CSA Notice and Request for Comment: Proposed Amendments to NI 21-101 Marketplace Operation and NI 23-101 Trading Rules
CSA Notice and Request for Comment: Proposed Amendments to NI 21-101 Marketplace Operation and NI 23-101 Trading Rules
CSA NOTICE AND REQUEST FOR COMMENT
PROPOSED AMENDMENTS TO NATIONAL INSTRUMENT 21-101 MARKETPLACE OPERATION
AND NATIONAL INSTRUMENT 23-101 TRADING RULES
April 24, 2014
Introduction
The Canadian Securities Administrators (the CSA or we) are publishing for a 90 day comment period proposed amendments (the Proposed Amendments) to the following materials:
• National Instrument 21-101 Marketplace Operation (NI 21-101) and Companion Policy 21-101CP (21-101CP);
• National Instrument 23-101 Trading Rules (NI 23-101) and Companion Policy 23-101CP (23-101CP and, together with NI 21-101, 21-101CP and NI 23-101, the Marketplace Rules);
• Form 21-101F1 Information Statement Exchange or Quotation and Trade Reporting System (Form 21-101F1);
• Form 21-101F2 Initial Operation Report Alternative Trading System (Form 21-101F2);
• Form 21-101F3 Quarterly Report of Marketplace Activities (Form 21-101F3);
• Form 21-101F4 Cessation of Operations Report for Alternative Trading System (Form 21-101F4)
• Form 21-101F5 Initial Operation Report for Information Processor (Form 21-101F5), and
• Form 21-101F6 Cessation of Operations Report for Information Processor (Form 21-101F6 and, together with Form 21-101F1, Form 21-101F2, Form 21-101F3, Form 21-101F4, and Form 21-101F5, the Forms).
The text of the Proposed Amendments is contained in Annexes B through D of this notice and is also available on websites of CSA jurisdictions, including:
www.lautorite.qc.cawww.albertasecurities.comwww.bcsc.bc.cawww.gov.ns.ca/nsscwww.fcnb.cawww.osc.gov.on.cawww.sfsc.gov.sk.cawww.msc.gov.mb.ca
Background
The Marketplace Rules have been in place since 2001 and have been regularly updated since then. The last set of revisions to the Marketplace Rules came into force on July 1, 2012 (the 2012 Amendments), with the exception of amendments to Form 21-101F3, which came into force on December 31, 2012.
Substance and purpose
The purpose of the Proposed Amendments is to update the Marketplace Rules to reflect developments that have occurred since they were last revised, in the following main areas:
• Requirements applicable to marketplaces' and information processors' systems and business continuity planning;
• Government debt transparency; and
• Other various areas where we identified that updates or additional guidance are required.
The Proposed Amendments apply to marketplaces, including alternative trading systems (ATSs), recognized quotation and trade reporting systems (QTRSs), recognized exchanges, and information processors.
Summary of the Proposed Amendments
The Proposed Amendments:
• Extend the existing exemption from the transparency requirements applicable to government debt securities in section 8.6 of NI 21-101 until January 1, 2018;
• Revise the existing requirements applicable to marketplaces' and information processors' systems and business continuity planning;
• Change the provision in section 5.10 of NI 21-101 that currently prohibits a marketplace from disclosing a marketplace participant's order and trade information without the marketplace participant's consent in order to allow the marketplace to provide it to researchers if certain terms and conditions are met;
• Require a marketplace that has co-location arrangements with a third-party service provider to publicly disclose that it has the arrangement along with the name of the provider on its website and ensure each third party that provides a form of access complies with the marketplace's criteria for access;
• Revise the information in Exhibit G in Form 21-101F1 and Form 21-101F2 to ensure we receive relevant information regarding marketplace systems and contingency planning;
• Introduce requirements in Part 13 Clearing and Settlement of NI 21-101 to assist in the operation of multiple clearing agencies;
• Make a number of amendments to Form 21-101F3 in order to facilitate the reporting of information in electronic form;
• Provide additional clarification on existing requirements, including guidance on what is considered to be a significant change to Form 21-101F1 and Form 21-101F2; and
• Clarify the obligations of a recognized exchange to its regulation services provider (RSP).
Local Matters
Certain jurisdictions are publishing other information required by local securities legislation. In Ontario, this information is contained in Annex E of this Notice.
Annexes
A. Description of changes to the Marketplace Rules and Forms;
B. The Proposed Amendments;
C. A blackline of NI 21-101, 21-101CP and the Forms, revised with the Proposed Amendments, against the existing NI 21-101, 21-101CP and Forms;
D. A blackline of NI 23-101 and 23-101CP, revised with the Proposed Amendments, against the existing NI 23-101 and 23-101CP; and
E. Local matters.
Authority of the Proposed Amendments
In those jurisdictions in which the Proposed Amendments are to be adopted, the securities legislation provides the securities regulatory authority with rule-making or regulation-making authority in respect of the subject matter of the amendments.
In Ontario, the proposed amendments to NI 21-101 and the Forms are being made under the following provisions of the Securities Act (Ontario) (Act):
• Paragraph 143(1)7 authorizes the Commission to make rules prescribing requirements in respect of the disclosure or furnishing of information to the public or the Commission by registrants.
• Paragraph 143(1)10 authorizes the Commission to make rules prescribing requirements in respect of the books, records and other documents required by subsection 19(1) of the Act to be kept by market participants (as defined in the Act), including the form in which and the period for which the books, records and other documents are to be kept.
• Paragraph 143(1)11 authorizes the Commission to make rules regulating the listing or trading of publicly traded securities including requiring reporting of trades and quotations.
• Paragraph 143(1)12 authorizes the Commission to make rules regulating recognized stock exchanges, recognized self-regulatory organizations, and recognized quotation and trade reporting systems including prescribing requirements in respect of the review or approval by the Commission of any by-law, rule, regulation, policy, procedure, interpretation or practice.
• Paragraph 143(1)12.1 authorizes the Commission to make rules regulating alternative trading systems, including prescribing requirements in respect of the review or approval by the Commission of any by-law, rule, regulation, policy, procedure, interpretation or practice.
• Paragraph 143(1)13 authorizes the Commission to make rules regulating trading or advising in securities to prevent trading or advising that it is fraudulent, manipulative, deceptive or unfairly detrimental to investors.
• Paragraph 143(1)39 authorizes the Commission to make rules requiring or respecting the media, format, preparation, form, content. Execution, certification, dissemination, and other use, filing and review of all documents required under or governed by the Act, the regulation or the rules and all documents, determined by the regulations or the rules to be ancillary to the documents.
In Ontario the proposed amendments to NI 23-101 are being made under the following provisions of the Act:
• Paragraph 143(1)10 authorizes the Commission to make rules prescribing requirements in respect of the books, records and other documents required by subsection 19(1) of the Act to be kept by market participants (as defined in the Act), including the form in which and the period for which the books, records and other documents are to be kept.
• Paragraph 143(1)12 authorizes the Commission to make rules regulating recognized stock exchanges, recognized self-regulatory organizations, and recognized quotation and trade reporting systems including prescribing requirements in respect of the review or approval by the Commission of any by-law, rule, regulation, policy, procedure, interpretation or practice.
• Paragraph 143(1)12.1 authorizes the Commission to make rules regulating alternative trading systems, including prescribing requirements in respect of the review or approval by the Commission of any by-law, rule, regulation, policy, procedure, interpretation or practice.
• Paragraph 143(1)13 authorizes the Commission to make rules regulating trading or advising in securities to prevent trading or advising that it is fraudulent, manipulative, deceptive or unfairly detrimental to investors.
Deadline for Comments
Please submit your comments to the Proposed Amendments, in writing, on or before July 24, 2014. If you are not sending your comments by email, please send a CD containing the submissions (in Microsoft Word format).
Where to Send Your Comments
Address your submission to all of the CSA as follows:
British Columbia Securities CommissionAlberta Securities CommissionFinancial and Consumer Affairs Authority of SaskatchewanManitoba Securities CommissionOntario Securities CommissionAutorité des marchés financiersFinancial and Consumer Services Commission (NB)Superintendent of Securities, Department of Justice and Public Safety, Prince Edward IslandNova Scotia Securities CommissionSecurities Commission of Newfoundland and LabradorSuperintendent of Securities, Northwest TerritoriesSuperintendent of Securities, Yukon TerritorySuperintendent of Securities, Nunavut
Deliver your comments only to the addresses below. Your comments will be distributed to the other participating CSA jurisdictions.
Comments Received will be Publicly Available
Please note that we cannot keep submissions confidential because securities legislation in certain provinces requires publication of a summary of the written comments received during the comment period. In this context, you should be aware that some information which is personal to you, such as your e-mail and address, may appear on certain CSA websites. It is important that you state on whose behalf you are making the submission.
All comments will be posted on the Ontario Securities Commission website at www.osc.gov.on.ca and on the Autorité des marchés financiers website at www.lautorite.qc.ca.
Questions
Please refer your questions to any of the following:
ANNEX A
DESCRIPTION OF CHANGES TO THE MARKETPLACE RULES AND FORMS
This Annex describes the Proposed Amendments. It contains the following sections:
1. Information transparency for government debt securities
2. Marketplace systems and business continuity planning
3. Use of marketplace participants' trading information for research
4. Co-location and other access arrangements with a service provider
5. Information in Forms 21-101F1, 21-101F2 and 21-101F3
6. Provision of data to information processors
7. Obligations of a recognized exchange to a regulation services provider
8. Form of information provided to regulators
9. Clearing and settlement
10. Requirements applicable to information processors
1. INFORMATION TRANSPARENCY FOR GOVERNMENT DEBT SECURITIES
Background
Part 8 Information Transparency Requirements for Marketplaces Dealing in Unlisted Debt Securities, Inter-Dealer Bond Brokers and Dealers of NI 21-101 sets out the transparency requirements for the entities trading unlisted debt securities, including government debt securities. The specific pre-trade and post-trade transparency requirements applicable to government debt securities are set out in section 8.1 of NI 21-101. Section 8.6 of NI 21-101 provides an exemption from these requirements until January 1, 2015. The exemption was last renewed in 2012. The purpose of the exemption is to maintain the regulatory framework for government debt transparency, but delay imposing regulatory requirements until such time they are appropriate. In the past, we indicated that no other jurisdiction had established mandatory transparency requirements for government debt securities, and that we extended the exemption from the transparency requirement to allow us to review international regulatory developments and progress towards additional transparency in Canada to determine what, if any, mandatory requirements are needed in this area.{1}
Since the 2012 Amendments were finalized, we have monitored domestic and international regulatory developments in the fixed income market and have summarized them below.
Domestic developments
In Canada, there have been a number of regulatory developments which are noteworthy. In October 2011, IIROC implemented Dealer Member Rule 3300 -- Fair Pricing of Over-The-Counter Securities (the Fair Pricing Rule), which seeks to accomplish a number of objectives, including ensuring that dealers' clients, in particular retail clients, are given prices for over-the-counter securities that are fair and reasonable in relation to prevailing market conditions.
On January 9, 2014, IIROC re-published for comment Proposed Rule 2800C -- Transaction Reporting for Debt Securities (Proposed IIROC Rule).{2} The Proposed IIROC Rule, previously published for comment on February 20, 2013,{3} will require dealers to report, on a post-trade basis, all debt market transactions executed by the dealer member, including those executed on an ATS or through an inter-dealer bond broker (IDB). The Proposed IIROC Rule will facilitate the creation of a database of transaction information that would enable IIROC to carry out its responsibilities with respect to the surveillance and oversight of over-the-counter debt market trading.
On July 15, 2013, a number of amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) came into force and implemented the second phase of the CSA Client Relationship Model (CRM) Project (CSA CRM 2). The purpose of the amendments is to ensure that clients of all registrants, including dealers, receive clear and complete disclosure of all charges and registrant compensation associated with the investment products, including fixed income products, and services they receive. The amendments introduced requirements for registrants to: (i) disclose the annual yield to maturity of debt securities on trade confirmations issued to clients after their purchase;{4} (ii) disclose either total compensation or the gross commission{5} on all debt security trade confirmations issued to all clients; and (iii) where the gross commission is disclosed, provide a prescribed general notification.{6} On December 31, 2013, IIROC published for comment a series of proposed rule amendments to implement CSA CRM 2 in its dealer member rules. The rule amendments are substantially the same as the CSA CRM 2 amendments, including those described above.
We also met with dealers and institutional buy-side representatives, individually or through their committees, and with ATS and IDB representatives to discuss fixed income market developments, the sources of information for those participating in the fixed income markets, including retail investors, and whether there was a need for additional transparency in the fixed income market.
The market participants involved in our consultations generally indicated that there was sufficient information available regarding fixed income securities. Some believed, however, that there was information asymmetry, and that different information was available to different market participants. For example, larger market participants (dealers and buy-side representatives) have access to a wealth of information, including indicative pricing information shared through the Bloomberg platform, composite pricing data offered by a fixed income marketplace, dealers' information and index pricing. In addition, certain larger market participants also subscribe to the Fixed Income Price Service (FIPS) of CDS Innovations Inc., which provides details of all fixed income trades reported to CDS Clearing and Depository Services Inc. (CDS) on a daily basis.{7} FIPS includes all fixed income federal, provincial, municipal and corporate securities that are eligible for deposit at CDS.
Smaller market participants also have access to fixed income information, but not to the same extent as the larger market participants. For some, the cost of information appears to be an issue. The sources of fixed income information available to retail investors are limited and have not changed significantly. Mostly, they rely on their dealer's information, and the prices they receive are those offered by their registered representatives (RR), which are based on the dealers' retail desk prices with an additional mark-up representing the RR's commission. Some market participants involved in our consultations believed that there should be more education of investors about fixed income securities and their risks and that this may be more beneficial than additional fixed income information.
International developments
In the United States, the Trade Reporting and Compliance Engine (TRACE) was originally established to provide transparency for corporate debt securities. The scope of the securities reportable to TRACE includes, and has included for some time, all securities issued or guaranteed by an agency or a government-sponsored enterprise, except securities issued by the U.S. Treasury.{8} No new developments have occurred.
In Europe, on January 14, 2014, the European Parliament and the Council announced that they agreed in principle on updated rules for markets in financial instruments (MiFID II). For the first time, MiFID II would introduce a pre- and post-trade transparency regime for non-equity instruments, where pre-trade transparency waivers would be available for large orders, requests for quote and voice trading, and post-trade transparency would be provided with the possibility of deferred publication or volume masking, as appropriate.{9} The agreement will be forwarded to the European Securities and Markets Authority for details regarding how the various provisions are to be implemented. At this time, it is expected that the rules will be finalized this year, with general compliance required by 2016.
Proposed Amendments
The initiatives described above are a step forward in the development of a robust regulatory framework for fixed income securities. While we continue to be of the view that transparency in the fixed income market is important, we have delayed imposing requirements that would mandate transparency in government debt and propose to extend the exemption from transparency for government debt securities until January 1, 2018.
However, we are of the view that there is a role for regulatory policy in this area and, for this reason, we do not propose to remove the transparency requirements currently set out in NI 21-101. We believe this is appropriate because we did not find, through our review of fixed income market developments, that there has been significant progress towards more transparency in our markets. We are of the view that smaller market participants, and in particular retail investors, could benefit from additional sources of information, including information that meets regulatory standards and is not cost prohibitive.
At the same time, we are mindful that the Canadian fixed income market is relatively small as compared to fixed income markets globally, and believe it would not be appropriate to mandate transparency for government debt securities before other jurisdictions. As we noted, at this time, no other international jurisdiction has mandated transparency for government debt securities, although this will change when MiFID II is implemented. As it is currently believed that MiFID II will be implemented in 2016, we plan to review the effects of its implementation prior to proposing any transparency requirements through NI 21-101. If, after this review, the CSA believe that it would be beneficial to mandate transparency for government debt securities, we will first need to ensure the appropriate framework is in place before implementing such a requirement.
As the current transparency exemption expires on December 31, 2014, we note that the CSA may have to take steps to expedite the approval and implementation of this specific proposed amendment in order to meet this deadline.
We note that, currently, NI 21-101 includes transparency requirements for corporate debt securities{10} and an information processor for corporate debt securities, CanPX Inc. (CanPX), is in place. CanPX currently requires firms that have achieved a de minimus market share of 0.5% of the total corporate debt trading in two of the three most recent quarters to report the corporate bond trade information for a number of designated corporate debt securities.{11} While we are not proposing any changes to the requirements applicable to corporate debt securities at this time, we note that we are reviewing the framework for corporate debt transparency and will consider steps to increase corporate debt transparency in the coming year.
2. MARKETPLACE SYSTEMS AND BUSINESS CONTINUITY PLANNING
Background
In Canada, trading has been conducted electronically for many years. The high degree of connectivity among marketplaces and marketplace participants required for electronic equity trading means that the impact of marketplace systems failures can have wide-reaching and unintended consequences. Part 12 of NI 21-101 sets out requirements for marketplace systems and business continuity planning to mitigate the probability and effects of systems failures and we think that it is important for these requirements to be updated so that they continue to be effective in helping ensure that marketplace systems are reliable, robust and have adequate controls.
The Ontario Securities Commission (OSC) engaged a consultant, Fionnuala Martin and Associates (Consultant), to conduct a review of the risks of electronic trading and to determine if any changes were necessary to current rules to address any identified gaps. The Consultant completed a report with a number of recommendations, including: increased transparency regarding marketplace testing environments, the use of industry-wide test symbols in marketplace production environments and for marketplace requirements related to business continuity planning to be equivalent to those of marketplace participants.{12}
Upon reviewing all of the Consultant's recommendations and conducting our own review of current systems requirements, we propose adding requirements with respect to five main areas: (i) business continuity testing; (ii) use of uniform test symbols in marketplace production environments and increased transparency of testing environments; (iii) security breaches; (iv) expansion of the scope of independent systems reviews (ISRs); and (v) marketplace launches and material changes to marketplace technology requirements.
(i) Business Continuity Testing
Section 12.4 of NI 21-101 requires that marketplaces develop and maintain reasonable business continuity and disaster recovery plans (BCP and DRP) and test these plans annually. We propose to amend subsection 12.4(1) to clarify that the testing of business continuity plans must be done according to prudent business practices.
In addition, we think that the increase in marketplace fragmentation for listed equities has made the recovery process in the case of a disaster significantly more complex and that a successful industry-wide BCP test is key to any realistic expectation of a Canadian capital markets recovery from a major disaster within a reasonable length of time. We also note that the U.S. Securities and Exchange Commission has proposed to require certain entities to participate in industry BCP and DRP tests in Regulation Systems Compliance and Integrity (Reg SCI).{13}
Compulsory participation in BCP and DRP tests by marketplaces and clearing agencies has been discussed several times over the last few years and based on the above analysis, the CSA have concluded that it is appropriate to propose that marketplaces, recognized clearing agencies, information processors, and marketplace participants must participate in industry-wide business continuity tests as determined by an RSP, regulator, or in Québec, a securities regulatory authority.
It is our expectation that participation in industry-wide BCP tests will improve the resilience of Canadian market infrastructure entities, including marketplaces, and reduce recovery time after a disaster. As an extension of this result, we are also proposing in subsection 12.4(2) of NI 21-101 that a marketplace with a total trading volume in any type of security equal to or greater than 10% of the total dollar value of the trading volume in that type of security on all marketplaces in Canada during at least two of the preceding three months of operation must ensure that each system operated by or on behalf of the marketplace that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, and trade clearing can resume operations within 2 hours following the declaration of a disaster by the marketplace. In addition, subsection 14.6(3) of NI 21-101 would require an information processor to be able to resume operations of its critical information technology systems within one hour following the declaration of a disaster by the information processor.
(ii) Uniform test symbols in production environments
Although marketplaces currently provide testing environments for participants, these environments remain unconnected, do not utilize uniform test symbols and in some cases are offered in facilities that may not be a reasonably good proxy of the marketplace's production environment. In order for participants to have the ability to properly test their IT systems in today's fragmented yet interdependent market, we have proposed the requirement for marketplaces to use uniform test symbols for the purpose of testing to be performed in the production environment. We expect that the details of how to best implement this proposed requirement will be discussed with industry groups and we welcome any comments with respect to the implementation of this proposed requirement.
In the meantime, in order for marketplace participants and their clients to better understand the current testing environments of the marketplaces that they trade on, we have proposed to include in section 10.1 of NI 21-101 that a marketplace publicly disclose the hours of operation of its testing environment, and describe any difference between its testing and production environments along with a description of the potential impact of these differences on the effectiveness of testing by its participants.
(iii) Security breaches
Due to the growing complexity and interconnectedness of the various marketplace systems, a security breach of one system that shares network resources could impact other systems vital to the operation and integrity of the marketplace. Security breaches not only include cyber-attacks originated by outsiders but all unauthorized systems breaches. Such system intrusions can be perpetrated by outsiders, employees or agents of the marketplace, and can be both intentional and inadvertent.
As a result of the growing concern with system security, we have proposed a requirement in subsection 12.1(c) of NI 21-101 for a marketplace to promptly notify the regulator or in Québec, the securities regulatory authority, of any material security breach, in addition to the existing requirement to provide notification of any material systems failure, malfunction or delay of its systems that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing (trading related systems). In addition, proposed subsection 12.1.1(b) of NI 21-101 would require a marketplace to promptly notify the regulator or in Québec, the securities regulatory authority, if there is a security breach of any system that shares network resources with one or more of the trading related systems, that if breached would pose a security threat to a trading related system (auxiliary system).
(iv) Expansion of scope of ISRs
We propose in paragraph 12.2(1)(b) of NI 21-101 that the annual ISR by a qualified party review a marketplace's information security controls of the marketplace's auxiliary systems. We think that a review of the information security controls of auxiliary systems will aid in ensuring the security of a marketplace's systems.
We have further proposed that the report resulting from the ISR must be furnished to the regulatory authority within the earlier of 30 days of providing the report to its board of directors or the audit committee or 60 days after the calendar year end.
(v) Launch of new marketplaces and material changes to marketplace technology requirements
As mentioned above, the failure of a marketplace's systems can have wide-reaching and unintended consequences. A marketplace beginning operations or making a material change to its systems can therefore negatively impact many other parties if these actions are not carried out in a careful manner. Therefore, we are proposing requirements to ensure that, from a systems perspective, the launching of new marketplaces and material changes made to a marketplace's technology requirements are conducted according to prudent business practices and are implemented so that marketplace participants and service vendors have a reasonable opportunity to adapt to these changes.{14}
Paragraphs 12.3(5)(c) and 12.3(6)(b) of NI 21-101 would require a marketplace's senior executive to certify that all information technology systems have been tested according to prudent business practices and are operating as designed prior to a marketplace beginning operations or implementing material changes to its technology requirements. We expect that these proposed requirements will help mitigate systems risks that arise when a new marketplace or a material systems change to a marketplace's technology requirements is introduced.
In order to give marketplace participants and their service providers a reasonable opportunity to make any necessary changes to their systems to access and interface with a new marketplace or to accommodate a significant change to a marketplace's technology requirements, we propose to amend subsection 12.3(3) of NI 21-101 so that a marketplace would not be able to launch operations or implement a material change to its technology requirements before the later of three months after a regulator or a securities regulatory authority, as applicable, has completed its review and a reasonable time that would allow marketplace participants to complete any necessary systems work and testing.
(vi) Other systems related amendments
Given the growing diversity and complexity of marketplace systems, marketplaces are increasingly looking to third parties to provide vital equipment and know-how to operate certain systems. We believe that system requirements denoted in subsection 12.1 of NI 21-101 should apply to each marketplace system that supports order entry, order routing, execution, trade comparison, data feeds, surveillance and trade clearing. To that end, we have made clear in these amendments that system requirements apply to systems not only operated by a marketplace but also operated on behalf of a marketplace.
We are also proposing to amend section 6.8 of NI 23-101 to ensure that marketplaces that trade standardized derivatives will immediately notify its marketplace participants if the marketplace experiences a failure, malfunction or material delay of its systems, equipment or its ability to disseminate marketplace data.
Lastly, we are revising the information required in Exhibit G in Form 21-101F1 and Form 21-101F2 to ensure we receive relevant and consistent information from marketplaces regarding systems, contingency planning, system capacity and IT risk management.
3. USE OF MARKETPLACE PARTICIPANTS' TRADING INFORMATION FOR RESEARCH
Background
Subsection 5.10(1) of NI 21-101 prohibits a marketplace from providing a marketplace participant's order and trade information to a person or company other than the market participant, a securities regulatory authority or an RSP unless (i) the marketplace participant has consented in writing, (ii) the release of the order and trade information is required by applicable law or NI 21-101, or (iii) the order and trade information was disclosed by another person or company, and the disclosure was lawful.
Before the 2012 Amendments were implemented, the requirement applied only to ATSs. It was extended, as part of the 2012 Amendments, to recognized exchanges and QTRSs to harmonize the rules for all marketplaces. An unintended result of this was that all marketplaces, including exchanges, were prohibited from providing order and trade information for capital markets research without the written consent of all of their marketplace participants. In Ontario, an exemption order was granted to marketplaces to allow them to provide marketplace participants' data for capital markets research.{15}
Proposed Amendments
We support capital markets research and are of the view that marketplaces should be allowed to provide marketplace participants' data for research provided that certain terms and conditions are met. Therefore, we propose an exception from the confidentiality requirements in subsection 5.10(1) of NI 21-101 to allow marketplaces to provide their marketplace participants' data without their consent to capital market researchers.{16} In proposed subsection 7.7(1) of 21-101CP, we clarify that proposed subsection 5.10(1.1) of NI 21-101 does not impose any obligation on a marketplace to disclose its marketplace participants' information if requested by a researcher. In fact, the marketplace may choose to maintain this information in confidence, and this may be codified in its contracts with marketplace participants.
Proposed subsection 5.10(1.1) of NI 21-101 contains the provision that allows a marketplace to release a marketplace participant's order or trade information to a person or company if that marketplace has entered into a written agreement with each person or company that will receive the order and trade information.
The terms and conditions under which marketplaces would be able to provide data are listed in proposed subsections 5.10(1.1), 5.10(1.2) and 5.10(1.3) of NI 21-101. Proposed paragraph 5.10(1.1)(a) lists the minimum provisions that must be included in such agreements. The purpose of these provisions is to ensure that the marketplace participants' data provided by a marketplace is not misused. Proposed subparagraph 5.10(1.1)(a)(ii) requires that the agreement should have provisions that ensure that the person or company does not publish or disseminate data or information that discloses, directly or indirectly, the transactions, trading strategies or the market position of a particular marketplace participant or its clients. Proposed subparagraph 5.10(1.1)(a)(iii) requires that the agreement stipulate that the order and trade information not be used for any purpose other than capital markets research. This proposed subparagraph does not dictate the nature of the research, or who may conduct such research. However, in proposed subsection 7.7(1) of 21-101CP, we clarify that using marketplace participants' data for trading, advising others to trade or for reverse engineering trading strategies are examples where data would not be used for capital markets research. This proposed provision would apply to the researcher or any other person, such as a research assistant, or company with whom the researcher works. If the researcher engages another person or company, they would have to seek the marketplace's consent, as required by proposed subparagraph 5.10(1.1)(a)(i) before passing along the order or trade information received to that person or company. The purpose of the marketplace notification and consent is to allow the marketplace to determine the appropriate course of action to ensure that the data is not misused. This may include, for example, requiring that any other person or company working with a researcher enter into an agreement with the marketplace.
Proposed subparagraphs 5.10(1.1)(a)(iv) and (v) require that the marketplace participants' information received is kept securely stored and only for a reasonable period of time after the completion of the research and publication process. Proposed subparagraph 5.10(1.1)(a)(vi) requires that the agreement has a provision that would require a researcher to inform the marketplace of any breach or possible breach of the confidentiality of the information provided.
Proposed subsection 5.10(1.2) sets out the requirements applicable to marketplaces that release their marketplace participants' order and trade data to researchers. A marketplace is required to take all appropriate steps, that in its sole discretion, are necessary to prevent or deal with a breach or possible breach of the confidentiality of the information provided or of the agreement with the researcher. In the event of a breach or possible breach of the confidentiality of the information provided or of the agreement, a marketplace is also required to inform the regulator or, in Québec, the securities regulatory authority. We consider a breach of the agreement or of the confidentiality of the information provided sufficiently important to warrant regulatory notification. If notified, the regulators would monitor whether the marketplace is taking all appropriate steps to deal with the breach or possible breach.
Proposed subsection 5.10(1.3) of NI 21-101 sets out the conditions that must be met for a person or company receiving order and trade information from a marketplace to disclose this information. The only exception permitted by this subsection is to allow those conducting peer reviews to have access to the marketplace's order and trade data solely for the purpose of verifying the research prior to its publication. Proposed paragraph 5.10(1.3)(b) requires the peer reviewer to maintain the confidentiality of the information.
To help regulators determine if the marketplace has entered into the agreements required under section 5.10 of NI 21-101, we propose to add that a copy of any agreement referred to in section 5.10 be added to the list of documents that must be maintained for at least seven years in section 11.3 Record Preservation Requirements of NI 21-101.
4. CO-LOCATION AND OTHER ACCESS ARRANGEMENTS WITH A SERVICE PROVIDER
Background and Proposed Amendments
Co-location is the ability of traders (be it participants of a marketplace or their clients operating through direct electronic access) to install servers in close physical proximity to a marketplace's trading engine, thus effectively reducing trading latency. Currently, a number of third party service providers provide co-location access to various marketplaces. We are of the view that co-location, and any other form of marketplace access, should be provided on a fair and transparent basis.
To help ensure that co-location, and any other form of marketplace access, is provided on a fair basis, proposed section 5.13 of NI 21-101 would require a marketplace that allows a third party service provider to provide access to its trading engine to ensure the third party service provider complies with the access provisions the marketplace has established under section 5.1 of NI 21-101. Section 5.1 requires a marketplace to not: (i) unreasonably prohibit, condition or limit access by a person or company to services offered by it; (ii) permit unreasonable discrimination among clients; and (iii) impose any burden on competition that is not reasonably necessary and appropriate and subsection 5.1(2) requires a marketplace to establish written standards for granting access to each of its services.
To increase transparency regarding when access to a marketplace is provided by a third party service provider, proposed subsection 10.1(i) of NI 21-101 would require a marketplace to disclose any access arrangements with a third party service provider, including the name of the provider and the standards for access to be complied with by the provider on the marketplace's website.
5. INFORMATION IN FORMS 21-101F1, 21-101F2 AND 21-101F3
Background
The information a recognized exchange provides in its Form 21-101F1 or an ATS provides in its Form 21-101F2 is crucial for regulators to understand the various important aspects of the marketplace, including its operations, marketplace participants and the securities that it trades. Form 21-101F3 is a form that is to be filed quarterly by marketplaces and the information in a Form 21-101F3 provides us with helpful information such as the types of trading activity that occurs on a marketplace. Together, the information in all of these forms allows us to regulate marketplaces and monitor changes in market activity more effectively.
In order to ensure that we receive current and accurate information in Forms 21-101F1 and 21-101F2 and can more easily review certain information contained in these forms, we have proposed changes related to: (a) guidance as to what constitutes a significant change to information in Form 21-101F1 and Form 21-101F2; (b) providing certain changes to these forms to a marketplace's RSP; (c) an annual certification pertaining to the information in the forms and (d) filing of materials related to outsourcing.
Based on past experiences in reviewing Form 21-101F3s filed by various marketplaces, we have also proposed changes to Form 21-101F3 as outlined in (e) below.
(a) Guidance regarding significant changes to Form 21-101F1 and Form 21-101F2
In order for regulators to have complete and accurate information regarding a marketplace, the information in these forms needs to be kept up-to-date and any significant changes to this information need to be reviewed by a securities regulatory authority to ensure that they are in keeping with the public interest. Therefore, subsection 3.2(1) of NI 21-101 requires that a marketplace file an amendment to the information provided in Form 21-101F1 or in Form 21-101F2, as applicable, at least 45 days before implementing a significant change. Subsection 3.2(3) of NI 21-101 requires that changes to fee information set out in Exhibit L -- Fees be filed at least seven business days before their implementation. To assist a marketplace in determining if a change is significant, subsection 6.1(4) of 21-101CP gives guidance that a change that could significantly impact a marketplace, its marketplace participants, investors or the Canadian capital markets is considered to be a significant change. Paragraphs 6.1(4)(a) through (n) of 21-101CP give examples of significant changes.
Under the current guidance in 21-101CP, all changes listed in paragraphs 6.1(4)(a) through (n) could be considered significant. However, feedback received from marketplaces and insight gained from reviewing marketplace filings show that some of these changes may or may not be significant, depending on their actual impact. For example, a change that would be considered significant to the operations of a continuous auction equity marketplace may not necessarily have the same impact on a request-for-quote fixed income marketplace.
Therefore, we propose amendments to subsection 6.1(4) to clarify that the types of changes currently listed in paragraphs 6.1(4)(a) through (n) of 21-101CP are only considered significant if they significantly impact a marketplace, its systems, market structure, marketplace participants or their systems, investors, issuers or the Canadian capital markets. The proposed guidance would further state that whether a change contemplated by a marketplace makes a significant impact depends on whether it is likely to give rise to potential conflicts of interest, to limit access to the services of a marketplace, introduce changes to the structure of the marketplace or results in costs, such as implementation costs, to marketplace participants, investors or, if applicable, the RSP.
A number of changes made by a marketplace will always be considered significant. These changes, listed in proposed paragraphs 6.1(4)(a), (b) and (c) of 21-101CP, are changes to a marketplace's structure, including procedures governing how orders are entered, displayed (if applicable), executed, cleared and settled. They also include changes related to the introduction or modifications to order types, fees or fee models.
As set out above, other changes may or may not be significant, depending on their impact. They are listed in proposed paragraphs 6.1(4)(d) through (n). It is our expectation that a marketplace considering these changes will make a determination as to whether or not they have a significant impact, based on the guidance provided. If a marketplace's proposed changes to either Form 21-101F1 or Form 21-101F2 have a significant impact, the changes must be filed at least 45 days in advance of their implementation. Otherwise, the changes must be filed subsequent to their implementation, as required by subsection 3.2(3) of NI 21-101.
Subsection 6.1(5) of 21-101CP includes guidance regarding changes that are not considered to have a significant impact on a marketplace, its market structure, marketplace participants, investors, issuers or the capital markets.
(b) Provision of Proposed Form Changes to Regulation Services Provider
We are of the view that an RSP of a marketplace should be kept informed of changes to the operations of the marketplace in order to effectively perform its regulatory functions. To that end, proposed subsection 3.2(1.1) of NI 21-101 would require a marketplace that has entered into an agreement with an RSP to provide the RSP with any proposed significant changes to a matter set out in Exhibit E -- Operation of the Marketplace of Form 21-101F1, where the marketplace is an exchange or Form 21-101F2 where the marketplace is an ATS. In addition, the marketplace would need to provide the RSP with any proposed significant changes to a matter set out in Exhibit I -- Securities of Form 21-101F1, where the marketplace is an exchange or Exhibit I -- Securities of Form 21-101F2 where the marketplace is an ATS.
We have proposed that only changes to Exhibits E and I must be provided to the RSP because this information may impact the monitoring of trading conducted by the RSP.
(c) Annual Certification of Form 21-101F1 and Form 21-101F2 Information
To help ensure the information in a marketplace's Form 21-101F1 or Form 21-101F2, as applicable, is accurate and updated regularly, proposed subsection 3.2(4) of NI 21-101 would require the chief executive officer of a marketplace to annually certify that the information in the marketplace's applicable form, is true, correct and complete and reflects the operations of the marketplace as they have been implemented. Along with this certification, we have proposed that a marketplace annually provide an updated and consolidated form in subsection 3.2(5) of NI 21-101.
These proposed changes will assist us in having an accurate and complete understanding of the operations of the marketplaces that we oversee and the risks faced by the market, thereby improving our ability to regulate more effectively.
(d) Filing of Materials Related to Outsourcing
To better ensure that marketplaces have established appropriate policies and procedures and other materials required under subsections 5.12(a), (b), (f), (g) and (h) of NI 21-101 related to the outsourcing of the operation of any key marketplace service or system to a service provider, we propose that marketplaces file these materials as part of Exhibit F of Form 21-101F1 or Form 21-101F2, as applicable.
(e) Changes to Form 21-101F3
Based on our past experience with reviewing and using data collected from Form 21-101F3 we have proposed changes to this form to include additional information that we think is important in our oversight of a marketplace and to remove certain information to facilitate the electronic filing of this form.
In particular, we have removed the requirement to provide a list of all marketplace participants that are using the marketplace's co-location services and the percentage of marketplace participants that use a marketplace's co-location services as we now propose to receive this information in Form 21-101F1 or Form 21-101F2. We also propose to remove the requirement to provide a list of participants granted, denied or limited access to the marketplace as we now propose to receive this information in Form 21-101F1 or Form 21-101F2 as well. In addition, we propose to revise how information is provided to us in Charts 2, 3, 15 and 16. Specifically, we propose that marketplaces provide the raw number of the volume, value and number of trades in charts 2, 15 and 16 rather than a percentage and that marketplaces provide the actual number of orders executed and cancelled rather than provide a percentage in chart 3. These Proposed Amendments would streamline some of the information in Form 21-101F3 and facilitate the electronic filing of this form.
With respect to Chart 8, we propose to ask for information on each fixed income security traded on the marketplace rather than only asking for information on the top ten fixed income securities (based on the value of the volume traded) that are traded on the marketplace. This additional information will help us better understand the trading that is conducted in the fixed income market.
Finally, we are proposing to receive information in Form 21-101F3 regarding significant systems and technology changes that were planned, under development or implemented during the quarter. We think that this information will help us anticipate and perhaps address issues that we may identify for marketplaces with respect to these significant changes.
6. PROVISION OF DATA TO AN INFORMATION PROCESSOR
Background and Proposed Amendments
We note that an information processor (or information vendor, in its absence), is a key element in the multiple marketplace environment for equity listed securities. It facilitates compliance by marketplace participants with relevant requirements in a multiple marketplace environment by ensuring the availability of consolidated data that meets regulatory standards and which users, as well as regulators, could use to demonstrate or evaluate compliance with certain regulatory requirements. As a result, it is important to ensure that the information processor receives accurate and timely information from marketplaces. This is reflected in the requirements that marketplaces provide accurate and timely data to the information processor in subsections 7.1(1) and 7.2(1) of NI 21-101.
Currently, subsection 9.1(2) of 21-101CP sets out the expectation that a marketplace will not make the order and trade information it is required to report under sections 7.1 and 7.2 of NI 21-101 to any other person or company on a more timely basis than it makes it available to the information processor or information vendor.
We are of the view that this information is not timely if it is made available by a marketplace to any other person or company before it is made available to the information processor, or if applicable, information vendor. We have therefore proposed new subsections 7.1(3) and 7.2(2) of NI 21-101 to codify this requirement.
7. OBLIGATIONS OF A RECOGNIZED EXCHANGE TO A REGULATION SERVICES PROVIDER
Background
Section 7.1 of NI 23-101 provides a recognized exchange with an option to either directly monitor the conduct of its members or engage an RSP to perform this monitoring. Today, a number of recognized exchanges have engaged IIROC to act as their RSP and perform the required monitoring. When an exchange decides to engage an RSP to monitor the conduct of its members, section 7.2 of NI 23-101 requires, among other things, that an agreement between an exchange and RSP include that the recognized exchange will transmit to the RSP information that the RSP needs to effectively monitor: (i) the conduct of and trading by marketplace participants on and across marketplaces, and (ii) the conduct of the recognized exchange.
Proposed Amendments
The CSA have been told that the requirements under this subsection 7.2 of NI 23-101 are not necessarily clear to all recognized exchanges and that different interpretations exist as to what a recognized exchange's specific obligations are under these provisions. To help clarify these requirements, we have proposed a new section, 7.2.1 Obligations of a Recognized Exchange to a Regulation Services Provider, that turns certain provisions that currently must be included in an agreement with an RSP under section 7.2 into direct requirements that a recognized exchange would have to follow. We have also provided further guidance regarding proposed section 7.2.1 in 23-101CP to assist exchanges in understanding their obligations to an RSP. While we are of the view that these Proposed Amendments do not significantly change our expectations of a marketplace or its existing relationship with an RSP, we believe these changes will help eliminate incorrect interpretations of the current provisions.
Specifically, we propose in section 7.1(3) of NI 23-101 that a recognized exchange that has entered into a written agreement with an RSP must set requirements that are necessary for the RSP to be able to effectively monitor trading on the exchange and across marketplaces as required by the RSP. The proposed guidance in 7.1 of 23-101CP explains that a recognized exchange is expected to adopt all rules of the RSP that relate to trading as part of the requirements it must set under subsection 7.1(3). Further, it is proposed that the exchange transmit to the RSP information required by the RSP to monitor the conduct of the recognized exchange, including compliance of the recognized exchange with the requirements set under subsection 7.1(3). Analogous requirements relating to QTRSs have also been proposed in section 7.4.1 of NI 23-101.
8. FORM OF INFORMATION PROVIDED TO REGULATORS
Section 11.2.1 of NI 21-101 requires a marketplace to transmit information required by its RSP and its securities regulatory authority within ten business days in electronic form. To ensure that regulators receive the information they need in the form and format that is most helpful for them to conduct their oversight, we propose to add the requirement that a marketplace transmit information in the manner that is requested by a securities regulatory authority and if applicable, its RSP.
9. CLEARING AND SETTLEMENT
Background and Proposed Amendments
Part 13 Clearing and Settlement of NI 21-101 sets out certain clearing and settlement requirements for all trades executed on a marketplace.
Proposed section 13.2 of NI 21-101 codifies the policy objective that marketplace participants should not be unreasonably prevented from having access to the clearing agency of their choice. This policy objective is important since the acquisition by Maple Group Acquisition Corporation of TMX Group Inc. and The Canadian Depository for Securities Limited resulted in the transformation of Canada's not-for-profit securities clearing and settlement utility into a vertically-integrated for-profit clearing agency. The CSA recognize that it is necessary to prevent potential impediments to competition in clearing and settlement to ensure that the markets are fair and efficient.
In April 2012, the Committee for Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions (IOSCO) published their report Principles for financial market infrastructures (PFMI Report).{17} The PFMI Report notes that competition among financial market infrastructures (such as clearing agencies) can be an important mechanism for facilitating efficient and low-cost services. The CPSS-IOSCO standards for the safe and efficient functioning of financial market infrastructures contained in the PFMI Report are currently being adopted by certain Canadian jurisdictions as ongoing regulatory requirements for recognized clearing agencies.{18}
Proposed subsection 13.2(2) of NI 21-101 limits the scope of subsection 13.2(1). Marketplace trades in standardized derivatives or exchange-traded securities that are options, would not be subject to the provision.
The CSA are not aware of any current plans by industry to develop or support competing clearing agencies that would serve domestic cash marketplaces. However, in the context of the Maple transactions we received strong stakeholder support for ensuring a regulatory framework that could allow for competition among clearing agencies. In the event that industry decides at some later stage that the benefits of competition would out-weigh the costs of supporting multiple clearing agencies, marketplaces should be required to accommodate any competition. The CSA recognize that should industry decide to support a multi-clearing agency environment in the Canadian cash markets, time will be needed by the relevant market infrastructures (i.e. marketplaces and clearing agencies) to consider and develop processes, interfaces and links to facilitate the clearing of cash market trades at multiple clearing agencies.
We seek stakeholder feedback on the above issues, and welcome your comments on proposed new section 13.2 of NI 21-101.
10. REQUIREMENTS APPLICABLE TO INFORMATION PROCESSORS
Background and Proposed Amendments
Part 14 Requirements for an Information Processor of NI 21-101 sets out the filing, systems and other requirements applicable to information processors.
Subsection 14.4(6) of NI 21-101 requires an information processor to file annual audited financial statements within 90 days after the end of its financial year. Subsection 14.4(7) requires an information processor to file its financial budget within 30 days after the start of a financial year. The purpose of these requirements is to ensure that CSA staff receive some of the information they need to assess the financial condition of the information processor.
We note that an information processor may be operated as a division or unit of another person or company. For example, the information processor for equity securities other than options is operated as a division of TMX Group Inc. Under the current requirements, the information processor may file the audited financial statements and the budget of its parent company, which may not include sufficient detail to enable us to assess the financial viability of the information processor unit.
For this reason, we have proposed amendments to Part 14 to require, if an information processor is operated as a division or unit of a person or company, the person or company to file the income statement, statement of cash flow and any other information necessary to demonstrate the financial condition of the information processor. Proposed subsection 14.4(6.1) of NI 21-101 requires that this information must be filed within 90 days after the end of the financial year of the person or company that operates the information processor. We do not propose to require that this financial information be audited, because this information will be filed in addition to the audited financial statements of the person or company that operates the information processor.
We also have proposed subsection 14.4(7.1) of NI 21-101 that would require a person or company that operates an information processor as one of its divisions or units to file the financial budget of the information processor within 30 days from the beginning of the financial year of the person or company.
Finally, we have also proposed amendments to the systems requirements applicable to the information processor similar to those proposed for marketplace systems for consistency. Specifically, we have proposed amendments to subparagraph 14.5(d)(ii) to require an information processor to provide its independent systems review report within the earlier of 30 days of providing it to the board of directors or the audit committee, or 60 days after the calendar year end.
{1} CSA Notice of Proposed Amendments to NI 21-101 and NI 23-101 published at (2011) 34 OSCB (Supp-1).
{2} Available at http://iiroc.knotia.ca/Knowledge/View/Document.cfm?Ktype=445&linkType=toc&dbID=201312361&tocID=22.
{3} Available at http://www.iiroc.ca/Documents/2013/2e5bf850-7ea6-4b36-9217-f744517554a9_en.pdf.
{4} Subsection 14.12(b.1) of NI 31-103.
{5} "Total compensation" is the total amount of any mark-up or mark-down, commission or other services that were charged on a debt security trade. "Gross commission" is the commission a registrant charges on the debt security trade (as compared to "net commission, which is the Registered Representative's portion of the commission charged on the trade).
{6} Subsection 14.12(c.1) of NI 31-103.
{7} See details at http://www.tmx.com/en/data/products_services/regulatory_depository/fixed_income_price_service.html.
{8} The definition of a TRACE-eligible security is in FINRA Rule 6710, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4400.
{9} According to press release of the European Commission, available at http://europa.eu/rapid/press-release_MEMO-14-15_en.htm?locale=en.
{10} Section 8.2 of NI 21-101 requires marketplaces to report accurate and timely information for orders of designated corporate debt securities to an information processor, as required by the information processor. It also requires marketplaces, IDBs and dealers to report accurate and timely information regarding details of trades of corporate debt securities to the information processor, as required by the information processor. Section 8.3 of NI 21-101 requires the information processor to produce an accurate consolidated feed in real-time showing the information provided to it.
{11} The most recent list of designated corporate debt securities is available at http://www.canpxonline.ca/selectioncriteria.php.
{12} The complete report with recommendations may be found at Appendix A of OSC Staff Notice 23-702 Electronic Trading Risk Analysis Update published on December 12, 2013 at (2013), 36 OSCB 11767.
{13} Subparagraph 1000(b)(9)(ii) of Reg SCI would require an SCI entity to coordinate the testing of business continuity and disaster recovery plans on an industry- or sector-wide basis with other SCI entities. For more information see https://www.federalregister.gov/articles/2013/03/25/2013-05888/regulation-systems-compliance-and-integrity.
{14} These Proposed Amendments codify staff practice outlined in OSC Staff Notice 21-706 -- Marketplaces' Initial Operations and Material System Changes published on October 4, 2012 at (2012) 35 OSCB 8928.
{15} Available at http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20131003_210_alpha-trading.htm
{16} The proposed amendments to NI 21-101 that would allow for this exception are substantially similar to the terms and conditions in the OSC exemption order granting marketplaces an exemption from the requirement to keep order and trade information in confidence.
{17} The PFMI Report is available on the Bank for International Settlements' website (www.bis.org) and the IOSCO website (www.iosco.org).
{18} See proposed OSC Rule 24-503 Clearing Agency Requirements, MSC Rule 24-503 Clearing Agency Requirements, and AMF Regulation 24-503 Respecting clearing house, central securities depository and settlement system requirements, together with their related companion policies.
ANNEX B
AMENDMENTS TO NATIONAL INSTRUMENT 21-101 MARKETPLACE OPERATION
1. National Instrument 21-101 Marketplace Operation is amended by this Instrument.
2. National Instrument 21-101 Marketplace Operation is amended by replacing "shall" wherever it occurs with "must".
3. National Instrument 21-101 Marketplace operation is amended by replacing "percent" wherever it occurs with "%".
4. Section 1 is amended by
(a) replacing ";" with "," in paragraph (a)(iv) of the definition of marketplace, and
(b) replacing "Accouting" with "Accounting" in the definition of private enterprise.
5. Section 1.4(2) is amended by replacing "Commodity Futures Act" wherever it occurs with "Commodity Futures Act".
6. Section 3.2 is amended by
(a) adding "applicable" after "in the manner set out in the" in subsection(1),
(b) adding the following item after subsection (1):
(1.1) A marketplace that has entered into an agreement with a regulation services provider in accordance with NI 23-101 must not implement a significant change to a matter set out in Exhibit E -- Operation of the Marketplace of Form 21-101F1 or Exhibit E -- Operation of the Marketplace of Form 21-101F2 as applicable, or Exhibit I -- Securities of Form 21-101F1 or Exhibit I -- Securities of Form 21-101F2 as applicable, unless the marketplace has provided the filing to its regulation services provider at least 45 days before implementing the change.,
(c) adding "applicable" after "amendment to the information provided in the" in subsection (3), and
(d) adding the following item after subsection (3):
(4) The chief executive officer of a marketplace, or individual performing a similar function, must certify in writing, within 30 days after the end of each calendar year, that the information contained in the marketplace's current Form 21-101F1 or Form 21-101F2, as applicable, including the description of its operations, is true, correct, and complete and its operations have been implemented as described in the applicable Form.
(5) A marketplace must provide an updated and consolidated Form 21-101F1 or Form 21-101F2, as applicable, within 30 days after the end of each calendar year..
7. Section 5.1 is amended by replacing ";" with "," in subsections (2)(a) and (3)(a).
8. Section 5.7 is amended by deleting an additional space after "not".
9. Section 5.10 is amended by
(a) adding the following item after subsection (1):
(1.1) Despite subsection (1), a marketplace may release a marketplace participant's order or trade information to a person or company if the marketplace has entered into a written agreement with each person or company that will receive the order and trade information that provides that
(a) the person or company must
(i) not disclose to or share any information with any person or company if that information could directly or indirectly, identify a marketplace participant or a client of the marketplace participant without the marketplace's consent, other than as provided under subsection (1.3) below;
(ii) not publish or otherwise disseminate data or information that discloses, directly or indirectly, the transactions, trading strategies or market positions of a marketplace participant or a client of the marketplace participant;
(iii) not use the order and trade information or provide it to any other person or company for any purpose other than capital markets research;
(iv) keep the order and trade information securely stored at all times;
(v) keep the order and trade information only for a reasonable period of time after the completion of the research and publication process; and
(vi) immediately inform the marketplace of any breach or possible breach of the confidentiality of the information provided; and
(b) the marketplace has the right to take appropriate steps, that in the marketplace's sole discretion, are necessary to prevent or deal with a breach or possible breach of the confidentiality of the information provided or of the agreement.
(1.2) A marketplace that releases a marketplace participant's order or trade information pursuant to subsection (1.1) must
(a) promptly inform the regulator or, in Québec, the securities regulatory authority, in the event the marketplace becomes aware of any breach or possible breach of the confidentiality of the information provided or of the agreement; and
(b) take all appropriate steps that in the marketplace's sole discretion, are necessary against that person or company to prevent or deal with a breach or possible breach of the confidentiality of the information provided or of the agreement.
(1.3) A person or company that receives a marketplace participant's order or trade information from a marketplace pursuant to subsection (1.1) may disclose the order or trade information used in connection with research submitted to a publication if it has entered into a written agreement with the marketplace that provides that:
(a) the information the person or company will disclose is used for verification purposes only,
(b) the person or company must obtain written agreement from the publication or any person or company involved in the verification of the research to maintain the confidentiality of the information,
(c) the person or company must notify the marketplace prior to sharing the information for verification purposes, and
(d) the person or company must obtain written agreement from the publication or any person or company involved in the verification of the research that the publication or other person or company will immediately inform the marketplace of any breach or possible breach of the agreement or of the confidentiality of the information provided..
10. Section 5.12 is amended by
(a) deleting ":" after "the marketplace must" in the preamble,
(b) replacing "key services and systems" with "key services or systems" in subsections (b) and (c), and
(c) deleting "," after "on behalf of the marketplace" in subsection (e).
11. Part 5 is amended by
(a) adding the following item:
5.13 Access Arrangements with a Service Provider
If a third party service provider provides a means of access to a marketplace, the marketplace must ensure the third party service provider complies with the written standards for access that the marketplace has established pursuant to paragraph 5.1(2)(a) when providing the access services..
12. Section 6.7(1) is amended by replacing ";" with "," in subsections (a) and (b).
13. Section 7.1 is amended by adding the following item:
(3) A marketplace that is subject to subsection (1) must not make the information referred to in that subsection available to any other person or company before it makes that information available to the information processor or, if there is no information processor, to the information vendor..
14. Section 7.2 is amended by
(a) adding "(1)" before "A marketplace must provide accurate and timely", and
(b) adding the following item:
(2) A marketplace must not make the information referred to in subsection (1) available to any other person or company before it makes that information available to the information processor or, if there is no information processor, to the information vendor..
15. Subsection 8.1(5) is amended by replacing "interdealer" with "inter-dealer".
16. Section 8.6 is amended by replacing "2015" with "2018".
17. Section 10.1 is amended by
(a) adding "," after "disclose",
(b) adding "," after "website",
(c) adding "," after "or services it provides, including",
(d) adding "," after "but not limited to",
(e) deleting ":" after "information related to",
(f) replacing ";" wherever it occurs with ",",
(g) deleting "; and" in subsection (g) and replacing it with ",",
(h) replacing "." with "," in subsection (h), and
(i) adding the following items:
(i) any access arrangements with a third party service provider, including the name of the third party service provider and the standards for access to be complied with by the third party service provider, and
(j) the hours of operation of any testing environments provided by the marketplace, a description of any differences between the testing environment and production environment of the marketplace and the potential impact of these differences on the effectiveness of testing..
18. Section 11.2 is amended by replacing ";" with "," in paragraph (c)(xviii).
19. Section 11.2.1 is amended by
(a) adding ", in the manner requested by the regulation services provider" after "the information required by the regulation services provider" in subsection (a), and
(b) adding ", in the manner requested by the securities regulatory authority" after "under securities legislation" in subsection (b).
20. Section 11.3(1) is amended by
(a) deleting "and" in subsection (f),
(b) replacing "." with "; and" after "subsections 13.1(2) and 13.1(3)" in subsection (g), and
(c) adding the following items:
(h) a copy of any agreement referred to in section 5.10; and
(i) a copy of any agreement referred to in subsection 5.12(c)..
21. Section 12.1 is amended by
(a) replacing "For each of its systems that support" with "For each system, operated by or on behalf of the marketplace, that supports",
(b) replacing ";" with "," in paragraphs (a)(i), (a)(ii), (b)(i) and (b)(ii),
(c) replacing "malfunction or delay" with "malfunction, delay" in subsection (c), and
(d) adding the following after "delay" in subsection (c):
or security breach and provide timely updates on the status of the failure, malfunction, delay or security breach, the resumption of service and the results of the marketplace's internal review of the failure, malfunction, delay or security breach..
22. The following item is added after section 12.1:
12.1.1 Auxiliary Systems -- For each system that shares network resources with one or more of the systems, operated by or on behalf of the marketplace, that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, that if breached, would pose a security threat to one or more of the aforementioned systems, a marketplace must
(a) develop and maintain an adequate system of information security controls that relate to the security threats posed to any system that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, and
(b) promptly notify the regulator, or in Québec, the securities regulatory authority and, if applicable, its regulation services provider, of any material security breach and provide timely updates on the status of the breach, the resumption of service, where applicable, and the results of the marketplace's internal review of the security breach..
23. Subsection 12.2(1) is replaced with:
(1) A marketplace must annually engage a qualified party to conduct an independent systems review and prepare a report in accordance with established audit standards to ensure that the marketplace is in compliance with
(a) paragraph 12.1(a);
(b) section 12.1.1; and
(c) section 12.4.
24. Subsection 12.2(2) is amended by
(a) adding "the earlier of" before "30 days" in subsection (b), and
(b) adding "or 60 days after the calendar year end" after "committee" in subsection (b).
25. Section 12.3 is amended by
(a) replacing "Availability of" with "Marketplace" in the title of the section,
(b) replacing subsection (3) with:
(3) A marketplace must not begin operations or implement a material change to its technology requirements until the later of
(a) three months after notification of the completion of the review of the marketplace's initial filing or change in information by the regulator, or in Québec, the securities regulatory authority, is provided to the marketplace, and
(b) a reasonable period of time after the regulator, or in Québec, the securities regulatory authority, has completed its review of the marketplace's initial filing or change in information and notified the marketplace of the completion of the review.,
(c) deleting "12.3" in subsection (4), and
(d) adding the following items after subsection (4):
(5) A marketplace must not begin operations before,
(a) it has complied with paragraphs (1)(a) and (2)(a),
(b) its regulation services provider, if applicable, has confirmed to the marketplace that trading may commence on the marketplace, and
(c) the chief information officer of the marketplace, or person performing a similar function, has certified in writing to the regulator, or in Québec, the securities regulatory authority, that all information technology systems used by the marketplace have been tested according to prudent business practices and are operating as designed.
(6) A marketplace must not implement a material change to its technology requirements before,
(a) it has complied with paragraphs (1)(b) and (2)(b), and
(b) the chief information officer of the marketplace, or individual performing a similar function, has certified in writing to the regulator, or in Québec, the securities regulatory authority, that the change has been tested according to prudent business practices and is operating as designed.
(7) Subsection (6) does not apply to a marketplace if the change must be made immediately to address a failure, malfunction or material delay of its systems or equipment if the marketplace immediately notifies the regulator, or in Québec, the securities regulatory authority, of its intention to make the change..
26. Part 12 is amended by adding the following item after section 12.3:
12.3.1 Uniform Test Symbols
A marketplace must use uniform test symbols, as set by a regulator, or in Québec, the securities regulatory authority, for the purpose of performing testing in its production environment..
27. Section 12.4 is replaced with the following item:
12.4 Business Continuity Planning
(1) A marketplace must
(a) develop and maintain reasonable business continuity plans, including disaster recovery plans,
(b) test its business continuity plans, including disaster recovery plans, according to prudent business practices and on a reasonably frequent basis and, in any event, at least annually, and
(2) A marketplace with a total trading volume in any type of security equal to or greater than 10% of the total dollar value of the trading volume in that type of security on all marketplaces in Canada during at least two of the preceding three months of operations must ensure that each system, operated by or on behalf of the marketplace, that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, and trade clearing can resume operations within two hours following the declaration of a disaster by the marketplace.
(3) A recognized exchange or quotation and trade reporting system that directly monitors the conduct of its members or users and enforces requirements set under section 7.1(1) or 7.3(1) of NI 23-101 must ensure that each system, operated by or on behalf of the marketplace, that is critical and supports real-time market surveillance can resume operations within two hours following the declaration of a disaster at the primary site by the exchange or quotation and trade reporting system.
(4) A regulation services provider that has entered into a written agreement with a marketplace to conduct market surveillance for the marketplace must ensure that each system, operated by or on behalf of the regulation services provider, that is critical and supports real-time market surveillance can resume operations within two hours following the declaration of a disaster at the primary site by the regulation services provider..
28. Part 12 is amended by adding the following item after section 12.4:
12.4.1 Industry-Wide Business Continuity Tests
A marketplace, recognized clearing agency, information processor, and marketplace participant must participate in all industry-wide business continuity tests, as determined by a regulation services provider, regulator, or in Québec, the securities regulatory authority..
29. Part 13 is amended by:
(a) replacing "and settled" with "to a clearing agency" in subsections (2) and (3) in section 13.1, and
(b) adding the following item after section 13.1:
13.2 Access to Clearing Agency of Choice
(1) A marketplace must report a trade in a security to a clearing agency designated by a marketplace participant.
(2) Subsection (1) does not apply to a trade in a security that is a standardized derivative or an exchange-traded security that is an option..
30. Section 14.4 is amended by
(a) adding "or changes to an electronic connection" after "in a timely manner an electronic connection" in subsection (4),
(b) adding the following item after subsection (6):
(6.1) If an information processor is operated as a division or unit of a person or company, the person or company must file the income statement and the statement of cash flow of the information processor and any other information necessary to demonstrate the financial condition of the information processor within 90 days after the end of the financial year of the person or company., and
(c) adding the following item after subsection (7):
(7.1) If an information processor is operated as a division or unit of a person or company, the person or company must file the financial budget relating to the information processor within 30 days after the start of the financial year of the person or company..
30. Section 14.5 is amended by
(a) replacing ";" wherever it occurs with ",", and
(b) adding "the earlier of" before "30 days" and adding "or 60 days after the calendar year end," after "audit committee" in paragraph (d)(ii).
31. Section 14.6 is replaced by the following item:
14.6 Business Continuity Planning
An information processor must
(1) develop and maintain reasonable business continuity plans, including disaster recovery plans,
(2) test its business continuity plans, including disaster recovery plans, according to prudent business practices and on a reasonably frequent basis and, in any event, at least annually, and
(3) ensure that its critical systems can resume operations within one hour following the declaration of a disaster by the information processor..
32. Section 14.7 is amended by
(a) replacing "with this Instrument, or other than a securities regulatory authority, unless:" with "with this Instrument or a securities regulatory authority, unless" and
(b) replacing ";" with "," in subsection (a).
33. Section 14.8 is amended by
(a) deleting ":" after "but not limited to", and
(b) replacing ";" wherever it occurs with ",".
34. Form 21-101F1 Information Statement Exchange or Quotation and Trade Reporting System is amended by
(a) replacing "shall" wherever it occurs with "must",
(b) replacing "should" wherever it occurs with "must",
(c) adding "; AMENDMENT No." after "AMENDMENT" in Type of Filing,
(d) replacing "percent" with "%" in Exhibit B,
(e) adding "and the Board mandate" after "including their mandates" in Exhibit C,
(f) deleting ":" wherever it occurs in Exhibit D,
(g) deleting ";" wherever it occurs in Exhibit D,
(h) adding "," after "private enterprises" in Exhibit D,
(i) replacing "not be limited" with "is not limited" in Exhibit E,
(j) replacing "Description" wherever it occurs in Exhibit E with "A description",
(k) adding the following to the end of Exhibit E:
The filer must provide all material contracts related to order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing.,
(l) adding "," after "execution, data" in Exhibit F,
(m) adding the following item at the end of Exhibit F:
4. A copy of the marketplace's policies and procedures for the selection of service providers to which key services and systems may be outsourced and for the evaluation and approval of such outsourcing arrangements that are established and maintained pursuant to subsection 5.12(a) of National Instrument 21-101 Marketplace Operation.
5. A description of any conflicts of interest between the marketplace and the service provider to which key services and systems are outsourced and a copy of the policies and procedures to mitigate and manage such conflicts of interest that have been established pursuant to subsection 5.12(b) of National Instrument 21-101 Marketplace Operation.
6. A description of the measures the marketplace has taken pursuant to subsection 5.12(f) of National Instrument 21-101 Marketplace Operation to ensure that the service provider has established, maintains and periodically tests an appropriate business continuity plan, including a disaster recovery plan.
7. A description of the measures the marketplace has taken pursuant to subsection 5.12(g) of National Instrument 21-101 Marketplace Operation to ensure that the service provider protects the proprietary, order, trade or any other confidential information of the participants of the marketplace.
8. A copy of the marketplace's processes and procedures to regularly review the performance of a service provider under an outsourcing arrangement that are established pursuant to subsection 5.12(h) of National Instrument 21-101 Marketplace Operation.,
(n) replacing Exhibit G with the following:
General
Provide:
1. A high level description of the marketplace's systems that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, co-location and if applicable, market surveillance and trade clearing.
2. An organization chart of the marketplace's information technology group.
Business Continuity Planning
Please describe:
1. Where the primary processing site is located,
2. What the approximate percentage of hardware, software, and network redundancy is at the primary site,
3. If there is an uninterruptible power source (UPS) at the primary site,
4. How frequently market data is stored off-site,
5. Whether the marketplace has a secondary processing site and, if so, the location of the secondary processing site,
6. The filer's business continuity plan, including the disaster recovery plan. Please provide any relevant documentation,
7. How frequently the business continuity and disaster recovery plans are tested,
8. The targeted time to resume operations of critical information technology systems following the declaration of a disaster by the marketplace,
9. Any single points of failure faced by the marketplace.
Systems Capacity
Please describe:
1. How frequently future market activity is evaluated in order to adjust processing capacity,
2. The approximate excess capacity maintained over average daily transaction volumes,
3. How often or at what point stress testing is performed.
Systems
Please describe:
1. Whether the trading engine was developed in-house or by a commercial vendor,
2. Whether the trading engine is maintained in-house or by a commercial vendor and provide the name of the commercial vendor, if applicable,
3. The marketplace's networks. Please provide a copy of the network diagram used in-house that covers order entry, real-time market data and transmission,
4. The message protocols supported by the marketplace's systems,
5. The transmission protocols used by the marketplace's systems.
IT Risk Assessment
Please describe the IT risk assessment framework, including:
1. How the probability and likelihood of IT threats are considered,
2. How the impact of risks are measured according to qualitative and quantitative criteria,
3. The documentation process for acceptable residual risks with related offsets, and
4. The development of management's action plan to implement a risk response to a risk that has not been accepted.,
(o) replacing "Filer" wherever it occurs with "filer" in Exhibit I,
(p) replacing "Exhibit E.4" with "Exhibit E item 4" in Exhibit J,
(q) adding "Please identify if the marketplace participant accesses the marketplace through co-location." after "or other access." in item 4 of Exhibit K,
(r) deleting ":" after "indicating for each" in item 5 of Exhibit K,
(s) replacing ";" wherever it occurs with "," in item 5 of Exhibit K,
(t) adding "a copy of" after "and its members, provide" in item 2 of Exhibit M,
(u) deleting "." after "regulation services provider" in the second box of Exhibit M, and
(v) adding "Marketplace Operation" after "21-101" in Exhibit N.
35. Form 21-101F2 Initial Operation Report Alternative Trading System is amended by
(a) replacing "Initial Operation Report" with "Information Statement" in the title,
(b) replacing "should" wherever it occurs with "must" in the Form,
(c) replacing "shall" wherever it occurs with "must" in the Form,
(d) adding "; AMENDMENT No." after "AMENDMENT" in Type of Filing,
(e) adding "name of" after "[" in item 12 of Type of Filing,
(f) replacing "percent" with "%" in Exhibit B,
(g) replacing "not be" with "is not" in Exhibit E,
(h) replacing "Description" wherever it occurs with "A description" in Exhibit E,
(i) adding the following to the end of Exhibit E:
The filer must provide all material contracts relating to order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing.,
(j) deleting "the" after "including any function associated with" in Exhibit F,
(k) adding "data" after "clearing and settlement," in Exhibit F,
(l) adding the following items after item (3) in Exhibit F:
4. A copy of the marketplace's policies and procedures for the selection of service providers to which key services and systems may be outsourced and for the evaluation and approval of such outsourcing arrangements that are established and maintained pursuant to subsection 5.12(a) of National Instrument 21-101 Marketplace Operation.
5. A description of any conflicts of interest between the marketplace and the service provider to which key services and systems are outsourced and a copy of the policies and procedures to mitigate and manage such conflicts of interest that have been established pursuant to subsection 5.12(b) of National Instrument 21-101 Marketplace Operation.
6. A description of the measures the marketplace has taken pursuant to subsection 5.12(f) of National Instrument 21-101 Marketplace Operation to ensure that the service provider has established, maintains and periodically tests an appropriate business continuity plan, including a disaster recovery plan.
7. A description of the measures the marketplace has taken pursuant to subsection 5.12(g) of National Instrument 21-101 Marketplace Operation to ensure that the service provider protects the proprietary order, trade or any other confidential information of the participants of the marketplace.
8. A copy of the marketplace's processes and procedures to regularly review the performance of a service provider under an outsourcing arrangement that are established pursuant to subsection 5.12(h) of National Instrument 21-101 Marketplace Operation.,
(m) replacing Exhibit G with the following:
General
Provide:
1. A high level description of the marketplace's systems that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, co-location and if applicable, market surveillance and trade clearing.
2. An organization chart of the marketplace's information technology group.
Business Continuity Planning
Describe:
1. Where the primary processing site is located,
2. What the approximate percentage of hardware, software, and network redundancy is at the primary site,
3. If there is an uninterruptible power source (UPS) at the primary site,
4. How frequently market data is stored off-site,
5. Whether the marketplace has a secondary processing site and, if so, the location of the secondary processing site,
6. The filer's business continuity plan, including the disaster recovery plan. Please provide any relevant documentation,
7. How frequently the business continuity and disaster recovery plans are tested,
8. The targeted time to resume operations of critical information technology systems following the declaration of a disaster by the marketplace,
9. Any single points of failure faced by the marketplace.
Systems Capacity
Describe:
1. How frequently future market activity is evaluated in order to adjust processing capacity,
2. The approximate excess capacity maintained over average daily transaction volumes,
3. How often or at what point stress testing is performed.
Systems
Describe:
1. Whether the trading engine was developed in-house or by a commercial vendor,
2. Whether the trading engine is maintained in-house or by a commercial vendor and provide the name of the commercial vendor, if applicable,
3. The marketplace's networks. Please provide a copy of the network diagram used in-house that covers order entry, real-time market data and transmission,
4. The message protocols supported by the marketplace's systems,
5. The transmission protocols used by the marketplace's systems.
IT Risk Assessment
Describe the IT risk assessment framework, including:
1. How the probability and likelihood of IT threats are considered,
2. How the impact of risks are measured according to qualitative and quantitative criteria,
3. The documentation process for acceptable residual risks with related offsets, and
4. The development of management's action plan to implement a risk response to a risk that has not been accepted.,
(n) adding "list" after "If this is an initial filing," in Exhibit I,
(o) replacing "Exhibit E.4" with "Exhibit E item 4" in item 1 of Exhibit J,
(p) deleting "," after "institution" in item 2 of Exhibit J,
(q) adding "Identify if the marketplace participant accesses the marketplace through co-location." after "access." in item 4 of Exhibit K,
(r) deleting ":" after "for each" in item 5 of Exhibit K, and
(s) replacing ";" wherever it occurs with "," in item 5 of Exhibit K,
(t) adding "Marketplace Operation" after "21-101" in Exhibit N, and
36. Form 21-101F3 Quarterly Report of Marketplace Activities is amended by
(a) replacing "should" wherever it occurs with "must" in the Form,
(b) replacing item 4 with the following:
4. A list of all amendments in the information in Form 21-101F1 or 21-101F2 that were filed with the Canadian securities regulatory authorities and implemented during the period covered by the report. The list must include a brief description of each amendment, the date filed and the date implemented.,
(c) replacing item 5 with the following:
5. A list of all amendments in the information in Form 21-101F1 or 21-101F2 that have been filed with the Canadian securities regulatory authorities but not implemented as of the end of the period covered by the report. The list must include a brief description of each amendment, the date filed and the reason why it was not implemented.,
(d) adding the following items after item 5:
6. Systems -- If any outages occurred at any time during the period for any system relating to trading activity, including trading, routing or data, provide the date, duration, reason for the outage and its resolution.
7. Systems Changes -- A brief description of any significant changes to the systems and technology used by the marketplace that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, co-location and if applicable, market surveillance and trade clearing that were planned, under development, or implemented during the quarter. Please provide the current status of the changes that are under development.,
(e) deleting "%" wherever it occurs in Chart 2 of Section 1 of Part B,
(f) deleting "% Number of exchange traded securities that are" in Chart 2 of Section 1 of Part B,
(g) deleting "%" wherever it occurs in Chart 3 of Section 1 of Part B,
(h) replacing "third-party" with "third party" in item 6 of Section 1 of Part B,
(i) deleting item 7 of Section 1 of Part B,
(j) adding "during the quarter" after "regular trading hours" in item 1 of Section 2 of Part B,
(k) replacing "the 10 most traded fixed income securities" with "each fixed income security traded" in item 2 of Section 2 of Part B,
(l) deleting "(based on the value of the volume traded) for trades executed" in item 2 of Section 2 of Part B,
(m) replacing Chart 8 of Section 2 of Part B with the following chart:
Chart 8 -- Traded fixed income securities
Category of Securities
Value Traded
Number of Trades
Domestic Unlisted Debt Securities -- Government
1. Federal [Enter issuer, maturity, coupon]
__________
__________
2. Federal Agency [Enter issuer, maturity, coupon]
__________
__________
3. Provincial and Municipal [Enter issuer, maturity, coupon]
__________
__________
Domestic Unlisted Debt Securities -- Corporate
[Enter issuer, maturity, coupon]
__________
__________
Domestic Unlisted Debt Securities -- Other
[Enter issuer, maturity, coupon]
__________
__________
Foreign Unlisted Debt Securities -- Government
[Enter issuer, maturity, coupon]
__________
__________
Foreign Unlisted Debt Securities -- Corporate
[Enter issuer, maturity, coupon]
__________
__________
Foreign Unlisted Debt Securities -- Other
[Enter issuer, maturity, coupon]
__________
__________
(n) deleting "%" wherever it occurs in Charts 15 and 16 of Section 4 of Part B,
(o) deleting "of" in Chart 15 of Section 4 of Part B, and
(p) deleting item 6 of Section 4 of Part B.
37. Form 21-101F4 Cessation Of Operations Report For Alternative Trading System is amended by replacing "shall" with "must".
38. Form 21-101F5 Initial Operation Report for Information Processor is amended by
(a) replacing "Initial Operation Report for" with "Information Statement" in the title,
(b) adding ": AMENDMENT No." after "AMENDMENT" in Type of Filing,
(c) replacing "should" wherever it occurs with "must" in the Form,
(d) replacing "shall" wherever it occurs with "must" in the Form,
(e) adding "," after "National Instrument 21-101" under the heading "Exhibits",
(f) adding "," after "standing committees of the board" and after "previous year" in item 1 of Exhibit C,
(g) replacing "system" with "System" in item 3 of section 1 of Exhibit G,
(h) replacing "Description" with "A description" in item 5 of section 1 of Exhibit G,
(i) replacing "exists" with "exist" in item 2 of Exhibit J,
(j) adding "provide" after "National Instrument 21-101" in item 2 of Exhibit J,
(k) replacing "who" with "that" in item 3 of Exhibit K.
39. FORM Form 21-101F6 Cessation of Operations Report for Information Processor is amended by replacing "shall" with "must".
40. This Instrument comes into force on •.
AMENDMENTS TO NATIONAL INSTRUMENT 23-101 TRADING RULES
1. National Instrument 23-101 Trading Rules is amended by this Instrument.
2. Section 6.8 is amended by adding ", except for paragraph 6.3(1)(c)," after "In Québec, this Part".
3. The following item is added after subsection 7.1(2):
(3) If a recognized exchange has entered into a written agreement with a regulation services provider, the recognized exchange must set requirements that are necessary for the regulation services provider to be able to effectively monitor trading on the recognized exchange and across marketplaces as required by the regulation services provider..
4. Section 7.2 is replaced with the following item:
7.2 Agreement between a Recognized Exchange and a Regulation Services Provider -- A recognized exchange that monitors the conduct of its members indirectly through a regulation services provider shall enter into a written agreement with the regulation services provider which provides that the regulation services provider will:
(a) monitor the conduct of the members of the recognized exchange,
(b) monitor the compliance of the recognized exchange with the requirements set under subsection 7.1(3),
(c) enforce the requirements set under subsection 7.1(1)..
5. The following item is added after section 7.2:
7.2.1 Obligations of a Recognized Exchange to a Regulation Services Provider -- A recognized exchange that has entered into a written agreement with a regulation services provider must
(a) transmit to the regulation services provider the information required under Part 11 of NI 21-101 and any information reasonably required by the regulation services provider in the form and manner requested by the regulation services provider to effectively monitor:
(i) the conduct of and trading by marketplace participants on and across marketplaces, including the compliance of marketplace participants with the requirements set under subsection 7.1(1), and
(ii) the conduct of the recognized exchange, including the compliance of the recognized exchange with the requirements set under subsection 7.1(3); and
(b) comply with all orders or directions made by the regulation services provider..
6. The following item is added after subsection 7.3(2):
(3) If a recognized quotation and trade reporting system has entered into a written agreement with a regulation services provider, the recognized quotation and trade reporting system must set requirements that are necessary for the regulation services provider to be able to effectively monitor trading on the recognized quotation and trade reporting system and across marketplaces as required by the regulation services provider..
7. Section 7.4 is replaced with the following:
7.4 Agreement between a Recognized Quotation and Trade Reporting System and a Regulation Services Provider - A recognized quotation and trade reporting system that monitors the conduct of its users indirectly through a regulation services provider shall enter into a written agreement with the regulation services provider which provides that the regulation services provider will
(a) monitor the conduct of the users of the recognized quotation and trade reporting system,
(b) monitor the compliance of the recognized quotation and trade reporting system with the requirements set under subsection 7.3(3), and
(c) enforce the requirements set under subsection 7.3(1)..
8. The following item is added after section 7.4:
7.4.1 Obligations of a Quotation and Trade Reporting System to a Regulation Services Provider -- A recognized quotation and trade reporting system that has entered into a written agreement with a regulation services provider must
(a) transmit to the regulation services provider the information required under Part 11 of NI 21-101 and any information reasonably required by the regulation services provider in the form and manner requested by the regulation services provider to effectively monitor:
(i) the conduct of and trading by marketplace participants on and across marketplaces, including the compliance of marketplace participants with the requirements set under subsection 7.3(1), and
(ii) the conduct of the recognized quotation and trade reporting system, including the compliance of the recognized quotation and trade reporting system with the requirements set under subsection 7.3(3); and
(b) comply with all orders or directions made by the regulation services provider..
9. This Instrument comes into force on •.
ANNEX C
NATIONAL INSTRUMENT 21-101
MARKETPLACE OPERATION
PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions -- In this Instrument
"accounting principles" means accounting principles as defined in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards;
"alternative trading system",
(a) in every jurisdiction other than Ontario, means a marketplace that
(i) is not a recognized quotation and trade reporting system or a recognized exchange, and
(ii) does not
(A) require an issuer to enter into an agreement to have its securities traded on the marketplace,
(B) provide, directly, or through one or more subscribers, a guarantee of a two-sided market for a security on a continuous or reasonably continuous basis,
(C) set requirements governing the conduct of subscribers, other than conduct in respect of the trading by those subscribers on the marketplace, and
(D) discipline subscribers other than by exclusion from participation in the marketplace, and
(b) in Ontario has the meaning set out in subsection 1(1) of the Securities Act (Ontario);
"ATS" means an alternative trading system;
"corporate debt security" means a debt security issued in Canada by a company or corporation that is not listed on a recognized exchange or quoted on a recognized quotation and trade reporting system or listed on an exchange or quoted on a quotation and trade reporting system that has been recognized for the purposes of this Instrument and NI 23-101, and does not include a government debt security;
"exchange-traded security" means a security that is listed on a recognized exchange or is quoted on a recognized quotation and trade reporting system or is listed on an exchange or quoted on a quotation and trade reporting system that is recognized for the purposes of this Instrument and NI 23-101;
"foreign exchange-traded security" means a security that is listed on an exchange, or quoted on a quotation and trade reporting system, outside of Canada that is regulated by an ordinary member of the International Organization of Securities Commissions and is not listed on an exchange or quoted on a quotation and trade reporting system in Canada;
"government debt security" means
(a) a debt security issued or guaranteed by the government of Canada, or any province or territory of Canada,
(b) a debt security issued or guaranteed by any municipal corporation or municipal body in Canada, or secured by or payable out of rates or taxes levied under the law of a jurisdiction of Canada on property in the jurisdiction and to be collected by or through the municipality in which the property is situated,
(c) a debt security issued or guaranteed by a crown corporation or public body,
(d) in Ontario, a debt security of any school board in Ontario or of a corporation established under section 248(1) of the Education Act (Ontario), or
(e) in Québec, a debt security of the Comité de gestion de la taxe scolaire de I'île de Montréal
that is not listed on a recognized exchange or quoted on a recognized quotation and trade reporting system or listed on an exchange or quoted on a quotation and trade reporting system that has been recognized for the purposes of this Instrument and NI 23-101;
"IIROC" means the Investment Industry Regulatory Organization of Canada;
"information processor" means any person or company that receives and provides information under this Instrument and has filed Form 21-101F5;
"inter-dealer bond broker" means a person or company that is approved by IIROC under IIROC Rule 36 Inter-Dealer Bond Brokerage Systems, as amended, and is subject to IIROC Rule 36 and IIROC Rule 2100 Inter-Dealer Bond Brokerage Systems, as amended;
"market integrator" [repealed]
"marketplace",
(a) in every jurisdiction other than Ontario, means
(i) an exchange,
(ii) a quotation and trade reporting system,
(iii) a person or company not included in clause (i) or (ii) that
(A) constitutes, maintains or provides a market or facility for bringing together buyers and sellers of securities,
(B) brings together the orders for securities of multiple buyers and sellers, and
(C) uses established, non-discretionary methods under which the orders interact with each other, and the buyers and sellers entering the orders agree to the terms of a trade, or
(iv) a dealer that executes a trade of an exchange-traded security outside of a marketplace, but does not include an inter-dealer bond broker
;, and(b) in Ontario has the meaning set out in subsection 1(1) of the Securities Act (Ontario);
"marketplace participant" means a member of an exchange, a user of a quotation and trade reporting system, or a subscriber of an ATS;
"member" means, for a recognized exchange, a person or company
(a) holding at least one seat on the exchange, or
(b) that has been granted direct trading access rights by the exchange and is subject to regulatory oversight by the exchange,
and the person or company's representatives;
"NI 23-101" means National Instrument 23-101 Trading Rules;
"order" means a firm indication by a person or company, acting as either principal or agent, of a willingness to buy or sell a security;
"private enterprise" means a private enterprise as defined in Part 3 of National Instrument 52-107 Acceptable AccoutingAccounting Principles and Auditing Standards;
"publicly accountable enterprise" means a publicly accountable enterprise as defined in Part 3 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards;
"recognized exchange" means
(a) in Ontario, a recognized exchange as defined in subsection 1(1) of the Securities Act (Ontario),
(b) in Québec, an exchange recognized by the securities regulatory authority under securities or derivatives legislation as an exchange or self-regulatory organization, and
(c) in every other jurisdiction, an exchange recognized by the securities regulatory authority as an exchange, self-regulatory organization or self-regulatory body;
"recognized quotation and trade reporting system" means
(a) in every jurisdiction other than British Columbia, Ontario and Québec, a quotation and trade reporting system recognized by the securities regulatory authority under securities legislation to carry on business as a quotation and trade reporting system,
(b) in British Columbia, a quotation and trade reporting system recognized by the securities regulatory authority under securities legislation as a quotation and trade reporting system or as an exchange,
(b.1) in Ontario, a recognized quotation and trade reporting system as defined in subsection 1(1) of the Securities Act (Ontario), and
(c) in Québec, a quotation and trade reporting system recognized by the securities regulatory authority under securities or derivatives legislation as an exchange or a self-regulatory organization;
"regulation services provider" means a person or company that provides regulation services and is
(a) a recognized exchange,
(b) a recognized quotation and trade reporting system, or
(c) a recognized self-regulatory entity;
"self-regulatory entity" means a self-regulatory body or self-regulatory organization that
(a) is not an exchange, and
(b) is recognized as a self-regulatory body or self-regulatory organization by the securities regulatory authority;
"subscriber" means, for an ATS, a person or company that has entered into a contractual agreement with the ATS to access the ATS for the purpose of effecting trades or submitting, disseminating or displaying orders on the ATS, and the person or company's representatives;
"trading fee" means the fee that a marketplace charges for execution of a trade on that marketplace;
"trading volume" means the number of securities traded;
"unlisted debt security" means a government debt security or corporate debt security; and
"user" means, for a recognized quotation and trade reporting system, a person or company that quotes orders or reports trades on the recognized quotation and trade reporting system, and the person or company's representatives.
1.2 Interpretation -- Marketplace -- For the purpose of the definition of "marketplace" in section 1.1, a person or company is not considered to constitute, maintain or provide a market or facilities for bringing together buyers and sellers of securities, solely because the person or company routes orders to a marketplace or a dealer for execution.
1.3 Interpretation -- Affiliated Entity, Controlled Entity and Subsidiary Entity
(1) In this Instrument, a person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other or if both are subsidiary entities of the same person or company, or if each of them is a controlled entity of the same person or company.
(2) In this Instrument, a person or company is considered to be controlled by a person or company if
(a) in the case of a person or company,
(i) voting securities of the first-mentioned person or company carrying more than 50
percent% of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of the other person or company, and(ii) the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;
(b) in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50
percent% of the interests in the partnership; or(c) in the case of a limited partnership, the general partner is the second-mentioned person or company.
(3) In this Instrument, a person or company is considered to be a subsidiary entity of another person or company if
(a) it is a controlled entity of,
(i) that other,
(ii) that other and one or more persons or companies each of which is a controlled entity of that other, or
(iii) two or more persons or companies, each of which is a controlled entity of that other; or
(b) it is a subsidiary entity of a person or company that is the other's subsidiary entity.
1.4 Interpretation -- Security
(1) In Alberta and British Columbia, the term "security", when used in this Instrument, includes an option that is an exchange contract but does not include a futures contract.
(2) In Ontario, the term "security", when used in this Instrument, does not include a commodity futures contract or a commodity futures option that is not traded on a commodity futures exchange registered with or recognized by the Commission under the Commodity Futures Act or the form of which is not accepted by the Director under the Commodity Futures Act.
(3) In Québec, the term "security", when used in this Instrument, includes a standardized derivative as this notion is defined in the Derivatives Act.
1.5 Interpretation -- NI 23-101
Terms defined or interpreted in NI 23-101 and used in this Instrument have the respective meanings ascribed to them in NI 23-101.
PART 2 APPLICATION
2.1 Application -- This Instrument does not apply to a marketplace that is a member of a recognized exchange or a member of an exchange that has been recognized for the purposes of this Instrument and NI 23-101.
PART 3 MARKETPLACE INFORMATION
3.1 Initial Filing of Information
(1) A person or company must file as part of its application for recognition as an exchange or a quotation and trade reporting system Form 21-101F1.
(2) A person or company must not carry on business as an ATS unless it has filed Form 21-101F2 at least 45 days before the ATS begins to carry on business as an ATS.
3.2 Change in Information
(1) Subject to subsection (2), a marketplace must not implement a significant change to a matter set out in Form 21-101F1 or in Form 21-101F2 unless the marketplace has filed an amendment to the information provided in Form 21-101F1 or in Form 21-101F2 in the manner set out in the Formapplicable Form at least 45 days before implementing the change.
(1.1) A marketplace that has entered into an agreement with a regulation services provider in accordance with NI 23-101 must not implement a significant change to a matter set out in Exhibit E -- Operation of the Marketplace of Form 21-101F1 or Exhibit E -- Operation of the Marketplace of Form 21-101F2 as applicable, or Exhibit I -- Securities of Form 21-101F1 or Exhibit I -- Securities of Form 21-101F2 as applicable, unless the marketplace has provided the filing to its regulation services provider at least 45 days before implementing the change.
(2) A marketplace must file an amendment to the information provided in Exhibit L -- Fees of Form 21-101F1 or Exhibit L -- Fees of Form 21-101F2, as applicable, at least seven business days before implementing a change to the information provided in Exhibit L -- Fees.
(3) For any change involving a matter set out in Form 21-101F1 or Form 21-101F2 other than a change referred to in subsection (1) or (2), a marketplace must file an amendment to the information provided in theapplicable Form by the earlier of
(a) the close of business on the 10th day after the end of the month in which the change was made, and
(b) if applicable, the time the marketplace discloses the change publicly.
(4) The chief executive officer of a marketplace, or individual performing a similar function, must certify in writing, within 30 days after the end of each calendar year, that the information contained in the marketplace's current Form 21-101F1 or Form 21-101F2, as applicable, including the description of its operations, is true, correct, and complete and its operations have been implemented as described in the applicable Form.
(5) A marketplace must provide an updated and consolidated Form 21-101F1 or Form 21-101F2, as applicable, within 30 days after the end of each calendar year.
3.3 Reporting Requirements
A marketplace must file Form 21-101F3 within 30 days after the end of each calendar quarter during any part of which the marketplace has carried on business.
3.4 Ceasing to Carry on Business as an ATS
(1) An ATS that intends to cease carrying on business as an ATS must file a report on Form 21-101F4 at least 30 days before ceasing to carry on that business.
(2) An ATS that involuntarily ceases to carry on business as an ATS must file a report on Form 21-101F4 as soon as practicable after it ceases to carry on that business.
3.5 Forms Filed in Electronic Form
A person or company that is required to file a form or exhibit under this Instrument must file that form or exhibit in electronic form.
PART 4 MARKETPLACE FILING OF AUDITED FINANCIAL STATEMENTS
4.1 Filing of Initial Audited Financial Statements
(1) A person or company must file as part of its application for recognition as an exchange or a quotation and trade reporting system, together with Form 21-101F1, audited financial statements for its latest financial year that
(a) are prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises or IFRS,
(b) include notes to the financial statements that identify the accounting principles used to prepare the financial statements, and
(c) are audited in accordance with Canadian GAAS or International Standards on Auditing and are accompanied by an auditor's report.
(2) A person or company must not carry on business as an ATS unless it has filed, together with Form 21-101F2, audited financial statements for its latest financial year.
4.2 Filing of Annual Audited Financial Statements
(1) A recognized exchange and a recognized quotation and trade reporting system must file annual audited financial statements within 90 days after the end of its financial year in accordance with the requirements outlined in subsection 4.1(1).
(2) An ATS must file annual audited financial statements.
PART 5 MARKETPLACE REQUIREMENTS
5.1 Access Requirements
(1) A marketplace must not unreasonably prohibit, condition or limit access by a person or company to services offered by it.
(2) A marketplace must
(a) establish written standards for granting access to each of its services
;, and(b) keep records of
(i) each grant of access including the reasons for granting access to an applicant, and
(ii) each denial or limitation of access, including the reasons for denying or limiting access to an applicant.
(3) A marketplace must not
(a) permit unreasonable discrimination among clients, issuers and marketplace participants
;, or(b) impose any burden on competition that is not reasonably necessary and appropriate.
5.2 No Restrictions on Trading on Another Marketplace -- A marketplace shallmust not prohibit, condition, or otherwise limit, directly or indirectly, a marketplace participant from effecting a transaction on any marketplace.
5.3 Public Interest Rules
(1) Rules, policies and other similar instruments adopted by a recognized exchange or a recognized quotation and trade reporting system
(a)
shallmust not be contrary to the public interest; and(b)
shallmust be designed to(i) ensure compliance with securities legislation,
(ii) prevent fraudulent and manipulative acts and practices,
(iii) promote just and equitable principles of trade, and
(iv) foster co-operation and co-ordination with persons or companies engaged in regulating, clearing, settling, processing information with respect to, and facilitating, transactions in securities.
(2) [repealed]
5.4 Compliance Rules -- A recognized exchange or a recognized quotation and trade reporting system shallmust have rules or other similar instruments that
(a) require compliance with securities legislation; and
(b) provide appropriate sanctions for violations of the rules or other similar instruments of the exchange or quotation and trade reporting system.
5.5 Filing of Rules -- A recognized exchange or a recognized quotation and trade reporting system shallmust file all rules, policies and other similar instruments, and all amendments thereto.
5.6 [repealed]
5.7 Fair and Orderly Markets -- A marketplace must take all reasonable steps to ensure that its operations do not interfere with fair and orderly markets.
5.8 Discriminatory Terms -- A marketplace must not impose terms that have the effect of discriminating between orders that are routed to the marketplace and orders that are entered on that marketplace for execution.
5.9 Risk Disclosure for Trades in Foreign Exchange-Traded Securities
(1) A marketplace that is trading foreign exchange-traded securities must provide each marketplace participant with disclosure in substantially the following words:
"The securities traded by or through the marketplace are not listed on an exchange in Canada and may not be securities of a reporting issuer in Canada. As a result, there is no assurance that information concerning the issuer is available or, if the information is available, that it meets Canadian disclosure requirements."
(2) Before the first order for a foreign exchange-traded security is entered onto the marketplace by a marketplace participant, the marketplace must obtain an acknowledgement from the marketplace participant that the marketplace participant has received the disclosure required in subsection (1).
5.10 Confidential Treatment of Trading Information
(1) A marketplace must not release a marketplace participant's order or trade information to a person or company, other than the marketplace participant, a securities regulatory authority or a regulation services provider unless
(a) the marketplace participant has consented in writing to the release of the information
;,(b) the release of the information is required by this Instrument or under applicable law
;, or(c) the information has been publicly disclosed by another person or company, and the disclosure was lawful.
(1.1) Despite subsection (1), a marketplace may release a marketplace participant's order or trade information to a person or company if the marketplace has entered into a written agreement with each person or company that will receive the order and trade information that provides that
(a) the person or company must
(i) not disclose to or share any information with any person or company if that information could directly or indirectly, identify a marketplace participant or a client of the marketplace participant without the marketplace's consent, other than as provided under subsection (1.3) below;
(ii) not publish or otherwise disseminate data or information that discloses, directly or indirectly, the transactions, trading strategies or market positions of a marketplace participant or a client of the marketplace participant;
(iii) not use the order and trade information or provide it to any other person or company for any purpose other than capital markets research;
(iv) keep the order and trade information securely stored at all times;
(v) keep the order and trade information only for a reasonable period of time after the completion of the research and publication process; and
(vi) immediately inform the marketplace of any breach or possible breach of the confidentiality of the information provided; and
(b) the marketplace has the right to take appropriate steps, that in the marketplace's sole discretion, are necessary to prevent or deal with a breach or possible breach of the confidentiality of the information provided or of the agreement.
(1.2) A marketplace that releases a marketplace participant's order or trade information pursuant to subsection (1.1) must
(a) promptly inform the regulator or, in Québec, the securities regulatory authority, in the event the marketplace becomes aware of any breach or possible breach of the confidentiality of the information provided or of the agreement; and
(b) take all appropriate steps that in the marketplace's sole discretion, are necessary against that person or company to prevent or deal with a breach or possible breach of the confidentiality of the information provided or of the agreement.
(1.3) A person or company that receives a marketplace participant's order or trade information from a marketplace pursuant to subsection (1.1) may disclose the order or trade information used in connection with research submitted to a publication if it has entered into a written agreement with the marketplace that provides that:
(a) the information the person or company will disclose is used for verification purposes only,
(b) the person or company must obtain written agreement from the publication or any person or company involved in the verification of the research to maintain the confidentiality of the information,
(c) the person or company must notify the marketplace prior to sharing the information for verification purposes, and
(d) the person or company must obtain written agreement from the publication or any person or company involved in the verification of the research that the publication or other person or company will immediately inform the marketplace of any breach or possible breach of the agreement or of the confidentiality of the information provided.
(2) A marketplace must not carry on business unless it has implemented reasonable safeguards and procedures to protect a marketplace participant's order or trade information, including
(a) limiting access to order or trade information of marketplace participants to
(i) employees of the marketplace, or
(ii) persons or companies retained by the marketplace to operate the system or to be responsible for compliance by the marketplace with securities legislation; and
(b) implementing standards controlling trading by employees of the marketplace for their own accounts.
(3) A marketplace must not carry on business as a marketplace unless it has implemented adequate oversight procedures to ensure that the safeguards and procedures established under subsection (2) are followed.
5.11 Management of Conflicts of Interest
A marketplace must establish, maintain and ensure compliance with policies and procedures that identify and manage any conflicts of interest arising from the operation of the marketplace or the services it provides.
5.12 Outsourcing
If a marketplace outsources any of its key services or systems to a service provider, which includes affiliates or associates of the marketplace, the marketplace must :
(a) establish and maintain policies and procedures for the selection of service providers to which key services and systems may be outsourced and for the evaluation and approval of such outsourcing arrangements,
(b) identify any conflicts of interest between the marketplace and the service provider to which key services
andor systems are outsourced, and establish and maintain policies and procedures to mitigate and manage such conflicts of interest,(c) enter into a contract with the service provider to which key services
andor systems are outsourced that is appropriate for the materiality and nature of the outsourced activities and that provides for adequate termination procedures,(d) maintain access to the books and records of the service providers relating to the outsourced activities,
(e) ensure that the securities regulatory authorities have access to all data, information and systems maintained by the service provider on behalf of the marketplace
,for the purposes of determining the marketplace's compliance with securities legislation,(f) take appropriate measures to determine that service providers to which key services or systems are outsourced establish, maintain and periodically test an appropriate business continuity plan, including a disaster recovery plan,
(g) take appropriate measures to ensure that the service providers protect the marketplace participants' proprietary, order, trade or any other confidential information, and
(h) establish processes and procedures to regularly review the performance of the service provider under any such outsourcing arrangement.
5.13 Access Arrangements with a Service Provider
If a third party service provider provides a means of access to a marketplace, the marketplace must ensure the third party service provider complies with the written standards for access that the marketplace has established pursuant to paragraph 5.1(2)(a) when providing the access services.
PART 6 REQUIREMENTS APPLICABLE ONLY TO ATSs
6.1 Registration -- An ATS shallmust not carry on business as an ATS unless
(a) it is registered as a dealer;
(b) it is a member of a self-regulatory entity; and
(c) it complies with the provisions of this Instrument and NI 23-101.
6.2 Registration Exemption Not Available -- Except as provided in this Instrument, the registration exemptions applicable to dealers under securities legislation are not available to an ATS.
6.3 Securities Permitted to be Traded on an ATS -- An ATS shallmust not execute trades in securities other than
(a) exchange-traded securities;
(b) corporate debt securities;
(c) government debt securities; or
(d) foreign exchange-traded securities.
6.4 [repealed]
6.5 [repealed]
6.6 [repealed]
6.7 Notification of Threshold
(1) An ATS must notify the securities regulatory authority in writing if,
(a) during at least two of the preceding three months of operation, the total dollar value of the trading volume on the ATS for a month in any type of security is equal to or greater than 10 percent of the total dollar value of the trading volume for the month in that type of security on all marketplaces in Canada
;,(b) during at least two of the preceding three months of operation, the total trading volume on the ATS for a month in any type of security is equal to or greater than 10 percent of the total trading volume for the month in that type of security on all marketplaces in Canada
;,or(c) during at least two of the preceding three months of operation, the number of trades on the ATS for a month in any type of security is equal to or greater than 10 percent of the number of trades for the month in that type of security on all marketplaces in Canada.
(2) An ATS must provide the notice referred to in subsection (1) within 30 days after the threshold referred to in subsection (1) is met or exceeded.
6.8 [repealed]
6.9 Name -- An ATS shallmust not use in its name the word "exchange", the words "stock market", the word "bourse" or any derivations of those terms.
6.10 [repealed]
6.11 Risk Disclosure to Non-Registered Subscribers
(1) When opening an account for a subscriber that is not registered as a dealer under securities legislation, an ATS shallmust provide that subscriber with disclosure in substantially the following words:
Although the ATS is registered as a dealer under securities legislation, it is a marketplace and therefore does not ensure best execution for its subscribers.
(2) Before the first order submitted by a subscriber that is not registered as a dealer under securities legislation is entered onto the ATS by the subscriber, the ATS shallmust obtain an acknowledgement from that subscriber that the subscriber has received the disclosure required in subsection (1).
6.12 [repealed]
6.13 [repealed]
PART 7 INFORMATION TRANSPARENCY REQUIREMENTS FOR MARKETPLACES DEALING IN EXCHANGE-TRADED SECURITIES AND FOREIGN EXCHANGE-TRADED SECURITIES
7.1 Pre-Trade Information Transparency -- Exchange-Traded Securities
(1) A marketplace that displays orders of exchange-traded securities to a person or company shallmust provide accurate and timely information regarding orders for the exchange-traded securities displayed by the marketplace to an information processor as required by the information processor or, if there is no information processor, to an information vendor that meets the standards set by a regulation services provider.
(2) Subsection (1) does not apply if the marketplace only displays orders to its employees or to persons or companies retained by the marketplace to assist in the operation of the marketplace and if the orders posted on the marketplace meet the size threshold set by a regulation services provider.
(3) A marketplace that is subject to subsection (1) must not make the information referred to in that subsection available to any other person or company before it makes that information available to the information processor or, if there is no information processor, to the information vendor.
7.2 Post-Trade Information Transparency -- Exchange-Traded Securities --
(1) A marketplace shallmust provide accurate and timely information regarding trades for exchange-traded securities executed on the marketplace to an information processor as required by the information processor or, if there is no information processor, to an information vendor that meets the standards set by a regulation services provider.
(2) A marketplace must not make the information referred to in subsection (1) available to any other person or company before it makes that information available to the information processor or, if there is no information processor, to the information vendor.
7.3 Pre-Trade Information Transparency -- Foreign Exchange-Traded Securities
(1) A marketplace that displays orders of foreign exchange-traded securities to a person or company shallmust provide accurate and timely information regarding orders for the foreign exchange-traded securities displayed by the marketplace to an information vendor.
(2) Subsection (1) does not apply if the marketplace only displays orders to its employees or to persons or companies retained by the marketplace to assist in the operation of the marketplace and if the orders posted on the marketplace meet the size threshold set by a regulation services provider.
7.4 Post-Trade Information Transparency -- Foreign Exchange-Traded Securities -- A marketplace shallmust provide accurate and timely information regarding trades for foreign exchange-traded securities executed on the marketplace to an information vendor.
7.5 Consolidated Feed -- Exchange-Traded Securities -- An information processor shallmust produce an accurate consolidated feed in real-time showing the information provided to the information processor under sections 7.1 and 7.2.
7.6 Compliance with Requirements of an Information Processor -- A marketplace that is subject to this Part shallmust comply with the reasonable requirements of the information processor to which it is required to provide information under this Part.
PART 8 INFORMATION TRANSPARENCY REQUIREMENTS FOR MARKETPLACES DEALING IN UNLISTED DEBT SECURITIES, INTER-DEALER BOND BROKERS AND DEALERS
8.1 Pre-Trade and Post-Trade Information Transparency Requirements -- Government Debt Securities
(1) A marketplace that displays orders of government debt securities to a person or company shallmust provide to an information processor accurate and timely information regarding orders for government debt securities displayed by the marketplace as required by the information processor.
(2) Subsection (1) does not apply if the marketplace only displays orders to its employees or to persons or companies retained by the marketplace to assist in the operation of the marketplace.
(3) A marketplace shallmust provide to an information processor accurate and timely information regarding details of trades of government debt securities executed on the marketplace as required by the information processor.
(4) An inter-dealer bond broker shallmust provide to an information processor accurate and timely information regarding orders for government debt securities executed through the inter-dealer bond broker as required by the information processor.
(5) An inter-dealer bond broker shallmust provide to an information processor accurate and timely information regarding details of trades of government debt securities executed through the interdealerinter-dealer bond broker as required by the information processor.
8.2 Pre-Trade and Post-Trade Information Transparency Requirements -- Corporate Debt Securities
(1) A marketplace that displays orders of corporate debt securities to a person or company shallmust provide accurate and timely information regarding orders for designated corporate debt securities displayed by the marketplace to an information processor, as required by the information processor, or if there is no information processor, to an information vendor that meets the standards set by a regulation services provider, as required by the regulation services provider.
(2) Subsection (1) does not apply if the marketplace only displays orders to its employees or to persons or companies retained by the marketplace to assist in the operation of the marketplace.
(3) A marketplace shallmust provide accurate and timely information regarding details of trades of designated corporate debt securities executed on the marketplace to an information processor, as required by the information processor, or if there is no information processor, to an information vendor that meets the standards set by a regulation services provider, as required by the regulation services provider.
(4) An inter-dealer bond broker shallmust provide accurate and timely information regarding details of trades of designated corporate debt securities executed through the inter-dealer bond broker to an information processor, as required by the information processor, or if there is no information processor, to an information vendor that meets the standards set by a regulation services provider, as required by the regulation services provider.
(5) A dealer executing trades of corporate debt securities outside of a marketplace shallmust provide accurate and timely information regarding details of trades of designated corporate debt securities traded by or through the dealer to an information processor, as required by the information processor, or if there is no information processor, to an information vendor that meets the standards set by a regulation services provider, as required by the regulation services provider.
8.3 Consolidated Feed -- Unlisted Debt Securities -- An information processor shallmust produce an accurate consolidated feed in real-time showing the information provided to the information processor under sections 8.1 and 8.2.
8.4 Compliance with Requirements of an Information Processor -- A marketplace, interdealer bond broker or dealer that is subject to this Part shallmust comply with the reasonable requirements of the information processor to which it is required to provide information under this Part.
8.5 [repealed]
8.6 Exemption for Government Debt Securities -- Section 8.1 does not apply until January 1, 2015,2018.
PART 9 [repealed]
PART 10 TRANSPARENCY OF MARKETPLACE OPERATIONS
10.1 Disclosure by Marketplaces -- A marketplace must publicly disclose, on its website, information reasonably necessary to enable a person or company to understand the marketplace's operations or services it provides, including, but not limited to, information related to :
(a) all fees, including any listing, trading, data, co-location and routing fees charged by the marketplace, an affiliate or by a party to which services have directly or indirectly been outsourced or which directly or indirectly provides those services
;,(b) how orders are entered, interact and execute
;,(c) all order types
;,(d) access requirements
;,(e) the policies and procedures that identify and manage any conflicts of interest arising from the operation of the marketplace or the services it provides
;,(f) any referral arrangements between the marketplace and service providers
;,(g) where routing is offered, how routing decisions are made
; and,(h) when indications of interest are disseminated, the information disseminated and the types of recipients of such indications of interest,
(i) any access arrangements with a third party service provider, including the name of the third party service provider and the standards for access to be complied with by the third party service provider, and
(j) the hours of operation of any testing environments provided by the marketplace, a description of any differences between the testing environment and production environment of the marketplace and the potential impact of these differences on the effectiveness of testing.
10.2 [repealed]
10.3 [repealed]
PART 11 RECORDKEEPING REQUIREMENTS FOR MARKETPLACES
11.1 Business Records -- A marketplace shallmust keep such books, records and other documents as are reasonably necessary for the proper recording of its business in electronic form.
11.2 Other Records
(1) As part of the records required to be maintained under section 11.1, a marketplace shallmust include the following information in electronic form:
(a) a record of all marketplace participants who have been granted access to trading in the marketplace;
(b) daily trading summaries for the marketplace including
(i) a list of securities traded,
(ii) transaction volumes
(A) for securities other than debt securities, expressed as the number of issues traded, number of trades, total unit volume and total dollar value of trades and, if the price of the securities traded is quoted in a currency other than Canadian dollars, the total value in that other currency, and
(B) for debt securities, expressed as the number of trades and total dollar value traded and, if the price of the securities traded is quoted in a currency other than Canadian dollars, the total value in that other currency,
(c) a record of each order which must include
(i) the order identifier assigned to the order by the marketplace,
(ii) the marketplace participant identifier assigned to the marketplace participant transmitting the order,
(iii) the identifier assigned to the marketplace where the order is received or originated,
(iv) each unique client identifier assigned to a client accessing the marketplace using direct electronic access,
(v) the type, issuer, class, series and symbol of the security,
(vi) the number of securities to which the order applies,
(vii) the strike date and strike price, if applicable,
(viii) whether the order is a buy or sell order,
(ix) whether the order is a short sale order, if applicable,
(x) whether the order is a market order, limit order or other type of order, and if the order is not a market order, the price at which the order is to trade,
(xi) the date and time the order is first originated or received by the marketplace,
(xii) whether the account is a retail, wholesale, employee, proprietary or any other type of account,
(xiii) the date and time the order expires,
(xiv) whether the order is an intentional cross,
(xv) whether the order is a jitney and if so, the identifier of the underlying broker,
(xvi) the currency of the order,
(xvii) whether the order is routed to another marketplace for execution, and the date, time and name of the marketplace to which the order was routed, and
(xviii) whether the order is a directed-action order, and whether the marketplace marked the order as a directed-action order or received the order marked as a directed-action order;, and
(d) in addition to the record maintained in accordance with paragraph (c), all execution report details of orders, including
(i) the identifier assigned to the marketplace where the order was executed,
(ii) whether the order was fully or partially executed,
(iii) the number of securities bought or sold,
(iv) the date and time of the execution of the order,
(v) the price at which the order was executed,
(vi) the identifier assigned to the marketplace participant on each side of the trade,
(vii) whether the transaction was a cross,
(viii) time-sequenced records of all messages sent to or received from an information processor, an information vendor or a marketplace,
(ix) the marketplace trading fee for each trade, and
(x) each unique client identifier assigned to a client accessing the marketplace using direct electronic access.
11.2.1 Transmission in Electronic Form -- A marketplace shallmust transmit
(a) to a regulation services provider, if it has entered into an agreement with a regulation services provider in accordance with NI 23-101, the information required by the regulation services provider, in the manner requested by the regulation services provider, within ten business days, in electronic form; and
(b) to the securities regulatory authority the information required by the securities regulatory authority under securities legislation, in the manner requested by the securities regulatory authority, within ten business days, in electronic form.
11.3 Record Preservation Requirements
(1) For a period of not less than seven years from the creation of a record referred to in this section, and for the first two years in a readily accessible location, a marketplace shallmust keep
(a) all records required to be made under sections 11.1 and 11.2;
(b) at least one copy of its standards for granting access to trading, if any, all records relevant to its decision to grant, deny or limit access to a person or company and, if applicable, all other records made or received by the marketplace in the course of complying with section 5.1;
(c) at least one copy of all records made or received by the marketplace in the course of complying with section 12.1 and 12.4, including all correspondence, memoranda, papers, books, notices, accounts, reports, test scripts, test results, and other similar records;
(d) all written notices provided by the marketplace to marketplace participants generally, including notices addressing hours of system operations, system malfunctions, changes to system procedures, maintenance of hardware and software, instructions pertaining to access to the marketplace and denials of, or limitation to, access to the marketplace;
(e) the acknowledgement obtained under subsection 5.9(2) or 6.11(2);
(f) a copy of any agreement referred to in section 8.4 of NI 23-101;
and(g) a copy of any agreement referred to in subsections 13.1(2) and 13.1(3);
(h) a copy of any agreement referred to in section 5.10; and
(i) a copy of any agreement referred to in subsection 5.12(c).
(2) During the period in which a marketplace is in existence, the marketplace shallmust keep
(a) all organizational documents, minute books and stock certificate books;
(b) copies of all forms filed under Part 3; and
(c) in the case of an ATS, copies of all notices given under section 6.7.
11.4 [repealed]
11.5 Synchronization of Clocks
(1) A marketplace trading exchange-traded securities or foreign exchange-traded securities, an information processor receiving information about those securities, and a dealer trading those securities shallmust synchronize the clocks used for recording or monitoring the time and date of any event that must be recorded under this Part and under NI 23-101 with the clock used by a regulation services provider monitoring the activities of marketplaces and marketplace participants trading those securities.
(2) A marketplace trading corporate debt securities or government debt securities, an information processor receiving information about those securities, a dealer trading those securities, and an inter-dealer bond broker trading those securities shallmust synchronize the clocks used for recording or monitoring the time and date of any event that must be recorded under this Part and under NI 23-101.
PART 12 MARKETPLACE SYSTEMS AND BUSINESS CONTINUITY PLANNING
12.1 System Requirements -- For each of its systemssystem, operated by or on behalf of the marketplace, that supportsupports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, a marketplace shallmust
(a) develop and maintain
(i) an adequate system of internal control over those systems
;, and(ii) adequate information technology general controls, including without limitation, controls relating to information systems operations, information security, change management, problem management, network support and system software support
;,(b) in accordance with prudent business practice, on a reasonably frequent basis and, in any event, at least annually,
(i) make reasonable current and future capacity estimates
;,(ii) conduct capacity stress tests to determine the ability of those systems to process transactions in an accurate, timely and efficient manner
;, and(c) promptly notify the regulator or, in Québec, the securities regulatory authority and, if applicable, its regulation services provider, of any material systems failure, malfunction
or delay, delay or security breach and provide timely updates on the status of the failure, malfunction, delay or security breach, the resumption of service and the results of the marketplace's internal review of the failure, malfunction, delay or security breach.
12.1.1 Auxiliary Systems -- For each system that shares network resources with one or more of the systems, operated by or on behalf of the marketplace, that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, that if breached, would pose a security threat to one or more of the aforementioned systems, a marketplace must
(a) develop and maintain an adequate system of information security controls that relate to the security threats posed to any system that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, and
(b) promptly notify the regulator, or in Québec, the securities regulatory authority and, if applicable, its regulation services provider, of any material security breach and provide timely updates on the status of the breach, the resumption of service, where applicable, and the results of the marketplace's internal review of the security breach.
12.2 System Reviews
(1) For each of its systems that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, a marketplace shall A marketplace must annually engage a qualified party to conduct an independent systems review and prepare a report in accordance with established audit standards to ensure that itthe marketplace is in compliance with paragraph 12.1(a) and section 12.4.
(a) paragraph 12.1(a);
(b) section 12.1.1; and
(c) section 12.4.
(2) A marketplace shallmust provide the report resulting from the review conducted under subsection (1) to
(a) its board of directors, or audit committee, promptly upon the report's completion, and
(b) to the regulator or, in Québec, the securities regulatory authority, within the earlier of 30 days of providing the report to its board of directors or the audit committeeor 60 days after the calendar year end.
12.3 Availability ofMarketplace Technology Requirements and Testing Facilities
(1) A marketplace shallmust make publicly available all technology requirements regarding interfacing with or accessing the marketplace in their final form,
(a) if operations have not begun, for at least three months immediately before operations begin; and
(b) if operations have begun, for at least three months before implementing a material change to its technology requirements.
(2) After complying with subsection (1), a marketplace shallmust make available testing facilities for interfacing with or accessing the marketplace,
(a) if operations have not begun, for at least two months immediately before operations begin; and
(b) if operations have begun, for at least two months before implementing a material change to its technology requirements.
(3) A marketplace shallmust not begin operations until it has complied with paragraphs (1)(a) and (2)(a). or implement a material change to its technology requirements until the later of
(a) three months after notification of the completion of the review of the marketplace's initial filing or change in information by the regulator, or in Québec, the securities regulatory authority, is provided to the marketplace, and
(b) a reasonable period of time after the regulator, or in Québec, the securities regulatory authority, has completed its review of the marketplace's initial filing or change in information and notified the marketplace of the completion of the review.
(4) Paragraphs 12.3 (1)(b) and (2)(b) do not apply to a marketplace if the change must be made immediately to address a failure, malfunction or material delay of its systems or equipment if
(a) the marketplace immediately notifies the regulator, or in Québec, the securities regulatory authority, and, if applicable, its regulation services provider of its intention to make the change; and
(b) the marketplace publishes the changed technology requirements as soon as practicable.
(5) A marketplace must not begin operations before,
(a) it has complied with paragraphs (1)(a) and (2)(a),
(b) its regulation services provider, if applicable, has confirmed to the marketplace that trading may commence on the marketplace, and
(c) the chief information officer of the marketplace, or individual performing a similar function, has certified in writing to the regulator, or in Québec, the securities regulatory authority, that all information technology systems used by the marketplace have been tested according to prudent business practices and are operating as designed.
(6) A marketplace must not implement a material change to its technology requirements before,
(a) it has complied with paragraphs (1)(b) and (2)(b), and
(b) the chief information officer of the marketplace, or individual performing a similar function, has certified in writing to the regulator, or in Québec, the securities regulatory authority, that the change has been tested according to prudent business practices and is operating as designed.
(7) Subsection (6) does not apply to a marketplace if the change must be made immediately to address a failure, malfunction or material delay of its systems or equipment if the marketplace immediately notifies the regulator, or in Québec, the securities regulatory authority, of its intention to make the change.
12.3.1 Uniform Test Symbols
A marketplace must use uniform test symbols, as set by a regulator, or in Québec, the securities regulatory authority, for the purpose of performing testing in its production environment.
12.4 Business Continuity Planning
(1) A marketplace must
(
1) A marketplace musta) develop and maintain reasonable business continuity plans, including disaster recovery plans.,(
2) A marketplace mustb) test its business continuity plans, including disaster recovery plans, according to prudent business practices and on a reasonably frequent basis and, in any event, at least annually.,
(2) A marketplace with a total trading volume in any type of security equal to or greater than 10 % of the total dollar value of the trading volume in that type of security on all marketplaces in Canada during at least two of the preceding three months of operation must ensure that each system, operated by or on behalf of the marketplace, that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, and trade clearing can resume operations within two hours following the declaration of a disaster by the marketplace.
(3) A recognized exchange or quotation and trade reporting system that directly monitors the conduct of its members or users and enforces requirements set under section 7.1(1) or 7.3(1) of NI 23-101 must ensure that each system, operated by or on behalf of the marketplace, that is critical and supports real-time market surveillance can resume operations within two hours following the declaration of a disaster at the primary site by the exchange or quotation and trade reporting system.
(4) A regulation services provider that has entered into a written agreement with a marketplace to conduct market surveillance for the marketplace must ensure that each system, operated by or on behalf of the regulation services provider, that is critical and supports real-time market surveillance can resume operations within two hours following the declaration of a disaster at the primary site by the regulation services provider.
12.4.1 Industry-Wide Business Continuity Tests
A marketplace, recognized clearing agency, information processor, and marketplace participant must participate in all industry-wide business continuity tests, as determined by a regulation services provider, regulator, or in Québec, the securities regulatory authority.
PART 13 CLEARING AND SETTLEMENT
13.1 Clearing and Settlement
(1) All trades executed on a marketplace shall be reported to and settled through a clearing agency.
(2) For a trade executed through an ATS by a subscriber that is registered as a dealer under securities legislation, the ATS and its subscriber shallmust enter into an agreement that specifies whether the trade shallmust be reported and settledto a clearing agency by
(a) the ATS;
(b) the subscriber; or
(c) an agent for the subscriber that is a clearing member of a clearing agency.
(3) For a trade executed through an ATS by a subscriber that is not registered as a dealer under securities legislation, an ATS and its subscriber shallmust enter into an agreement that specifies whether the trade shallmust be reported and settledto a clearing agency by
(a) the ATS; or
(b) an agent for the subscriber that is a clearing member of a clearing agency.
13.2 Access to Clearing Agency of Choice
(1) A marketplace must report a trade in a security to a clearing agency designated by a marketplace participant.
(2) Subsection (1) does not apply to a trade in a security that is a standardized derivative or an exchange-traded security that is an option.
PART 14 REQUIREMENTS FOR AN INFORMATION PROCESSOR
14.1 Filing Requirements for an Information Processor
(1) A person or company that intends to carry on business as an information processor shallmust file Form 21-101F5 at least 90 days before the information processor begins to carry on business as an information processor.
(2) [repealed]
14.2 Change in Information
(1) At least 45 days before implementing a significant change involving a matter set out in Form 21-101F5, an information processor shallmust file an amendment to the information provided in Form 21-101F5 in the manner set out in Form 21-101F5.
(2) If an information processor implements a change involving a matter set out in Form 21-101F5, other than a change referred to in subsection (1), the information processor shallmust, within 30 days after the end of the calendar quarter in which the change takes place, file an amendment to the information provided in Form 21-101F5 in the manner set out in Form 21-101F5.
14.3 Ceasing to Carry on Business as an Information Processor
(1) If an information processor intends to cease carrying on business as an information processor, the information processor shallmust file a report on Form 21-101F6 at least 30 days before ceasing to carry on that business.
(2) If an information processor involuntarily ceases to carry on business as an information processor, the information processor shallmust file a report on Form 21-101F6 as soon as practicable after it ceases to carry on that business.
14.4 Requirements Applicable to an Information Processor
(1) An information processor shallmust enter into an agreement with each marketplace, inter-dealer bond broker and dealer that is required to provide information to the information processor that the marketplace, inter-dealer bond broker or dealer will
(a) provide information to the information processor in accordance with Part 7 or 8, as applicable; and
(b) comply with any other reasonable requirements set by the information processor.
(2) An information processor shallmust provide timely, accurate, reliable and fair collection, processing, distribution and publication of information for orders for, and trades in, securities.
(3) An information processor shallmust keep such books, records and other documents as are reasonably necessary for the proper recording of its business.
(4) An information processor shallmust establish in a timely manner an electronic connectionor changes to an electronic connection to a marketplace, inter-dealer bond broker or dealer that is required to provide information to the information processor.
(5) An information processor shallmust provide prompt and accurate order and trade information and shallmust not unreasonably restrict fair access to such information.
(6) An information processor must file annual audited financial statements within 90 days after the end of its financial year that
(a) are prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises, Canadian GAAP applicable to private enterprises or IFRS,
(b) include notes to the financial statements that identify the accounting principles used to prepare the financial statements, and
(c) are audited in accordance with Canadian GAAS or International Standards on Auditing and are accompanied by an auditor's report.
(6.1) If an information processor is operated as a division or unit of a person or company, the person or company must file the income statement and the statement of cash flow of the information processor and any other information necessary to demonstrate the financial condition of the information processor within 90 days after the end of the financial year of the person or company.
(7) An information processor must file its financial budget within 30 days after the start of a financial year.
(7.1) If an information processor is operated as a division or unit of a person or company, the person or company must file the financial budget relating to the information processor within 30 days after the start of the financial year of the person or company.
(8) An information processor must file, within 30 days after the end of each calendar quarter, the process and criteria for the selection of government debt securities, as applicable, and designated corporate debt securities and the list of government debt securities, as applicable, and designated corporate debt securities.
(9) An information processor must file, within 30 days after the end of each calendar year, the process to communicate the designated securities to the marketplaces, inter-dealer bond brokers and dealers providing the information required by the Instrument, including where the list of designated securities can be found.
14.5 System Requirements -- An information processor shallmust,
(a) develop and maintain
(i) an adequate system of internal controls over its critical systems
;, and(ii) adequate information technology general controls, including, without limitation, controls relating to information systems operations, information security, change management, problem management, network support, and system software support
;,(b) in accordance with prudent business practice, on a reasonably frequent basis and in any event, at least annually,
(i) make reasonable current and future capacity estimates for each of its systems
;, and(ii) conduct capacity stress tests of its critical systems to determine the ability of those systems to process information in an accurate, timely and efficient manner
;,(c) annually engage a qualified party to conduct an independent systems review and prepare a report in accordance with established audit standards to ensure that it is in compliance with paragraph (a) and section 14.6
;,(d) provide the report resulting from the review conducted under paragraph (c) to
(i) its board of directors or the audit committee promptly upon the report's completion, and
(ii) the regulator or, in Québec, the securities regulatory authority, within the earlier of 30 days of providing it to the board of directors or the audit committee
;or 60 days after the calendar year end, and(e) promptly notify the following of any failure, malfunction or material delay of its systems or equipment
(i) the regulator or, in Québec, the securities regulatory authority
;, and(ii) any regulation services provider, recognized exchange or recognized quotation and trade reporting system monitoring trading of the securities about which information is provided to the information processor.
14.6 Business Continuity Planning
An information processor must
(1) An information processor must develop and maintain reasonable business continuity plans, including disaster recovery plans .,
(2) An information processor must test its business continuity plans, including disaster recovery plans, according to prudent business practices and on a reasonably frequent basis and, in any event, at least annually, and
(3) ensure that its critical systems can resume operations within one hour following the declaration of a disaster by the information processor.
14.7 Confidential Treatment of Trading Information
An information processor must not release order and trade information to a person or company other than the marketplace, inter-dealer bond broker or dealer that provided this information in accordance with this Instrument , or other than a securities regulatory authority, unless :
(a) the release of that information is required by this Instrument or under applicable law
;, or(b) the information processor received prior approval from the securities regulatory authority.
14.8 Transparency of Operations of an Information Processor
An information processor must publicly disclose on its website information reasonably necessary to enable a person or company to understand the information processor's operations or services it provides including, but not limited to :
(a) all fees charged by the information processor for the consolidated data
;,(b) a description of the process and criteria for the selection of government debt securities, as applicable, and designated corporate debt securities and the list of government debt securities, as applicable, and designated corporate debt securities
;,(c) access requirements
;, and(d) the policies and procedures to manage conflicts of interest that may arise in the operation of the information processor.
PART 15 EXEMPTION
15.1 Exemption
(1) The regulator or the securities regulatory authority may grant an exemption from this Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.
(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.
FORM 21-101F1
INFORMATION STATEMENT
EXCHANGE OR QUOTATION AND TRADE REPORTING SYSTEM
|
Filer: |
[ ] EXCHANGE |
[ ] QUOTATION AND TRADE REPORTING SYSTEM |
|
|
||
|
Type of Filing: |
[ ] INITIAL |
[ ] AMENDMENT <<; AMENDMENT No.>>_______________ |
1. Full name of exchange or quotation and trade reporting system:
2. Name(s) under which business is conducted, or name of market or facility, if different from item 1:
3. If this filing makes a name change on behalf of the exchange or quotation and trade reporting system in respect of the name set out in item 1 or item 2, enter the previous name and the new name:
Previous name:
New name:
4. Head office
Address:
Telephone:
Facsimile:
5. Mailing address (if different):
6. Other offices
Address:
Telephone:
Facsimile:
7. Website address:
8. Contact employee
Name and title:
Telephone number:
Facsimile:
E-mail address:
9. Counsel
Firm name:
Contact name:
Telephone number:
Facsimile:
E-mail address:
10. Market Regulation is being conducted by:
[ ]
the exchange
[ ]
the quotation and trade reporting system
[ ]
regulation services provider other than the filer (see Exhibit M)
EXHIBITS
File all Exhibits with the Filing. For each Exhibit, include the name of the exchange or quotation and trade reporting system, the date of filing of the Exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shallmust be furnished instead of such Exhibit.
Except as provided below, if the filer, recognized exchange or recognized quotation and trade reporting system files an amendment to the information provided in its Filing and the information relates to an Exhibit filed with the Filing or a subsequent amendment, the filer, recognized exchange or recognized quotation and trade reporting system, must, in order to comply with subsections 3.2(1), 3.2(2) or 3.2(3) of National Instrument 21-101, provide a description of the change, the expected date of the implementation of the change, and file a complete and updated Exhibit. The filer must provide a clean and a blacklined version showing changes from the previous filing.
If the filer, recognized exchange or recognized quotation and trade reporting system has otherwise filed the information required by the previous paragraph pursuant to section 5.5 of National Instrument 21-101, it is not required to file the information again as an amendment to an Exhibit. However, if supplementary material relating to a filed rule is contained in an Exhibit, an amendment to the Exhibit must also be filed.
Exhibit A -- Corporate Governance
1. Legal status:
[ ]
Corporation
[ ]
Partnership
[ ]
Sole Proprietorship
[ ]
Other (specify):
2. Except where the exchange or quotation and trade reporting system is a sole proprietorship, indicate the following:
1. Date (DD/MM/YYYY) of formation.
2. Place of formation.
3. Statute under which exchange or quotation and trade reporting system was organized.
3. Provide a copy of the constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents, and all subsequent amendments.
4. Provide the policies and procedures to address potential conflicts of interest arising from the operation of the marketplace or the services it provides, including those related to the commercial interest of the marketplace, the interests of its owners and its operators, the responsibilities and sound functioning of the marketplace, and those between the operations of the marketplace and its regulatory responsibilities.
Exhibit B -- Ownership
A list of the registered or beneficial holders of securities of, partnership interests in, or other ownership interests in, the exchange or recognized quotation and trade reporting system. For each of the persons listed in the Exhibit, please provide the following:
1. Name.
2. Principal business or occupation and title.
3. Ownership interest.
4. Nature of the ownership interest, including a description of the type of security, partnership interest or other ownership interest.
5. Whether the person has control (as interpreted in subsection 1.3(2) of National Instrument 21-101 Marketplace Operation).
In the case of an exchange or quotation and trade reporting system that is publicly traded, if the exchange or quotation and trade reporting system is a corporation, please only provide a list of each shareholder that directly owns five percent % or more of a class of a voting security of the exchange or quotation and trade reporting system.
Exhibit C -- Organization
1. A list of partners, directors, officers, governors, and members of the board of directors and any standing committees of the board, or persons performing similar functions, who presently hold or have held their offices or positions during the previous year, indicating the following for each:
1. Name.
2. Principal business or occupation and title.
3. Dates of commencement and expiry of present term of office or position .
4. Type of business in which each is primarily engaged and current employer.
5. Type of business in which each was primarily engaged in the preceding five years, if different from that set out in item 4.
6. Whether the person is considered to be an independent director.
2. A list of the committees of the board, including their mandatesand the Board mandate.
Exhibit D -- Affiliates
1. For each affiliated entity of the exchange or quotation and trade reporting system provide the name, head office address and describe the principal business of the affiliate.
2. For each affiliated entity of the exchange or quotation and trade reporting system
(i) to which the exchange or quotation and trade reporting system has outsourced any of its key services or systems affecting the market or facility described in Exhibit E -- Operations of the Marketplace, including order entry, trading, execution, routing and data, or
(ii) with which the exchange or quotation and trade reporting system has any other material business relationship, including loans, cross-guarantees, etc.
provide the following information:
1. Name and address of the affiliate.
2. The name and title of the directors and officers, or persons performing similar functions, of the affiliate.
3. A description of the nature and extent of the contractual and other agreements with the exchange and quotation and trade reporting system, and the roles and responsibilities of the affiliate under the arrangement.
4. A copy of each material contract relating to any outsourced functions or other material relationships.
5. Copies of constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents.
6. For the latest financial year of the affiliated entity, financial statements, which may be unaudited, prepared in accordance with
:a. Canadian GAAP applicable to publicly accountable enterprises
;orb. Canadian GAAP applicable to private enterprises
;, orc. IFRS.
Where the affiliated entity is incorporated or organized under the laws of a foreign jurisdiction, such financial statements may also be prepared in accordance with
:a. U.S. GAAP
;orb. accounting principles of a designated foreign jurisdiction as defined under National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards.
Exhibit E -- Operations of the Marketplace
Describe in detail the manner of operation of the market or facility and its associated functions. This shouldmust include, but is not be limited to, a description of the following:
1. The structure of the market (e.g., call market, auction market, dealer market).
2 Means of access to the market or facility and services, including a description of any co-location arrangements.
3 The hours of operation.
4. A description of the services offered by the marketplace, including, but not limited to, order entry, co-location, trading, execution, routing and data.
5. A list of the types of orders offered, including, but not limited to, a description of the features and characteristics of orders.
6. Procedures regarding the entry, display and execution of orders. If indications of interest are used, please describe the information they include and list the types of recipients.
7.
DescriptionA description of how orders interact, including, but not limited to, the priority of execution for all order types.8.
DescriptionA description of order routing procedures.9.
DescriptionA description of order and trade reporting procedures.10.
DescriptionA description of procedures for clearance and settlement of transactions.11. The safeguards and procedures of the marketplace to protect trading information of marketplace participants.
12. Training provided to participants and a copy of any materials provided both with respect to systems of the marketplace, the requirements of the marketplace, and the rules of the regulation services providers, if applicable.
13. Steps taken to ensure that marketplace participants have knowledge of and comply with the requirements of the marketplace.
The filer must provide all policies, procedures and trading manuals related to the operation of the marketplace and, if applicable, the order router.
The filer must provide all material contracts related to order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing.
Exhibit F -- Outsourcing
Where the exchange or quotation and trade reporting system has outsourced the operation of key services or systems affecting the market or facility described in Exhibit E -- Operations of the Marketplace to an arms-length third party, including any function associated with the routing, trading, execution, data, clearing and settlement and, if applicable, surveillance, provide the following information:
1. Name and address of person or company to whom the function has been outsourced.
2. A description of the nature and extent of the contractual or other agreement with the exchange or quotation and trade reporting system and the roles and responsibilities of the arms-length party under the arrangement.
3. A copy of each material contract relating to any outsourced function.
4. A copy of the marketplace's policies and procedures for the selection of service providers to which key services and systems may be outsourced and for the evaluation and approval of such outsourcing arrangements that are established and maintained pursuant to subsection 5.12(a) of National Instrument 21-101 Marketplace Operation.
5. A description of any conflicts of interest between the marketplace and the service provider to which key services and systems are outsourced and a copy of the policies and procedures to mitigate and manage such conflicts of interest that have been established pursuant to subsection 5.12(b) of National Instrument 21-101 Marketplace Operation.
6. A description of the measures the marketplace has taken pursuant to subsection 5.12(f) of National Instrument 21-101 Marketplace Operation to ensure that the service provider has established, maintains and periodically tests an appropriate business continuity plan, including a disaster recovery plan.
7. A description of the measures the marketplace has taken pursuant to subsection 5.12(g) of National Instrument 21-101 Marketplace Operation to ensure that the service provider protects the proprietary, order, trade or any other confidential information of the participants of the marketplace.
8. A copy of the marketplace's processes and procedures to regularly review the performance of a service provider under an outsourcing arrangement that are established pursuant to subsection 5.12(h) of National Instrument 21-101 Marketplace Operation.
Exhibit G -- Systems and Contingency Planning
General
Provide:
1.
For eachA high level description of themarketplace's systems that support order entry, order routing, execution, trade reporting, trade comparison, datafeedfeeds, co-location and if applicable, market surveillance,and trade clearing, describe:.2. An organization chart of the marketplace's information technology group.
Business Continuity Planning
Please describe:
1.
Current and future capacity estimates.Where the primary processing site is located,2.
Procedures for reviewing system capacity.What the approximate percentage of hardware, software, and network redundancy is at the primary site,3.
Procedures for reviewing system security.If there is an uninterruptible power source (UPS) at the primary site,4.
Procedures to conduct stress tests.How frequently market data is stored off-site,5. Whether the marketplace has a secondary processing site and, if so, the location of the secondary processing site,
6.
5. A description of theThe filer's business continuityandplan, including the disaster recoveryplans, includingplan. Please provide any relevant documentation.,7.
6. Procedures to test business continuity and disaster recovery plans.How frequently the business continuity and disaster recovery plans are tested,8. The targeted time to resume operations of critical information technology systems following the declaration of a disaster by the marketplace,
9. Any single points of failure faced by the marketplace.
Systems Capacity
Please describe:
1. How frequently future market activity is evaluated in order to adjust processing capacity,
2. The approximate excess capacity maintained over average daily transaction volumes,
3. How often or at what point stress testing is performed.
Systems
Please describe:
1. Whether the trading engine was developed in-house or by a commercial vendor,
2. Whether the trading engine is maintained in-house or by a commercial vendor and provide the name of the commercial vendor, if applicable,
3. The marketplace's networks. Please provide a copy of the network diagram used in-house that covers order entry, real-time market data and transmission,
4. The message protocols supported by the marketplace's systems,
5. The transmission protocols used by the marketplace's systems.
IT Risk Assessment
Please describe the IT risk assessment framework, including:
1. How the probability and likelihood of IT threats are considered,
2. How the impact of risks are measured according to qualitative and quantitative criteria,
3. The documentation process for acceptable residual risks with related offsets, and
4. The development of management's action plan to implement a risk response to a risk that has not been accepted.
Exhibit H -- Custody of Assets
1. If the exchange or quotation and trade reporting system proposes to hold funds or securities of a marketplace participant on a regular basis, a description of the controls that will be implemented to ensure the safety of the funds or securities.
2. If any other person or company, other than the exchange or quotation and trade reporting system, will hold or safeguard funds or securities of a marketplace participant on a regular basis, provide the name of the person or company and a description of the controls that will be implemented to ensure the safety of the funds or securities.
Exhibit I -- Securities
1. List the types of securities listed on the exchange or quoted on the quotation and trade reporting system. If this is an initial filing, list the types of securities the Filerfiler expects to list or quote.
2. List the types of any other securities that are traded on the marketplace or quoted on the quotation and trade reporting system, indicating the exchange(s) on which such securities are listed. If this is an initial filing, list the types of securities the Filerfiler expects to trade.
Exhibit J -- Access to Services
1. A complete set of all forms, agreements or other materials pertaining to access to the services of the marketplace described in Exhibit E .item 4, including trading on the exchange or quotation and trade reporting system.
2. Describe the classes of marketplace participants.
3. Describe the exchange or quotation and trade reporting service's criteria for access to the services of the marketplace.
4. Describe any differences in access to the services offered by the marketplace to different groups or classes of marketplace participants.
5. Describe conditions under which marketplace participants may be subject to suspension or termination with regard to access to the services of the exchange or quotation and trade reporting system.
6. Describe any procedures that will be involved in the suspension or termination of a marketplace participant.
7. Describe the exchange or quotation and trade reporting system's arrangements for permitting clients of marketplace participants to have access to the marketplace. Provide a copy of any agreements or documentation relating to these arrangements.
Exhibit K -- Marketplace Participants
Provide an alphabetical list of all marketplace participants, including the following information:
1. Name.
2. Date of becoming a marketplace participant.
3. Describe the type of trading activities primarily engaged in by the marketplace participant (e.g., agency trading, proprietary trading, registered trading, market making).
4. The class of participation or other access. Please identify if the marketplace participant accesses the marketplace through co-location.
5. Provide a list of all persons or entities that were denied or limited access to the marketplace, indicating for each
:(i) whether they were denied or limited access
;,(ii) the date the marketplace took such action
;,(iii) the effective date of such action
;, and(iv) the nature and reason for any denial or limitation of access.
Exhibit L -- Fees
A description of the fee model and all fees charged by the marketplace, or by a party to which services have been directly or indirectly outsourced, including, but not limited to, fees relating to connecting to the market or facility, access, data, regulation (if applicable), trading, routing, and co-location, how such fees are set, and any fee rebates or discounts and how the rebates and discounts are set.
Exhibit M -- Regulation
Market Regulation is being conducted by:
[ ] the exchange or QTRS
1. Provide a description of the regulation performed by the exchange or QTRS, including the structure of the department performing regulation, how the department is funded, policies and procedures in place to ensure confidentiality and the management of conflicts of interest, and policies and procedures relating to conducting an investigation.
2. If more than one entity is performing regulation services for a type of security and the filer is conducting market regulation for itself and its members, providea copy of the contract between the filer and the regulation services provider providing for co-ordinated monitoring and enforcement under section 7.5 of National Instrument 23-101 Trading Rules.
[ ] a regulation services provider other than the filer (provide a copy of the contract between the filer and the regulation services provider
.)
Exhibit N -- Acknowledgement
The form of acknowledgement required by subsection 5.9(2) of National Instrument 21-101 Marketplace Operation.
CERTIFICATE OF EXCHANGE OR QUOTATION AND TRADE REPORTING SYSTEM
The undersigned certifies that the information given in this report is true and correct.
|
DATED at __________ |
this _____ |
day of __________ |
20 _____ |
________________________________________
(Name of exchange or quotation and trade reporting system)
________________________________________
(Name of director, officer or partner -- please type or print)
________________________________________
(Signature of director, officer or partner)
________________________________________
(Official capacity -- please type or print)
FORM 21-101F2
INITIAL OPERATION REPORT
INFORMATION STATEMENT
ALTERNATIVE TRADING SYSTEM
TYPE OF FILING:
|
[ ] |
INITIAL OPERATION REPORT |
[ ] |
AMENDMENT <<; AMENDMENT No.>>__________ |
Identification:
1. Full name of alternative trading system:
2. Name(s) under which business is conducted, if different from item 1:
3. If this filing makes a name change on behalf of the alternative trading system in respect of the name set out in Item 1 or Item 2, enter the previous name and the new name.
Previous name:
New name:
4. Head office
Address:
Telephone:
Facsimile:
5. Mailing address (if different):
6. Other offices
Address:
Telephone:
Facsimile:
7. Website address:
8. Contact employee
Name and title:
Telephone number:
Facsimile:
E-mail address:
9. Counsel
Firm name:
Contact name:
Telephone number:
Facsimile:
E-mail address:
10. The ATS is
[ ] a member of ...............................(name of the recognized self-regulatory entity)
[ ] a registered dealer
11. If this is an initial operation report, the date the alternative trading system expects to commence operation:
12. The ATS has contracted with [name of regulation services provider] to perform market regulation for the ATS and its subscribers.
EXHIBITS
File all Exhibits with the Initial Operation Report. For each Exhibit, include the name of the ATS, the date of filing of the Exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shallmust be furnished instead of such Exhibit.
If the ATS files an amendment to the information provided in its Initial Operation Report and the information relates to an Exhibit filed with the Initial Operation Report or a subsequent amendment, the ATS must, in order to comply with subsection 3.2(1), 3.2(2) or 3.2(3) of National Instrument 21-101, provide a description of the change, the expected date of the implementation of the change, and file a complete and updated Exhibit. The ATS must provide a clean and blacklined version showing changes from the previous filing.
Exhibit A -- Corporate Governance
1. Legal status:
[ ]
Corporation
[ ]
Partnership
[ ]
Sole Proprietorship
[ ]
Other (specify):
2. Except where the ATS is a sole proprietorship, indicate the following:
1. Date (DD/MM/YYYY) of formation.
2. Place of formation.
3. Statute under which the ATS was organized.
3. Provide a copy of the constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents, and all subsequent amendments.
4. Provide the policies and procedures to address conflicts of interest arising from the operation of the marketplace or the services it provides, including those related to the commercial interest of the marketplace, the interests of its owners and its operators, and the responsibilities and sound functioning of the marketplace.
Exhibit B -- Ownership
A list of the registered or beneficial holders of securities of, partnership interests in, or other ownership interests in, the ATS. For each of the persons listed in the Exhibit, please provide the following:
1. Name.
2. Principal business or occupation and title.
3. Ownership interest.
4. Nature of the ownership interest, including a description of the type of security, partnership interest or other ownership interest.
5. Whether the person has control (as interpreted in subsection 1.3(2) of National Instrument 21-101 Marketplace Operation).
In the case of an ATS that is publicly traded, if the ATS is a corporation, please only provide a list of each shareholder that directly owns five percent % or more of a class of a voting security of the ATS.
Exhibit C -- Organization
1. A list of partners, directors, officers, governors, and members of the board of directors and any standing committees of the board, or persons performing similar functions, who presently hold or have held their offices or positions during the previous year, indicating the following for each:
1. Name.
2. Principal business or occupation and title.
3. Dates of commencement and expiry of present term of office or position.
4. Type of business in which each is primarily engaged and current employer.
5. Type of business in which each was primarily engaged in the preceding five years, if different from that set out in item 4.
6. Whether the person is considered to be an independent director.
2. A list of the committees of the board, including their mandates.
Exhibit D -- Affiliates
1. For each affiliated entity of the ATS provide the name, head office address and describe the principal business of the affiliate.
2. For each affiliated entity of the ATS
(i) to which the ATS has outsourced any of its key services or systems affecting the market or facility described in Exhibit E -- Operations of the Marketplace, including order entry, trading, execution, routing and data, or
(ii) with which the ATS has any other material business relationship, including loans, cross-guarantees, etc.
provide the following information:
1. Name and address of the affiliate.
2. The name and title of the directors and officers, or persons performing similar functions, of the affiliate.
3. A description of the nature and extent of the contractual and other agreement with the ATS, and the roles and responsibilities of the affiliate under the arrangement.
4. A copy of each material contract relating to any outsourced functions or other material relationship.
5 Copies of constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents.
Exhibit E -- Operations of the Marketplace
Describe in detail the manner of operation of the market and its associated functions. This shouldmust include, but is not be limited to, a description of the following:
1. The structure of the market (e.g., call market, auction market, dealer market).
2. Means of access to the market or facility and services, including a description of any co-location arrangements.
3. The hours of operation.
4. A description of the services offered by the marketplace including, but not limited to, order entry, co-location, trading, execution, routing and data.
5. A list of the types of orders offered, including, but not limited to, a description of the features and characteristics of orders.
6. Procedures regarding the entry, display and execution of orders. If indications of interest are used, please describe the information they include and list the types of recipients.
7.
DescriptionA description of how orders interact, including, but not limited to, the priority of execution for all order types.8.
DescriptionA description of order routing procedures.9.
DescriptionA description of order and trade reporting procedures.10.
DescriptionA description of procedures for clearance and settlement of transactions.11. The safeguards and procedures of the marketplace to protect trading information of marketplace participants.
12. Training provided to participants and a copy of any materials provided both with respect to systems of the marketplace, the requirements of the marketplace, and the rules of the regulation services providers, if applicable.
13. Steps taken to ensure that marketplace participants have knowledge of and comply with the requirements of the marketplace.
The filer must provide all policies, procedures and trading manuals related to the operation of the marketplace and, if applicable, the order router.
The filer must provide all material contracts relating to order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing.
Exhibit F -- Outsourcing
Where the ATS has outsourced the operation of key services or systems affecting the market or facility described in Exhibit E -- Operations of the Marketplace to an arms-length third party, including any function associated with the routing, trading, execution, clearing and settlement, data and co-location, provide the following information:
1. Name and address of person or company to whom the function has been outsourced.
2. A description of the nature and extent of the contractual or other agreement with the ATS and the roles and responsibilities of the arms-length party under the arrangement.
3. A copy of each material contract relating to any outsourced function.
4. A copy of the marketplace's policies and procedures for the selection of service providers to which key services and systems may be outsourced and for the evaluation and approval of such outsourcing arrangements that are established and maintained pursuant to subsection 5.12(a) of National Instrument 21-101 Marketplace Operation.
5. A description of any conflicts of interest between the marketplace and the service provider to which key services and systems are outsourced and a copy of the policies and procedures to mitigate and manage such conflicts of interest that have been established pursuant to subsection 5.12(b) of National Instrument 21-101 Marketplace Operation.
6. A description of the measures the marketplace has taken pursuant to subsection 5.12(f) of National Instrument 21-101 Marketplace Operation to ensure that the service provider has established, maintains and periodically tests an appropriate business continuity plan, including a disaster recovery plan.
7. A description of the measures the marketplace has taken pursuant to subsection 5.12(g) of National Instrument 21-101 Marketplace Operation to ensure that the service provider protects the proprietary, order, trade or any other confidential information of the participants of the marketplace.
8. A copy of the marketplace's processes and procedures to regularly review the performance of a service provider under an outsourcing arrangement that are established pursuant to subsection 5.12(h) of National Instrument 21-101 Marketplace Operation.
Exhibit G -- Systems and Contingency Planning
General
Provide:
1.
For eachA high level description of themarketplace's systems that support order entry, order routing, execution, trade reporting, trade comparison, datafeedfeeds, co-location and if applicable, market surveillance,and trade clearing, describe:.2. An organization chart of the marketplace's information technology group.
Business Continuity Planning
Describe:
1.
Current and future capacity estimates.Where the primary processing site is located,2.
Procedures for reviewing system capacity.What the approximate percentage of hardware, software, and network redundancy is at the primary site,3.
Procedures for reviewing system security.If there is an uninterruptible power source (UPS) at the primary site,4.
Procedures to conduct stress tests.How frequently market data is stored off-site,5. Whether the marketplace has a secondary processing site and, if so, the location of the secondary processing site,
6.
5. A description of theThe filer's business continuityandplan, including the disaster recoveryplans, includingplan. Please provide any relevant documentation.,7.
6. Procedures to testHow frequently the business continuity and disaster recovery plans.are tested,8. The targeted time to resume operations of critical information technology systems following the declaration of a disaster by the marketplace,
9. Any single points of failure faced by the marketplace.
Systems Capacity
Describe:
1. How frequently future market activity is evaluated in order to adjust processing capacity,
2. The approximate excess capacity maintained over average daily transaction volumes,
3. How often or at what point stress testing is performed.
Systems
Describe:
1. Whether the trading engine was developed in-house or by a commercial vendor,
2. Whether the trading engine is maintained in-house or by a commercial vendor and provide the name of the commercial vendor, if applicable,
3. The marketplace's networks. Please provide a copy of the network diagram used in-house that covers order entry, real-time market data and transmission,
4. The message protocols supported by the marketplace's systems,
5. The transmission protocols used by the marketplace's systems.
IT Risk Assessment
Describe the IT risk assessment framework, including:
1. How the probability and likelihood of IT threats are considered,
2. How the impact of risks are measured according to qualitative and quantitative criteria,
3. The documentation process for acceptable residual risks with related offsets, and
4. The development of management's action plan to implement a risk response to a risk that has not been accepted.
Exhibit H -- Custody of Assets
1. If the ATS proposes to hold funds or securities of a marketplace participant on a regular basis, a description of the controls that will be implemented to ensure the safety of the funds or securities.
2. If any other person or company, other than the ATS, will hold or safeguard funds or securities of a marketplace participant on a regular basis, provide the name of the person or company and a description of the controls that will be implemented to ensure the safety of the funds or securities.
Exhibit I -- Securities
List the types of securities that are traded on the ATS, indicating the exchange(s) on which such securities are listed. If this is an initial filing, list the types of securities the ATS expects to trade.
Exhibit J -- Access to Services
1. complete set of all forms, agreements or other materials pertaining to access to the services of the marketplace described in Exhibit E .item 4, including trading on the ATS.
2. Describe the classes of marketplace participants (i.e. dealer, institution , or retail).
3. Describe the ATS's criteria for access to the services of the marketplace.
4. Describe any differences in access to the services offered by the marketplace to different groups or classes of marketplace participants.
5. Describe conditions under which marketplace participants may be subject to suspension or termination with regard to access to the services of the ATS.
6. Describe any procedures that will be involved in the suspension or termination of a marketplace participant.
7. Describe the ATS's arrangements for permitting clients of marketplace participants to have access to the marketplace. Provide a copy of any agreements or documentation relating to these arrangements.
Exhibit K -- Marketplace Participants
Provide an alphabetical list of all marketplace participants, including the following information:
1. Name.
2. Date of becoming a marketplace participant.
3. Describe the type of trading activities primarily engaged in by the marketplace participant (e.g., agency trading, proprietary trading, registered trading, market making).
4. The class of participation or other access. Identify if the marketplace participant accesses the marketplace through co-location.
5. Provide a list of all persons or entities that were denied or limited access to the marketplace, indicating for each
:(i) whether they were denied or limited access
;,(ii) the date the marketplace took such action
;,(iii) the effective date of such action
;, and(iv) the nature and reason for any denial or limitation of access.
Exhibit L -- Fees
A description of the fee model and all fees charged by the marketplace, or by a party to whom services have been directly or indirectly outsourced, including, but not limited to, fees relating to connecting to the market or facility, access, data, regulation (if applicable), trading, routing, and co-location, how such fees are set and any fee rebates or discounts and how the rebates or discounts are set.
Exhibit M -- Regulation
The ATS has contracted with regulation services provider ............................. to perform market regulation for ATS and its subscribers. Provide a copy of the contract between the filer and the regulation services provider.
Exhibit N -- Acknowledgement
The form of acknowledgement required by subsections 5.9(2) and 6.11(2) of National Instrument 21-101 Marketplace Operation.
CERTIFICATE OF ALTERNATIVE TRADING SYSTEM
The undersigned certifies that the information given in this report is true and correct.
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DATED at __________ |
this _____ |
day of __________ |
20 _____ |
________________________________________
(Name of alternative trading system)
________________________________________
(Name of director, officer or partner -- please type or print)
________________________________________
(Signature of director, officer or partner)
________________________________________
(Official capacity -- please type or print)
FORM 21-101F3
QUARTERLY REPORT OF MARKETPLACE ACTIVITIES
A -- General Marketplace Information
1. Marketplace Name:
2. Period covered by this report:
3. Identification
A. Full name of marketplace (if sole proprietor, last, first and middle name):
B. Name(s) under which business is conducted, if different from item A:
C. Marketplace main street address:
4. Attach as Exhibit A a current list of all marketplace participants at the end of the period covered by this report, identifying those market participants that are using the marketplace's co-location services, if any. For each marketplace participant, indicate the number of trader IDs that may access the marketplace.
5. Attach as Exhibit B a list of all marketplace participants granted, denied or limited access to the marketplace during the period covered by this report, indicating for each marketplace participant: (a) whether they were granted, denied or limited access; (b) the date the marketplace took such action; (c) the effective date of such action; and (d) the nature of any denial or limitation of access.6.A list of all amendments in the information in Form 21-101F1 or 21-101F2 that were filed with the Canadian securities regulatory authorities and implemented during the period covered by the report. The list must include a brief description of each amendment, the date filed and the date implemented.
7.5. A list of all amendments in the information in Form 21-101F1 or 21-101F2 that have been filed with the Canadian securities regulatory authorities but not implemented as of the end of the period covered by the report. The list must include a brief description of each amendment, the date filed and the reason why it was not implemented.
8.6. Systems -- If any outages occurred at any time during the period for any system relating to trading activity, including trading, routing or data, provide the date, duration and, reason for the outageand its resolution.
7. Systems Changes -- A brief description of any significant changes to the systems and technology used by the marketplace that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, co-location and if applicable, market surveillance and trade clearing that were planned, under development, or implemented during the quarter. Please provide the current status of the changes that are under development.
B. -- Marketplace Activity Information
Section 1 -- Equity Marketplaces Trading Exchange-Listed Securities
1. General trading activity -- For each type of security traded on the marketplace, provide the details (where appropriate) requested in the form set out in Chart 1. The information shouldmust be provided for transactions executed at the opening of the market, during regular trading hours, and after hours during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 1 -- General trading activity for equity marketplaces trading exchange-listed securities
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2. Crosses -- Provide the details (where appropriate) requested in the form set out in Chart 2 below for each type of cross executed on the marketplace for trades executed at the opening of the market, during regular trading and after hours during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 2 -- Crosses
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3. Other crosses |
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3. Order information -- Provide the details (where appropriate) requested in the form set out in Chart 3 below for each type of order in exchange traded securities executed on the marketplace for orders entered at the opening of the market, during regular trading and after hours during the quarter. Enter "none", "N/A", or "0" where appropriate.
Chart 3 -- Order information
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2. Fully transparent |
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5. Separate dark facility of a transparent market |
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6. Partially hidden (reserve) |
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7. Total number of orders entered during the quarter |
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{1} See definition of an Internal and Intentional Cross in Section 1.1 of the Universal Market Integrity Rules.
{2} By cancellations, we mean "pure" cancellations, i.e. cancellations that do not result in a new and amended order.
{3} Orders executed under ID 001.
4. Trading by security -- Provide the details requested in the form set out in Chart 4 below for the 10 most traded securities on the marketplace (based on the volume of securities traded) for trades executed at the opening of the market, during regular trading and after hours during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 4 -- Most traded securities
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5. Trading by marketplace participant -- Provide the details requested in the form set out in Chart 5 below for the top 10 marketplace participants (based on the volume of securities traded). The information shouldmust be provided for the total trading volume, including for trades executed at the opening of the market, during regular trading and after hours during the quarter. Enter "None", "N/A", or "0" where appropriate. Where a marketplace's marketplace participants are dealers and non-dealers, the marketplace shouldmust complete a separate chart for each.
Chart 5 -- Concentration of trading by marketplace participant
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6. Routing activities -- Indicate the percentage of marketplace participants that used marketplace-owned or third party or affiliated routing services during the reporting period. In addition, provide the information in Chart 6 below.
Chart 6 -- Routing of marketplace orders
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Number of orders routed to away marketplaces (list all marketplaces where orders were routed) |
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Number of orders that are marked and treated as Directed Action Orders (DAO) |
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7. Co-location -- Indicate the percentage of marketplace participants that are using the marketplace's co-location services, if any.
Section 2 -- Fixed Income Marketplaces
1. General trading activity -- Provide the details (where appropriate) requested in the form set out in Chart 7 below for each type of fixed income security traded on the marketplace for transactions executed during regular trading hoursduring the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 7 -- Fixed income activity
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Domestic Unlisted Debt Securities -- Corporate |
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Domestic Unlisted Debt Securities -- Other |
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Foreign Unlisted Debt Securities -- Government |
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Foreign Unlisted Debt Securities -- Corporate |
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Foreign Unlisted Debt Securities -- Other |
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2. Trading by security -- Provide the details requested in the form set out in Chart 8 below for the 10 most tradedeach fixed income securitiessecurity traded on the marketplace (based on the value of the volume traded) for trades executed during regular trading hours during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 8 -- Most tradedTraded fixed income securities
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Domestic Unlisted Debt Securities -- Corporate |
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[Enter issuer, maturity, coupon] |
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Domestic Unlisted Debt Securities -- Other |
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[Enter issuer, maturity, coupon] |
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Foreign Unlisted Debt Securities -- Government |
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[Enter issuer, maturity, coupon] |
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Foreign Unlisted Debt Securities -- Corporate |
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[Enter issuer, maturity, coupon] |
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Foreign Unlisted Debt Securities -- Other |
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[Enter issuer, maturity, coupon] |
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3. Trading by marketplace participant -- Provide the details requested in the form set out in Chart 9 below for the top 10 marketplace participants for trades executed during regular trading hours during the quarter. Enter "None", "N/A", or "0" where appropriate. If marketplace participants are dealers and non-dealer institutions, the marketplace shouldmust complete a separate chart for each.
Chart 9 -- Concentration of trading by marketplace participant
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Marketplace Participant Name |
Value Traded |
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Section 3 -- Securities Lending Marketplaces
1. General lending activity -- Please provide details (where appropriate) requested in the form set out inChart 10 below for each type of securities loaned on the marketplace. Enter "None", "N/A" or "0" where appropriate.
Chart 10 -- Lending activity
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Category of Securities |
Quantity of Securities Lent During the Quarter |
Aggregate Value of Securities Lent During the Quarter |
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Domestic |
__________ |
__________ |
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1. Corporate Equity Securities |
__________ |
__________ |
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1.1. Common Shares |
__________ |
__________ |
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1.2. Preferred Shares |
__________ |
__________ |
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2. Non-Corporate Equity Securities (e.g. trust units, partnership units, etc.) (please specify) |
__________ |
__________ |
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3. Government Debt Securities |
__________ |
__________ |
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4. Corporate Debt Securities |
__________ |
__________ |
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5. Other Fixed Income Securities (please specify) |
__________ |
__________ |
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Foreign |
__________ |
__________ |
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1. Corporate Equity Securities |
__________ |
__________ |
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1.1. Common Shares |
__________ |
__________ |
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1.2. Preferred Shares |
__________ |
__________ |
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2. Non-Corporate Equity Securities (e.g. trust units, partnership units, etc.) (Please specify) |
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3. Government Debt Securities |
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4. Corporate Debt Securities |
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5. Other Fixed Income Securities (please specify) |
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2. Trading by marketplace participant -- Provide the details requested in the form set out in Chart 11 and Chart 12 below for the top 10 borrowers and lenders based on their aggregate value of securities borrowed or loaned, respectively, during the quarter.
Chart 11 -- Concentration of activity by borrower
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Borrower Name |
Aggregate Value of Securities Borrowed During the Quarter |
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9. |
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10. |
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Chart 12 -- Concentration of activity by lender
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Lender Name |
Aggregate Value of Securities Loaned During the Quarter |
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3. Lending activity by security -- Provide the details requested in the form set out in Chart 13 below for the 10 most loaned securities on the marketplace (based on the quantity of securities loaned during the quarter). Enter "None", "N/A" or "0" where appropriate.
Chart 13 -- Most loaned securities
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Category of Securities |
Quantity of Securities Lent During the Quarter |
Aggregate Value of Securities Lent During the Quarter |
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Domestic |
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1. Common Shares |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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2. Preferred Shares |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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7. |
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8. |
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9. |
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10. |
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3. Non-Corporate Equity Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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4. Government Debt Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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5. Corporate Debt Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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6. Other Fixed Income Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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Foreign |
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1. Common Shares |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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2. Preferred Shares |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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3. Non-Corporate Equity Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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4. Government Debt Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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5. Corporate Debt Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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6. Other Fixed Income Securities |
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[Name of Security] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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Section 4 -- Derivatives Marketplaces in Quebec
1. General trading activity -- For each category of product traded on the marketplace, provide the details (where appropriate) requested in the form set out in Chart 14 below. For products other than options on ETFs and equity options, provide the details on a product-by-product basis in the appropriate category. Details for options on ETFs and equity options shouldmust be provided on an aggregate basis (one total for options on ETFs and one for options on equities). The information shouldmust be provided for transactions executed in the early session, during the regular session, and in the extended session during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 14 -- General trading activity
|
Category of Product |
Volume |
Number of Trades |
Open Interest (Number/End of Quarter) |
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Futures Products |
|||
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1(a) Interest rate -- short term |
_____ |
_____ |
__________ |
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1(b) Interest rate -- long term |
_____ |
_____ |
__________ |
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2. Index |
_____ |
_____ |
__________ |
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3. ETF |
_____ |
_____ |
__________ |
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4. Equity |
_____ |
_____ |
__________ |
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5. Currency |
_____ |
_____ |
__________ |
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6. Energy |
_____ |
_____ |
__________ |
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7. Others, please specify |
_____ |
_____ |
__________ |
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Options Products |
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1(a) Interest rate -short term |
_____ |
_____ |
__________ |
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1(b) Interest rate -- long term |
_____ |
_____ |
__________ |
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2. Index |
_____ |
_____ |
__________ |
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3. ETF |
_____ |
_____ |
__________ |
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4. Equity |
_____ |
_____ |
__________ |
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5. Currency |
_____ |
_____ |
__________ |
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6. Energy |
_____ |
_____ |
__________ |
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7. Others, please specify |
_____ |
_____ |
__________ |
2. Trades resulting from pre-negotiation discussions -- Provide the details (where appropriate) requested in the form set out in Chart 15 below by product and for each type of trade resulting from pre-negotiation discussions. For products other than options on ETFs and equity options, provide the details on a product-by-product basis in the appropriate category. Details for options on ETFs and equity options shouldmust be provided on an aggregate basis (one total for options on ETFs and one for options on equities). The information shouldmust be provided for trades executed in the early session, during the regular session and in the extended session during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 15 --Trades resulting from pre-negotiation discussions
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Type of Trade |
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Futures Products |
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A. Cross |
__________ |
__________ |
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B. Pre-arranged |
__________ |
__________ |
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C. Block |
__________ |
__________ |
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D. Exchange for physical |
__________ |
__________ |
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E. Exchange for risk |
__________ |
__________ |
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F. Riskless basis cross |
__________ |
__________ |
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G. Others, please specify |
__________ |
__________ |
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Options Products |
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A. Cross |
__________ |
__________ |
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B. Pre-arranged |
__________ |
__________ |
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C. Block |
__________ |
__________ |
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D. Others, please specify |
__________ |
__________ |
3. Order information -- Provide the details (where appropriate) requested in the form set out in Chart 16 below by product and for each type of order in exchange traded contracts executed on the marketplace. For products other than options on ETFs and equity options, provide the details on a product-by-product basis in the appropriate category. Details for options on ETFs and equity options shouldmust be provided on an aggregate basis (one total for options on ETFs and one for options on equities). The information shouldmust be provided for orders entered in the early session, during the regular session and in the extended session during the quarter. Enter "none", "N/A", or "0" where appropriate.
Chart 16 -- Order Information
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Type of Orders |
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1. Anonymous |
__________ |
__________ |
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2. Fully transparent |
__________ |
__________ |
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3. Pegged orders |
__________ |
__________ |
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4. Fully hidden |
__________ |
__________ |
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5. Separate dark facility of a transparent market |
__________ |
__________ |
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6. Partially hidden (reserve, for example, iceberg orders) |
__________ |
__________ |
4. Trading by product -- Provide the details requested in the form set out in Chart 17 below. For each product other than options on ETFs and equity options, list the most actively-traded contracts (by volume) on the marketplace that in the aggregate constitute at least 75% of the total volume for each product during the quarter. The list must include at least 3 contracts. For options on ETFs and equity options, list the 10 most actively traded classes by volume. Details for options on ETFs and equity options shouldmust be provided on an aggregate basis (one total for options on ETFs and one for options on equities). The information shouldmust be provided for trades executed in the early session, during the regular session and in the extended session during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 17 -- Most traded contracts
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Category of Product |
Volume |
Number of Trades |
Open Interest (Number/End of Quarter) |
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Futures Products |
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1. Name of products -- 3 most-traded contracts (or more as applicable) |
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1. |
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2. |
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3. |
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Options Products |
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2. ETF |
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[Classes] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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3. Equity |
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[Classes] |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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4. Other listed options (specify for each) -- 3 most traded contracts (or more as applicable) |
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1. |
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2. |
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3. |
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5. Concentration of trading by marketplace participant -- Provide the details requested in the form set out in Chart 18 below. For each product other than options on ETFs and equity options, list the top marketplace participants whose aggregate trading (by volume) constituted at least 75% of the total volume traded. The list must include at least 3 marketplace participants. For options on ETFs and equity options, provide the top 10 most active marketplace participants (by volume). The information shouldmust be provided on an aggregate basis (one total for options on ETFs and one for options on equities). The information shouldmust be provided for trades executed in the early session, during the regular session and in the extended session during the quarter. Enter "None", "N/A", or "0" where appropriate.
Chart 18 -- Concentration of trading by marketplace participant
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Product Name |
Marketplace Participant Name |
Volume |
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Futures |
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Product Name (specify for each) |
1. |
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2. |
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3. (more if necessary) |
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Options |
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ETF |
1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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Equity |
1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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Other options (specify for each) |
1. |
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2. |
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3. (more if necessary) |
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6. Co-location
Indicate the percentage of marketplace participants that are using the marketplace's co-location services, if any.
C. - Certificate of Marketplace
The undersigned certifies that the information given in this report relating to the marketplace is true and correct.
DATED at_______________this_____day of_______________20_____
____________________
(Name of Marketplace)
____________________
(Name of director, officer or partner -- please type or print)
____________________
(Signature of director, officer or partner)
____________________
(Official capacity -- please type or print)
FORM 21-101F4
CESSATION OF OPERATIONS REPORT FOR ALTERNATIVE TRADING SYSTEM
1. Identification:
A. Full name of alternative trading system (if sole proprietor, last, first and middle name):
B. Name(s) under which business is conducted, if different from item 1A:
2. Date alternative trading system proposes to cease carrying on business as an ATS:
3. If cessation of business was involuntary, date alternative trading system has ceased to carry on business as an ATS:
4. Please check the appropriate box:
[ ] the ATS intends to carry on business as an exchange and has filed Form 21-101F1.
[ ] the ATS intends to cease to carry on business.
[ ] the ATS intends to become a member of an exchange.
Exhibits
File all Exhibits with the Cessation of Operations Report. For each exhibit, include the name of the ATS, the date of filing of the exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shallmust be furnished instead of such Exhibit.
Exhibit A
The reasons for the alternative trading system ceasing to carry on business as an ATS.
Exhibit B
A list of each of the securities the alternative trading system trades.
Exhibit C
The amount of funds and securities, if any, held for subscribers by the alternative trading system, or another person or company retained by the alternative trading system to hold funds and securities for subscribers and the procedures in place to transfer or to return all funds and securities to subscribers.
CERTIFICATE OF ALTERNATIVE TRADING SYSTEM
The undersigned certifies that the information given in this report is true and correct.
DATED at __________ this __________ day of _______________ 20 _____
____________________
(Name of alternative trading system)
____________________
(Name of director, officer or partner -- please type or print)
____________________
(Signature of director, officer or partner)
____________________
(Official capacity -- please type or print)
FORM 21-101F5
INITIAL OPERATION REPORT FOR INFORMATION STATEMENT
INFORMATION PROCESSOR
TYPE OF FILING:
[ ] INITIAL FORM [ ] AMENDMENT ; AMENDMENT No.__________
GENERAL INFORMATION
1. Full name of information processor:
2. Name(s) under which business is conducted, if different from item 1:
3. If this filing makes a name change on behalf of the information processor in respect of the name set out in item 1 or item 2, enter the previous name and the new name:
Previous name:
New name:
4. Head office
5. Mailing address (if different):
6. Other offices
Address:
Telephone:
Facsimile:
7. Website address:
8. Contact employee
Name and title:
Telephone number:
Facsimile:
E-mail address:
9. Counsel
Firm name:
Contact name:
Telephone number:
Facsimile:
E-mail address:
10. List of all marketplaces, dealers or other parties for which the information processor is acting or for which it proposes to act as an information processor. For each marketplace, dealer or other party, provide a description of the function(s) which the information processor performs or proposes to perform.
11. List all types of securities for which information will be collected, processed, distributed or published by the information processor. For each such marketplace, dealer or other party, provide a list of all securities for which information with respect to quotations for, or transactions in, is or is proposed to be collected, processed, distributed or published.
Exhibits
File all Exhibits with the Initial Form. For each Exhibit, include the name of the information processor, the date of filing of the Exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shallmust be furnished instead of such Exhibit.
If the information processor files an amendment to the information provided in its Initial Form, and the information relates to an Exhibit filed with the Initial Form or a subsequent amendment, the information processor must, in order to comply with sections 14.1 and 14.2 of National Instrument 21-101, provide a description of the change, the expected date of the implementation of the change, and file a complete and updated Exhibit. The information processor must provide a clean and a blacklined version showing changes from the previous filing.
Exhibit A -- Corporate Governance
1. Legal status:
[ ] Corporation
[ ] Sole Proprietorship
[ ] Partnership
[ ] Other (specify):
2. Except where the information processor is a sole proprietorship, indicate the date and place where the information processor obtained its legal status (e.g., place of incorporation, place where partnership agreement was filed or where information processor was formed):
a) Date (DD/MM/YYYY) of formation.
b) Place of formation.
c) Statute under which the information processor was organized.
3. Provide a copy of the constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents, and all subsequent documents.
4. Provide the policies and procedures which promote independence of the information processor from the marketplaces, inter-dealer bond brokers and dealers that provide data.
5. Provide the policies and procedures which address the potential conflicts of interest between the interests of the information processor and its owners, partners, directors and officers.
Exhibit B -- Ownership
List any person or company who owns 10 percent or more of the information processor's outstanding shares or who, either directly or indirectly, through agreement or otherwise, in any other manner, may control or direct the management or policies of the information processor. Provide the full name and address of each such person and attach a copy of the agreement or, if there is none written, describe the agreement or basis through which such person exercises or may exercise such control or direction.
Exhibit C -- Organization
1. A list of the partners, directors, governors, and members of the board of directors and any standing committees of the board, or persons performing similar functions, who presently hold or have held their offices or positions during the previous year, identifying those individuals with overall responsibility for the integrity and timeliness of data reported to and displayed by the system (the "System") of the information processor, indicating the following for each:
1. Name.
2. Principal business or occupation and title.
3. Dates of commencement and expiry of present term of office or position.
4. Type of business in which each is primarily engaged and current employer.
5. Type of business in which each was primarily engaged in the preceding five years, if different from that set out in item 4.
6. Whether the person is considered to be an independent director.
7. A list of the committees of the board, including their mandates.
8. A narrative or graphic description of the organizational structure of the information processor.
Exhibit D -- Staffing
A description of the personnel qualifications for each category of professional, non-professional and supervisory employee employed by the information processor. Detail whether the personnel are employed by the information processor or a third party, identifying the employees responsible for monitoring the timeliness and integrity of data reported to and displayed by the System.
Exhibit E -- Affiliates
For each affiliated entity of the information processor, and for any person or company with whom the information processor has a contractual or other agreement relating to the operations of the information processor, including loans or cross-guarantees, provide the following information:
1. Name and address of person or company.
2. Form of organization (e.g., association, corporation, partnership, etc.).
3. Name of location and statute citation under which organized.
4. Date of incorporation in present form.
5. Description of nature and extent of affiliation and/or contractual or other agreement with the information processor.
6. Description of business or functions of the affiliates.
7. If a person or company has ceased to be an affiliated entity of the information processor during the previous year or ceased to have a contractual or other agreement relating to the operation of the information processor during the previous year, provide a brief statement of the reasons for termination of the relationship.
Exhibit F -- Services
A description in narrative form of each service or function performed by the information processor. Include a description of all procedures utilized for the collection, processing, distribution, validation and publication of information with respect to orders and trades in securities.
Exhibit G -- System and Operations
1. Describe the manner of operation of the System of the information processor that collects, processes, distributes and publishes information in accordance with National Instruments 21-101 and 23-101. This description shouldmust include the following:
1. The means of access to the System.
2. Procedures governing entry and display of quotations and orders in the System including data validation processes.
3. A description of any measures used to verify the timeliness and accuracy of information received and disseminated by the
systemSystem, including the processes to resolve data integrity issues identified.4. The hours of operation of the System.
5.
DesciptionA description of the training provided to users of the System and any materials provided to the users.
2. Include a list of all computer hardware utilized by the information processor to perform the services or functions listed in Exhibit F, indicating:
1. Manufacturer, and manufacturer's equipment and identification number.
2. Whether purchased or leased (if leased, duration of lease and any provisions for purchase or renewal).
3. Where such equipment (exclusive of terminals and other access devices) is physically located.
3. Provide a description of the measures or procedures implemented by the information processor to provide for the security of any system employed to perform the functions of an information processor. This shouldmust include a general description of any physical and operational safeguards designed to prevent unauthorized access to the system.
4. Provide a description of all backup systems which are designed to prevent interruptions in the performance of any information providing functions as a result of technical malfunctions or otherwise in the system itself, in any permitted input or output system connection or as a result of any independent source.
5. Describe the business continuity and disaster recovery plans of the information processor, and provide any relevant documentation.
6. List each type of interruption which has lasted for more than two minutes and has occurred within the six (6) months preceding the date of the filing, including the date of each interruption, the cause and duration. Provide the total number of interruptions which have lasted two minutes or less.
7. Describe the procedures for reviewing system capacity, and indicate current and future capacity estimates.
8. Quantify in appropriate units of measure the limits on the information processor's capacity to receive, collect, process, store or display the data elements included within each function.
9. Identify the factors (mechanical, electronic or other) which account for the current limitations on the capacity to receive, collect, process, store or display the data elements included within each function described in section 8 above.
10. Describe the procedures for conducting stress tests.
Exhibit H -- Outsourcing
Where the information processor has outsourced the operation of any aspect of the services listed in Exhibit F to an arms-length third party, including any function related to the collection, consolidation, and dissemination of data, provide the following information:
1. Name and address of person or company to whom the function has been outsourced.
2. A description of the nature and extent of the contractual or other agreement with the information processor, and the roles and responsibilities of the arms-length third party under the arrangement.
3. A copy of each material contract relating to any outsourced function.
Exhibit I -- Financial Viability
1. Provide a business plan with pro forma financial statements and estimates of revenue.
2. Discuss the financial viability of the information processor in the context of having sufficient financial resources to properly perform its functions.
Exhibit J -- Fees and Revenue Sharing
1. Provide a complete list of all fees and other charges imposed, or to be imposed, by or on behalf of the information processor for its information services. This would include all fees to provide data and fees to receive the data from the information processor.
2. Where arrangements existsexist to share revenue from the sale of data disseminated by the information processor with marketplaces, inter-dealer bond brokers and dealers that provide data to the information processor in accordance with National Instrument 21-101, provide a complete description of the arrangements and the basis for these arrangements.
Exhibit K -- Reporting to the Information Processor
1. List all persons and entities that provide data to the information processor in accordance with the requirements of National Instrument 21-101.
2. Provide a complete set of all forms, agreements and other materials pertaining to the provision of data to the information processor.
3. A description of any specifications or criteria required of marketplaces, inter-dealer bond brokers or dealers whothat provide securities information to the information processor for collection, processing for distribution or publication. Identify those specifications or criteria which limit, are interpreted to limit or have the effect of limiting access to or use of any services provided by the information processor and state the reasons for imposing such specifications or criteria.
4. For each instance during the past year in which any person or entity has been prohibited or limited to provide data by the information processor, indicate the name of each such person or entity and the reason for the prohibition or limitation.
Exhibit L -- Access to the Services of the Information Processor
1. A list of all persons and entities who presently subscribe or who have notified the information processor of their intention to subscribe to the services of the information processor.
2. The form of contract governing the terms by which persons may subscribe to the services of an information processor.
3. A description of any specifications or criteria which limit, are interpreted to limit or have the effect of limiting access to or use of any services provided by the information processor and state the reasons for imposing such specifications or criteria. This applies to limits relating to providing information to the information processor and the limits relating to accessing the consolidated feed distributed by the information processor.
4. For each instance during the past year in which any person has been prohibited or limited in respect of access to services offered by the information processor, indicate the name of each such person and the reason for the prohibition or limitation.
Exhibit M -- Selection of Securities for which Information Must Be Reported to the Information Processor
Where the information processor is responsible for making a determination of the data which must be reported, including the securities for which information must be reported in accordance with National Instrument 21-101, describe the manner of selection and communication of these securities. This description shouldmust include the following:
1. The criteria used to determine the securities for which information must be reported and the data which must be reported to the information processor.
2. The process for selection of the securities, including a description of the parties consulted in the process and the frequency of the selection process.
3. The process to communicate the securities selected and data to be reported to the marketplaces, inter-dealer bond brokers and dealers providing the information as required by National Instrument 21-101. The description
shouldmust include where this information is located.
CERTIFICATE OF INFORMATION PROCESSOR
The undersigned certifies that the information given in this report is true and correct.
|
DATED at __________ |
this _____ |
day of __________ |
20 _____ |
________________________________________
(Name of information processor )
________________________________________
(Name of director, officer or partner -- please type or print)
________________________________________
(Signature of director, officer or partner)
________________________________________
(Official capacity -- please type or print)
FORM 21-101F6
CESSATION OF OPERATIONS REPORT FOR INFORMATION PROCESSOR
1. Identification:
A. Full name of information processor:
B. Name(s) under which business is conducted, if different from item 1A:
2. Date information processor proposes to cease carrying on business:
3. If cessation of business was involuntary, date information processor ceased to carry on business:
Exhibits
File all Exhibits with the Cessation of Operations Report. For each Exhibit, include the name of the information processor, the date of filing of the Exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shallmust be furnished instead of such Exhibit.
Exhibit A
The reasons for the information processor ceasing to carry on business.
Exhibit B
A list of each of the securities the information processor displays.
CERTIFICATE OF INFORMATION PROCESSOR
The undersigned certifies that the information given in this report is true and correct.
DATED at __________ this __________ day of _______________ 20 _____
____________________
(Name of information processor )
____________________
(Name of director, officer or partner -- please type or print)
____________________
(Signature of director, officer or partner)
____________________
(Official capacity -- please type or print)
COMPANION POLICY 21-101 CP TO NATIONAL INSTRUMENT 21-101 MARKETPLACE OPERATION
PART 1 INTRODUCTION
1.1 Introduction --- Exchanges, quotation and trade reporting systems and ATSs are marketplaces that provide a market facility or venue on which securities can be traded. The areas of interest from a regulatory perspective are in many ways similar for each of these marketplaces since they may have similar trading activities. The regulatory regime for exchanges and quotation and trade reporting systems arises from the securities legislation of the various jurisdictions. Exchanges and quotation and trade reporting systems are recognized under orders from the Canadian securities regulatory authorities, with various terms and conditions of recognition. ATSs, which are not recognized as exchanges or quotation and trade reporting systems, are regulated under National Instrument 21-101 Marketplace Operation (the Instrument) and National Instrument 23-101 Trading Rules (NI 23-101). The Instruments,Instrument and NI 23-101, which were adopted at a time when new types of markets were emerging, provide the regulatory framework that allows and regulates the operation of multiple marketplaces.
The purpose of this Companion Policy is to state the views of the Canadian securities regulatory authorities on various matters related to the Instrument, including:
(a) a discussion of the general approach taken by the Canadian securities regulatory authorities in, and the general regulatory purpose for, the Instrument; and
(b) the interpretation of various terms and provisions in the Instrument.
1.2 Definition of Exchange-Traded Security -- Section 1.1 of the Instrument defines an "exchange-traded security" as a security that is listed on a recognized exchange or is quoted on a recognized quotation and trade reporting system or is listed on an exchange or quoted on a quotation and trade reporting system that is recognized for the purposes of the Instrument and NI 23-101.
If a security trades on a recognized exchange or recognized quotation and trade reporting system on a "when issued" basis, as defined in IIROC's Universal Market Integrity Rules, the security would be considered to be listed on that recognized exchange or quoted on that recognized quotation and trade reporting system and would therefore be an exchange-traded security.
If no "when issued" market has been posted by a recognized exchange or recognized quotation and trade reporting system for a security, an ATS may not allow this security to be traded on a "when issued" basis on its marketplace.
A security that is inter-listed would be considered to be an exchange-traded security. A security that is listed on a foreign exchange or quoted on a foreign quotation and trade reporting system, but is not listed or quoted on a domestic exchange or quotation and trade reporting system, falls within the definition of "foreign exchange-traded security".
1.3 Definition of Foreign Exchange-Traded Security -- The definition of foreign exchange-traded security includes a reference to ordinary members of the International Organization of Securities Commissions (IOSCO). To determine the current list of ordinary members, reference should be made to the IOSCO website at www.iosco.org.
1.4 Definition of Regulation Services Provider -- The definition of regulation services provider is meant to capture a third party provider that provides regulation services to marketplaces. A recognized exchange or recognized quotation and trade reporting system would not be a regulation services provider if it only conducts these regulatory services for its own marketplace or an affiliated marketplace.
PART 2 MARKETPLACE
2.1 Marketplace
(1) The Instrument uses the term "marketplace" to encompass the different types of trading systems that match trades. A marketplace is an exchange, a quotation and trade reporting system or an ATS. Paragraphs (cSubparagraphs (a)(iii) and ( da)(iv) of the definition of "marketplace" describe marketplaces that the Canadian securities regulatory authorities consider to be ATSs. A dealer that internalizes its orders offor exchange-traded securities and does not execute and print the trades on an exchange or quotation and trade reporting system in accordance with the rules of the exchange or the quotation and trade reporting system (including an exemption from those rules) is considered to be a marketplace pursuant to paragraph (d) of the definition of "marketplace" and an ATS.
(2) Two of the characteristics of a "marketplace" are
(a) that it brings together orders for securities of multiple buyers and sellers; and
(b) that it uses established, non-discretionary methods under which the orders interact with each other.
(3) The Canadian securities regulatory authorities consider that a person or company brings together orders for securities if it
(a) displays, or otherwise represents to marketplace participants, trading interests entered on the system; or
(b) receives orders centrally for processing and execution (regardless of the level of automation used).
(4) The Canadian securities regulatory authorities are of the view that "established, nondiscretionary methods" include any methods that dictate the terms of trading among the multiple buyers and sellers entering orders on the system. Such methods include providing a trading facility or setting rules governing trading among marketplace participants. Common examples include a traditional exchange and a computer system, whether comprised of software, hardware, protocols, or any combination thereof, through which orders interact, or any other trading mechanism that provides a means or location for the bringing together and execution of orders. Rules imposing execution priorities, such as time and price priority rules, would be "established, non-discretionary methods."
(5) The Canadian securities regulatory authorities do not consider the following systems to be marketplaces for purposes of the Instrument:
(a) A system operated by a person or company that only permits one seller to sell its securities, such as a system that permits issuers to sell their own securities to investors.
(b) A system that merely routes orders for execution to a facility where the orders are executed.
(c) A system that posts information about trading interests, without facilities for execution.
In the first two cases, the criteria of multiple buyers and sellers would not be met. In the last two cases, routing systems and bulletin boards do not establish non-discretionary methods under which parties entering orders interact with each other.
(6) A person or company operating any of the systems described in subsection (5) should consider whether the person or company is required to be registered as a dealer under securities legislation.
(7) Inter-dealer bond brokers that conduct traditional inter-dealer bond broker activity have a choice as to how to be regulated under the Instrument and NI 23-101. Each inter-dealer bond broker can choose to be subject to IIROC Rule 36 and IIROC Rule 2100, fall within the definition of inter-dealer bond broker in the Instrument and be subject to the transparency requirements of Part 8 of the Instrument. Alternatively, the inter-dealer bond broker can choose to be an ATS and comply with the provisions of the Instrument and NI 23-101 applicable to a marketplace and an ATS. An inter-dealer bond broker that chooses to be an ATS will not be subject to Rule 36 or IIROC Rule 2100, but will be subject to all other IIROC requirements applicable to a dealer.
(8) Section 1.2 of the Instrument contains an interpretation of the definition of "marketplace". The Canadian securities regulatory authorities do not consider a system that only routes unmatched orders to a marketplace for execution to be a marketplace. If a dealer uses a system to match buy and sell orders or pair orders with contra-side orders outside of a marketplace and route the matched or paired orders to a marketplace as a cross, the Canadian securities regulatory authorities may consider the dealer to be operating a marketplace under paragraph (csubparagraph (a)(iii) of the definition of "marketplace". The Canadian securities regulatory authorities encourage dealers that operate or plan to operate such a system to meet with the applicable securities regulatory authority to discuss the operation of the system and whether the dealer's system falls within the definition of "marketplace".
PART 3 CHARACTERISTICS OF EXCHANGES, QUOTATION AND TRADE REPORTING SYSTEMS AND ATSs
3.1 Exchange
(1) Securities legislation of most jurisdictions does not define the term "exchange".
(2) The Canadian securities regulatory authorities generally consider a marketplace, other than a quotation and trade reporting system, to be an exchange for purposes of securities legislation, if the marketplace
(a) requires an issuer to enter into an agreement in order for the issuer's securities to trade on the marketplace, i.e., the marketplace provides a listing function;
(b) provides, directly, or through one or more marketplace participants, a guarantee of a two-sided market for a security on a continuous or reasonably continuous basis, i.e., the marketplace has one or more marketplace participants that guarantee that a bid and an ask will be posted for a security on a continuous or reasonably continuous basis. For example, this type of liquidity guarantee can be carried out on exchanges through traders acting as principal such as registered traders, specialists or market makers;
(c) sets requirements governing the conduct of marketplace participants, in addition to those requirements set by the marketplace in respect of the method of trading or algorithm used by those marketplace participants to execute trades on the system (see subsection (3)); or
(d) disciplines marketplace participants, in addition to discipline by exclusion from trading, i.e., the marketplace can levy fines or take enforcement action.
(3) An ATS that requires a subscriber to agree to comply with the requirements of a regulation services provider as part of its contract with that subscriber is not setting "requirements governing the conduct of subscribers". In addition, marketplaces are not precluded from imposing credit conditions on subscribers or requiring subscribers to submit financial information to the marketplace.
(4) The criteria in subsection 3.1(2) are not exclusive and there may be other instances in which the Canadian securities regulatory authorities will consider a marketplace to be an exchange.
3.2 Quotation and Trade Reporting System
(1) Securities legislation in certain jurisdictions contains the concept of a quotation and trade reporting system. A quotation and trade reporting system is defined under securities legislation in those jurisdictions as a person or company, other than an exchange or registered dealer, that operates facilities that permit the dissemination of price quotations for the purchase and sale of securities and reports of completed transactions in securities for the exclusive use of registered dealers. A person or company that carries on business as a vendor of market data or a bulletin board with no execution facilities would not normally be considered to be a quotation and trade reporting system.
(2) A quotation and trade reporting system is considered to have "quoted" a security if
(a) the security has been subject to a listing or quoting process, and
(b) the issuer issuing the security or the dealer trading the security has entered into an agreement with the quotation and trade reporting system to list or quote the security.
3.3 Definition of an ATS
(1) In order to be an ATS for the purposes of the Instrument, a marketplace cannot engage in certain activities or meet certain criteria such as
(a) requiring listing agreements,
(b) having one or more marketplace participants that guarantee that a two-sided market will be posted for a security on a continuous or reasonably continuous basis,
(c) setting requirements governing the conduct of subscribers, in addition to those requirements set by the marketplace in respect of the method of trading or algorithm used by those subscribers to execute trades on the system, and
(d) disciplining subscribers.
A marketplace, other than a quotation and trade reporting system, that engages in any of these activities or meets these criteria would, in the view of the Canadian securities regulatory authorities, be an exchange and would have to be recognized as such in order to carry on business, unless exempted from this requirement by theCanadian securities regulatory authorities.
(2) An ATS can establish trading algorithms that provide that a trade takes place if certain events occur. These algorithms are not considered to be "requirements governing the conduct of subscribers".
(3) A marketplace that would otherwise meet the definition of an ATS in the Instrument may apply to the Canadian securities regulatory authorities for recognition as an exchange.
3.4 Requirements Applicable to ATSs
(1) Part 6 of the Instrument applies only to an ATS that is not a recognized exchange or a member of a recognized exchange or an exchange recognized for the purposes of the Instrument and NI 23-101. If an ATS is recognized as an exchange, the provisions of the Instrument relating to marketplaces and recognized exchanges apply.
(2) If the ATS is a member of an exchange, the rules, policies and other similar instruments of the exchange apply to the ATS.
(3) Under paragraph 6.1(a) of the Instrument, an ATS that is not a member of a recognized exchange or an exchange recognized for the purposes of the Instrument and NI 23-101 must register as a dealer if it wishes to carry on business. Unless otherwise specified, an ATS registered as a dealer is subject to all of the requirements applicable to dealers under securities legislation, including the requirements imposed by the Instrument and NI 23-101. An ATS will be carrying on business in a local jurisdiction if it provides direct access to subscribers located in that jurisdiction.
(4) If an ATS registered as a dealer in one jurisdiction in Canada provides access in another jurisdiction in Canada to subscribers who are not registered dealers under securities legislation, the ATS must be registered in that other jurisdiction. However, if all of the ATS's subscribers in the other jurisdiction are registered as dealers in that other jurisdiction, the securities regulatory authority in the other jurisdiction may consider granting the ATS an exemption from the requirement to register as a dealer under paragraph 6.1(a) and all other requirements in the Instrument and in NI 23-101 and from the registration requirements of securities legislation. In determining if the exemption is in the public interest, a securities regulatory authority will consider a number of factors, including whether the ATS is registered in another jurisdiction and whether the ATS deals only with registered dealers in that jurisdiction.
(5) Paragraph 6.1(b) of the Instrument prohibits an ATS to which the provisions of the Instrument apply from carrying on business unless it is a member of a self-regulatory entity. Membership in a self-regulatory entity is required for purposes of membership in the Canadian Investor Protection Fund, capital requirements and clearing and settlement procedures. At this time, the IIROC is the only entity that would come within the definition.
(6) Any registration exemptions that may otherwise be applicable to a dealer under securities legislation are not available to an ATS, even though it is registered as a dealer (except as provided in the Instrument), because of the fact that it is also a marketplace and different considerations apply.
(7) Subsection 6.7(1) of the Instrument requires an ATS to notify the securities regulatory authority if one of three thresholds is met or exceeded. Upon being informed that one of the thresholds is met or exceeded, the securities regulatory authority intends to review the ATS and its structure and operations in order to consider whether the person or company operating the ATS should be considered to be an exchange for purposes of securities legislation or if additional terms and conditions should be placed on the registration of the ATS. The securities regulatory authority intends to conduct this review because each of these thresholds may be indicative of an ATS having significant market presence in a type of security, such that it would be more appropriate that the ATS be regulated as an exchange. If more than one Canadian securities regulatory authority is conducting this review, the reviewing jurisdictions intend to coordinate their review. The volume thresholds referred to in subsection 6.7(1) of the Instrument are based on the type of security. The Canadian securities regulatory authorities consider a type of security to refer to a distinctive category of security such as equity securities, debt securities or options.
(8) Any marketplace that is required to provide notice under section 6.7 of the Instrument will determine the calculation based on publicly available information.
PART 4 RECOGNITION AS AN EXCHANGE OR QUOTATION AND TRADE REPORTING SYSTEM
4.1 Recognition as an Exchange or Quotation and Trade Reporting System
(1) In determining whether to recognize an exchange or quotation and trade reporting system, the Canadian securities regulatory authorities must determine whether it is in the public interest to do so.
(2) In determining whether it is in the public interest to recognize an exchange or quotation and trade reporting system, the Canadian securities regulatory authorities will look at a number of factors, including
(a) the manner in which the exchange or quotation and trade reporting system proposes to comply with the Instrument;
(b) whether the exchange or quotation and trade reporting system has fair and meaningful representation on its governing body, in the context of the nature and structure of the exchange or quotation and trade reporting system;
(c) whether the exchange or quotation and trade reporting system has sufficient financial resources for the proper performance of its functions;
(d) whether the rules, policies and other similar instruments of the exchange or quotation and trade reporting system ensure that its business is conducted in an orderly manner so as to afford protection to investors;
(e) whether the exchange or quotation and trade reporting system has policies and procedures to effectively identify and manage conflicts of interest arising from its operation or the services it provides;
(f) whether the requirements of the exchange or quotation and trade reporting system relating to access to its services are fair and reasonable; and
(g) whether the exchange or quotation and trade reporting system's process for setting fees is fair, transparent and appropriate, and whether the fees are equitably allocated among the participants, issuers and other users of services, do not have the effect of creating barriers to access and at the same time ensure that the exchange or quotation and trade reporting system has sufficient financial resources for the proper performance of its functions.
4.2 Process
Although the basic requirements or criteria for recognition of an exchange or quotation and trade reporting system may be similar in various jurisdictions, the precise requirements and the process for seeking a recognition or an exemption from recognition in each jurisdiction is determined by that jurisdiction.
PART 5 ORDERS
5.1 Orders
(1) The term "order" is defined in section 1.1 of the Instrument as a firm indication by a person or company, acting as either principal or agent, of a willingness to buy or sell a security. By virtue of this definition, a marketplace that displays good faith, non-firm indications of interest, including, but not limited to, indications of interest to buy or sell a particular security without either prices or quantities associated with those indications, is not displaying "orders". However, if those prices or quantities are implied and determinable, for example, by knowing the features of the marketplace, the indications of interest may be considered an order.
(2) The terminology used is not determinative of whether an indication of interest constitutes an order. Instead, whether or not an indication is "firm" will depend on what actually takes place between the buyer and seller. At a minimum, the Canadian securities regulatory authorities will consider an indication to be firm if it can be executed without further discussion between the person or company entering the indication and the counterparty (i.e. the indication is "actionable"). The Canadian securities regulatory authorities would consider an indication of interest to be actionable if it includes sufficient information to enable it to be executed without communicating with the marketplace participant that entered the order. Such information may include the symbol of the security, side (buy or sell), size, and price. The information may be explicitly stated, or it may be implicit and determinable based on the features of the marketplace. Even if the person or company must give its subsequent agreement to an execution, the Canadian securities regulatory authorities will still consider the indication to be firm if this subsequent agreement is always, or almost always, granted so that the agreement is largely a formality. For instance, an indication where there is a clear or prevailing presumption that a trade will take place at the indicated or an implied price, based on understandings or past dealings, will be viewed as an order.
(3) A firm indication of a willingness to buy or sell a security includes bid or offer quotations, market orders, limit orders and any other priced orders. For the purpose of sections 7.1, 7.3, 8.1 and 8.2 of the Instrument, the Canadian securities regulatory authorities do not consider special terms orders that are not immediately executable or that trade in special terms books, such as all-or-none, minimum fill or cash or delayed delivery, to be orders that must be provided to an information processor or, if there is no information processor, to an information vendor for consolidation.
(4) The securities regulatory authority may consider granting an exemption from the pre-trade transparency requirements in sections 7.1, 7.3, 8.1 and/or 8.2 of the Instrument to a marketplace for orders that result from a request for quotes or facility that allows negotiation between two parties provided that
(a) order details are shown only to the negotiating parties,
(b) other than as provided by paragraph (a), no actionable indication of interest or order is displayed by either party or the marketplace, and
(c) each order entered on the marketplace meets the size threshold set by a regulation services provider as provided in subsection 7.1(2) of the Instrument.
(5) The determination of whether an order has been placed does not turn on the level of automation used. Orders can be given over the telephone, as well as electronically.
PART 6 MARKETPLACE INFORMATION AND FINANCIAL STATEMENTS
6.1 Forms Filed by Marketplaces
(1) The definition of marketplace includes exchanges, quotation and trade reporting systems and ATSs. The legal entity that is recognized as an exchange or quotation and trade reporting system, or registered as a dealer in the case of an ATS, owns and operates the market or trading facility. In some cases, the entity may own and operate more than one trading facility. In such cases the marketplace may file separate forms in respect of each trading facility, or it may choose to file one form covering all of the different trading facilities. If the latter alternative is chosen, the marketplace must clearly identify the facility to which the information or changes apply.
(2) The forms filed by a marketplace under the Instrument will be kept confidential. The Canadian securities regulatory authorities are of the view that the forms contain proprietary financial, commercial and technical information and that the interests of the filers in non-disclosure outweigh the desirability of adhering to the principle that the forms be available for public inspection.
(3) While initial Forms 21-101F1 and 21-101F2 and amendments thereto are kept confidential, certain Canadian securities regulatory authorities may publish a summary of the information included in the forms filed by a marketplace, or information related to significant changes to the forms of a marketplace, where the Canadian securities regulatory authorities are of the view that a certain degree of transparency for certain aspects of a marketplace would allow investors and industry participants to be better informed as to how securities trade on the marketplace.
(4) Under subsection 3.2(1) of the Instrument, a marketplace is required to file an amendment to the information provided in Form 21-101F1 or Form 21-101F2, as applicable, at least 45 days prior to implementing a significant change. The Canadian securities regulatory authorities consider a significant change to be a change that could significantly impact a marketplace, its systems, its market structure, its marketplace participantsor their systems, investors, issuers or the Canadian capital markets. The Canadian securities regulatory authorities would consider significant changes to include:
A change would be considered to significantly impact the marketplace if it is likely to give rise to potential conflicts of interest, to limit access to the services of a marketplace, introduce changes to the structure of the marketplace or result in costs, such as implementation costs, to marketplace participants, investors or, if applicable, the regulation services provider
The following types of changes are considered to be significant changes as they would always have a significant impact:
(a) changes in the structure of the marketplace, including procedures governing how orders are entered, displayed (if applicable), executed, how they interact, are cleared and settled;
(b) new or changes to order types, and
(c) changes in the fees and the fee model of the marketplace.
The following may be considered by the Canadian securities regulatory authorities as significant changes, depending on whether they have a significant impact:
(d) new or changes to the services provided by the marketplace, including the hours of operation;
(
ce) new or changes to the means of access to the market or facility and its services;(
d) new or changes to order types;(ef) new or changes to types of securities traded on the marketplace;(
fg) new or changes to types of securities listed on exchanges or quoted on quotation and trade reporting systems;(
gh) new or changes to types of marketplace participants;(
hi) changes to the systems and technology used by the marketplace that support order entry, order routing, execution, trade reporting, trade comparison, data feeds, co-location and, if applicable, market surveillance and trade clearing, including those affecting capacity;(
ij) changes to the governance of the marketplace, including the structure of its board of directors and changes in the board committees and their mandates;(
jk) changes in control over marketplaces;(
kl) changes in affiliates that provide services to or on behalf of the marketplace;(
lm) new or changes in outsourcing arrangements for key marketplace services or systems;and
(m(n) new or changes in custody arrangements; and(n) changes in fees and the fee model of the marketplace.
(5) Significant changes would not include changesChanges to information in Form 21-101F1 or Form 21-101F 2,2 that
(a)
woulddo not haveana significant impact on the marketplace's, its market structureor, marketplace participantson, investors, issuers or the Canadian capital markets;, or(b) are housekeeping or administrative changes such as
(i) changes in the routine processes, policies, practices, or administration of the marketplace,
(ii) changes due to standardization of terminology,
(iii) corrections of spelling or typographical errors,
(iv) necessary changes to conform to applicable regulatory or other legal requirements,
and(v)
(v)minor system or technology changes that would not significantly impact the system or its capacity.,and(vi) changes to the list of marketplace participants and the list of all persons or entities denied or limited access to the marketplace,
Such changes would be filed in accordance with the requirements outlined in subsection 3.2(3) of the Instrument.
(6) The Canadian securities regulatory authorities generally consider a change in a marketplace's fees or fee structure to be a significant change. However, the Canadian securities regulatory authorities recognize that in the current, competitive multiple marketplace environment, which may at times require that frequent changes be made to the fees or fee structure of marketplaces, marketplaces may need to implement fee changes within tight timeframes. To facilitate this process, subsection 3.2(2) of the Instrument provides that marketplaces may provide information describing the change in fees or fee structure in a shorter timeframe, at least seven business days before the expected implementation date of the change in fees or fee structure.
(7) For the changes referred to in subsection 3.2(3) of the Instrument, the Canadian securities regulatory authorities may review these filings to ascertain the appropriateness of the categorization of such filings. The marketplace will be notified in writing if there is disagreement with respect to the categorization of the filing.
(8) The Canadian securities regulatory authorities will make best efforts to review amendments to Forms 21-101F1 and 21-101F2 within the timelines specified in subsections 3.2(1) and (2) of the Instrument. However, where the changes are complex, raise regulatory concerns, or when additional information is required, the period for review may exceed these timeframes. The Canadian securities regulatory authorities will review changes to the information in Forms 21-101F1 and 21-101F2 in accordance with staff practices in each jurisdiction.
(8.1) The Canadian securities regulatory authorities expect that the certifications provided pursuant to subsection 3.2(4) of the Instrument will be preserved by the marketplace as part of its books and records obligation under Part 11 of the Instrument.
(9) Section 3.3 of the Instrument requires a marketplace to file Form 21-101F3 by the following dates: April 30 (for the calendar quarter ending March 31), July 30 (for the calendar quarter ending June 30), October 30 (for the calendar quarter ending September 30) and January 30 (for the calendar quarter ending December 31).
(10) In order to ensure records regarding the information in a marketplace's Form 21-101F1 or Form 21-101F2 are kept up to date, subsection 3.2(4) of the Instrument requires the chief executive officer of a marketplace to certify that the information contained in the marketplace's Form 21-101F1 or Form 21-101F2 as applicable, is true, correct and complete and that its operations have been implemented as described within 30 days after the end of each calendar year. This certification is required at the same time as the updated and consolidated Form 21-101F1 or Form 21-101F2, as applicable, is required to be provided pursuant to subsection 3.2(5) of the Instrument.
6.2 Filing of Financial Statements
Part 4 of the Instrument sets out the financial reporting requirements applicable to marketplaces. Subsections 4.1(2) and 4.2(2) respectively require an ATS to file audited financial statements initially, together with Form 21-101F2, and on an annual basis thereafter. These financial statements may be in the same form as those filed with IIROC. The annual audited financial statements may be filed with the Canadian securities regulatory authorities at the same time as they are filed with IIROC.
PART 7 MARKETPLACE REQUIREMENTS
7.1 Access Requirements
(1) Section 5.1 of the Instrument sets out access requirements that apply to a marketplace. The Canadian securities regulatory authorities note that the requirements regarding access for marketplace participants do not restrict the marketplace from maintaining reasonable standards for access. The purpose of these access requirements is to ensure that rules, policies, procedures, and fees, as applicable, of the marketplace do not unreasonably create barriers to access to the services provided by the marketplace.
(2) For the purposes of complying with the order protection requirements in Part 6 of NI 23-101, a marketplace should permit fair and efficient access to
(a) a marketplace participant that directly accesses the marketplace,
(b) a person or company that is indirectly accessing the marketplace through a marketplace participant, or
(c) another marketplace routing an order to the marketplace.
The reference to "a person or company" in paragraph (b) includes a system or facility that is operated by a person or company.
(3) The reference to "services" in section 5.1 of the Instrument means all services that may be offered to a person or company and includes all services relating to order entry, trading, execution, routing, data and includes co-location.
(4) Marketplaces that send indications of interest to a selected smart order router or other system should send the information to other smart order routers or systems to meet the fair access requirements of the Instrument.
(5) Marketplaces are responsible for ensuring that the fees they set are in compliance with section 5.1 of the Instrument. In assessing whether its fees unreasonably condition or limit access to its services, a marketplace should consider a number of factors, including
(a) the value of the security traded,
(b) the amount of the fee relative to the value of the security traded,
(c) the amount of fees charged by other marketplaces to execute trades in the market,
(d) with respect to market data fees, the amount of market data fees charged relative to the market share of the marketplace, and,
(e) with respect to order-execution terms, including fees, whether the outcome of their application is consistent with the policy goals of order protection.
The Canadian securities regulatory authorities will consider these factors, among others, in determining whether the fees charged by a marketplace unreasonably condition or limit access to its services. With respect to trading fees, it is the view of the Canadian securities regulatory authorities that a trading fee equal to or greater than the minimum trading increment as defined in IIROC's Universal Market Integrity Rules, as amended, would unreasonably condition or limit access to a marketplace's services as it would be inconsistent with the policy goals of order protection. Trading fees below the minimum trading increment may also unreasonably condition or limit access to a marketplace's services when taking into account factors including those listed above.
7.2 Public Interest Rules -- Section 5.3 of the Instrument sets out the requirements applicable to the rules, policies and similar instruments adopted by recognized exchanges and recognized quotation and trade reporting systems. These requirements acknowledge that recognized exchanges and quotation and trade reporting systems perform regulatory functions. The Instrument does not require the application of these requirements to an ATS's trading requirements. This is because, unlike exchanges, ATSs are not permitted to perform regulatory functions, other than setting requirements regarding conduct in respect of the trading by subscribers on the marketplace, i.e. requirements related to the method of trading or algorithms used by their subscribers to execute trades in the system. However, it is the expectation of the Canadian securities regulatory authority that the requirement in section 5.7 of the Instrument that marketplaces take reasonable steps to ensure they operate in a manner that does not interfere with the maintenance of fair and orderly markets, applies to an ATS's requirements. Such requirements may include those that deal with subscriber qualification, access to the marketplace, how orders are entered, interact, execute, clear and settle.
7.3 Compliance Rules -- Section 5.4 of the Instrument requires a recognized exchange and recognized quotation and trade reporting system to have appropriate procedures to deal with violations of rules, policies or other similar instruments of the exchange or quotation and trade reporting system. This section does not preclude enforcement action by any other person or company, including the Canadian securities regulatory authorities or the regulation services provider.
7.4 Filing of Rules -- Section 5.5 of the Instrument requires a recognized exchange and recognized quotation and trade reporting system to file all rules, policies and other similar instruments and amendments as required by the securities regulatory authority. Initially, all rules, policies and other similar instruments will be reviewed before implementation by the exchange or quotation and trade reporting system. Subsequent to recognition, the securities regulatory authority may develop and implement a protocol that will set out the procedures to be followed with respect to the review and approval of rules, policies and other similar instruments and amendments.
7.5 Review of Rules -- The Canadian securities regulatory authorities review the rules, policies and similar instruments of a recognized exchange or recognized quotation and trade reporting system in accordance with the recognition order and rule protocol issued by the jurisdiction in which the exchange or quotation and trade reporting system is recognized. The rules of recognized exchanges and quotation and trade reporting systems are included in their rulebooks, and the principles and requirements applicable to these rules are set out in section 5.3 of the Instrument. For an ATS, whose trading requirements, including any trading rules, policies or practices, are incorporated in Form 21-101F2, any changes would be filed in accordance with the filing requirements applicable to changes to information in Form 21-101F2 set out in subsections 3.2(1) and 3.2(3) of the Instrument and reviewed by the Canadian securities regulatory authorities in accordance with staff practices in each jurisdiction.
7.6 Fair and Orderly Markets
(1) Section 5.7 of the Instrument establishes the requirement that a marketplace take reasonable steps to ensure it operates in a way that does not interfere with the maintenance of fair and orderly markets. This applies both to the operation of the marketplace itself and to the impact of the marketplace's operations on the Canadian market as a whole.
(2) This section does not impose a responsibility on the marketplace to oversee the conduct of its marketplace participants, unless the marketplace is an exchange or quotation and trade reporting system that has assumed responsibility for monitoring the conduct of its marketplace participants directly rather than through a regulation services provider. However, marketplaces are expected in the normal course to monitor order entry and trading activity for compliance with the marketplace's own operational policies and procedures. They should also alert the regulation services provider if they become aware that disorderly or disruptive order entry or trading may be occurring, or of possible violations of applicable regulatory requirements.
(3) Part of taking reasonable steps to ensure that a marketplace's operations do not interfere with fair and orderly markets necessitates ensuring that its operations support compliance with regulatory requirements including applicable rules of a regulation services provider. This does not mean that a marketplace must system-enforce all regulatory requirements. However, it should not operate in a manner that to the best of its knowledge would cause marketplace participants to breach regulatory requirements when trading on the marketplace.
7.7 Confidential Treatment of Trading Information
(1) The Canadian securities regulatory authorities are of the view that it is in the public interest for capital markets research to be conducted. Since marketplace participants' order and trade information may be needed to conduct this research, subsection 5.10(1.1) of the Instrument allows a marketplace to release its marketplace participants' order or trade information without obtaining its marketplace participants' written consent provided this information is used for capital markets research, and only if certain terms and conditions are met. Subsection 5.10(1.1) is not intended to impose any obligation on a marketplace to disclose information if requested by a researcher and the marketplace may choose to maintain its marketplace participants' order and trade information in confidence. If the marketplace decides to disclose this information however, it must ensure that certain terms and conditions are met to ensure that the marketplace participants' information is not misused.
These terms and conditions are set out in subsections 5.10(1.1), 5.10(1.2) and 5.10(1.3) of the Instrument. Subsection 5.10(1.1) of the Instrument requires a marketplace that intends to provide its marketplace participants' order and trade information to a researcher to enter into a written agreement with each person or company that will receive such information. Subparagraph 5.10(1.1)(a)(iii) of the Instrument requires the agreement to provide that the person or company agrees to use the order and trade information only for capital markets research purposes. Using the information for the purposes of trading, advising others to trade or for reverse engineering trading strategies are examples where the information would not be used for capital markets research purposes. Subparagraph 5.10(1.1)(a)(i) of the Instrument provides that the agreement must prohibit the researcher from sharing the marketplace participants' order and trade data with any other person or company, such as a research assistant, without the marketplace's consent. The marketplace will be responsible for determining what steps are necessary to ensure the other person or company receiving the marketplace participants' data is not misusing this data. For example, the marketplace may enter into a similar agreement with each individual or company that has access to the data. A carve-out is included in subsection 5.10(1.3) of the Instrument to allow those conducting peer reviews to have access to the data for the purpose of verifying the research prior to the publication of the results of the research. To protect the identity of particular marketplace participants or their customers, subparagraph 5.10(1.1)(a)(ii) of the Instrument requires the agreement to provide that researchers will not publish or disseminate data or information that discloses, directly or indirectly, the transactions, trading strategies or market positions of a marketplace participant or its clients. Also, to protect the confidentiality of the data, the agreement must require that the order and trade information is securely stored at all times, as required by subparagraph 5.10(1.1)(a)(iv) of the Instrument and that the data is only kept for a reasonable period after the completion of the research and publication process. The agreement must also require that the marketplace be notified of any breach or possible breach of the confidentiality of the information. Marketplaces are required to notify the appropriate securities regulatory authorities of the breach or possible breach and to take all appropriate steps in the event of a breach or possible breach of the agreement or of the confidentiality of the information provided.
(12) Subsection 5.10 (2) of the Instrument provides that a marketplace shallmust not carry on business as a marketplace unless it has implemented reasonable safeguards and procedures to protect a marketplace participant's trading information. These include
(a) limiting access to the trading information of marketplace participants, such as the identity of marketplace participants and their orders, to those employees of, or persons or companies retained by, the marketplace to operate the system or to be responsible for its compliance with securities legislation; and
(b) having in place procedures to ensure that employees of the marketplace cannot use such information for trading in their own accounts.
(23) The procedures referred to in subsection (1) should be clear and unambiguous and presented to all employees and agents of the marketplace, whether or not they have direct responsibility for the operation of the marketplace.
(34) Nothing in section 5.10 of the Instrument prohibits a marketplace from complying with National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer. This statement is necessary because an investment dealer that operates a marketplace may be an intermediary for the purposes of National Instrument 54-101, and may be required to disclose information under that Instrument.
7.8 Management of Conflicts of Interest
(1) Marketplaces are required under section 5.11 of the Instrument to maintain and ensure compliance with policies and procedures that identify and manage conflicts of interest arising from the operation of the marketplace or the services it provides. These may include conflicts, actual or perceived, related to the commercial interest of the marketplace, the interests of its owners or its operators, referral arrangements and the responsibilities and sound functioning of the marketplace. For an exchange and quotation and trade reporting system, they may also include potential conflicts between the operation of the marketplace and its regulatory responsibilities.
(2) The marketplace's policies should also take into account conflicts for owners that are marketplace participants. These may include inducements to send order flow to the marketplace to obtain a larger ownership position or to use the marketplace to trade against their clients' order flow. These policies should be disclosed as provided in paragraph 10.1(e) of the Instrument.
7.9 Outsourcing -- Section 5.12 of the Instrument sets out the requirements that marketplaces that outsource any of their key services or systems to a service provider, which may include affiliates or associates of the marketplace, must meet. Generally, marketplaces are required to establish policies and procedures to evaluate and approve these outsourcing agreements. Such policies and procedures would include assessing the suitability of potential service providers and the ability of the marketplace to continue to comply with securities legislation in the event of the service provider's bankruptcy, insolvency or termination of business. Marketplaces are also required to monitor the ongoing performance of the service provider to which they outsourced key services, systems or facilities. The requirements under section 5.12 of the Instrument apply regardless of whether the outsourcing arrangements are with third - party service providers, or with affiliates of the marketplaces.
7.10 Access Arrangements with a Service Provider -- If a third party service provider provides a means of access to a marketplace, section 5.13 of the Instrument requires the marketplace to ensure the third party service provider complies with the standards for access the marketplace has established pursuant to paragraph 5.1(2)(a) of the Instrument when providing access services. A marketplace must establish written standards for granting access to each of its services under paragraph 5.1(2)(a) and the Canadian securities regulatory authorities are of the view that it is the responsibility of the marketplace to ensure that these written standards are complied with when access to its platform is provided by a third party.
PART 8 RISK DISCLOSURE TO MARKETPLACE PARTICIPANTS
8.1 Risk disclosure to marketplace participants -- Subsections 5.9(2) and 6.11(2) of the Instrument require a marketplace to obtain an acknowledgement from its marketplace participants. The acknowledgement may be obtained in a number of ways, including requesting the signature of the marketplace participant or requesting that the marketplace participant initial an initial box or check a check-off box. This may be done electronically. The acknowledgement must be specific to the information required to be disclosed under the relevant subsection and must confirm that the marketplace participant has received the required disclosure. The Canadian securities regulatory authorities are of the view that it is the responsibility of the marketplace to ensure that an acknowledgement is obtained from the marketplace participant in a timely manner.
8.2 [repealed]
PART 9 INFORMATION TRANSPARENCY REQUIREMENTS FOR EXCHANGE-TRADED SECURITIES
9.1 Information Transparency Requirements for Exchange-Traded Securities
(1) Subsection 7.1(1) of the Instrument requires a marketplace that displays orders of exchange-traded securities to any person or company to provide accurate and timely information regarding those orders to an information processor as required by the information processor or, if there is no information processor, to an information vendor that meets the standards set by a regulation services provider. The Canadian securities regulatory authorities consider that a marketplace that sends information about orders of exchange-traded securities, including indications of interest that meet the definition of an order, to a smart order router is "displaying" that information. The marketplace would be subject to the transparency requirements of subsection 7.1(1) of the Instrument. The transparency requirements of subsection 7.1(1) of the Instrument do not apply to a marketplace that displays orders of exchange-traded securities to its employees or to persons or companies retained by the marketplace to assist in the operation of the marketplace, as long as these orders meet a minimum size threshold set by the regulation services provider. In other words, the only orders that are exempt from the transparency requirements are those meeting the minimum size threshold. Section 7.2 requires a marketplace to provide accurate and timely information regarding trades of exchange-traded securities that it executes to an information processor as required by the information processor or, if there is no information processor, to an information vendor that meets the standards set by a regulation services provider. Some marketplaces, such as exchanges, may be regulation services providers and will establish standards for the information vendors they use to display order and trade information to ensure that the information displayed by the information vendors is timely, accurate and promotes market integrity. If the marketplace has entered into a contract with a regulation services provider under NI 23-101, the marketplace must provide information to the regulation services provider and an information vendor that meets the standards set by that regulation services provider.
(2) In complying with sections 7.1 and 7.2 of the Instrument, a marketplace should not make the required order and trade information available to any other person or company on a more timely basis than it makes that information available to the information processor or information vendor. In addition, any information provided by a marketplace to an information processor or information vendor must include identification of the marketplace and should contain all relevant information including details as to volume, symbol, price and time of the order or trade.
(3) [Repealed]repealed]
(4) [Repealed]repealed]
(5) It is expected that if there are multiple regulation service providers, the standards of the various regulation service providers must be consistent. In order to maintain market integrity for securities trading in different marketplaces, the Canadian securities regulatory authorities will, through their oversight of the regulation service providers, review and monitor the standards established by all regulation service providers so that business content, service level standards, and other relevant standards are substantially similar for all regulation service providers.
9.2 [Repealedrepealed]
PART 10 INFORMATION TRANSPARENCY REQUIREMENTS FOR UNLISTED DEBT SECURITIES
10.1 Information Transparency Requirements for Unlisted Debt Securities
(1) The requirement to provide transparency of information regarding orders and trades of government debt securities in section 8.1 of the Instrument does not apply until January 1, 2015.2018. The Canadian securities regulatory authorities will continue to review the transparency requirements, in order to determine if the transparency requirements summarized in subsections (2) and (3) below should be amended.
(2) The requirements of the information processor for government debt securities are as follows:
(a) Marketplaces trading government debt securities and inter-dealer bond brokers are required to provide in real time quotation information displayed on the marketplace for all bids and offers with respect to
unlistedgovernment debt securities designated by the information processor, including details as to type, issuer, coupon and maturity of security, best bid price, best ask price and total disclosed volume at such prices; and(b) Marketplaces trading government debt securities and inter-dealer bond brokers are required to provide in real time details of trades of all government debt securities designated by the information processor, including details as to the type, issuer, series, coupon and maturity, price and time of the trade and the volume traded.
(3) The requirements of the information processor for corporate debt securities are as follows:
(a) Marketplaces trading corporate debt securities, inter-dealer bond brokers and dealers trading corporate debt securities outside of a marketplace are required to provide details of trades of all corporate debt securities designated by the information processor, including details as to the type of counterparty, issuer, type of security, class, series, coupon and maturity, price and time of the trade and, subject to the caps set out below, the volume traded, no later than one hour from the time of the trade or such shorter period of time determined by the information processor. If the total par value of a trade of an investment grade corporate debt security is greater than $2 million, the trade details provided to the information processor are to be reported as "$2 million+". If the total par value of a trade of a non-investment grade corporate debt security is greater than $200,000, the trade details provided to the information processor are to be reported as "$200,000+".
(b) Although subsection 8.2(1) of the Instrument requires marketplaces to provide information regarding orders of corporate debt securities, the information processor has not required this information to be provided.
(c) A marketplace, an inter-dealer bond broker or a dealer will satisfy the requirements in subsections 8.2(1), 8.2(3), 8.2(4) and 8.2(5) of the Instrument by providing accurate and timely information to an information vendor that meets the standards set by the regulation services provider for the fixed income markets.
(4) The marketplace upon which the trade is executed will not be shown, unless the marketplace determines that it wants its name to be shown.
(5) The information processor is required to use transparent criteria and a transparent process to select government debt securities and designated corporate debt securities. The information processor is also required to make the criteria and the process publicly available.
(6) An "investment grade corporate debt security" is a corporate debt security that is rated by one of the listed rating organizations at or above one of the following rating categories or a rating category that preceded or replaces a category listed below:
Rating Organization
Long Term Debt
Short Term Debt
Fitch, Inc.
BBB
F3
Dominion Bond Rating Service Limited
BBB
R-2
Moody's Investors Service, Inc.
Baa
Prime-3
Standard & Poors Corporation
BBB
A-3
(7) A "non-investment grade corporate debt security" is a corporate debt security that is not an investment grade corporate debt security.
(8) The information processor will publish the list of designated government debt securities and designated corporate debt securities. The information processor will give reasonable notice of any change to the list.
(9) The information processor may request changes to the transparency requirements by filing an amendment to Form 21-101F5 with the Canadian securities regulatory authorities pursuant to subsection 14.2(1) of the Instrument. The Canadian securities regulatory authorities will review the amendment to Form 21-101F5 to determine whether the proposed changes are contrary to the public interest, to ensure fairness and to ensure that there is an appropriate balance between the standards of transparency and market quality (defined in terms of market liquidity and efficiency) in each area of the market. The proposed changes to the transparency requirements will also be subject to consultation with market participants.
10.2 Availability of Information -- In complying with the requirements in sections 8.1 and 8.2 of the Instrument to provide accurate and timely order and trade information to an information processor or an information vendor that meets the standards set by a regulation services provider, a marketplace, an inter-dealer bond broker or dealer should not make the required order and trade information available to any other person or company on a more timely basis than it makes that information available to the information processor or information vendor.
10.3 Consolidated Feed -- Section 8.3 of the Instrument requires the information processor to produce a consolidated feed in real-time showing the information provided to the information processor.
PART 11 MARKET INTEGRATION
11.1 [Repealedrepealed]
11.2 [Repealedrepealed]
11.3 [Repealedrepealed]
11.4 [Repealedrepealed]
11.5 Market Integration -- Although the Canadian securities regulatory authorities have removed the concept of a market integrator, we continue to be of the view that market integration is important to our marketplaces. We expect to achieve market integration by focusing on compliance with fair access and best execution requirements. We will continue to monitor developments to ensure that the lack of a market integrator does not unduly affect the market.
PART 12 TRANSPARENCY OF MARKETPLACE OPERATIONS
12.1 Transparency of Marketplace Operations
(1) Section 10.1 of the Instrument requires that marketplaces make publicly available certain information pertaining to their operations and services. While section 10.1 sets out the minimum disclosure requirements, marketplaces may wish to make publicly available other information, as appropriate. Where this information is included in a marketplace's rules, regulations, policies and procedures or practices that are publicly available, the marketplace need not duplicate this disclosure.
(2) Paragraph 10.1(a) requires marketplaces to disclose publicly all fees, including listing, trading, co-location, data and routing fees charged by the marketplace, an affiliate or by a third party to which services have been directly or indirectly outsourced or which directly or indirectly provides those services. This means that a marketplace is expected to publish and make readily available the schedule(s) of fees charged to any and all users of these services, including the basis for charging each fee (e.g., a per share basis for trading fees, a per subscriber basis for data fees, etc.) and would also include any fee rebate or discount and the basis for earning the rebate or discount. With respect to trading fees, it is not the intention of the Canadian securities regulatory authorities that a commission fee charged by a dealer for dealer services be disclosed in this context.
(3) Paragraph 10.1(b) requires marketplaces to disclose information on how orders are entered, interact and execute. This would include a description of the priority of execution for all order types and the types of crosses that may be executed on the marketplace. A marketplace should also disclose whether it sends information regarding indications of interest or order information to a smart order router.
(4) Paragraph 10.1(c) requires a marketplace to disclose its conflict of interest policies and procedures. For conflicts arising from the ownership of a marketplace by marketplace participants, the marketplace should include in its marketplace participant agreements a requirement that marketplace participants disclose that ownership to their clients at least quarterly. This is consistent with the marketplace participant's existing obligations to disclose conflicts of interest under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Requirements. A marketplace should disclose if a marketplace or affiliated entity of a marketplace intends to trade for its own account on the marketplace against or in competition with client orders.
(5) Paragraph 10.1(f) requires marketplaces to disclose a description of any arrangements where the marketplace refers its participants to the services of a third-party provider where the marketplace receives some benefit (fee rebate, payment, etc.) if the marketplace participant uses the services of the third - party service provider, and has a potential conflict of interest.
(6) Paragraph 10.1(g) requires marketplaces that offer routing services to disclose a description of how routing decisions are made. The subsection applies whether routing is done by a marketplace-owned smart order router, by an affiliate of a marketplace, or by a third - party to which routing was outsourced.
(7) Paragraph 10.1(h) applies to marketplaces that disseminate indications of interest or any information in order to attract order flow. The Instrument requires that these marketplaces make publicly available information regarding their practices regarding the dissemination of information. This would include a description of the type of information included in the indication of interest displayed, and the types of recipients of such information. For example, a marketplace would describe whether the recipients of an indication of interest are the general public, all of its subscribers, particular categories of subscribers or smart order routers operated by their subscribers or by third party vendors.
PART 13 RECORDKEEPING REQUIREMENTS FOR MARKETPLACES
13.1 Recordkeeping Requirements for Marketplaces -- Part 11 of the Instrument requires a marketplace to maintain certain records. Generally, under provisions of securities legislation, the securities regulatory authorities can require a marketplace to deliver to them any of the records required to be kept by them under securities legislation, including the records required to be maintained under Part 11.
13.2 Synchronization of Clocks -- Subsections 11.5(1) and (2) of the Instrument require the synchronization of clocks with a regulation services provider that monitors the trading of the relevant securities on marketplaces, and by, as appropriate, inter-dealer bond brokers or dealers. The Canadian securities regulatory authorities are of the view that synchronization requires continual synchronization using an appropriate national time standard as chosen by a regulation services provider. Even if a marketplace has not retained a regulation services provider, its clocks should be synchronized with any regulation services provider monitoring trading in the particular securities traded on that marketplace. Each regulation services provider will monitor the information that it receives from all marketplaces, dealers and, if appropriate, inter-dealer bond brokers, to ensure that the clocks are appropriately synchronized. If there is more than one regulation services provider, in meeting their obligation to coordinate monitoring and enforcement under section 7.5 of NI 23-101, regulation services providers are required to agree on one standard against which synchronization will occur. In the event there is no regulation services provider, a recognized exchange or recognized quotation and trade reporting system are also required to coordinate with other recognized exchanges or recognized quotation and trade reporting systems regarding the synchronization of clocks.
PART 14 MARKETPLACE SYSTEMS AND BUSINESS CONTINUITY PLANNING
14.1 Systems Requirements -- This section applies to all the systems of a particular marketplace that are identified in the introduction to section 12.1 of the Instrumentwhether operating in-house or outsourced.
(1) Paragraph 12.1(a) of the Instrument requires the marketplace to develop and maintain an adequate system of internal control over the systems specified. As well, the marketplace is required to develop and maintain adequate general computer controls. These are the controls which are implemented to support information technology planning, acquisition, development and maintenance, computer operations , information systems support, and security. Recognized guides as to what constitutes adequate information technology controls include 'Information Technology Control Guidelines' from the Canadian Institute of Chartered Accountants (CICA) and 'COBIT ' ® 5 Management Guidelines,from the IT Governance Institute ., © 2012 ISACA, IT Infrastructure Library (ITIL) -- Service Delivery best practices, ISO/IEC27002:2005 -- Information technology -- Code of practice for information security management.
(2) Paragraph 12.1(b) of the Instrument requires a marketplace to meet certain systems capacity, performance and disaster recovery standards. These standards are consistent with prudent business practice. The activities and tests required in this paragraph are to be carried out at least once a year. In practice, continuing changes in technology, risk management requirements and competitive pressures will often result in these activities being carried out or tested more frequently.
(2.1) Subsection 12.1(c) of the Instrument refers to a material security breach. A material security breach or systems intrusion is any unauthorized entry into any of the systems that support the functions listed in section 12.1 of the Instrument or any system that shares network resources with one or more of these systems. Virtually any security breach would be considered material and thus reportable to the regulator. The onus would be on the marketplace to document the reasons for any security breach it did not consider material. Marketplaces should also have documented criteria to guide the decision on when to publicly disclose a security breach. The criteria for public disclosure of a security breach should include, but not be limited to, any instance in which client data could be compromised. Public disclosure should include information on the types and number of participants affected.
(3) Subsection 12.2(1) of the Instrument requires a marketplace to engage a qualified party to conduct an annual independent assessment of the internal controls referred to in paragraph 12.1(a) of the Instrumentto ensure that the marketplace is in compliance with subsection 12.1(a), section 12.1.1 and section 12.4 of the Instrument. The focus of the assessment of any systems that share network resources with trading-related systems required under subsection 12.2(1)(b) would be to address potential threats from a security breach that could negatively impact a trading related system. A qualified party is a person or company or a group of persons or companies with relevant experience in both information technology and in the evaluation of related internal controls in a complex information technology environment, such as external auditors or third party information system consultants. Before engaging a qualified party, a marketplace should discuss its choice with the regulator or, in Québec, the securities regulatory authority.
(4) Paragraph 12.1(c) of the Instrument requires the marketplace to notify the regulator or, in Québec, the securities regulatory authority of any material systems failure. The Canadian securities regulatory authorities consider a failure, malfunction or delay to be "material" if the marketplace would in the normal course of operations escalate the matter to or inform its senior management ultimately accountable for technology. The Canadian securities regulatory authorities also expect that, as part of this notification, the marketplace will provide updates on the status of the failure, the resumption of service and the results of its internal review of the failure.
(5) Under section 15.1 of the Instrument, a regulator or the securities regulatory authority may consider granting a marketplace an exemption from the requirements to engage a qualified party to conduct an annual independent systems review and prepare a report under subsection 12.2(1) of the Instrument provided that the marketplace prepare a control self-assessment and file this self-assessment with the regulator or in Québec, the securities regulatory authority. The scope of the self-assessment would be similar to the scope that would have applied if the marketplace underwent an independent systems review. Reporting of the self-assessment results and the timeframe for reporting would be consistent with that established for an independent systems review.
In determining if the exemption is in the public interest and the length of the exemption, the regulator or securities regulatory authority may consider a number of factors including: the market share of the marketplace, the timing of the last independent systems review, changes to systems or staff of the marketplace and whether the marketplace has experienced material systems failures, malfunction or delays.
14.2 Availability ofMarketplace Technology Specifications and Testing Facilities
(1) (1)Subsection 12.3(1) of the Instrument requires marketplaces to make their technology requirements regarding interfacing with or accessing the marketplace publicly available in their final form for at least three months. If there are material changes to these requirements after they are made publicly available and before operations begin, the revised requirements should be made publicly available for a new three month period prior to operations. The subsection also requires that an operating marketplace make its technology specifications publicly available for at least three months before implementing a material change to its technology requirements.
The Canadian securities regulatory authorities consider a change that may require a marketplace participant to make systems changes in order to fully interact with a marketplace, such as the introduction of an order type, to be a change to a technology requirement to interface with the marketplace.
(2) Subsection 12.3(2) of the Instrument requires marketplaces to provide testing facilities for interfacing with or accessing the marketplace for at least two months immediately prior to operations once the technology requirements have been made publicly available. Should the marketplace make its specifications publicly available for longer than three months, it may make the testing available during that period or thereafter as long as it is at least two months prior to operations. If the marketplace, once it has begun operations, proposes material changes to its technology systems, it is required to make testing facilities publicly available for at least two months before implementing the material systems change.
(2.1) Subsection 12.3(3) of the Instrument prohibits a marketplace from beginning operations or implementing a material change to its technology requirements until the later of (i) three months after the regulator, or in Québec, the securities regulatory authority, has completed its review of the marketplace's initial filing or change of information and notified the marketplace of the completion of the review and (ii) a reasonable period of time to allow marketplace participants and third party service providers to complete any necessary systems work and testing to accommodate the marketplace launch or technology change.
The regulator, or in Québec, the securities regulatory authority, may consider, under certain circumstances, that a "reasonable period of time" to be longer than three months after a marketplace has been notified that the regulator, or in Québec, the securities regulatory authority, has completed its review of the marketplace's initial filing or change. This may occur, where the changes have a material impact on marketplace participants that would require more than three months for marketplace participants to implement or adjust to the change. It could also occur to accommodate previously announced regulatory or marketplace changes or a marketplace launch and to ensure that marketplace participants do not have to prepare for multiple significant technology changes simultaneously.
3) Subsection 12.3(4) of the Instrument provides that if a marketplace must make a change to its technology requirements regarding interfacing with or accessing the marketplace to immediately address a failure, malfunction or material delay of its systems or equipment, it must immediately notify the regulator or, in Québec, the securities regulatory authority, and, if applicable, its regulation services provider. We expect the amended technology requirements to be made publicly available as soon as practicable, either while the changes are being made or immediately after.
(4) Paragraph 12.3(5)(c) of the Instrument prohibits a marketplace from beginning operations before the chief information officer of the marketplace, or an individual performing a similar function, has certified in writing that all information technology systems used by the marketplace have been tested according to prudent business practices and are operating as designed. This certification may be based on information provided to the chief information officer from marketplace staff knowledgeable about the information technology systems of the marketplace and the testing that was conducted.
(5) In order to help ensure that appropriate testing procedures for material changes to technology requirements are being followed by the marketplace, subsection 12.3(6) of the Instrument requires the chief information officer of the marketplace, or an individual performing a similar function, to certify to the regulator or securities regulatory authority, as applicable, that a material change has been tested according to prudent business practices and is operating as designed.
14.3 Business Continuity Planning
Section 12.4 of the Instrument requires that marketplaces develop and maintain reasonable business continuity plans, including disaster recovery plans. Business continuity planning should encompass all policies and procedures to ensure uninterrupted provision of key services regardless of the cause of potential disruption. The Canadian securities regulatory authorities expect that, in order for a marketplace to have a reasonable business continuity plan, including disaster recovery plan, it test it on a periodic basis, andaccording to prudent business practices, and in any event, at least annually and it should participate in industry-wide tests.
PART 15 CLEARING AND SETTLEMENT
15.1 Clearing and Settlement -- Subsection 13.1(1) of the Instrument requires that all trades executed through a marketplace shallto be reported and settled through a clearing agency.
Subsections 13.1(2) and (3) of the Instrument require that an ATS and its subscriber enter into an agreement that specifies which entity will report and settle the trades of securities. If the subscriber is registered as a dealer under securities legislation, either the ATS, the subscriber or an agent for the subscriber that is a member of a clearing agency may report and settle trades. If the subscriber is not registered as a dealer under securities legislation, either the ATS or an agent for the subscriber that is a clearing member of a clearing agency may report and settle trades. The ATS is responsible for ensuring that an agreement with the subscriber is in place before any trade is executed for the subscriber. If the agreement is not in place at the time of the execution of the trade, the ATS is responsible for clearing and settling that trade if a default occurs.
15.2 Access to Clearing Agency of Choice -- As a general proposition, marketplace participants should have a choice as to the clearing agency that they would like to use for the clearing and settlement of their trades, provided that such clearing agency is appropriately regulated in Canada. Subsection 13.2(1) of the Instrument thus requires a marketplace to report a trade in a security to a clearing agency designated by a marketplace participant.
The Canadian securities regulatory authorities are of the view that where a clearing agency performs only clearing services (and not settlement or depository services) for equity or other cash-product marketplaces in Canada, it would need to have access to the existing securities settlement and depository infrastructure on non-discriminatory and reasonable commercial terms.
Subsection 13.2(2) of the Instrument provides that subsection 13.2(1) does not apply to trades in standardized derivatives or exchange-traded securities that are options.
PART 16 INFORMATION PROCESSOR
16.1 Information Processor
(1) The Canadian securities regulatory authorities believe that it is important for those who trade to have access to accurate information on the prices at which trades in particular securities are taking place (i.e., last sale reports) and the prices at which others have expressed their willingness to buy or sell (i.e., orders).
(2) An information processor is required under subsection 14.4(2) of the Instrument to provide timely, accurate, reliable and fair collection, processing, distribution and publication of information for orders for, and trades in, securities. The Canadian securities regulatory authorities expect that in meeting this requirement, an information processor will ensure that all marketplaces, inter-dealer bond brokers and dealers that are required to provide information are given access to the information processor on fair and reasonable terms. In addition, it is expected that an information processor will not give preference to the information of any marketplace, inter-dealer bond broker or dealer when collecting, processing, distributing or publishing that information.
(3) An information processor is required under subsection 14.4(5) of the Instrument to provide prompt and accurate order and trade information, and to not unreasonably restrict fair access to the information. As part of the obligation relating to fair access, an information processor is expected to make the disseminated and published information available on terms that are reasonable and not discriminatory. For example, an information processor will not provide order and trade information to any single person or company or group of persons or companies on a more timely basis than is afforded to others, and will not show preference to any single person or company or group of persons or companies in relation to pricing.
16.2 Selection of an Information Processor
(1) The Canadian securities regulatory authorities will review Form 21-101F5 to determine whether it is contrary to the public interest for the person or company who filed the form to act as an information processor. The Canadian securities regulatory authorities will look at a number of factors when reviewing the form filed, including,
(a) the performance capability, standards and procedures for the collection, processing, distribution, and publication of information with respect to orders for, and trades in, securities;
(b) whether all marketplaces may obtain access to the information processor on fair and reasonable terms;
(c) personnel qualifications;
(d) whether the information processor has sufficient financial resources for the proper performance of its functions;
(e) the existence of another entity performing the proposed function for the same type of security;
(f) the systems report referred to in paragraph 14.5(c) of the Instrument.
(2) The Canadian securities regulatory authorities request that the forms and exhibits be filed in electronic format, where possible.
(3) The forms filed by an information processor under the Instrument will be kept confidential. The Canadian securities regulatory authorities are of the view that they contain intimate financial, commercial and technical information and that the interests of the filers in non-disclosure outweigh the desirability of adhering to the principle that all forms be available for public inspection.
16.3 Change toin Information -- Under subsection 14.2(1) of the Instrument, an information processor is required to file an amendment to the information provided in Form 21-101F5 at least 45 days before implementing a significant change involving a matter set out in Form 21-101F5, in the manner set out in Form 21-101F5. The Canadian securities regulatory authorities would consider significant changes to include:
(a) changes to the governance of the information processor, including the structure of its board of directors and changes in the board committees and their mandates;
(b) changes in control over the information processor;
(c) changes affecting the independence of the information processor, including independence from the marketplaces, inter-dealer bond brokers and dealers that provide their data to meet the requirements of the Instrument;
(d) changes to the services or functions performed by the information processor;
(e) changes to the data products offered by the information processor;
(f) changes to the fees and fee structure related to the services provided by the information processor;
(g) changes to the revenue sharing model for revenues from fees related to services provided by the information processor;
(h) changes to the systems and technology used by the information processor, including those affecting its capacity;
(i) new arrangements or changes to arrangements to outsource the operation of any aspect of the services of the information processor;
(j) changes to the means of access to the services of the information processor; and
(k) where the information processor is responsible for making a determination of the data which must be reported, including the securities for which information must be reported in accordance with the Instrument, changes in the criteria and process for selection and communication of these securities.
These would not include housekeeping or administrative changes to the information included in Form 21-101F5, such as changes in the routine processes, practice or administration of the information processor, changes due to standardization of terminology, or minor system or technology changes that do not significantly impact the system of the information processor or its capacity. Such changes would be filed in accordance with the requirements outlined in subsection 14.2(2) of the Instrument.
16.4 Filing of financial statements -- Subsection 14.4(6) of the Instrument requires an information processor to file annual audited financial statements within 90 days after the end of its financial year. However, where an information processor is operated as a division or unit of a person or company, which may be a marketplace, clearing agency, issuer or any other person or company, the person or company must file an income statement, a statement of cash flow and any other information necessary to demonstrate the financial condition of the information processor. In this case, the income statement, statement of cash flow and other necessary financial information pertaining to the operation of the information processor may be unaudited.
16.5 System Requirements -- The guidance in section 14.1 of this Companion Policy applies to the systems requirements for an information processor.
ANNEX D
NATIONAL INSTRUMENT 23-101 TRADING RULES
PART 1 DEFINITION AND INTERPRETATION
1.1 Definition -- In this Instrument
"automated functionality" means the ability to
(a) immediately allow an incoming order that has been entered on the marketplace electronically to be marked as immediate-or-cancel;
(b) immediately and automatically execute an order marked as immediate-or-cancel against the displayed volume;
(c) immediately and automatically cancel any unexecuted portion of an order marked as immediate-or-cancel without routing the order elsewhere;
(d) immediately and automatically transmit a response to the sender of an order marked as immediate-or-cancel indicating the action taken with respect to the order; and
(e) immediately and automatically display information that updates the displayed orders on the marketplace to reflect any change to their material terms;
"best execution" means the most advantageous execution terms reasonably available under the circumstances;
"calculated-price order" means an order for the purchase or sale of an exchange-traded security, other than an option, that is entered on a marketplace and for which the price of the security
(a) is not known at the time of order entry; and
(b) is not based, directly or indirectly, on the quoted price of an exchange-traded security at the time the commitment to execute the order was made;
"closing-price order" means an order for the purchase or sale of an exchange-traded security, other than an option, that is
(a) entered on a marketplace on a trading day; and
(b) subject to the conditions that
(i) the order be executed at the closing sale price of that security on the marketplace for that trading day; and
(ii) the order be executed subsequent to the establishment of the closing price;
"directed-action order" means a limit order for the purchase or sale of an exchange-traded security, other than an option, that,
(a) when entered on or routed to a marketplace is to be immediately
(i) executed against a protected order with any remainder to be booked or cancelled; or
(ii) placed in an order book;
(b) is marked as a directed-action order; and
(c) is entered or routed at the same time as one or more additional limit orders that are entered on or routed to one or more marketplaces, as necessary, to execute against any protected order with a better price than the order referred to in paragraph (a);
"NI 21-101" means National Instrument 21-101 Marketplace Operation;
"non-standard order" means an order for the purchase or sale of an exchange-traded security, other than an option, that is entered on a marketplace and is subject to non-standardized terms or conditions related to settlement that have not been set by the marketplace on which the security is listed or quoted; and
"protected bid" means a bid for an exchange-traded security, other than an option,
(a) that is displayed on a marketplace that provides automated functionality; and
(b) about which information is required to be provided pursuant to Part 7 of NI 21-101 to an information processor or, if there is no information processor, to an information vendor that meets the standards set by a regulation services provider;
"protected offer" means an offer for an exchange-traded security, other than an option,
(a) that is displayed on a marketplace that provides automated functionality; and
(b) about which information is required to be provided pursuant to Part 7 of NI 21-101 to an information processor or, if there is no information processor, to an information vendor that meets the standards set by a regulation services provider;
"protected order" means a protected bid or protected offer; and
"trade-through" means the execution of an order at a price that is,
(a) in the case of a purchase, higher than any protected offer, or
(b) in the case of a sale, lower than any protected bid.
1.2 Interpretation -- NI 21-101 -- Terms defined or interpreted in NI 21-101 and used in this Instrument have the respective meanings ascribed to them in NI 21-101.
PART 2 APPLICATION OF THIS INSTRUMENT
2.1 Application of this Instrument -- A person or company is exempt from subsection 3.1(1) and Parts 4 and 5 if the person or company complies with similar requirements established by
(a) a recognized exchange that monitors and enforces the requirements set under subsection 7.1(1) directly;
(b) a recognized quotation and trade reporting system that monitors and enforces requirements set under subsection 7.3(1) directly; or
(c) a regulation services provider.
PART 3 MANIPULATION AND FRAUD
3.1 Manipulation and Fraud
(1) A person or company shall not, directly or indirectly, engage in, or participate in any transaction or series of transactions, or method of trading relating to a trade in or acquisition of a security or any act, practice or course of conduct, if the person or company knows, or ought reasonably to know, that the transaction or series of transactions, or method of trading or act, practice or course of conduct
(a) results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security or a derivative of that security; or
(b) perpetrates a fraud on any person or company.
(2) In Alberta, British Columbia, Ontario, Québec and Saskatchewan, instead of subsection (1), the provisions of the Securities Act (Alberta), the Securities Act (British Columbia), the Securities Act (Ontario), the Securities Act and theDerivatives Act (Québec) and The Securities Act, 1988 (Saskatchewan), respectively, relating to manipulation and fraud apply.
PART 4 BEST EXECUTION
4.1 Application of this Part -- This Part does not apply to a dealer that is carrying on business as an ATS in compliance with section 6.1 of NI 21-101.
4.2 Best Execution -- A dealer and an adviser must make reasonable efforts to achieve best execution when acting for a client.
4.3 Order and Trade Information -- To satisfy the requirements in section 4.2, a dealer or adviser shall make reasonable efforts to use facilities providing information regarding orders and trades.
PART 5 REGULATORY HALTS
5.1 Regulatory Halts -- If a regulation services provider, a recognized exchange, recognized quotation and trade reporting system or an exchange or quotation and trade reporting system that has been recognized for the purposes of this Instrument and NI 21-101 makes a decision to prohibit trading in a particular security for a regulatory purpose, no person or company shall execute a trade for the purchase or sale of that security during the period in which the prohibition is in place.
PART 6 ORDER PROTECTION
6.1 Marketplace Requirements for Order Protection -- (1) A marketplace shall establish, maintain and ensure compliance with written policies and procedures that are reasonably designed
(a) to prevent trade-throughs on that marketplace other than the trade-throughs referred to in section 6.2; and
(b) to ensure that the marketplace, when executing a transaction that results in a trade-through referred to in section 6.2, is doing so in compliance with this Part.
(2) A marketplace shall regularly review and monitor the effectiveness of the policies and procedures required under subsection (1) and shall promptly remedy any deficiencies in those policies and procedures.
(3) At least 45 days before implementation, a marketplace shall file with the securities regulatory authority and, if applicable, its regulation services provider the policies and procedures, and any significant changes to those policies and procedures established under subsection (1).
6.2 List of Trade-throughs -- For the purposes of paragraph 6.1(1)(a) the permitted trade-throughs are
(a) a trade-through that occurs when the marketplace has reasonably concluded that the marketplace displaying the protected order that was traded through was experiencing a failure, malfunction or material delay of its systems or equipment or ability to disseminate marketplace data;
(b) the execution of a directed-action order;
(c) a trade-through by a marketplace that simultaneously routes a directed-action order to execute against the total displayed volume of any protected order that is traded through;
(d) a trade-through if, immediately before the trade-through, the marketplace displaying the protected order that is traded through displays as its best price a protected order with a price that is equal or inferior to the price of the trade-through;
(e) a trade-through that results when executing
(i) a non-standard order;
(ii) a calculated-price order; or
(iii) a closing-price order;
(f) a trade-through that was executed at a time when the best protected bid for the security traded through was higher than the best protected offer.
6.3 Systems or Equipment Failure, Malfunction or Material Delay -- (1) If a marketplace experiences a failure, malfunction or material delay of its systems, equipment or its ability to disseminate marketplace data, the marketplace shall immediately notify
(a) all other marketplaces;
(b) all regulation services providers;
(c) its marketplace participants; and
(d) any information processor or, if there is no information processor, any information vendor that disseminates its data under Part 7 of NI 21-101.
(2) If executing a transaction described in paragraph 6.2(a), and a notification has not been sent under subsection (1), a marketplace that routes an order to another marketplace shall immediately notify
(a) the marketplace that it reasonably concluded is experiencing a failure, malfunction or material delay of its systems or equipment or its ability to disseminate marketplace data;
(b) all regulation services providers;
(c) its marketplace participants; and
(d) any information processor disseminating information under Part 7 of NI 21-101.
(3) If a marketplace participant reasonably concludes that a marketplace is experiencing a failure, malfunction or material delay of its systems or equipment or its ability to disseminate marketplace data, and routes an order to execute against a protected order on another marketplace displaying an inferior price, the marketplace participant must notify the following of the failure, malfunction or material delay
(a) the marketplace that may be experiencing a failure, malfunction or material delay of its systems or equipment or its ability to disseminate marketplace data; and
(b) all regulation services providers.
6.4 Marketplace Participant Requirements for Order Protection -- (1) A marketplace participant must not enter a directed-action order unless the marketplace participant has established, and maintains and ensures compliance with, written policies and procedures that are reasonably designed
(a) to prevent trade-throughs other than the trade-throughs listed below:
(i) a trade-through that occurs when the marketplace participant has reasonably concluded that the marketplace displaying the protected order that was traded through was experiencing a failure, malfunction or material delay of its systems or equipment or ability to disseminate marketplace data;
(ii) a trade-through by a marketplace participant that simultaneously routes a directed-action order to execute against the total displayed volume of any protected order that is traded through;
(iii) a trade-through if, immediately before the trade-through, the marketplace displaying the protected order that is traded through displays as its best price a protected order with a price that is equal or inferior to the price of the trade-through transaction;
(iv) a trade-through that results when executing
(A) a non-standard order;
(B) a calculated-price order; or
(C) a closing-price order;
(v) a trade-through that was executed at a time when the best protected bid for the security traded through was higher than the best protected offer; and
(b) to ensure that when executing a trade-through listed in paragraphs (a)(i) to (a)(v), it is doing so in compliance with this Part.
(2) A marketplace participant that enters a directed-action order shall regularly review and monitor the effectiveness of the policies and procedures required under subsection (1) and shall promptly remedy any deficiencies in those policies and procedures.
6.5 Locked or Crossed Orders -- A marketplace participant or a marketplace that routes or reprices orders shall not intentionally
(a) enter on a marketplace a protected order to buy a security at a price that is the same as or higher than the best protected offer; or
(b) enter on a marketplace a protected order to sell a security at a price that is the same as or lower than the best protected bid.
6.6 Trading Hours -- A marketplace shall set the hours of trading to be observed by marketplace participants.
6.7 Anti-Avoidance -- No person or company shall send an order to an exchange, quotation and trade reporting system or alternative trading system that does not carry on business in Canada in order to avoid executing against better-priced orders on a marketplace.
6.8 Application of this Part -- In Québec, this Part, except for paragraph 6.3(1)(c), does not apply to standardized derivatives.
PART 7 MONITORING AND ENFORCEMENT OF REQUIREMENTS SET BY A RECOGNIZED EXCHANGE AND A RECOGNIZED QUOTATION AND TRADE REPORTING SYSTEM
7.1 Requirements for a Recognized Exchange
(1) A recognized exchange shall set requirements governing the conduct of its members, including requirements that the members will conduct trading activities in compliance with this Instrument.
(2) A recognized exchange shall monitor the conduct of its members and enforce the requirements set under subsection (1), either
(a) directly, or
(b) indirectly through a regulation services provider.
(3) If a recognized exchange has entered into a written agreement with a regulation services provider, the recognized exchange must set requirements that are necessary for the regulation services provider to be able to effectively monitor trading on the recognized exchange and across marketplaces as required by the regulation services provider.
7.2 Agreement between a Recognized Exchange and a Regulation Services Provider -- A recognized exchange that monitors the conduct of its members indirectly through a regulation services provider shall enter into a written agreement with the regulation services provider thatthatwhich provides that the regulation services provider will:
(a)
that the regulation services provider willmonitor the conduct of the members ofaathe recognized exchange;,(b) monitor the compliance of the recognized exchange with the requirements set under subsection 7.1(3)
(c)
(b) (b) that the regulation services provider willenforce the requirements set under subsection 7.1(1);.
(c) that the7.2.1 Obligations of a Recognized Exchange to a Regulation Services Provider -- A recognized exchangewillthat has entered into a written agreement with a regulation services provider must(a) transmit to the regulation services provider the information required
bybyunder Part 11 of NI 21-101 and anyotherinformation reasonably required by the regulation services provider in the form and manner requested by the regulation services provider to effectively monitor:(i) the conduct of and trading by marketplace participants on and across marketplaces, including the compliance of marketplace participants with the requirements set under subsection 7.1(1), and
(ii) the conduct of the recognized exchange,
as applicable; and(d) thatthatincluding the compliance of the recognized exchangewillwith the requirements set under subsection 7.1(3) ; and(b) comply with all orders or directions made by the regulation services provider.
7.3 Requirements for a Recognized Quotation and Trade Reporting System
(1) A recognized quotation and trade reporting system shall set requirements governing the conduct of its users, including requirements that the users will conduct trading activities in compliance with this Instrument.
(2) A recognized quotation and trade reporting system shall monitor the conduct of its users and enforce the equirements set under subsection (1) either
(a) directly; or
(b) indirectly through a regulation services provider.
(3) If a recognized quotation and trade reporting system has entered into a written agreement with a regulation services provider, the recognized quotation and trade reporting system must set requirements that are necessary for the regulation services provider to be able to effectively monitor trading on the recognized quotation and trade reporting system and across marketplaces as required by the regulation services provider.
7.4 Agreement between a Recognized Quotation and Trade Reporting System and a Regulation Services Provider -- A recognized quotation and trade reporting system that monitors the conduct of its users indirectly through a regulation services provider shall enter into a written agreement with the regulation services provider thatthatwhich provides that the regulation services provider will
(a) that the regulation services provider willmonitor the conduct of the users ofaathe recognized quotation and trade reporting system;,(b) monitor the compliance of the recognized quotation and trade reporting system with the requirements set under subsection 7.3(3), and
(c)
that the regulation services provider willenforce the requirements set under subsection 7.3(1).
(c) that the7.4.1 Obligations of a Quotation and Trade Reporting System to a Regulation Services Provider-- A recognized quotation and trade reporting systemwillthat has entered into a written agreement with a regulation services provider must(a) transmit to the regulation services provider the information required
bybyunder Part 11 of NI 21-101 and anyotherinformation reasonably required by the regulation services provider in the form and manner requested by the regulation services provider to effectively monitor:(i) the conduct of and trading by marketplace participants on and across marketplaces, including the compliance of marketplace participants with the requirements set under subsection 7.3(1), and
(ii) the conduct of the recognized quotation and trade reporting system,
as applicableapplicableincluding the compliance of the recognized quotation and trade reporting system with the requirements set under subsection 7.3(3); and(
d) that the recognized quotation and trade reporting system willc) comply with all orders or directions made by the regulation services provider.
7.5 Co-ordination of Monitoring and Enforcement -- A regulation services provider, recognized exchange, or recognized quotation and trade reporting system shall enter into a written agreement with all other regulation services providers, recognized exchanges, and recognized quotation and trade reporting systems to coordinate monitoring and enforcement of the requirements set under Parts 7 and 8.
PART 8 MONITORING AND ENFORCEMENT REQUIREMENTS FOR AN ATS
8.1 Pre-condition to Trading on an ATS -- An ATS shall not execute a subscriber's order to buy or sell securities unless the ATS has executed and is subject to the written agreements required by sections 8.3 and 8.4.
8.2 Requirements Set by a Regulation Services Provider for an ATS
(1) A regulation services provider shall set requirements governing an ATS and its subscribers, including requirements that the ATS and its subscribers will conduct trading activities in compliance with this Instrument.
(2) A regulation services provider shall monitor the conduct of an ATS and its subscribers and shall enforce the requirements set under subsection (1).
8.3 Agreement between an ATS and a Regulation Services Provider -- An ATS and a regulation services provider shall enter into a written agreement that provides
(a) that the ATS will conduct its trading activities in compliance with the requirements set under subsection 8.2(1);
(b) that the regulation services provider will monitor the conduct of the ATS and its subscribers;
(c) that the regulation services provider will enforce the requirements set under subsection 8.2(1);
(d) that the ATS will transmit to the regulation services provider the information required by Part 11 of NI 21-101 and any other information reasonably required to effectively monitor:
(i) the conduct of and trading by marketplace participants on and across marketplaces, and
(ii) the conduct of the ATS; and
(e) that the ATS will comply with all orders or directions made by the regulation services provider.
8.4 Agreement between an ATS and its Subscriber -- An ATS and its subscriber shall enter into a written agreement that provides
(a) that the subscriber will conduct its trading activities in compliance with the requirements set under subsection 8.2(1);
(b) that the subscriber acknowledges that the regulation services provider will monitor the conduct of the subscriber and enforce the requirements set under subsection 8.2(1);
(c) that the subscriber will comply with all orders or directions made by the regulation services provider in its capacity as a regulation services provider, including orders excluding the subscriber from trading on any marketplace.
8.5 [Repealed]
PART 9 MONITORING AND ENFORCEMENT REQUIREMENTS FOR AN INTER-DEALER BOND BROKER
9.1 Requirements Set by a Regulation Services Provider for an Inter-Dealer Bond Broker
(1) A regulation services provider shall set requirements governing an inter-dealer bond broker, including requirements that the inter-dealer bond broker will conduct trading activities in compliance with this Instrument.
(2) A regulation services provider shall monitor the conduct of an inter-dealer bond broker and shall enforce the requirements set under subsection (1).
9.2 Agreement between an Inter-Dealer Bond Broker and a Regulation Services Provider -- An inter-dealer bond broker and a regulation services provider shall enter into a written agreement that provides
(a) that the inter-dealer bond broker will conduct its trading activities in compliance with the requirements set under subsection 9.1(1);
(b) that the regulation services provider will monitor the conduct of the inter-dealer bond broker;
(c) that the regulation services provider will enforce the requirements set under subsection 9.1(1); and
(d) that the inter-dealer bond broker will comply with all orders or directions made by the regulation services provider.
9.3 Exemption for an Inter-Dealer Bond Broker
(1) Sections 9.1 and 9.2 do not apply to an inter-dealer bond broker, if the inter-dealer bond broker complies with the requirements of IIROC Rule 2800 Code of Conduct for Corporation Dealer Member Firms Trading in Wholesale Domestic Debt Markets, as amended.
(2) [Repealed]
PART 10 MONITORING AND ENFORCEMENT REQUIREMENTS FOR A DEALER EXECUTING TRADES OF UNLISTED DEBT SECURITIES OUTSIDE OF A MARKETPLACE
10.1 Requirements Set by a Regulation Services Provider for a Dealer Executing Trades of Unlisted Debt Securities Outside of a Marketplace
(1) A regulation services provider shall set requirements governing a dealer executing trades of unlisted debt securities outside of a marketplace, including requirements that the dealer will conduct trading activities in compliance with this Instrument.
(2) A regulation services provider shall monitor the conduct of a dealer executing trades of unlisted debt securities outside of a marketplace and shall enforce the requirements set under subsection (1).
10.2 Agreement between a Dealer Executing Trades of Unlisted Debt Securities Outside of a Marketplace and a Regulation Services Provider -- A dealer executing trades of unlisted debt securities outside of a marketplace shall enter into an agreement with a regulation services provider that provides
(a) that the dealer will conduct its trading activities in compliance with the requirements set under subsection 10.1(1);
(b) that the regulation services provider will monitor the conduct of the dealer;
(c) that the regulation services provider will enforce the requirements set under subsection 10.1(1); and
(d) that the dealer will comply with all orders or directions made by the regulation services provider.
10.3 [Repealed]
PART 11 AUDIT TRAIL REQUIREMENTS
11.1 Application of this Part
(1) This Part does not apply to a dealer that is carrying on business as an ATS in compliance with section 6.1 of NI 21-101.
(2) A dealer or inter-dealer bond broker is exempt from the requirements in section 11.2 if the dealer or inter-dealer bond broker complies with similar requirements, for any securities specified, established by a regulation services provider and approved by the applicable securities regulatory authority.
11.2 Audit Trail Requirements for Dealers and Inter-Dealer Bond Brokers
(1) Recording Requirements for Receipt or Origination of an Order -- Immediately following the receipt or origination of an order for equity, fixed income and other securities identified by a regulation services provider, a dealer and inter-dealer bond broker shall record in electronic form specific information relating to that order including,
(a) the order identifier;
(b) the dealer or inter-dealer bond broker identifier;
(c) the type, issuer, class, series and symbol of the security;
(d) the face amount or unit price of the order, if applicable;
(e) the number of securities to which the order applies;
(f) the strike date and strike price, if applicable;
(g) whether the order is a buy or sell order;
(h) whether the order is a short sale order, if applicable;
(i) whether the order is a market order, limit order or other type of order, and if the order is not a market order, the price at which the order is to trade;
(j) the date and time the order is first originated or received by the dealer or inter-dealer bond broker;
(k) whether the account is a retail, wholesale, employee, proprietary or any other type of account;
(l) the client account number or client identifier;
(m) the date and time that the order expires;
(n) whether the order is an intentional cross;
(o) whether the order is a jitney and if so, the underlying broker identifier;
(p) any client instructions or consents respecting the handling or trading of the order, if applicable;
(q) the currency of the order;
(r) an insider marker;
(s) any other markers required by a regulation services provider;
(u) each unique client identifier assigned to a client accessing the marketplace using direct electronic access; and
(v) whether the order is a directed-action order.
(2) Recording Requirements for Transmission of an Order -- Immediately following the transmission of an order for securities to a dealer, inter-dealer bond broker or a marketplace, a dealer or inter-dealer bond broker transmitting the order shall add to the record of the order maintained in accordance with this section specific information relating to that order including,
(a) the dealer or inter-dealer bond broker identifier assigned to the dealer or inter-dealer bond broker transmitting the order and the identifier assigned to the dealer, inter-dealer bond broker or marketplace to which the order is transmitted; and
(b) the date and time the order is transmitted.
(3) Recording Requirements for Variation, Correction or Cancellation of an Order -- Immediately following the variation, correction or cancellation of an order for securities, a dealer or inter-dealer bond broker shall add to the record of the order maintained in accordance with this section specific information relating to that order including,
(a) the date and time the variation, correction or cancellation was originated or received;
(b) whether the order was varied, corrected or cancelled on the instructions of the client, the dealer or the inter-dealer bond broker;
(c) in the case of variation or correction, any of the information required by subsection (1) which has been changed; and
(d) the date and time the variation, correction or cancellation of the order is entered.
(4) Recording Requirements for Execution of an Order -- Immediately following the execution of an order for securities, the dealer or inter-dealer bond broker shall add to the record maintained in accordance with this section specific information relating to that order including,
(a) the identifier of the marketplace where the order was executed or the identifier of the dealer or inter-dealer bond broker executing the order if the order was not executed on a marketplace;
(b) the date and time of the execution of the order;
(c) whether the order was fully or partially executed;
(d) the number of securities bought or sold;
(e) whether the transaction was a cross;
(f) whether the dealer has executed the order as principal;
(g) the commission charged and all other transaction fees; and
(h) the price at which the order was executed, including mark-up or mark-down.
(5) [Repealed]
(6) [Repealed]
(7) Record Preservation Requirements -- A dealer and an inter-dealer bond broker shall keep all records in electronic form for a period of not less than seven years from the creation of the record referred to in this section, and for the first two years in a readily accessible location.
11.3 Transmission in Electronic Form -- A dealer and inter-dealer bond broker shall transmit
(a) to a regulation services provider the information required by the regulation services provider, within ten business days, in electronic form; and
(b) to the securities regulatory authority the information required by the securities regulatory authority under securities legislation, within ten business days, in electronic form.
PART 12 EXEMPTION
12.1 Exemption
(1) The regulator or the securities regulatory authority may grant an exemption from this Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.
(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.
PART 13 EFFECTIVE DATE
13.1 Effective Date -- This Instrument comes into force on December 1, 2001.
COMPANION POLICY 23-101 CP TO NATIONAL INSTRUMENT 23-101 TRADING RULES
PART 1 INTRODUCTION
1.1 Introduction -- The purpose of this Companion Policy is to state the views of the Canadian securities regulatory authorities on various matters related to National Instrument 23-101 Trading Rules (the "Instrument"), including
(a) a discussion of the general approach taken by the Canadian securities regulatory authorities in, and the general regulatory purpose for, the Instrument; and
(b) the interpretation of various terms and provisions in the Instrument.
1.2 Just and Equitable Principles of Trade - While the Instrument deals with specific trading practices, as a general matter, the Canadian securities regulatory authorities expect marketplace participants to transact business openly and fairly, and in accordance with just and equitable principles of trade.
PART 1.1 DEFINITIONS
1.1.1 Definition of best execution -- (1) In the Instrument, best execution is defined as the "most advantageous execution terms reasonably available under the circumstances". In seeking best execution, a dealer or adviser may consider a number of elements, including:
a. price;
b. speed of execution;
c. certainty of execution; and
d. the overall cost of the transaction.
These four broad elements encompass more specific considerations, such as order size, reliability of quotes, liquidity, market impact (i.e. the price movement that occurs when executing an order) and opportunity cost (i.e. the missed opportunity to obtain a better price when an order is not completed at the most advantageous time). The overall cost of the transaction is meant to include, where appropriate, all costs associated with accessing an order and/or executing a trade that are passed on to a client, including fees arising from trading on a particular marketplace, jitney fees (i.e. any fees charged by one dealer to another for providing trading access) and settlement costs. The commission fees charged by a dealer would also be a cost of the transaction.
(2) The elements to be considered in determining "the most advantageous execution terms reasonably available" (i.e. best execution) and the weight given to each will vary depending on the instructions and needs of the client, the particular security, the prevailing market conditions and whether the dealer or adviser is responsible for best execution under the circumstances. Please see a detailed discussion below in Part 4.
1.1.2 Definition of automated functionality -- Section 1.1 of the Instrument includes a definition of "automated functionality" which is the ability to:
(1) act on an incoming order;
(2) respond to the sender of an order; and
(3) update the order by disseminating information to an information processor or information vendor.
Automated functionality allows for an incoming order to execute immediately and automatically up to the displayed size and for any unexecuted portion of such incoming order to be cancelled immediately and automatically without being booked or routed elsewhere. Automated functionality involves no human discretion in determining the action taken with respect to an order after the time the order is received. A marketplace with this functionality should have appropriate systems and policies and procedures relating to the handling of immediate-or-cancel orders.
1.1.3 Definition of protected order -- (1) A protected order is defined to be a "protected bid or protected offer". A "protected bid" or "protected offer" is an order to buy or sell an exchange-traded security, other than an option, that is displayed on a marketplace that provides automated functionality and about which information is provided to an information processor or an information vendor, as applicable, pursuant to Part 7 of NI 21-101. The term "displayed on a marketplace" refers to the information about total disclosed volume on a marketplace. Volumes that are not disclosed or that are "reserve" or hidden volumes are not considered to be "displayed on a marketplace". The order must be provided in a way that enables other marketplaces and marketplace participants to readily access the information and integrate it into their systems or order routers.
(2) Subsection 5.1(3) of 21-101CP does not consider orders that are not immediately executable or that have special terms as "orders" that are required to be provided to an information processor or information vendor under Part 7 of NI 21-101. As a result, these orders are not considered to be "protected orders" under the definition in the Instrument and do not receive order protection. However, those executing against these types of orders are required to execute against all better-priced orders first. In addition, when entering a "special terms order" on a marketplace, if it can be executed against existing orders despite the special term, then the order protection obligation applies.
1.1.4 Definition of calculated-price order -- The definition of "calculated-price order" refers to any order where the price is not known at the time of order entry and is not based, directly or indirectly, on the quoted price of an exchange-traded security at the time the commitment to executing the order was made. This includes the following orders:
(a) a call market order -- where the price of a trade is calculated by the trading system of a marketplace at a time designated by the marketplace;
(b) an opening order -- where each marketplace may establish its own formula for the determination of opening prices;
(c) a closing order -- where execution occurs at the closing price on a particular marketplace, but at the time of order entry, the price is not known;
(d) a volume-weighted average price order -- where the price of a trade is determined by a formula that measures average price on one or more marketplaces; and
(e) a basis order -- where the price is based on prices achieved in one or more derivative transactions on a marketplace. To qualify as a basis order, this order must be approved by a regulation services provider or an exchange or quotation and trade reporting system that oversees the conduct of its members or users respectively.
1.1.5 Definition of directed-action order -- (1) An order marked as a directed-action order informs the receiving marketplace that the marketplace can act immediately to carry out the action specified by either the marketplace or marketplace participant who has sent the order and that the order protection obligation is being met by the sender. Such an order may be marked "DAO" by a marketplace or a marketplace participant. Senders can specify actions by adding markers that instruct a marketplace to:
(a) execute the order and cancel the remainder using an immediate-or-cancel marker,
(b) execute the order and book the remainder,
(c) book the order as a passive order awaiting execution, and
(d) avoid interaction with hidden liquidity using a bypass marker, as defined in IIROC's Universal Market Integrity Rules.
The definition allows for the simultaneous routing of more than one directed-action order in order to execute against any better-priced protected orders. In addition, marketplaces or marketplace participants may send a single directed-action order to execute against the best protected bid or best protected offer. When it receives a directed-action order, a marketplace can carry out the sender's instructions without checking for better-priced orders displayed by the other marketplaces and implementing the marketplace's own policies and procedures to reasonably prevent trade-throughs.
(2) Regardless of whether the entry of a directed-action order is accompanied by the bypass marker, the sender must take out all better-priced visible orders before executing at an inferior price. For example, if a marketplace or marketplace participant combines a directed-action order with a bypass marker to avoid executing against hidden liquidity, the order has order protection obligations regarding the visible liquidity. If a directed-action order interacts with hidden liquidity, the requirement to take out all better-priced visible orders before executing at an inferior price remains.
1.1.6 Definition of non-standard order -- The definition of "non-standard order" refers to an order for the purchase or sale of a security that is subject to terms or conditions relating to settlement that have not been set by the marketplace on which the security is listed or quoted. A marketplace participant, however, may not add a special settlement term or condition to an order solely for the purpose that the order becomes a non-standard order under the definition.
PART 2 APPLICATION OF THE INSTRUMENT
2.1 Application of the Instrument -- Section 2.1 of the Instrument provides an exemption from subsection 3.1(1) and Parts 4 and 5 of the Instrument if a person or company complies with similar requirements established by a recognized exchange that monitors and enforces the requirements set under subsection 7.1(1) of the Instrument directly, a recognized quotation and trade reporting system that monitors and enforces requirements set under subsection 7.3(1) of the Instrument directly or a regulation services provider. The requirements are filed by the recognized exchange, recognized quotation and trade reporting system or regulation services provider and approved by a securities regulatory authority. If a person or company is not in compliance with the requirements of the recognized exchange, recognized quotation and trade reporting system or the regulation services provider, then the exemption does not apply and that person or company is subject to subsection 3.1(1) and Parts 4 and 5 of the Instrument. The exemption from subsection 3.1(1) does not apply in Alberta, British Columbia, Ontario, Québec and Saskatchewan and the relevant provisions of securities legislation apply.
PART 3 MANIPULATION AND FRAUD
3.1 Manipulation and Fraud
(1) Subsection 3.1(1) of the Instrument prohibits the practices of manipulation and deceptive trading, as these may create misleading price and trade activity, which are detrimental to investors and the integrity of the market.
(2) Subsection 3.1(2) of the Instrument provides that despite subsection 3.1(1) of the Instrument, the provisions of the Securities Act (Alberta), the Securities Act (British Columbia), the Securities Act (Ontario), the Securities Act (Québec) and The Securities Act, 1988 (Saskatchewan), respectively, relating to manipulation and fraud apply in Alberta, British Columbia, Ontario, Québec and Saskatchewan. The jurisdictions listed have provisions in their legislation that deal with manipulation and fraud.
(3) For the purposes of subsection 3.1(1) of the Instrument, and without limiting the generality of those provisions, the Canadian securities regulatory authorities, depending on the circumstances, would normally consider the following to result in, contribute to or create a misleading appearance of trading activity in, or an artificial price for, a security:
(a) Executing transactions in a security if the transactions do not involve a change in beneficial or economic ownership. This includes activities such as wash-trading.
(b) Effecting transactions that have the effect of artificially raising, lowering or maintaining the price of the security. For example, making purchases of or offers to purchase securities at successively higher prices or making sales of or offers to sell a security at successively lower prices or entering an order or orders for the purchase or sale of a security to:
(i) establish a predetermined price or quotation,
(ii) effect a high or low closing price or closing quotation, or
(iii) maintain the trading price, ask price or bid price within a predetermined range.
(c) Entering orders that could reasonably be expected to create an artificial appearance of investor participation in the market. For example, entering an order for the purchase or sale of a security with the knowledge that an order of substantially the same size, at substantially the same time, at substantially the same price for the sale or purchase, respectively, of that security has been or will be entered by or for the same or different persons.
(d) Executing prearranged transactions that have the effect of creating a misleading appearance of active public trading or that have the effect of improperly excluding other marketplace participants from the transaction.
(e) Effecting transactions if the purpose of the transactions is to defer payment for the securities traded.
(f) Entering orders to purchase or sell securities without the ability and the intention to
(i) make the payment necessary to properly settle the transaction, in the case of a purchase; or
(ii) deliver the securities necessary to properly settle the transaction, in the case of a sale.
This includes activities known as free-riding, kiting or debit kiting, in which a person or company avoids having to make payment or deliver securities to settle a trade.
(g) Engaging in any transaction, practice or scheme that unduly interferes with the normal forces of demand for or supply of a security or that artificially restricts or reduces the public float of a security in a way that could reasonably be expected to result in an artificial price for the security.
(h) Engaging in manipulative trading activity designed to increase the value of a derivative position.
(i) Entering a series of orders for a security that are not intended to be executed.
(4) The Canadian securities regulatory authorities do not consider market stabilization activities carried out in connection with a distribution to be activities in breach of subsection 3.1(1) of the Instrument, if the market stabilization activities are carried out in compliance with the rules of the marketplace on which the securities trade or with provisions of securities legislation that permit market stabilization by a person or company in connection with a distribution.
(5) Section 3.1 of the Instrument applies to transactions both on and off a marketplace. In determining whether a transaction results in, contributes to or creates a misleading appearance of trading activity in, or an artificial price for a security, it may be relevant whether the transaction takes place on or off a marketplace. For example, a transfer of securities to a holding company for bona fide purposes that takes place off a marketplace would not normally violate section 3.1 even though it is a transfer with no change in beneficial ownership.
(6) The Canadian securities regulatory authorities are of the view that section 3.1 of the Instrument does not create a private right of action.
(7) In the view of the Canadian securities regulatory authorities, section 3.1 includes attempting to create a misleading appearance of trading activity in or an artificial price for, a security or attempting to perpetrate a fraud.
PART 4 BEST EXECUTION
4.1 Best Execution
(1) The best execution obligation in Part 4 of the Instrument does not apply to an ATS that is registered as a dealer provided that it is carrying on business as a marketplace and is not handling any client orders other than accepting them to allow them to execute on the system. However, the best execution obligation does otherwise apply to an ATS acting as an agent for a client.
(2) Section 4.2 of the Instrument requires a dealer or adviser to make reasonable efforts to achieve best execution (the most advantageous execution terms reasonably available under the circumstances) when acting for a client. The obligation applies to all securities.
(3) Although what constitutes "best execution" varies depending on the particular circumstances, to meet the "reasonable efforts" test, a dealer or adviser should be able to demonstrate that it has, and has abided by, its policies and procedures that (i) require it to follow the client's instructions and the objectives set, and (ii) outline a process designed to achieve best execution. The policies and procedures should describe how the dealer or adviser evaluates whether best execution was obtained and should be regularly and rigorously reviewed. The policies outlining the obligations of the dealer or adviser will be dependent on the role it is playing in an execution. For example, in making reasonable efforts to achieve best execution, the dealer should consider the client's instructions and a number of factors, including the client's investment objectives and the dealer's knowledge of markets and trading patterns. An adviser should consider a number of factors, including assessing a particular client's requirements or portfolio objectives, selecting appropriate dealers and marketplaces and monitoring the results on a regular basis. In addition, if an adviser is directly accessing a marketplace, the factors to be considered by dealers may also be applicable.
(4) Where securities listed on a Canadian exchange or quoted on a Canadian quotation and trade reporting system are inter-listed either within Canada or on a foreign exchange or quotation and trade reporting system, in making reasonable efforts to achieve best execution, the dealer should assess whether it is appropriate to consider all marketplaces upon which the security is listed or quoted and where the security is traded, both within and outside of Canada.
(5) In order to meet best execution obligations where securities trade on multiple marketplaces in Canada, a dealer should consider information from all appropriate marketplaces (not just marketplaces where the dealer is a participant). This does not mean that a dealer must have access to real-time data feeds from each marketplace. However, its policies and procedures for seeking best execution should include the process for taking into account order and/or trade information from all appropriate marketplaces and the requirement to evaluate whether taking steps to access orders is appropriate under the circumstances. The steps to access orders may include making arrangements with another dealer who is a participant of a particular marketplace or routing an order to a particular marketplace.
(6) For foreign exchange-traded securities, if they are traded on a marketplace in Canada, dealers should include in their best execution policies and procedures a regular assessment of whether it is appropriate to consider the marketplace as well as the foreign markets upon which the securities trade.
(7) Section 4.2 of the Instrument applies to registered advisers as well as registered dealers that carry out advisory functions but are exempt from registration as advisers.
(8) Section 4.3 of the Instrument requires that a dealer or adviser make reasonable efforts to use facilities providing information regarding orders and trades. These reasonable efforts refer to the use of the information displayed by the information processor or, if there is no information processor, an information vendor.
PART 5 REGULATORY HALTS
5.1 Regulatory Halts -- Section 5.1 of the Instrument applies when a regulatory halt has been imposed by a regulation services provider, a recognized exchange, or a recognized quotation and trade reporting system. A regulatory halt, as referred to in section 5.1 of the Instrument, is one that is imposed to maintain a fair and orderly market, including halts related to a timely disclosure policy, or because there has been a violation of regulatory requirements. In the view of the Canadian securities regulatory authorities, an order may trade on a marketplace despite the fact that trading of the security has been suspended because the issuer of the security has ceased to meet minimum listing or quotation requirements, or has failed to pay to the recognized exchange, or the recognized quotation and trade reporting system any fees in respect of the listing or quotation of securities of the issuer. Similarly, an order may trade on a marketplace despite the fact that trading of the security has been delayed or halted because of technical problems affecting only the trading system of the recognized exchange, or recognized quotation and trade reporting system.
PART 6 ORDER PROTECTION
6.1 Marketplace Requirements for Order Protection
(1) Subsection 6.1(1) of the Instrument requires a marketplace to establish, maintain and ensure compliance with written policies and procedures that are reasonably designed to prevent trade-throughs by orders entered on that marketplace. A marketplace may implement this requirement in various ways. For example, the policies and procedures of a marketplace may reasonably prevent trade-throughs via the design of the marketplace's trade execution algorithms (by not allowing a trade-through to occur), or by voluntarily establishing direct linkages to other marketplaces. Marketplaces are not able to avoid their obligations by establishing policies and procedures that instead require marketplace participants to take steps to reasonably prevent trade-throughs.
(2) It is the responsibility of marketplaces to regularly review and monitor the effectiveness of their policies and procedures and take prompt steps to remedy any deficiencies in reasonably preventing trade-throughs and complying with subsection 6.1(2) of the Instrument. In general, it is expected that marketplaces maintain relevant information so that the effectiveness of its policies and procedures can be adequately evaluated by regulatory authorities. Relevant information would include information that describes:
(a) steps taken by the marketplace to evaluate its policies and procedures;
(b) any breaches or deficiencies found; and
(c) the steps taken to resolve the breaches or deficiencies.
(3) As part of the policies and procedures required in subsection 6.1(1) of the Instrument, a marketplace is expected to include a discussion of their automated functionality and how they will handle potential delayed responses as a result of an equipment or systems failure or malfunction experienced by another marketplace. In addition, marketplaces should include a discussion of how they treat a directed-action order when received and how it will be used.
(4) Order protection applies whenever two or more marketplaces with protected orders are open for trading. Some marketplaces provide a trading session at a price established by that marketplace during its regular trading hours for marketplace participants who are required to benchmark to a certain closing price. In these circumstances, under paragraph 6.2(e), a marketplace would not be required to take steps to reasonably prevent trade-throughs of orders on another marketplace.
6.2 Marketplace Participant Requirements for Order Protection
(1) For a marketplace participant that wants to use a directed-action order, section 6.4 of the Instrument requires a marketplace participant to establish, maintain and ensure compliance with written policies and procedures that are reasonably designed to prevent trade-throughs. In general, it is expected that a marketplace participant that uses a directed-action order would maintain relevant information so that the effectiveness of its policies and procedures can be adequately evaluated by regulatory authorities. Relevant information would include information that describes:
(a) steps taken by the marketplace participant to evaluate its policies and procedures;
(b) any breaches or deficiencies found; and
(c) the steps taken to resolve the breaches or deficiencies.
The policies and procedures should also outline when it is appropriate to use a directed-action order and how it will be used as set out in paragraph 6.4(a) of the Instrument.
(2) Order protection applies whenever two or more marketplaces with protected orders are open for trading. Some marketplaces provide a trading session at a price established by that marketplace during its regular trading hours for marketplace participants who are required to benchmark to a certain closing price. In these circumstances, under paragraph 6.4(a)(iv)(C) of the Instrument, a marketplace participant would not be required to take steps to reasonably prevent trade-throughs of orders between marketplaces.
6.3 List of Trade-throughs -- Section 6.2 and paragraphs 6.4(a)(i) to (a)(v) of the Instrument set forth a list of "permitted" trade-throughs that are primarily designed to achieve workable order protection and to facilitate certain trading strategies and order types that are useful to investors.
(a)
(i) Paragraphs 6.2(a) and 6.4(a)(i) of the Instrument would apply where a marketplace or marketplace participant, as applicable, has reasonably concluded that a marketplace is experiencing a failure, malfunction or material delay of its systems, equipment or ability to disseminate marketplace data. A material delay occurs when a marketplace repeatedly fails to respond immediately after receipt of an order. This is intended to provide marketplaces and marketplace participants with flexibility when dealing with a marketplace that is experiencing systems problems (either of a temporary nature or a longer term systems issue).
(ii) Under subsection 6.3(1) of the Instrument, a marketplace that is experiencing systems issues is responsible for informing all other marketplaces, its marketplace participants, any information processor, or if there is no information processor, an information vendor disseminating its information under Part 7 of NI 21-101 and regulation services providers when a failure, malfunction or material delay of its systems, equipment or ability to disseminate marketplace data occurs. However, if a marketplace fails repeatedly to provide an immediate response to orders received and no notification has been issued by that marketplace that it is experiencing systems issues, the routing marketplace or a marketplace participant may, pursuant to subsections 6.3(2) and 6.3(3) of the Instrument respectively, reasonably conclude that the marketplace is having systems issues and may therefore rely on paragraph 6.2(a) or 6.4(a)(i) of the Instrument respectively. This reliance must be done in accordance with policies and procedures that outline processes for dealing with potential delays in responses by a marketplace and documenting the basis of its conclusion. If, in response to the notification by the routing marketplace or a marketplace participant, the marketplace confirms that it is not actually experiencing systems issues, the routing marketplace or marketplace participant may no longer rely on paragraph 6.2(a) or paragraph 6.4(a)(i) of the Instrument respectively.
(b) Paragraph 6.2(b) of the Instrument provides an exception from the obligation on marketplaces to use their policies and procedures to reasonably prevent trade-throughs when a directed-action order is received. Specifically, a marketplace that receives a directed-action order may immediately execute or book the order (or its remaining volume) and not implement the marketplace's policies and procedures to reasonably prevent trade-throughs. However, the marketplace will need to describe its treatment of a directed-action order in its policies and procedures. Paragraphs 6.2(c) and 6.4(a)(iii) of the Instrument provide an exception where a marketplace or marketplace participant simultaneously routes directed-action orders to execute against the total displayed volume of any protected order traded through. This accounts for the possibility that orders that are routed simultaneously as directed-action orders are not executed simultaneously causing one or more trade-throughs to occur because an inferior-priced order is executed first.
(c) Paragraphs 6.2(d) and 6.4(a)(ii) of the Instrument provide some relief due to moving or changing markets. Specifically, the exception allows for a trade-through to occur when immediately before executing the order that caused the trade-through, the marketplace on which the execution occurred had the best price but at the moment of execution, the market changes and another marketplace has the best price. The "changing markets" exception allows for the execution of an order on a marketplace, within the best bid or offer on that marketplace but outside the best bid or offer displayed across marketplaces in certain circumstances. This could occur for example:
(i) where orders are entered on a marketplace but by the time they are executed, the best bid or offer displayed across marketplaces changed; and
(ii) where a trade is agreed to off-marketplace and entered on a marketplace within the best bid and best offer across marketplaces, but by the time the order is executed on the marketplace (i.e. printed) the best bid or offer as
disaplayeddisplayed across marketplaces may have changed, thus causing a trade-through.(d) The basis for the inclusion of calculated-price orders, non-standard orders and closing-price orders in paragraphs 6.2(e) and 6.4(a)(iv) of the Instrument is that these orders have certain unique characteristics that distinguish them from other orders. The characteristics of the orders relate to price (calculated-price orders and closing-price orders) and non-standard settlement terms (non-standard orders) that are not set by an exchange or a quotation and trade reporting system.
(e) Paragraphs 6.2(f) and 6.4(a)(v) of the Instrument include a transaction that occurred when there is a crossed market in the exchange-traded security. Without this allowance, no marketplace could execute transactions in a crossed market because it would constitute a trade-through. With order protection only applying to displayed orders or parts of orders, hidden or reserve orders may remain in the book after all displayed orders are executed. Consequently, crossed markets may occur. Intentionally crossing the market to take advantage of paragraphs 6.2(f) and 6.4(a)(v) of the Instrument would be a violation of section 6.5 of the Instrument.
6.4 Locked and Crossed Markets
(1) Section 6.5 of the Instrument provides that a marketplace participant or a marketplace that routes or reprices orders shall not intentionally lock or cross a market by entering a protected order to buy a security at a price that is the same as or higher than the best protected offer or entering a protected order to sell a security at a price that is the same as or lower than the best protected bid. This provision is not intended to prohibit the use of marketable limit orders. Paragraphs 6.2(f) and 6.4(a)(v) of the Instrument allow for the resolution of crossed markets that occur unintentionally.
The Canadian securities regulatory authorities consider an order that is routed or repriced to be "entered" on a marketplace. The Canadian securities regulatory authorities do not consider the triggering of a previously-entered on-stop order to be an "entry" or "repricing" of that order.
(2) Section 6.5 of the Instrument prohibits a marketplace participant or a marketplace that routes or reprices orders from intentionally locking or crossing a market. This would occur, for example, when a marketplace participant enters a locking or crossing order on a particular marketplace or marketplaces to avoid fees charged by a marketplace or to take advantage of rebates offered by a particular marketplace. This could also occur where a marketplace system is programmed to reprice orders without checking to see if the new price would lock the market or where the marketplace routes orders to another marketplace that results in a locked market.
There are situations where a locked or crossed market may occur unintentionally. For example:
(a) when a marketplace participant routes multiple directed-action orders that are marked immediate-or-cancel to a variety of marketplaces and because of latency issues, a locked or crossed market results,
(b) the locking or crossing order was displayed at a time when the marketplace displaying the locked or crossed order was experiencing a failure, malfunction or material delay of its systems, equipment or ability to disseminate marketplace data,
(c) the locking or crossing order was displayed at a time when a protected bid was higher than a protected offer;
(d) the locking or crossing order was posted after all displayed liquidity was executed and a reserve order generated a new visible bid above the displayed offer or offer below the displayed bid.
(e) the locking or crossing order was entered on a particular marketplace in order to comply with securities legislation requirements such as Rule 904 of Regulation S of the Securities Act of 1933 that requires securities subject to resale restrictions in the United States to be sold in Canada on a "designated offshore securities market",
(f) the locking or crossing order was displayed due to "race conditions" when competing orders are entered on marketplaces at essentially the same time with neither party having knowledge of the other order at the time of entry,
(g) the locking or crossing order was a result of the differences in processing times and latencies between the systems of the marketplace participant, marketplaces, information processor and information vendors,
(h) the locking or crossing order was a result of marketplaces having different mechanisms to "restart" trading following a halt in trading for either regulatory or business purposes, and
(i) the locking or crossing order was a result of the execution of an order during the opening or closing allocation process of one market, while trading is simultaneously occurring on a continuous basis on another market,
(3) If a marketplace participant using a directed-action order chooses to book the order or the remainder of the order, then it is responsible for ensuring that the booked portion of the directed-action order does not lock or cross the market. The Canadian securities regulatory authorities would consider a directed-action order or remainder of directed-action order that is booked and that locks or crosses the market to be an intentional locking or crossing of the market and a violation of section 6.5 of the Instrument.
6.5 Anti-Avoidance Provision -- Section 6.7 of the Instrument prohibits a person or company from sending an order to an exchange, quotation and trade reporting system or alternative trading system that does not carry on business in Canada in order to avoid executing against better-priced orders on a marketplace in Canada. The intention of this section is to prevent the routing of orders to foreign marketplaces only for the purpose of avoiding the order protection regime in Canada.
PART 7 MONITORING AND ENFORCEMENT
7.1 Monitoring and Enforcement of Requirements Set By a Recognized Exchange or Recognized Quotation and Trade Reporting System -- Under section 7.1 of the Instrument, a recognized exchange will set its own requirements governing the conduct of its members. Under section 7.3 of the Instrument, a recognized quotation and trade reporting system will set its own requirements governing the conduct of its users. The recognized exchange or recognized quotation and trade reporting system can monitor and enforce these requirements either directly or indirectly through a regulation services provider. A regulation services provider is a person or company that provides regulation services and is either a recognized exchange, recognized quotation and trade reporting system or a recognized self-regulatory entity.
If a recognized exchange or recognized quotation and trade reporting system has entered into a written agreement with a regulation services provider, it is expected that the requirements set by recognized exchange or recognized quotation and trade reporting system under Part 7 of the Instrument will consist of all of the rules of the regulation services provider that relate to trading. For example, if a recognized exchange or recognized quotation and trade reporting system has entered into a written agreement with IIROC, the rules adopted by the recognized exchange or recognized quotation and trade reporting system are all of IIROC's Universal Market Integrity Rules. Clock synchronization, trade markers and trading halt requirements would be examples of these adopted rules that relate to the regulation services provider's monitoring of trading on the recognized exchange or recognized quotation and trade reporting system and across marketplaces.
We are of the view that all of the rules of the regulation services provider related to trading must be adopted by a recognized exchange or recognized quotation and trade reporting system that has entered into a written agreement with the regulation services provider given the importance of these rules in the context of effectively monitoring trading on and across marketplaces. We note that the regulation services provider is required to monitor the compliance of, and enforce, the adopted rules as against the members of the recognized exchange or users of the recognized quotation and trade reporting system. The regulation services provider is also required to monitor the compliance of the recognized exchange or recognized quotation and trade reporting system with the adopted rules but it is the applicable securities regulatory authority that will enforce these rules against the recognized exchange or recognized quotation and trade reporting system.
Sections 7.2 and 7.4 of the Instrument require the recognized exchange or recognized quotation and trade reporting system that chooses to have the monitoring and enforcement performed by the regulation services provider to enter into an agreement with the regulation services provider in which the regulation services provider agrees to enforce the requirements of the recognized exchange or recognized quotation and trade reporting system. set under subsection 7.1(1) and 7.3(1).
Specifically, sections 7.2 and 7.4 require the written agreement between a recognized exchange or recognized quotation and trade reporting system and its regulation services provider to provide that the regulation services provider will monitor and enforce the requirements set under subsection 7.1(1) or 7.3(1) and monitor the requirements set under subsection 7.1(3) or 7.3(3).
Paragraph 7.2.1(a)(i) mandates that a recognized exchange must transmit information reasonably required by the regulation services provider to effectively monitor the conduct of and trading by marketplace participants on and across marketplaces. The reference to monitoring trading "across marketplaces" refers to the instance where particular securities are traded on multiple marketplaces. Where particular securities are only traded on one marketplace, the reference to "across marketplaces" may not apply in all circumstances.
Paragraph 7.2.1(a)(ii) requires that a recognized exchange must transmit information reasonably required by the regulation services provider to effectively monitor the compliance of the recognized exchange with the requirements set under subsection 7.1(3). As well, subsection 7.2.1(b) requires a recognized exchange to comply with all orders or directions of its regulation services provider that are in connection with the conduct and trading by the recognized exchange's members on the recognized exchange and with regulation services provider's oversight of the compliance of the recognized exchange with the requirements set under 7.1(3).
7.2 Monitoring and Enforcement Requirements for an ATS -- Section 8.2 of the Instrument requires the regulation services provider to set requirements that govern an ATS and its subscribers. Before executing a trade for a subscriber, the ATS must enter into an agreement with a regulation services provider and an agreement with each subscriber. These agreements form the basis upon which a regulation services provider will monitor the trading activities of the ATS and its subscribers and enforce its requirements. The requirements set by a regulation services provider must include requirements that the ATS and its subscribers will conduct trading activities in compliance with the Instrument. The ATS and its subscribers are considered to be in compliance with the Instrument and are exempt from the application of most of its provisions if the ATS and the subscriber are in compliance with the requirements set by a regulation services provider.
7.3 Monitoring and Enforcement Requirements for an Inter-Dealer Bond Broker -- Section 9.1 of the Instrument requires that a regulation services provider set requirements governing the conduct of an inter-dealer bond broker. Under section 9.2 of the Instrument, the inter-dealer bond broker must enter into an agreement with the regulation services provider providing that the regulation services provider monitor the activities of the inter-dealer bond broker and enforce the requirements set by the regulation services provider. However, section 9.3 of the Instrument provides inter-dealer bond brokers with an exemption from sections 9.1 and 9.2 of the Instrument if the inter-dealer bond broker complies with the requirements of IIROC Rule 2800 Code of Conduct for Corporation Dealer Member Firms Trading in Wholesale Domestic Debt Markets, as amended, as if that policy was drafted to apply to the inter-dealer bond broker.
7.4 Monitoring and Enforcement Requirements for a Dealer Executing Trades of Unlisted Debt Securities Outside of a Marketplace -- Section 10.1 of the Instrument requires that a regulation services provider set requirements governing the conduct of a dealer executing trades of unlisted debt securities outside of a marketplace. Under section 10.2 of the Instrument, the dealer must also enter into an agreement with the regulation services provider providing that the regulation services provider monitor the activities of the dealer and enforce the requirements set by the regulation services provider.
7.5 Agreement between a Marketplace and a Regulation Services Provider
The purpose of subsections 7.2(c) and 7.4(c) of the Instrument is to facilitate the monitoring of trading by marketplace participants on and across multiple marketplaces by a regulation services provider. These sections of the Instrument also facilitate monitoring of the conduct of a recognized exchange and recognized quotation and trade reporting system for particular purposes. This may result in regulation services providers monitoring marketplaces that have retained them and reporting to a recognized exchange, recognized quotation and trade reporting system or securities regulatory authority if a marketplace is not meeting regulatory requirements or the terms of its own rules or policies and procedures. While the scope of this monitoring may change as the market evolves, we expect it to include, at a minimum, monitoring clock synchronization, the inclusion of specific designations, symbols and identifiers, order protection requirements and audit trail requirements.
7.6 Coordination of Monitoring and Enforcement
(1) Section 7.5 of the Instrument requires regulation services providers, recognized exchanges and recognized quotation and trade reporting systems to enter into a written agreement whereby they coordinate the enforcement of the requirements set under Parts 7 and 8. This coordination is required in order to achieve cross-marketplace monitoring.
(2) If a recognized exchange or recognized quotation and trade reporting system has not retained a regulation services provider, it is still required to coordinate with any regulation services provider and other exchanges or quotation and trade reporting systems that trade the same securities in order to ensure effective cross-marketplace monitoring.
(3) Currently, only IIROC is the regulation services provider for both exchange-traded securities, other than options and in Québec, other than standardized derivatives, and unlisted debt securities. If more than one regulation services provider regulates marketplaces trading a particular type of security, these regulation services providers must coordinate monitoring and enforcement of the requirements set.
PART 8 AUDIT TRAIL REQUIREMENTS
8.1 Audit Trail Requirements -- Section 11.2 of the Instrument imposes obligations on dealers and inter-dealer bond brokers to record in electronic form and to report certain items of information with respect to orders and trades. Information to be recorded includes any markers required by a regulation services provider (such as a significant shareholder marker). The purpose of the obligations set out in Part 11 is to enable the entity performing the monitoring and surveillance functions to construct an audit trail of order, quotation and transaction data which will enhance its surveillance and examination capabilities.
8.2 Transmission of Information to a Regulation Services Provider -- Section 11.3 of the Instrument requires that a dealer and an inter-dealer bond broker provide to the regulation services provider information required by the regulation services provider, within ten business days, in electronic form. This requirement is triggered only when the regulation services provider sets requirements to transmit information.
8.3 Electronic Form -- Subsection 11.3 of the Instrument requires any information required to be transmitted to the regulation services provider and securities regulatory authority in electronic form. Dealers and inter-dealer bond brokers are required to provide information in a form that is accessible to the securities regulatory authorities and the regulation services provider (for example, in SELECTR format).
Annex E
Local Matters
Cost Benefit Analysis
Anticipated Costs and Benefits
The following is a description of the costs and benefits that may arise in complying with the proposed amendments to National Instrument 21-101 Marketplace Operation (NI 21-101) and Companion Policy 21-101CP (21-101CP), National Instrument 23-101 (NI 23-101) Trading Rule and Companion Policy 23-101CP (23-101CP); Form 21-101F1 Information Statement Exchange or Quotation and Trade Reporting System (Form 21-101F1); Form 21-101F2 Initial Operation Report Alternative Trading System (Form 21-101F2); Form 21-101F3 Quarterly Report of Marketplace Activities, and Form 21-101F5 Initial Operation Report for Information Processor (Form 21-101F5), together, the Proposed Amendments. Omitted from the cost discussion are Proposed Amendments that would clarify existing requirements and those that extend the exemption from transparency requirements applicable to government debt securities as we anticipate these changes will not result in any costs. We welcome feedback on any of these and any other additional costs and benefits that may be associated with the Proposed Amendments.
I. MARKETPLACE SYSTEMS AND BUSINESS CONTINUITY PLANNING
(i) Participation in industry-wide business continuity plans
Proposed section 12.4.1 of NI 21-101 would require marketplaces, recognized clearing agencies, information processors and marketplace participants to participate in industry-wide business continuity tests (BCTs).
Costs
Since virtually all regulated entities currently participate in industry-wide business continuity plan (BCP) tests on a voluntary basis, the additional costs and burden on these entities should be minimal. The effort required to plan and design, schedule and conduct testing would be similar whether BCP testing was mandatory or voluntary.
It ought to be kept in mind that any increased burden imposed by the requirement to coordinate BCP testing would, to some degree, be defrayed by savings arising from fewer separate (and duplicative) tests being conducted.
There may be additional costs that some marketplace participants may incur. For dealers that have not voluntarily participated in industry BCP testing, additional costs will accrue to them. To the extent that a marketplace participant would need to invest in additional infrastructure to connect to marketplaces' backup systems in order to participate in industry-wide testing, its expenditures would be higher than for those that already have the infrastructure in place.
Benefits
We are of the view that compulsory participation in BCTs by marketplaces, clearing agencies, information processors (IPs) and marketplace participants is essential for any realistic expectation of a swift and complete recovery from a major disaster within a reasonable length of time.
Given the current, fragmented nature of the Canadian equity marketplaces, recovery from a disaster is significantly more complex than it was a few years ago. The requirement to participate in industry-wide BCTs would help ensure that efforts to develop effective BCP and disaster recovery plans (DRPs) will not be undermined by a lack of participation.
Full participation by all parties that contribute to the daily operation of the Canadian equities market would be necessary for the successful implementation of business continuity and disaster recovery plans if they were put into effect. Robust industry-wide BCTs would provide confidence that critical internal and external continuity arrangements are operational and compatible. Successful industry-wide BCTs could provide a certain assurance that, in the event of activating BCPs and DRPs, such participation would likely result in the maintenance of fair and orderly markets, improved resilience and reduce recovery time after a disaster.
(ii) Resumption of critical technology systems after disaster
Subsection 12.4(2) of NI 21-101 would require a marketplace with a total trading volume in any type of security equal to or greater than 10% of the total dollar value of the trading volume in that type of security on all marketplace's in Canada during at least two f the preceding three months of operations to ensure that each system operated by or on behalf of the marketplace that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, and trade clearing can resume operations within 2 hours following the declaration of a disaster by the marketplace. Subsection 12.4(3) would require a recognized exchange or quotation and trade reporting system (QTRS) that directly monitors the conduct of its members or users to ensure each system operated by or on behalf of the marketplace that supports real-time market surveillance can resume operations within two hours following the declaration of a disaster by the exchange or QTRS. In addition, an RSP that has entered into a written agreement with a marketplace to conduct market surveillance for that marketplace must ensure that each system, operated by or on behalf of the RSP, that supports market surveillance can resume operations within two hours following the declaration of a disaster by the RSP. Finally, subsection 14.6(3) would require an IP to ensure its critical information technology systems can resume operations within 1 hour following a declaration of disaster by the IP.
Costs
Currently, certain equity marketplaces have set the goal to be able to resume operations of its critical systems within 2 hours after declaring a disaster. We do not anticipate any additional costs for these marketplaces. However, for a marketplace that does not currently have the elements in place to strive for 2 hour resumption of operations, we anticipate that it would incur significant costs if a secondary processing site had to be procured and robust disaster recovery plans had to be developed and instituted.
The current RSP has set the timeframe within which it would able to resume the operations of its market surveillance systems to be much less than two hours and therefore we do not anticipate that this proposed requirement would impose additional costs on the RSP.
It is also our understanding that currently there is an IP that has set the goal to be able to resume operations of its critical systems within one hour following declaring a disaster and therefore we anticipate that this proposed requirement would not impose a significant cost.
Benefits
Marketplaces, information processors and RSPs are important market infrastructure entities and imposing a maximum recovery time after the declaration of a disaster will create a minimum standard for these entities and help ensure fair and orderly markets after a disaster. We think that the costs related to this specific proposed change are proportionate to these benefits.
(iii) Uniform test symbols in production environments
Section 12.3.1 proposes that a marketplace use uniform test symbols (as set by a regulator or securities regulatory authority) for the purposes of testing to be performed by its marketplace participants in the marketplace's production environment.
Costs
We believe that providing uniform test symbols should not be costly to marketplaces. With regards to IT infrastructure and systems, the set-up and maintenance of test symbols would correspond to that of currently used symbols. Symbols for newly listed companies are often created, and symbols are readily retired in the course of ordinary business. The cost for a marketplace to add symbols is marginal as the table of symbols is scalable and the expense associated with its development has already been incurred.
With respect to allowing testing to occur in the marketplace's production environment, we note that a marketplace may incur set-up costs from designing and implementing an oversight regime for testing in the production environment. Sufficient ongoing surveillance would likely be required on the part of a marketplace to ensure that the testing activities of its participants in the production environment do not interfere with the orderly operation of a marketplace. As well, we anticipate that a marketplace would have written policies and procedures in place to regulate testing in its production environment and outline the actions it may take in certain circumstances to limit a participant's access with respect to testing.
We anticipate that the ongoing annual costs of complying with the requirement to use uniform test symbols to enable testing to be performed in production would be similar to those with respect to providing a separate testing environment.
Benefits
As equity trading often involves sophisticated trading techniques and systems that connect to multiple marketplaces, the distinct testing environments that each marketplace furnishes remain disconnected and cannot associate with each other. The proposed change would give marketplace participants the ability to put new or altered systems, hardware or algorithms through their paces across multiple marketplaces in order to detect and correct any defects or flaws that may arise. This would help reduce costly incidents that have the potential to disrupt the fair and orderly operation of markets and in turn compromise the integrity of the markets. Furthermore, this proposed change would eliminate the risk that marketplace testing environments may not be a reasonably good proxy of the marketplace's production environments and instead allow participants to obtain testing results that would better mirror the outcomes that would arise when conducting bona fide testing.
We believe that the benefits to market integrity as a result of the proposed changes are proportionate to the costs of implementing these changes.
(iv) Security breaches
Proposed subsection 12.1(c) of NI 21-101 would require a marketplace to promptly notify the regulator, or in Québec, the securities regulatory authority, of any material security breach of a system that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing (trading related systems). As well, a marketplace would be required to promptly notify the regulator, or in Québec, the securities regulatory authority, of a material security breach of a system that shares network resources with a trading related system under proposed section 12.1.1 of NI 21-101.
Costs
The expectation that a marketplace notify a regulator or securities regulatory authority of a material security breach would not impose a material or unreasonable cost. Marketplaces should remain vigilant of potential security threats regardless of whether required to notify a regulatory authority. Requiring marketplaces to notify the Commission of security breaches would require the marketplace to monitor for security breaches and adopt notification mechanisms to ensure that the regulator or securities regulatory authority, as applicable, will be promptly notified in the event of a material security breach.
Benefits
The added requirement to promptly notify the regulator or securities regulatory authority of any material security breach would strengthen our ability to assure the integrity of our capital markets. Due to the growing complexity and interconnectedness of the various equity marketplace systems, a security breach in one system that shares network resources could impact other systems vital to the operation of a marketplace. Such system intrusions and disruptions could pose significant harm or loss to marketplace participants.
We believe that notification of a material security breach to a regulator or securities regulatory authority along with updates on the status of the security breach and the steps being taken to remedy the breach would contribute to the security and resilience of the markets. These proposed requirements would help us become better informed of the security threats experienced by marketplaces and their efforts to combat them and we are of the view this benefit is proportionate to the costs associated with this change.
(v) Independent Systems Reviews -- Expansion of Scope and Revised Submission Deadline
Subsection 12.2(1) of NI 21-101 is proposed to be amended to include that the annual independent systems review (ISR) also encompass systems that share network resources with trading related systems, that if breached, would be reasonably likely to pose a security threat to one or more of these systems.
We also propose to amend paragraph 12.2(2)(b) of NI 21-101 to allow that the report resulting from the ISR must be furnished to the regulator or securities regulatory authority within the earlier of 30 days of providing the report to its board of directors or the audit committee or 60 days after the calendar year end.
Costs
With respect to the scope of the ISR, since a marketplace is already required to engage a qualified party to conduct an annual independent assessment of its systems and internal controls, the review of systems that share network resources with trading related systems should not pose a significant additional cost to a marketplace.
Regarding the proposed alternate deadline for providing the ISR report, we note that the submission of the ISR report to a regulator or securities regulatory authority was already required, and that the proposed modification would provide for a clear and reasonable deadline based on the calendar year end. We do not expect marketplaces to incur material costs on account of this amendment.
Benefits
It is proposed that an annual independent assessment by a qualified party of a marketplace's information technology security and internal controls will encompass systems that share network resources with one or more of its trading related systems (auxiliary systems). A breach of these auxiliary systems could pose an appreciable security threat. Thus, an impartial risk assessment of such systems would contribute to the development of sufficient internal controls to detect, respond to and, ideally, pre-empt security threats. Such a risk assessment should also assist marketplaces to not only identify weaknesses but also to determine where to best devote resources.
Given the growing concern with system security, the added measures clearly establish the importance we place on this matter. The benefits of complying with these measures would be proportionate to the costs.
(vi) Launch of new marketplaces and material changes to marketplace technology requirements
The proposed changes to subsection 12.3(3) of NI 21-101 would prohibit a marketplace from beginning operations or implementing a material change to its technology requirements until three months after notification of the completion of the review of the marketplace's initial filing or change in information by the regulator or securities regulatory authority and a reasonable period of time after the regulator or securities regulatory authority has completed its review.
As well, proposed subsection 12.3(5) would prohibit a marketplace from launching operations before its chief information officer has certified that all information technology systems used by the marketplace have been tested according to prudent business practices and are operating as designed. Further, proposed subsection 12.3 (6) would require a chief information officer of a marketplace to certify that a material change to the marketplace's technology requirements has been tested according to prudent business practices and is operating as designed before the marketplace may implement the change.
Costs
We anticipate that the primary cost to a marketplace in complying with these proposed changes is an opportunity cost in not being able to begin operations or implement a material change to its technology requirements as soon as it is able and the effort required in certifying the testing of a marketplace's information technology systems or a material change to a marketplace's technology requirements.
Benefits
Setting a minimum period of time before a marketplace may launch operations or implement a significant technology change would help ensure that prudent business practices are followed by the marketplace during these periods. In addition, the proposed change would give marketplace participants and service vendors a reasonable opportunity to prepare for the marketplace launch or changes. As well, the proposed certifications would help mitigate systems risks that arise when a new marketplace or a material systems change to technology requirements is introduced.
We believe that the fair and orderly operations of a marketplace would be enhanced and the risk of a marketplace disruption and its associated unintended consequences would be mitigated with these proposed changes. We think that the potential opportunity cost lost by a marketplace due to the Proposed Amendments is proportionate to the benefits of protecting the Canadian capital markets as a whole.
(iv) Other systems related amendments
The information to be reported in Exhibit G in Form 21-101F1 and 21-101F2 is proposed to be changed to ensure we receive relevant and consistent information from marketplaces regarding systems, contingency planning system capacity and IT risk management. We anticipate that a marketplace will only incur nominal costs in reporting the information that is proposed to be added to Exhibit G and that these costs are proportionate to the benefits of having relevant and consistent systems information from marketplaces.
II. USE OF MARKETPLACE PARTICIPANTS' TRADING INFORMATION FOR CAPITAL MARKETS RESEARCH
Proposed subsection 5.10(1.1) sets out conditions under which a marketplace may release a marketplace participant's order or trade information to a person or company without obtaining written consent from the marketplace participant with respect to the release of the information.
Costs
There is no requirement for a marketplace to provide the order and trade information of its marketplace participants to a researcher. However, if a marketplace chooses to provide this information, it would incur costs related to the drafting and execution of agreements with researchers, research assistants and any entities involved in the verification of the research required under the proposed provision. As well, in the event of a breach or possible breach of the confidentiality of the information provided or of the agreement with the researcher, a marketplace may incur costs in taking all appropriate steps to address the breach or possible breach.
Benefits
We are of the view that capital markets research benefits our market as a whole. This proposed change would rectify an unintended result of the amendments to NI 21-101 that came into effect in 2012 that prohibits marketplaces from providing order and trade information to capital markets researchers and would allow this type of research to once again continue. We are of the view that the costs are proportionate to the benefits of this proposed change.
III. ACCESS ARRANGEMENTS WITH A SERVICE PROVIDER
Proposed section 5.13 of NI 21-101 would require a marketplace to ensure that a third party service provider that provides a means of access to the marketplace complies with the access criteria the marketplace has established under paragraph 5.1(2)(a) of NI 21-101.
Costs
In ensuring the third-party service provider is complying with the criteria the marketplace has developed, costs may be incurred on account of discussions, reviews and possible changes to the marketplace's agreements with its third-party service provider.
Benefits
We are of the view that access to a marketplace should be provided fairly and in accordance with the marketplace access requirements set under section 5.1 of NI 21-101. Prohibiting unreasonable limitations or conditions to access is an important aspect to the integrity of our markets and we think that the costs related to ensuring that marketplace access is provided in a manner that complies with section 5.1 are proportionate to the benefits of maintaining the principle of fair access to marketplaces.
IV. INFORMATION IN FORMS 21-101, 21-101F2 and 21-101F3
(i) Provision of proposed form changes to RSP
Subsection 3.1(1.1) of NI 21-101 would require an exchange that has entered into an agreement with an RSP to not implement a significant change to a matter set out in Exhibit E -- Operation of the Marketplace and Exhibit I -- Securities of Form 21-101F1 unless the exchange has provided the filing to its RSP for at least 45 days before implementing the change. A similar requirement is imposed on alternative trading systems.
Costs
A marketplace is currently required to provide proposed significant changes to Exhibits E and I of Form 21-101F1 or Exhibits E and I of Form 21-101F2, as applicable, to its regulator or securities regulatory authority at least 45 days before implementing the changes. These significant changes are provided to a regulator or a securities regulatory authority mainly via e-mail. We envision that the RSP would be included on the e-mails that are sent to the regulator or securities regulatory authority and therefore do not anticipate that a marketplace would incur significant costs in complying with this proposed requirement.
Benefits
These proposed changes would help ensure that the RSP of a marketplace is kept informed of changes to the operations of a marketplace so that it is able to effectively perform its regulatory functions. We think that the nominal cost in complying with this provision is outweighed by the benefits of more efficient and effective regulation that the RSP can provide when kept abreast of changes to the operations of the marketplaces that it regulates.
(ii) Annual certification and consolidation of Form 21-101F1 and Form 21-101F2 information
Proposed subsection 3.2(4) of NI 21-101 would require the chief executive officer of a marketplace, or an individual performing a similar function, to annually certify that the information in the marketplace's Form 21-101F1 or Form 21-101F2, as applicable, is true, correct, complete and that the information describes the operations of the marketplace as implemented. Additionally, subsection 3.2(5) would require marketplaces to provide an updated and consolidated form on an annual basis.
Costs
We expect that marketplace staff and the chief executive officer will need to devote time to reviewing the information in its applicable form to determine if the current information remains true and correct and if any additional information should be included so that the contents of the form completely and accurately describe the operations of the marketplace as they have been implemented.
Benefits
These proposed requirements will help ensure that the information provided to the securities regulatory authorities is complete and up-to-date. This will improve our ability to understand the risks faced by the market in general and, in particular, the marketplaces that we regulate. The knowledge gained will also improve our ability to regulate marketplaces more effectively.
(iii) Changes to Form 21-101F3
The Proposed Amendments would require a marketplace to include information regarding systems changes and systems outages in Form 21-101F3.
The Proposed Amendments would also require the marketplace to provide information on all fixed income securities traded on its platform rather than just the top ten securities. Moreover, we propose to revise the representation of the information provided in Charts 2, 3, 15 and 16 so that marketplaces provide the raw number for the volume, value and number of trades rather than report them as a percentage. As well, the actual number of orders executed and cancelled would be reported rather than a percentage of these orders.
Finally, we propose to remove the requirement that marketplaces provide a list of all marketplace participants that are using the marketplace's co-location services and the percentage of marketplace participants that use a marketplace's co-location services. We note that the aforementioned information would be provided in Form 21-101F1 or Form 21-101F2 under the Proposed Amendments.
Costs
We do not expect marketplaces to incur significant costs as a result of these proposed changes. The requirement to provide the raw number for the volume, value and number of trades rather than the percentage will require fewer calculations on the part of the marketplaces. We also expect that the reporting of all fixed income securities that are traded on the marketplace will not be difficult for marketplaces to provide, especially when using the electronic version of Form 21-101F3. In addition, a marketplace should only incur nominal costs for the reporting of systems changes or outages.
Benefits
The changes to the Form 21-101F3 will streamline some of the information reported and facilitate the electronic filing of this form. The proposed changes for additional information regarding systems and technology changes will help us anticipate and address issues that we may identify for marketplaces and keep abreast of changes in our markets in general.
V. PROVISION OF DATA TO INFORMATION PROCESSOR
The Proposed Amendments would require a marketplace to not make available the order and trade information that it is required to report under sections 7.1 and 7.2 of NI 21-101 to any person or company before it makes it available to the information processor or information vendor as applicable.
Costs
We do not expect that there will be additional costs to this proposed change as it merely codifies the current guidance in subsection 9.1(2) of 21-101CP and we expect that marketplaces are currently following this guidance. This proposed change however, would make it a requirement rather than merely provide guidance as to what the CSA's expectations are in this area.
Benefits
To support the integrity and fairness of our markets, we hold that a person or company should be not be provided an advantage by receiving order and trade information before an information processor or, if applicable, information vendor. We think that the nominal cost of complying with this proposed change is outweighed by the benefits of ensuring that order and trade information is provided on a fair basis to all entities.
VI. OBLIGATIONS OF A RECOGNIZED EXCHANGE TO A REGULATION SERVICES PROVIDER
Proposed section 7.2.1 of NI 23-101 would make certain provisions that currently must be included in an agreement between a recognized exchange and an RSP into direct requirements that a recognized exchange would have to follow. As well, it is proposed that an exchange transmit to its RSP information required by the RSP to monitor the compliance of the recognized exchange with its rules, specifically those that are related to and are necessary for the RSP to monitor trading on the exchange and across marketplaces. The proposed guidance regarding proposed section 7.2.1 would clarify the obligations that a recognized exchange would have in relation to its RSP.
Costs
We do not anticipate any significant costs as a result of these proposed changes as we are of the view that these proposed changes help clarify the current requirements between a recognized exchange and its RSP.
Benefits
We expect that the added clarity of an exchange's obligations to its RSP will help ensure that an RSP is provided with the appropriate information required to effectively conduct its oversight and thereby improve market integrity. We think that the nominal costs of these proposed changes are outweighed by the benefits of improved market integrity.
VII. FORM OF INFORMATION PROVIDED TO REGULATORS
The proposed change to section 11.2.1 of NI 21-101 would require a marketplace to transmit required information in the manner that is requested by a securities regulatory authority and, if applicable, its RSP.
Costs
We do not anticipate that the requested manner for required information will impose a significant cost burden on a marketplace.
Benefits
This proposed change will ensure that regulators will receive information in the format that will be most useful and therefore assist in more effective and efficient regulation of marketplaces. We think this benefit outweighs the nominal costs in complying with this proposed change.
VIII. CLEARING AND SETTLEMENT
It is proposed in subsection 13.2(1) of NI 21-101 that a marketplace must report a trade in a security to a clearing agency designated by a marketplace participant. Proposed subsection 13.2(2) of NI 21-101 limits the scope of subsection 13.2(1) in that marketplace trades in standardized derivatives or exchange-traded securities that are options, would not be subject to the provision.
Costs
We anticipate that there will be costs to establishing a connection with a clearing agency to report trades however we do not think that these costs will be significant.
Benefits
In the context of the acquisition by Maple Group Acquisition Corporation of TMX Group Inc. and The Canadian Depository for Securities Limited, a not-for-profit securities clearing and settlement utility was transformed into a vertically-integrated for-profit clearing agency. The proposed changes would help prevent potential impediments to competition in clearing and settlement to ensure that the markets are fair and efficient, which we think, are proportionate to the costs of establishing a connection with a clearing agency to report trades.
IX. REQUIREMENTS APPLICABLE TO INFORMATION PROCESSORS
Where an information processor is operated as a division or unit of a person or company, proposed subsection 14.4(6.1) would require the person or company to file the income statement, the statement of cash flow and any other information necessary to demonstrate the financial condition for that particular division or unit within 90 days after the end of the financial year of the person or company. Proposed subsection 14.4(7.1) would require the person or company to also file the financial budget relating to the information processor within 30 days after the start of the financial year of the person or company.
Costs
All recognized information processors currently maintain such information and we do not expect that this proposed requirement would give rise to additional costs.
Benefits
These proposed requirements however, would allow regulators to better understand the financial health of the information processor as the current requirement would allow an information processor to file audited financial statement and the budget of its parent company, which may not include sufficient detail to enable regulators to assess the financial viability of the information processor itself.