Bourse de Montréal Inc. - s. 147, s. 80 of the CFA and s. 6.1 of OSC Rule 91-502

Headnote

Bourse de Montréal -- Permanent exemption from section 21 of the Securities Act, section 15 of the Commodity Futures Act and Part 4 of OSC Rule 91-502 Trading in Recognized Options.

IN THE MATTER OF

THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5,

AS AMENDED (the "Act")

AND

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20,

AS AMENDED (the "CFA")

AND

IN THE MATTER OF

BOURSE DE MONTRÉAL INC.

ORDER

(Section 147 of the Act, section 80 of the CFA and section 6.1 of OSC Rule 91-502)

WHEREAS Bourse de Montréal Inc. (the "Bourse") has filed an application dated November 28, 2002 (the "Application") to the Ontario Securities Commission (the "Commission") requesting:

(a) an order pursuant to section 147 of the Act exempting the Bourse from the recognition requirement in section 21 of the Act; and

(b) an order pursuant to section 80 of the CFA exempting the Bourse from the registration requirement in section 15 of the CFA;

AND WHEREAS the Bourse has applied to the Director for an order pursuant to section 6.1 of OSC Rule 91-502 Trades in Recognized Options ("Rule 91-502") for an exemption from Part 4 of Rule 91-502;

AND WHEREAS deemed rule In the Matter of Trading in Commodity Futures Contracts Entered Into On The Montreal Stock Exchange issued August 25, 1980, and deemed rule In the Matter of Trading In Commodity Futures Contracts and Commodity Futures Options Entered Into On The Montreal Exchange issued August 22, 1989, exempt trades by and with registered dealers trading commodity futures contracts and commodity futures options entered into on the Bourse from section 33 of the CFA;

AND WHEREAS the Bourse has represented to the Commission and the Director as follows:

1. The Bourse was incorporated on September 29, 2000 pursuant to the Companies Act (Québec).

2. On December 17, 2002, the Bourse was granted recognition as a self-regulatory organization in Québec pursuant to section 169 of the Securities Act, R.S.Q., c. V-1.1, under Ruling No. 2002-C-0470 (the "Recognition Order", attached as Schedule "C") issued by the Commission des valeurs mobilières du Québec (the "CVMQ").

3. The Bourse is situated in Montréal, Québec, has an office in Toronto, Ontario and a back-up site in Mississauga, Ontario.

4. The Bourse is subject to regulatory oversight by the Autorité des marchés financiers (the "AMF"), currently, the Agence nationale d'encadrement du secteur financier.

5. The Bourse has been advised that the Commission and CVMQ entered into a memorandum of understanding ("MOU") respecting the continued oversight of the Bourse by the CVMQ. Under the terms of the MOU, the CVMQ and its successor, the AMF, are responsible for conducting the regulatory oversight of the Bourse and for conducting an oversight program of the Bourse for the purpose of ensuring that the Bourse meets appropriate standards for market operation and member and market regulation.

6. The Canadian Derivatives Clearing Corporation ("CDCC") is a wholly-owned subsidiary of the Bourse and is subject to the regulatory oversight of the AMF.

7. CDCC is the clearing agency for all trades in options, commodity futures contracts and commodity futures options traded on the Bourse.

AND WHEREAS CVMQ was succeeded by the AMF on February 1, 2004;

AND WHEREAS the Bourse has agreed to comply with the terms and conditions set out in Schedule "A";

AND WHEREAS Commission staff have conducted a review of the Application, which included an assessment of the operations of the Bourse, against the criteria set out in Schedule "B";

AND WHEREAS based on the Application and the representations that the Bourse has made to the Commission and the Director, the Commission is satisfied that the granting of exemptions from recognition and registration to the Bourse would not be prejudicial to the public interest;

AND WHEREAS based on the Application and the representations that the Bourse has made to the Commission and the Director, the Director is satisfied that an exemption from Part 4 of Rule 91-502 would not be prejudicial to the public interest;

IT IS HEREBY ORDERED by the Commission that pursuant to section 147 of the Act, the Bourse is exempt from recognition as a stock exchange under section 21 of the Act, and pursuant to section 80 of the CFA, the Bourse is exempt from registration as a commodity futures exchange under section 15 of the CFA;

AND IT IS HEREBY ORDERED by the Director that pursuant to section 6.1 of Rule 91-502, the Bourse is exempt from Part 4 of Rule 91-502;

PROVIDED THAT the Bourse complies with the terms and conditions attached hereto as Schedule "A".

March 16, 2004.

SCHEDULE "A"

Terms and Conditions

Regulation of the Bourse

1. The Bourse will continue to be subject to the regulatory oversight of the AMF as described in the Recognition Order attached as Schedule "C".

2. The Bourse will continue to comply with the terms and conditions set out in the Recognition Order attached as Schedule "C".

3. The Bourse will continue to be subject to such joint regulatory oversight as may be established and prescribed by the AMF and the Commission from time to time.

4. The MOU referred to in paragraph 5 of the order has not been terminated.

5. The Bourse will operate an exchange for options, commodity futures contracts and commodity futures options.

Rule and Product Review

6. The Bourse will provide:

(i) all new rules and amendments (together, "Rules"); and

(ii) all new contract specifications and amendments;

to the AMF for review and approval in accordance with the procedures established by the AMF, as amended from time to time. These procedures include the publication of the new Rules for comment in English and French at the same time.

7. The Bourse will concurrently provide the Commission with copies of all Rules that it files for review and approval with the AMF in both English and French. Once the AMF has approved the Rules in English and in French (which will be approved at the same time), the Bourse will provide copies of all final Rules to the Commission within two weeks of approval by the AMF. The Bourse will post the final Rules, in English and French, on its website or will make them publicly available, as soon as practicable.

8. The Bourse will concurrently provide the Commission with copies of all contract specifications and amended contract specifications that it files for review and approval with the AMF, in both English and French. The Bourse will provide copies of all approved contracts to the Commission within two weeks of approval by the AMF.

Information Sharing

9. Upon request by the Commission to the AMF, the Bourse will provide to the Commission through the AMF any information in the possession of the Bourse, or over which the Bourse has control, relating to Approved Participants, Foreign Approved Participants and Restricted Trading Permit Holders and their representatives and the market operations of the Bourse, including, but not limited to, Approved Participant, Foreign Approved Participant and Restricted Trading Permit Holder lists, shareholder lists, products, trading information and disciplinary decisions.

10. The Bourse shall file with the Commission any related information concerning the Bourse that is required pursuant to National Instrument 21-101 Marketplace Operation.

Regulation of CDCC

11. The Bourse will, until such time as CDCC is recognized by the Commission as a recognized clearing agency under the Act and recognized clearing house under the CFA or is subject to joint regulatory oversight pursuant to the terms of a memorandum of understanding entered into between the AMF and the Commission,

(i) cause CDCC to concurrently provide the Commission with copies of all Rules that it files for review and approval with the AMF and cause CDCC to provide copies of all final Rules to the Commission in both English and French;

(ii) cause CDCC to continue to provide the Commission, concurrently with the AMF, with copies of all audited financial statements and reports prepared by an independent auditor in respect of CDCC's financial situation and operations;

(iii) cause CDCC to provide the Commission, concurrently with the AMF, with copies of all internal CDCC risk management reports intended for its members and any outside report, including any audit report prepared in accordance with section 5900 of the Canadian Institute of Chartered Accountants Handbook, on the results of an examination or review of CDCC's risk management policies, controls and standards undertaken by an independent person;

(iv) cause CDCC to promptly notify the Commission, together with the AMF, of any material failures or changes to its systems;

(v) cause CDCC to promptly notify the Commission, together with the AMF, of any material problems with the clearance and settlement of transactions in contracts traded on the Bourse, including any failure by a member of CDCC to promptly fulfil its settlement obligations that could materially affect the operations or financial situation of CDCC;

(vi) promote fair access to CDCC and will not unreasonably prohibit or limit access by a person or company to services offered by CDCC; and

(vii) promote within CDCC a corporate governance structure that minimizes the potential for any conflict of interest between the Bourse and CDCC that could adversely affect the clearance and settlement of trades in contracts or the effectiveness of CDCC's risk management policies, controls and standards.

Coordination of Regulation

12. The Bourse will use best efforts to implement, within one year of this order, procedures to co-ordinate trading halts, in addition to circuit breakers, between the Bourse and any marketplace on which any security underlying the Bourse's product is traded, or its regulation services provider, and any other marketplace on which any related security is traded, or its regulation services provider.

SCHEDULE "B"

Criteria for Exemption

PART 1 CORPORATE GOVERNANCE

1.1 Fair Representation

The governance structure of the Bourse provides for:

(a) fair and meaningful representation having regard to the nature and structure of the Bourse;

(b) appropriate representation on the Bourse's Board and its Board committees of persons independent of the Bourse's shareholders that own or control, directly or indirectly, over 10% of its shares, Approved Participants, Foreign Approved Participants, Restricted Trading Permit Holders, and employees; and

(c) appropriate conflict of interest provisions for all directors, officers and employees of the Bourse;

(d) appropriate conflict of interest provisions between

(i) the Bourse and CDCC;

(ii) the directors, officers and employees of CDCC and the directors, officers and employees of the Bourse; and

(iii) the Bourse and the Bourse's Regulatory Division.

1.2 Appropriate Provisions for Directors and Officers

The Bourse takes reasonable steps to ensure

(a) appropriate qualifications, remuneration, limitation of liability and indemnity provisions for directors and officers; and

(b) each officer and director is a fit and proper person.

PART 2 FEES

2.1 Fees

The Bourse's process for setting fees is fair, transparent and appropriate. Any and all fees imposed by the Bourse on its participants are equitably allocated, do not have the effect of creating barriers to access and are balanced with the criterion that the Bourse has sufficient revenues to satisfy its responsibilities.

PART 3 ACCESS

3.1 Fair Access

The requirements of the Bourse relating to access to the facilities of the Bourse are fair, transparent and reasonable and include requirements in respect of notice, an opportunity to be heard or make representations, the keeping of records, the giving of reasons and the provisions for appeals.

3.2 Details of Access Criteria

In particular, the Bourse:

(a) has written standards for granting access to trading on its facilities to ensure users have appropriate integrity and fitness;

(b) has and enforces financial integrity standards for those persons who enter orders for execution on the system, including, but not limited to, credit or position limits and clearing membership;

(c) does not unreasonably prohibit or limit access by a person or company to services offered by it;

(d) keeps records of each grant and denial or limitation of access, including reasons for granting, denying or limiting access; and

(e) restricts access to adequately trained system users who have demonstrated competence in the functions that they perform.

3.3 Access for Ontario Residents

The Bourse provides direct access, either through terminals, data feeds or third party provided interfaces, to only those persons who are duly registered or licensed under Ontario laws.

PART 4 REGULATION

4.1 Jurisdiction

The Bourse is responsible for and has the jurisdiction to perform member and market regulation, including the ability to set rules, conduct compliance reviews and perform surveillance and enforcement.

4.2 Issuer/Product Regulation

The products traded on the Bourse and the contract specifications are approved by the AMF.

4.3 Transparency

Adequate provision has been made to record and publish accurate and timely trade and quotation information. This information is provided to all participants on an equitable basis.

4.4 Sufficient Systems and Resources

(a) The Bourse has the means to adequately monitor and enforce and actively monitors and enforces Approved Participants, Foreign Approved Participants and Restricted Trading Permit Holders and their representatives for compliance with securities legislation and the Rules of the Bourse.

(b) The Bourse has the means to adequately monitor and enforce and actively monitors and enforces trading in its markets, including cross market conduct, for possible abuses.

4.5 Record Keeping

The Bourse maintains adequate provisions for keeping books and records, including operations of the Bourse, audit trail information on all trades and compliance and/or violations of Bourse requirements and securities legislation.

4.6 Availability of Information to the AMF

The Bourse has mechanisms in place to ensure that the information necessary to conduct adequate surveillance of the system for supervisory and enforcement purposes is available to the AMF on a timely basis.

PART 5 RULEMAKING

5.1 Purpose of Rules

The Bourse maintains rules, policies and other similar instruments that:

(a) are not contrary to the public interest;

(b) are fair; and

(c) are designed to, in particular:

(i) ensure compliance with the rules of the Bourse and securities legislation;

(ii) prevent fraudulent and manipulative acts and practices;

(iii) promote just and equitable principles of trade;

(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, the products traded on the Bourse;

(v) provide appropriate supervision and discipline for violations of securities legislation and the rules of the Bourse;

(vi) ensure a fair and orderly market;

(vii) ensure that the Bourse business is conducted in a manner so as to afford protection to investors; and

(viii) provide for appropriate dispute procedures.

5.2 No Discrimination or Burden on Competition

The rules of the Bourse do not:

(a) permit unreasonable discrimination among issuers or participants; or

(b) impose any burden on competition that is not reasonably necessary or appropriate.

PART 6 SYSTEMS AND TECHNOLOGY

6.1 System Capability/Scalability

For each of its systems that support order entry, order routing, execution, data feeds, trade reporting, trade comparison and system-enforced rules, the Bourse maintains a level of capacity that allows it to properly carry on its business and has in place processes to ensure the integrity of each system. This includes maintaining reasonable back-up, contingency and business continuity plans, disaster recovery plans and internal controls.

6.2 Information Technology Risk Management Procedures

The Bourse has procedures in place that:

(a) handle trading errors, trading halts and circuit breakers;

(b) ensure the competence, integrity and authority of system users; and

(c) ensure that the system users are adequately supervised.

PART 7 FINANCIAL VIABILITY

7.1 Financial Viability

The Bourse has sufficient financial resources for the proper performance of its functions.

7.2 Financial Statements

The Bourse prepares annual audited financial statements in accordance with Canadian GAAP and covered by a report prepared by an independent auditor.

PART 8 CLEARING AND SETTLEMENT

8.1 Relationship with Clearing Agency

All transactions executed on the Bourse are cleared through CDCC.

8.2 Regulation of the Clearing Agency

CDCC is subject to regulation by the AMF that addresses risk and promotes transparency, fairness and investor protection.

8.3 Authority of the Foreign Regulator

The AMF has the appropriate authority and procedures for oversight of the CDCC. This oversight includes rule review and regular, periodic regulatory examinations of CDCC by the AMF.

8.4 Clearing and Settlement Arrangements

The Bourse ensures that:

(i) appropriate clearing and settlement arrangements are in place to provide reasonable assurance that all obligations arising out of transactions on the Bourse will be met; and

(ii) CDCC has policies and procedures to deal with problems relating to clearing and settling contracts.

8.5 Technology of Clearing Corporation

The Bourse has assured itself that the information technology used by CDCC has been adequately reviewed and tested and provides at least the same level of safeguards as required of the Bourse.

8.6 Risk Management of Clearing Corporation

The Bourse has assured itself that CDCC has established appropriate risk management policies and procedures, contingency plans, default procedures and internal controls.

PART 9 INFORMATION SHARING AND OVERSIGHT ARRANGEMENTS

9.1 Information Sharing and Oversight Agreement

Satisfactory information sharing and oversight agreements exist among the Commission and the AMF.

SCHEDULE "C"

CVMQ RECOGNITION ORDER OF THE BOURSE DE MONTRÉAL

RULING No. 2002-C-0470

RE: Recognition of Bourse de Montréal Inc. as a self-regulatory

organization, under section 169 of the Securities Act

(R.S.Q., chap. V-1.1)

WHEREAS an exchange must be recognized as a self-regulatory organization in order to carry on business in Québec pursuant to Section 169 of the Securities Act (R.S.Q., c.V-1.1) (hereinafter the "Act");

AND WHEREAS the company Bourse de Montréal Inc. (hereinafter "Bourse"), within the context of its demutualization project, has filed with the Commission des valeurs mobilières du Québec (hereinafter the "Commission") an application for recognition of the Bourse as a self-regulatory organization;

AND WHEREAS on September 28, 2000, the Commission rendered Ruling No. 2000-C-0588 (B.C.V.M.Q., 2000-10-13, Vol. XXXI, n° 41, 7) for the purpose of exempting the Bourse, under section 263 of the Act, from the requirements of section 169 of the Act that prescribes that an exchange must be recognized as a self-regulatory organization to carry on business in Québec, on the grounds that neither the Bourse's demutualization process nor the examination of the required documentation were completed;

AND WHEREAS on November 24, 2000, the Commission rendered Ruling No. 2000-C-0729 (B.C.V.M.Q., 2000-12-08, Vol. XXXI, n° 49, 4) for the purpose of granting the Bourse recognition as a self-regulatory organization to carry on business in Québec under section 169 of the Act;

AND WHEREAS the above-cited ruling prescribes that the terms and conditions of the Recognition Ruling would be reexamined by the Commission to ensure that they are still adapted to the situation;

AND WHEREAS the Commission has verified that the constituting documents, by-laws and operating rules of the Bourse are in compliance with sections 175 and 176 of the Act;

AND WHEREAS the Commission considers that the financial resources and administrative structure of the Bourse are adequate to its objects, in accordance with section 174 of the Act;

AND WHEREAS the Bourse created a division responsible for regulation (hereinafter the "Division") whose primary mission is to supervise the regulatory duties and operations of the Bourse;

AND WHEREAS the Commission sees fit to grant recognition to the Bourse, provided the terms and conditions are respected;

IN CONSEQUENCE THEREOF, the Commission, pursuant to section 169 of the Act, grants Bourse de Montréal Inc. recognition as a self-regulatory organization to carry on business in Québec.

AS SUCH, the Commission repeals Ruling No. 2000-C-0588 that it rendered on September 28, 2000 (B.C.V.M.Q., 2000-10-13, Vol. XXXI, n° 41, 7) as well as Ruling No. 2000-C-0729 that it rendered on November 24, 2000 (B.C.V.M.Q., 2000-12-08, Vol. XXXI, n° 49, 4).

This recognition is granted based on the following terms and conditions:

For the purpose of this ruling, the terms "approved participant", "foreign approved participant" and "shareholder" correspond to the term "member" within the meaning of the Act, with any necessary modifications.

I. SHARE OWNERSHIP

a) No person, including persons associated with said person, shall be allowed to hold, own or exercise control, either directly or indirectly, over more than ten percent (10%) of any class or any series of voting shares of the Bourse.

b) The Bourse shall inform the Commission immediately in writing, if it becomes aware that any person, including persons associated with said person, holds, owns or exercises control, either directly or indirectly, over more than ten percent (10%) of any class or series of voting shares of the Bourse and shall take the necessary steps to immediately remedy the situation, in compliance with Appendix 1 of its deed of incorporation.

c) The Bourse shall submit to the Commission a list of its shareholders on a semi-annual basis, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

d) The Bourse shall immediately inform the Commission in writing of any shareholder agreements that it is aware of.

II. CORPORATE STRUCTURE

a) Arrangements made by the Bourse with respect to the appointment, removal from office, and functions of the persons ultimately responsible for making and enforcing the rules of the Bourse, namely the Board of Directors, its committees and the Special Committee -- Regulatory Division (hereinafter called the "Governing Body"), shall ensure a proper balance between the interests of the different entities desiring access to the facilities of the Bourse (hereinafter called "Approved Participants" and "Foreign Approved Participants") and, in order to ensure diversity of representation on the Board, a reasonable number and proportion of directors shall not be associated with an Approved Participant or with a Foreign Approved Participant within the meaning of the Bourse's by-laws. In particular, the Bourse shall ensure that at least fifty percent (50%) of its directors shall consist of individuals who are not associated with an Approved Participant, a Foreign Approved Participant, a Restricted Trading Permit Holder, an officer, an employee or a shareholder holding, either directly or indirectly, more than ten percent (10%) of any class of voting shares and a maximum of two of its directors shall be part of senior management at the Bourse

b) Arrangements made by the Bourse with respect to quorum at directors' meetings shall ensure that the number and make-up of directors necessary to constitute quorum represent a proper balance between the interests of the different entities on the Board. In particular, the Bourse shall ensure that quorum at directors' meetings shall be at least equal to the majority of directors.

c) Without limiting the generality of the foregoing, the Bourse's administrative structure shall provide for:

i) fair and meaningful representation on its governing body, given the nature and structure of the Bourse, and any governance committee thereto or similar body, and in the approval of its rules;

ii) a minimum of fifty percent (50%) of the members of the Bourse's committees to which powers are delegated by the Board are not associated with an Approved Participant, a Foreign Approved Participant, a Restricted Trading Permit Holder, an officer, an employee or a shareholder holding, either directly or indirectly, more than ten percent (10%) of any class of voting shares, in accordance with the Bourse's by-laws.

The Bourse shall comply with the provisions set forth in paragraphs a) and c) ii) of this section within six months following this ruling.

III. ACCESS

a) The Bourse shall permit all securities dealers that satisfy the applicable regulatory requirements to access the trading facilities of the Bourse.

b) Without limiting the generality of the foregoing, the Bourse shall:

i) establish written standards for granting access to persons or entities trading on the Bourse's facilities;

ii) not unreasonably prohibit or limit access by a person, a company or an entity to services offered by it; and

iii) keep records of:

- all granted access requests, specifying the entities to which access was granted in addition to the reasons for granting such access; and

- all denial or limitation of access, specifying the reasons for denying or limiting access to any applicant.

IV. FEES

a) Any and all fees imposed by the Bourse on its Approved Participants, Foreign Approved Participants and Restricted Trading Permit Holders shall be equitably allocated. Fees shall not have the effect of creating barriers to access; however, they must take into consideration that the Bourse must have sufficient revenues to perform its duties, its regulatory activities and its exchange operations.

b) The Bourse's process for setting fees shall be fair and appropriate.

c) A list of fees required by the Bourse shall be submitted to the Commission on an annual basis, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

V. REGULATORY DIVISION

a) The Bourse shall maintain a separate regulatory division, which shall fall under the authority of a special committee named by the Board with clearly defined regulation responsibilities for its market and for its Approved Participants, Foreign Approved Participants and Restricted Trading Permit Holders and a separate administrative structure.

b) The Bourse shall obtain prior approval from the Commission before making any changes to the Division's administrative and organizational structure or to the Special Committee -- Regulatory Division, which may materially affect regulatory duties and operations.

c) The Division shall be completely autonomous in accomplishing its functions and in its decision-making process. The independence of the Division and its personnel shall be ensured and strict partition measures shall be established in order to prevent conflicts of interest with the Bourse's other activities.

d) Every year, the Bourse shall provide the Commission with an activity report, including a report on the Division's operations prepared by the latter. This report shall include information that may be requested. It shall take into consideration the observance of terms and conditions related to the Division. Moreover, it shall be in such form as may be specified by the Commission, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

e) The Division shall promptly report to the Commission when there is reason to believe that there has been any misconduct or fraud by Approved Participants, Foreign Approved Participants or their representatives or by Restricted Trading Permit Holders or other persons, where investors, Approved Participants, Foreign Approved Participants or their clients, Restricted Trading Permit Holders, the Canadian Investor Protection Fund or the Bourse may reasonably be expected to suffer serious damage as a consequence thereof, including where the solvency of an Approved Participant, a Foreign Approved Participant or a Restricted Trading Permit Holder is at risk or there may exist material deficiencies in their supervisory or internal controls.

f) The Commission shall be notified of the following on a monthly basis, in accordance with the time limit prescribed in the "Reports and Documents to be Provided" table found in Appendix 1 of this ruling:

(i) all new investigations initiated by the Division, including the persons involved and the nature of the investigation; and

(ii) all investigations which do not lead to disciplinary proceedings and which are closed, including the date the investigation started, the conduct and persons involved and the disposition of the investigation.

g) A conflict of interest policy shall be established by the Bourse to allow the personnel and members of the Special Committee -- Regulatory Division to disclose their interests and to foresee the possibility that a person may withdraw from a file and/or a ruling.

h) The Division shall obtain prior approval from the Commission before providing any regulatory duties or operations to other exchanges, self-regulatory organizations, persons operating Alternative Trading Systems or other persons.

i) The Division shall obtain prior approval from the Commission before subcontracting a portion of its regulatory duties or operations to other self-regulatory organizations.

j) Subject to any changes that may be agreed upon between the Bourse and the Commission, the Division shall be operated on the following basis:

i) The Division's duties and operations shall be independent and structurally separated from the for-profit operations of the Bourse. The Division shall perform its duties and operations based on the principle of self-financing and shall be not-for-profit.

ii) The Division shall be a separate business unit of the Bourse, which shall be governed by the Board of Directors of the Bourse. The Board shall establish a Special Committee -- Regulatory Division (hereinafter called the "Special Committee") to oversee the duties and operations of the Division, which shall be made up of a majority of persons who shall not be associated with an Approved Participant, a Foreign Approved Participant, a Restricted Trading Permit Holder, an officer, an employee or a shareholder holding, either directly or indirectly, more than ten percent (10%) of any class of voting shares of the Bourse, in accordance with the Bourse's "Rules Regarding the Special Committee -- Regulatory Division." The quorum at meetings shall be a majority of persons who shall not be associated with an Approved Participant, a Foreign Approved Participant, a Restricted Trading Permit Holder, an officer, an employee or a shareholder holding, either directly or indirectly, more than ten percent (10%) of any class of voting shares, in accordance with the Bourse's "Rules Regarding the Special Committee -- Regulatory Division.

iii) The chief operating officer of the Division (the "Vice-President -- Regulatory Division") shall report any regulatory or disciplinary issues to the Bourse's Special Committee. The Vice-President -- Regulatory Division, or the person designated by the Vice-President -- Regulatory Division, shall be present at all meetings of the Special Committee relating to the duties and operations of the Division, unless otherwise indicated by the Special Committee, and shall provide information upon request to the Special Committee with respect to the duties and operations of the Division. The Special Committee and the Vice-President -- Regulatory Division shall both be responsible for ensuring that the duties and operations of the Division are conducted appropriately.

iv) The Division's financial structure shall be separate and it shall operate on a cost-recovery basis. Any surplus shall be redistributed to Approved Participants and to Foreign Approved Participants and any shortfall shall be made up by a special assessment by the Approved Participants and the Foreign Approved Participants or by the Bourse upon recommendation to the Board by the Special Committee.

v) The Division shall have a separate budget, which shall be subject to the approval of the Board upon recommendation by the Special Committee and shall be administered by the Vice-President -- Regulatory Division. The Division shall be allocated the necessary support from other departments of the Bourse, including in the technology area, in accordance with its budgets and reasonable requirements, while ensuring its independence.

vi) The Bourse shall ensure that the Division has the necessary resources to fulfil its market and Approved Participant, Foreign Approved Participant and Restricted Trading Permit Holder regulation functions and it shall submit to the Commission, on an annual basis, the Division's budget as well as the report justifying the setting of annual fees charged to Approved Participants, Foreign Approved Participants and Restricted Trading Permit Holders, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

vii) The Bourse shall adopt and use all reasonable efforts to comply with policies and procedures designed to ensure that confidential information concerning the Division's duties and operations is maintained in confidence and not shared inappropriately with the for-profit operations of the Bourse or other persons.

viii) The Vice-President -- Regulatory Division, the President, the Special Committee and the Board shall provide information with respect to the duties and operations of the Division to the Commission upon request.

ix) The Bourse shall inform the Commission, on a semi-annual basis, of its staff complement, by function, specifying authorized, filled and vacant positions and any material changes or reductions in Division personnel, by function, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

x) Management of the Bourse, including the Division Vice-President, shall at least annually self-assess the performance by the Division of its market, of Approved Participant, Foreign Approved Participant and Restricted Trading Permit Holder regulation functions and report thereon to the Special Committee, together with any recommendations for improvements. The Special Committee shall in turn report to the Board as to the performance by the Division of its market, of Approved Participant, Foreign Approved Participant and Restricted Trading Permit Holder regulation functions. The Bourse shall provide the Commission with copies of such reports and shall advise the Commission of any proposed measures arising therefrom, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

xi) Decisions made by the Special Committee with respect to disciplinary matters or summary procedures are revisable in accordance with the Act.

VI. FINANCIAL VIABILITY AND FINANCIAL REPORTS

a) The Bourse shall maintain sufficient financial resources for the proper performance of its functions.

b) The Bourse shall be in default and shall report without delay to the Commission when, calculated based on its consolidated and non-consolidated financial statements:

i) its working capital ratio is less than or equal to 1.5:1 (current liquid assets i.e. cash, short-term investments, accounts receivable and long-term investments cashable at any time / current liabilities);

ii) its cash flow / total debt outstanding is less than or equal to twenty percent (20%) (adjusted net earnings for the 12 most recent months of items that do not affect liquidities i.e. amortization, deferred taxes and any other expenses that do not impact liquidities / short and long-term debts);

iii) its financial leverage ratio is greater than or equal to 4.0 (total assets / capital).

The above-mentioned ratios calculated based on consolidated financial statements do not include the following items:

- Daily settlements due from clearing members;

- Daily settlements due to clearing members;

- Clearing members' cash margin deposits (in assets and liabilities);

- Clearing fund cash deposits (in assets and liabilities).

c) Should the Bourse fail to respect any of the above-mentioned financial ratios for a period of more than three months, the Bourse shall promptly inform the Commission in writing of the reasons for the continued ratio deficiencies and the steps being taken to rectify the problem and reestablish its financial equilibrium. Furthermore, from the moment the Bourse fails to respect the financial ratios for a period exceeding 3 months and until the ratio deficiencies have been eliminated for at least 6 months, the Bourse shall not, without the prior approval of the Commission, make any capital expenditures not already reflected in the financial statements or make any loans, bonuses, dividends or other distributions of assets to any director, senior executive, related company or shareholder.

d) The Bourse shall provide a report, which shall include the monthly calculation of each ratio based on consolidated and non-consolidated financial statements attached with the quarterly financial statements for the first three quarters of the fiscal year and with the annual audited financial statements for the fourth quarter, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

e) The Bourse shall submit its annual consolidated and non-consolidated audited financial statements, as well as those of each of its subsidiaries and companies constituting a long-term investment in an affiliated company, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

f) The Bourse shall submit its quarterly consolidated and non-consolidated financial statements, as well as those of each of its subsidiaries and companies constituting a long-term investment in an affiliated company, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

g) Quarterly and annual consolidated audited financial statements shall include a budget analysis of the results as well as a comparative analysis of the results with the corresponding period of the previous fiscal year. These analyses shall be presented in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

h) The Bourse's quarterly and annual non-consolidated audited financial statements as well as those of its subsidiaries shall include a budget analysis of the results as well as a comparative analysis of the results with the corresponding period of the previous fiscal year. These analyses shall be presented in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

i) The Bourse shall provide segmented information on the Division's quarterly and annual results, including a budget analysis of the results, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

j) The Bourse shall submit its annual consolidated and non-consolidated budget in addition to that of its subsidiaries as well as any long-term budget forecasts, in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

k) The Bourse shall inform the Commission, immediately and in writing, of any material change to the consolidated and non-consolidated budgets approved by the Board of Directors.

l) The Bourse shall provide any other financial information required by the Commission.

VII. SYSTEMS

For each of its systems that support order entry, order routing, order execution, data feeds, trade reporting and trade comparison, capacity and integrity requirements, the Bourse shall promptly notify the Commission in writing of any material systems failures that could impact market operations and of any major changes made to a system.

VIII. CLEARING AND SETTLEMENT

The Bourse shall ensure that there is an adequate clearing and settlement system in place so that the requirements of contracts traded on its market are met. The Bourse shall ensure that settlement and clearing services are provided by a clearing agency recognized by the Commission and shall have rules and policies in place to deal with problems related to settling and clearing negotiated contracts.

IX DELEGATION OF POWERS

The Bourse shall exercise the powers delegated to it under the Securities Act and the Regulation Concerning Securities (R.R.Q., chap. V-1.1, r. 1) and in accordance with the ruling rendered on the delegation of powers to Bourse de Montréal Inc. and the approval of any sub-delegation by Bourse de Montréal Inc. of any powers delegated to it under sections 170 and 170.1 of the Securities Act (French title of this ruling: Délégation de pouvoirs à Bourse de Montréal Inc. & approbation de la sous-délégation par Bourse de Montréal Inc. des pouvoirs délégués, en vertu des articles 170 et 170.1 de la Loi sur les valeurs mobilières); this ruling was rendered by the Commission on December 17, 2002, in accordance with Ruling No. 2002-C-0471. It sets forth the exercise and application of powers that are delegated to the Bourse and the conditions for exercising these powers. It also authorizes the Bourse to delegate to a committee appointed by it, and to one of its employees, the powers that were delegated to it by the Commission. It also grants the Bourse the power to grant exemptions from certain provisions of Policy Statement No. Q-9 -- Dealers, Advisers and Representatives [B.C.V.M.Q., 1994-10-07, Vol. XXV, n° 40, 3-38 (Ruling No. 1994-C-0395 rendered on October 5, 1994); as amended]. It shall be amended from time to time following amendments to the Act, the Regulation or following a request by the Bourse.

X. PURPOSE OF RULES

The Bourse and the Division shall, subject to the terms and conditions of this Recognition Ruling and the jurisdiction and oversight of the Commission in accordance with Québec securities laws, establish such rules, regulations, policies, procedures, practices or other similar instruments as are necessary or appropriate to govern and regulate all aspects of its business and internal affairs and shall in so doing specifically govern and regulate so as to:

i) seek to ensure compliance with securities legislation;

ii) seek to prevent fraudulent and manipulative acts and practices;

iii) seek to promote just and equitable principles of trade;

iv) seek to foster cooperation and coordination with persons or companies engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities.

XI. DISCIPLINE OF APPROVED PARTICIPANTS, FOREIGN APPROVED PARTICIPANTS AND RESTRICTED TRADING PERMIT HOLDERS AND THEIR REPRESENTATIVES

The Bourse, through the Division, shall appropriately discipline its Approved Participants, Foreign Approved Participants and Restricted Trading Permit Holders and their representatives for violations of securities legislation and by-laws, rules, regulations, policies, procedures, practices and other similar instruments of the Bourse.

XII. DUE PROCESS

The Bourse, including the Division, shall ensure that the requirements of the Bourse relating to access to the facilities of the Bourse, the imposition of limitations or conditions on access and denial of access are fair and reasonable, including in respect of notices, an opportunity to be heard or make representations, the keeping of records, the giving of reasons and the provisions for appeals.

XIII. INSIDER TRADING AND DISCIPLINARY PROCEEDINGS

The Bourse, including the Division, shall:

a) draft and implement rules, policies and other texts of a similar nature related to insider trading;

b) develop, implement and operate adequate insider trading oversight systems;

c) do what is necessary to reach an agreement with all markets where underlying securities or securities related to its products are traded, or with the regulation services provider for this market, in order to detect insider trading activities, abusive practices and manipulation and to enforce related rules and implement procedures to coordinate the supervision of insider trading activities and the implementation of rules governing these activities with this market;

d) implement procedures aimed at coordinating cease trade orders, in addition to circuit breakers, with all markets where underlying securities or securities related to its products are traded, or with the regulation services provider for this market; and

e) develop policies and procedures related to conflicts of interest enabling the Bourse's officers and the Canadian Derivatives Clearing Corporation to disclose their interest and to make provisions so that a person may withdraw from a file or a ruling.

The Bourse shall comply with the provisions of this section within one year of this ruling being adopted.

XIV. INFORMATION SHARING

The Bourse, including the Division, shall cooperate in the sharing of information and otherwise, with the Commission and its personnel, with the Canadian Investor Protection Fund and other Canadian exchanges, recognized self-regulatory organizations and regulatory authorities responsible for the supervision or regulation of securities, subject to the applicable laws concerning the sharing of information and the protection of personal information, in particular section 5 of the Charter of Human Rights and Freedoms (R.S.Q., chapter C-12), sections 3 and 35 to 41 of the Civil Code of Québec (S.Q., 1991, chapter 64) and the provisions of An Act Respecting the Protection of Personal Information in the Private Sector (R.S.Q., chapter P-39.1).

XV. ADDITIONAL INFORMATION

The Bourse shall file any information in accordance with National Instrument 21-101, Marketplace Operation [B.C.V.M.Q., 2002-08-31, Vol. XXXI, n° 35, 3 & Annexe D (Ruling No. 2001-C-0409 rendered on August 28, 2002); as amended]. The independent review report dealing with the capacity, integrity and security of the Bourse's systems, which is set forth in the above-mentioned National Instrument, shall be filed in accordance with the time limit prescribed in the "Reports and Documents to be Submitted" table found in Appendix 1 of this ruling.

Signed in Montréal on December 17, 2002

APPENDIX 1

Reports and Documents to be Submitted