen and the Legal Department shall take steps to determine how to proceed. 

1. Change of Email Address

    If a client changes his or her email address, a written acknowledgment must be signed electronically, the same as if the client changed addresses.

1. Notice of Availability of Paper Copy

    For those clients who have consented to receive electronic delivery of information, the electronic mail will include the document or announce the availability of the document and where to access the document on the Firm’s web site.

1. Revocation of Consent

    If at any time the client contacts the Firm to revoke consent of electronic delivery, CCML will cease to deliver documents to the client electronically. The revocation must be given to the Firm at a reasonable time before electronic delivery has commenced. Verification by the CCO or another principal should be conducted to ensure that the information being delivered is complete, accurate and secure.

1. Trading Records

1. General

Part 11 of National Instrument 23-101, Trading Rules (“NI 23-101”) and UMIR 10.11 “Audit Trail Requirements”require CCML to keep certain order and execution details (also known as an “audit trail” data) for transactions conducted on its marketplace.

1. Recording Requirements for Receipt or Origination of an Order

Immediately following the receipt or origination of an order, CCML trading staff shall record specific information relating to that order including:

1. the order identifier;
2. CCML’s identifier;
3. the type, issuer, class, series, and symbol of the digital asset;
4. the face amount or unit price of the order, 
5. the number of digital assets (i.e., quantity);
6. the strike date and strike price, if applicable;
7. whether the order is a buy or sell order;
8. whether the order is a market or limit order, and if the order is not a market order, the price at which the order is to trade;
9. the date and time the order is first originated or received by CCML (e.g., a clearly legible time stamp);
10. whether the account is a retail, institutional, employee (non-client), proprietary (principal), or any other type of account;
11. the client account number or legal entity identifier, as applicable;
12. the date and time that the order expires;
13. whether the order is an intentional cross;
14. whether the order is a jitney order and if so, the underlying broker identifier;
15. any client instructions or consents respecting the handling or trading of the order, if applicable;
16. the currency of the order, or the digital asset in which the order price is defined in the case of asset/asset pairs;
17. an “insider” or “significant shareholder” marker, if applicable;
18. the identifier of the person who received the order;
19. any other markers required by UMIR 6.2(1)(b).

1. Recording Requirements for Variation, Correction or Cancellation of an Order

If a client requests an order change or cancellation, CCML shall comply, providing it does not breach any regulation. 

With respect to errors involving order markers, in  accordance with UMIR 6.2, error corrections are  provided in the form and manner set by IIROC, which  shall be (until otherwise directed by IIROC) by submitting a spreadsheet to IIROC Market Surveillance  (surveillance@iiroc.ca) containing data elements for the  errors similar to those that would be required for an error correction reported via RMCS. 

If the order change or cancellation is made at the behest of IIROC, this shall be complied with. Immediately following the variation, correction, or cancellation of an order, CCML shall add to the record of the order (maintained in accordance with this section 22) specific information relating to that order including:

1. the date and time the variation, correction, or cancellation was originated or received;
2. whether the order was varied, corrected, or cancelled on the instructions of the client or Coinsquare;
3. in the case of variation or correction, any of the information required by UMIR 6.2(1)(b) which has been changed; and
4. the date and time the variation, correction or cancellation of the order is entered.

1. Recording Requirements for Execution of an Order

Immediately following the execution of an order, CCML shall add to the record (maintained in accordance with this policy) specific information relating to that order, including:

1. CCML’s identifier (to reflect the marketplace where the trade was executed); 
2. the date and time of the execution of the order;
3. whether the order was fully or partially executed;
4. the number of digital assets bought or sold;
5. whether the transaction was a cross;
6. whether the dealer has executed the order as principal;
7. the commission charged and all other transaction fees; and
8. the price at which the order was executed, including mark-up or mark-down.

1. Transmittal of Order Information to a Market Regulator

In accordance with UMIR 10.11(2), for each order received, CCML shall transmit to IIROC, at the time and in such manner and form as may be required by IIROC, CCML’s identifier and the order designations required to be maintained by the Firm under UMIR 6.2(1)(b).

1. Non-exhaustive list of some examples of UMIR Order Markers

Note: 

All orders must be marked at the time of entry and, if an order marker error is made, the correction must be reported to llROC using a web-based regulatory marker correction form (RMCS). (See section 10.B above for details.) This requirement applies to all instances in which an order entered on a marketplace did not include the appropriate order designation as required by UMIR 6.2.

Corporate and institutional accounts should provide CCML with a Legal Entity Identifier (“LEI”), which shall get marked on the trades for these accounts. Retail accounts do NOT get an LEI, so their account number shall be included instead of an LEI.

1. Trade Disclosures

Disclosure of the following must be made to the client on each trade confirmation:

• that CCML has acted as principal or agent, as appropriate;
• that the price is inclusive of a spread ranging from 50 to 250 bps;
• the following statement: “May be an average price; details available upon request”; and
• all other details as required by applicable rules.

1. Digital Asset Fork Policy

The Firm has established a Digital Asset Fork Policy to provide details on how it manages the occurrence of a “fork” in a digital asset or “airdrop” of a digital asset, with the goal of ensuring the safety and security of its clients’ digital assets. The Firm has also established a Fork Review Committee (the “FRC”), composed of senior officers, to review and make decisions, in accordance with the Digital Asset Fork Policy, regarding “forks,” “airdrops,” and related matters on behalf of the Firm. The members of the FRC are as follows:

The Digital Asset Fork Policy is available online at www.coinsquare.com, and a copy of it is provided to each new client at account opening.

1. Market Making Trading Procedures

The following section describes the operating procedures of the automated market maker bot (the “Bot”) that provides the market making and liquidity operations of the CCML investment dealer. The Bot is maintained and managed by the Coinsquare Automated Trading Strategies team (“CATS”). 

1. Objectives

The Bot has the following objectives:

1. Extract trading profit: The net result of market participants and their clients trading against CCML across all books, as well as CCML’s risk-reducing hedging trades plus associated fees, is targeted to be slightly positive per unit volume on a large time scale. 
2. Reduce market price risk to CCML: The activity of market making causes the Bot to enter into long and/or short positions in every pair for which the ATS provides a book. The Bot maintains awareness of total positions, and hedges them with our liquidity partners subject to configuration rules.
3. Improve available liquidity for clients across all CCML books at the discretion of the firm. This is not a prescribed or mandated role, and CCML may pause or terminate bot activities at any time. The Bot enters resting orders into the CCML ATS order books, bilaterally (bids and asks), with targeted 24/7 operation. Configuration of size and spread of these orders can be adjusted on the fly to better match the Firm’s objectives with market conditions.

1. Bot Operation Cycle

The Bot operates by continuously evaluating market data from the ATS, and our price aggregation from Liquidity Partners in our Execution Management System (EMS), which is currently Talos, its own positions, and notifications from trading venues of order fills.

The Bot monitors configuration parameters that are stored in the trading database and are adjusted during the course of operation. These parameters specify Bot behaviours such as size and depth of orders routed to the ATS, spreads to apply to contributed liquidity, position limits, and hedging strategy.

The Bot places orders into the ATS subject to its view of the price aggregation, its own positions and outstanding orders, and the above-mentioned configurations. The Bot will place orders in the ATS by calculating the estimated cost of hedging, then applying the configured spread to establish the price at which the limit order will be submitted to the book. This spread has a configured range. The Bot will widen/tighten the calculated spread within this range depending on where the order will be placed in the book relative to other competing orders.

The Bot monitors the price aggregation on an ongoing basis, and subject to a configured threshold, will replace these orders when the price aggregation shows a large enough move in the market.

The Bot also monitors the orders in the ATS for partial or complete fills and incorporates these fills into its total position tracking. It will also use this information to send new orders to, or cancel existing orders in, the ATS to maintain the strategy’s objectives.

    The Bot tracks its total positions, and subject to the hedging strategy configuration, will also submit orders to trading venues, either directly or via the EMS, that are intended to reduce its net position. The Bot monitors for fills of these hedging orders and likewise updates its position tracking when these fills are received.

1. Trade Activity, Inventory and Profit-and-Loss Reporting

The first line of reporting from the Bot comes via communication on a third-party internal platform (Slack); when a hedging trade is done, or if an error is encountered that doesn’t immediately crash the Bot, the Bot will post a notice to the cscm_trading_alerts or cats_trading_alerts channel, respectively.

Otherwise, inventory and P&L reporting is provided by a CATS dashboard, which is a web page hosted on a Google Cloud Platform Virtual Machine (“GCP VM”), to which access is controlled by firewall rules. The dashboard pulls trade information from CATS DB and combines it with an independent price feed to produce a P&L figure that includes all realized P&L and a mark-to-market value of any residual inventory (typically very small compared to hedged volumes). Trades and prices are updated in near real-time, around the clock, providing CCML with a near real-time view of the Bot’s activity. The dashboard also queries the ATS for total traded volume at CCML and shows the Firm the Bot volume as a percent of total trading activity, as well as the relative profitability of the Bot over the volume it has traded. The dashboard and underlying DB never discards trading records, and the dashboard can be used to observe historical P&L and inventory going back to the beginning of the Bot’s operation. Independent verification of P&L is provided by the Finance team running a report that checks fills reported by each trading venue and by marking these positions to an independent price feed.

Lastly, the dashboard can display what long or short position was held by the Bot at any point in time for any asset, including a breakdown by what inventory was accrued through market making activity alone, and what inventory was accrued by hedging alone. It combines this with historical prices to show the near real-time mark-to-market value of those inventories at any point in time.

1. CATS Herder

The Bot is supported by an independent bot, CATS Herder. Herder is a control bot that runs separately and checks for the following error scenarios on a loop:

1. Time-in-Force violation. Has the Bot left an order in the book, that has not been interacted with, for over 30 minutes? If so, there is a good chance that it is an error. Herder will raise an error on Slack; and
2. Out-of-Market violation. Has the Bot not placed any new orders in 30 minutes? If so, likely the Bot has crashed. Herder will raise an error on Slack; and
3. Stuck-Market-Order violation. Has the Bot recorded a market type order in CATS DB, and failed to discover the terminal state of that order, for more than 10 minutes? If so, likely there is a problem with the Bot, or an external API, or a missed fill notice. Herder will raise an error on Slack.
4. Risk Limits Rule. Does the sum of recorded fills in the Database result in a net open position larger than the maximum net open position that the Risk Committee has allowed? If so, Herder will raise an error on Slack.

1. Funding and Capital

The Bot makes use of balances held for trading at external exchanges, and credit relationships with OTC trading counterparties, to manage positions that are incurred in the course of market making. In the event that all balances are depleted in a given asset, and credit limits reached, the Bot will not be able to automatically reduce its position as specified by the hedging strategy parameters. It may also stop making markets as a result.

Balances in the accounts that the Bot uses are managed by Finance, who both add and withdraw fiat and crypto balances at their discretion. Finance likewise executes settlement with CCMLOTC trading counterparties to ensure our credit limits are maintained.

CATS provides a warning bot, CATS Balance Checker, which tests the balances at each exchange independently of the Bot’s operation. Balance Checker has a configurable upper and lower limit for each asset and marketplace combination. Whenever a balance falls outside this range, a notice is sent to a Slack channel that is monitored by CATS and Finance. Finance responds to these warnings at their discretion, as CATS does not have the permission to move balances on any marketplace.  Such balances are also tracked by the Talos EMS.

1. Deployment

All the CATS market making bots are deployed on virtual machines (VMs) within the CCML cloud infrastructure. The risk reporting dashboard and P&L reporting tools are also located on a VM within the CCML cloud environment. 

All members of the CATS team have administrative privileges for the VMs that run the above-mentioned trading bots and tools.  The team is authorized to deploy code and configuration changes to any bot. The CATS team does not have access to the console that controls configuration or up/down status of the VMs. This responsibility falls to the CCML DevOps team.

1. Position Limits

Limits on the maximum absolute long/short hedging thresholds with which the Bot may be configured are set quarterly, or more frequently as required, by the CFO in consultation with CCML’s internal Risk Committee. It is possible for inventory to exceed these limits for transient periods due to the Bot’s lagged awareness of fills against CCML’s resting orders. The ownership of the Position Limits Table sits with the CFO, and any changes in limits must be immediately updated in the computer code governing the trading activity of the Bots deployed and managed by the CATS team. For reference only, a sample copy of the Position Limits Table can be found in Appendix B.

1. Use of Automated Alerts

In carrying out various aspects of the trading supervision described in this policy, CCML will rely on certain automated alerts. The following is a list of automated alerts generated against transaction and order data of the CCML dealer:   

• Flooding
• Front Running
• Large Order
• Large Trade
• Layering
• Ramping
• Spoofing
• Wash Trading

CCML will monitor the automated alerts listed above and make determinations as to the existence or non-existence of manipulative activity. 

The CCO and the CCO’s delegate(s) have the responsibility to monitor the automated alerts and oversee the review, assessment, investigation and escalation of any dealer trading supervision alerts that highlight potential breaches of UMIR. Specifically, CCML dealer compliance personnel will review alerts on a T+1 basis, summarize daily alerts, conduct an investigation into any potential UMIR breaches, and escalate any alerts to the Head of Trading and/or the CCO.

Upon completion of the alert escalation procedures, as appropriate, the CCO will submit a “gatekeeper” report to IIROC, in accordance with section 10.B above.

Additional details regarding the alerts, including specific parameters used, the logic incorporated into the alerts, and escalation procedures, are provided in the following Google Sheet (entitled Trading Policies and Procedures – Appendix C – Alert Detail):

https://docs.google.com/spreadsheets/d/1chgItTSxj2OjtXejPTF-tzYYAhc2uSLht-ajWLeYwCQ/edit?usp=sharing

1. Access to this Policy

The Policy must be accessible to all relevant CCML employees. It will be kept current, and CCML will also maintain an historical copy.

Appendix A: Best Execution Disclosure

Coinsquare Capital Markets Limited (“Coinsquare”), as a Dealer Member of the Investment Industry Regulatory Organization of Canada (“IIROC”), is required under IIROC Rules to establish, maintain and ensure compliance with written policies and procedures that are reasonably designed to achieve “best execution” when acting for a client. This Best Execution Disclosure is intended to provide a clear and easy-to-understand summary of the measures that Coinsquare takes to achieve “best execution” for client orders — which means obtaining for our clients the most advantageous execution terms reasonably available under the circumstances, considering prevailing market conditions. 

Best Execution Factors

The determination of whether best execution has been achieved is subject to reasonable efforts and should be interpreted in the context of the following broad factors: 

• price
• speed of execution
• certainty of execution
• overall cost of the transaction

Order Submission Options

Coinsquare diligently pursues the execution of each and every client order; however, different kinds of orders may be handled differently, depending on the type of order and the way in which it is submitted to Coinsquare by the client. For example: 

1. CS Trade orders are automatically routed to Coinsquare’s principal-backed execution service, which provides a price quote (including an applied spread – a concept that is explained further below) for the indicated volume, based on the best available prices on certain other marketplaces and/or through liquidity providers. When an order referencing a quote is accepted, provided market conditions have not changed, Coinsquare completes the transaction as principal at the price quoted to the client. No additional fees or commissions are charged other than as disclosed to clients in the Coinsquare Fee Schedule [INSERT URL]. (For additional details, please see “How Coinsquare Establishes a Quote for CS Trade” below.)

2. CS Proordersare automatically routed to the Coinsquare marketplace and traded against orders in the Coinsquare marketplace on a price/time priority basis. Transaction fees are disclosed to clients in the Coinsquare Fee Schedule [INSERT URL].

3. Over-the-Counter (OTC) orders are communicated by voice or message to the Coinsquare OTC desk and filled by Coinsquare as principal. The OTC desk provides clients with a quote that is based on a price aggregation of our liquidity partners, plus an applied spread. The desk may withdraw the quote at any time prior to filling a client order. Once the client accepts the last given live quote, this creates a binding execution between the OTC desk and the client. No additional fees or commissions are charged, other than as disclosed to clients in the Coinsquare Fee Schedule [INSERT URL].

How Coinsquare Establishes a Quote for CS Trade

Unlike equity securities (stocks), which are listed on a stock exchange, digital assets are not “listed” on any single marketplace, but rather, they exist on the blockchain and are traded globally by and through a variety of intermediaries. Coinsquare uses a variety of measures to ensure that your trades through CS Trade will always execute at the best price available under the circumstances that prevail at the moment when you confirm your trade. 

In establishing the quote, which is the price at which Coinsquare will buy a digital asset from you, or sell a digital asset to you, Coinsquare:

• looks to a variety of third-party firms that provide liquidity and/or reference prices for price quotes at any given moment of the 24-hour-a-day trading cycle
• aggregates the current, but fluctuating, quotes it receives to arrive at an estimate of the best price for the digital asset that you have expressed an interest in buying or selling
• adds a spread to that estimated price:
• this is a type of compensation that Coinsquare earns for its services to you;
• the spread is a percentage of the total amount of your order that is added to the estimated price for a digital asset that you wish to buy (a “mark-up”), or deducted from the estimated price for a digital asset that you wish to sell (a “mark-down”);
• the spread will be within a target range of 0.5% to 2.5%, (also expressed as 50 to 250 bps) barring adverse market conditions, and
• the exact spread applied to your order will depend on a number of factors, including the particular digital asset you are trading, its liquidity and price volatility at the time of your order, and the speed, reliability, and total number of third-party firms from which Coinsquare is receiving price quotes at that time. 
• adjusts the estimated price (including the spread) when you request a quote for the exact amount of the digital asset that you wish to buy or sell–this is the quote.

The quote you receive is guaranteed for ten (10) seconds; if you confirm the trade within that 10-second period, Coinsquare will execute the trade using that quote as the execution price. After 10 seconds, the original quote will automatically become stale and be replaced by a new quote. This will repeat every 10 seconds until you confirm the trade or you decide not to trade at all. 

In sum, Coinsquare looks at the available prices in global markets at each step in the process so that it can provide you with the best price available at any given moment. However, until you confirm your trade, the price that we quote you is subject to change, in line with market fluctuations. 

You should also be aware that:

• Coinsquare will only generate quotes predicted to be within our target spread range of 50 bps (or 0.5%) to 250 bps (or 2.5%) above or below the benchmark price.
• For all principal trades with clients through CS Trade, we record a benchmark price and investigate any trades where the price is more than 250 basis points inferior to the benchmark. 
• Coinsquare may apply a foreign exchange spread in a transaction if you deposit Canadian dollars and request a purchase of a digital asset that trades in US dollars.

Corporate Structure and Conflict Management

Coinsquare is registered and operates as an IIROC-approved investment dealer, but it also has regulatory approval to operate a marketplace that is an alternative trading system (or “ATS”), which it operates as a separate business entity. When providing services to you as a retail client, Coinsquare is operating as a dealer; in contrast, the services of the ATS are only offered to other IIROC dealers and large institutional investor firms. While the dealer and ATS businesses are both operated through a single corporate entity (which is a wholly-owned subsidiary of Coinsquare Ltd.), each business unit has its own employees, and trading information is never shared between the two business units. Moreover, the Coinsquare dealer will never receive any preferential treatment as compared to other dealers that may trade on the Coinsquare ATS. For additional details on how Coinsquare has addressed all potential conflicts between its dealer and ATS businesses, please see the Coinsquare ATSConflict of Interest Policies and Procedures and Dealer Conflict of Interest Policies and Procedures, which are available on the Coinsquare website at [INSERT URL].

Annual Review

Coinsquare reviews our “best execution” policies and procedures, including this Best Execution Disclosure, at least annually.  

Should you have any questions regarding this Best Execution Disclosure or any policy it describes, please email our Support team at support@coinsquare.com.

Last revised: June 02, 2022

Appendix B: Position Limits Table

Appendix C – Alert Detail

Alert parameters and other details are available in the following Google Sheet:

https://docs.google.com/spreadsheets/d/1chgItTSxj2OjtXejPTF-tzYYAhc2uSLht-ajWLeYwCQ/edit?usp=sharing