Market Regulation Services - Recognition Order s. 21.1

INTHE MATTER OF

THESECURITIES ACT, R.S.O. 1990,

CHAPTERS.5, AS AMENDED (the "Act")

AND

INTHE MATTER OF

MARKETREGULATION SERVICES INC.

RECOGNITIONORDER

(Section21.1)

Market Regulation Services Inc. ("RS Inc.") has applied forrecognition as a self-regulatory organization;

RSInc. will be a regulation services provider under National Instrument21-101 Marketplace Operation Rule and National Instrument23-101 Trading Rules (together the ATS Rules); RSInc. has agreed to provide regulation services to The TorontoStock Exchange Inc. and the Canadian Venture Exchange, Inc.under the ATS Rules, as agent for each of them. In this capacity,RS Inc. will administer the exchanges' market conduct and tradingrequirements and monitor and enforce compliance with these requirementsby the exchanges' members, their directors, officers, employees,affiliates and representatives; RSInc. also intends to act as regulation services provider forquotation and trade reporting systems and alternative tradingsystems under the ATS Rules; RSInc. has agreed to the terms and conditions set out in ScheduleA; Basedon the application of RS Inc. and the representations and undertakingsRS Inc. has made to the Commission, the Commission is satisfiedthat the recognition of RS Inc. would not be prejudicial tothe public interest; TheCommission recognizes RS Inc. as a self-regulatory organizationpursuant to section 21.1 of the Act subject to the terms andconditions set out in Schedule A. January29, 2002 "HowardI. Wetston"       "Derek Brown"

SCHEDULEA

TERMSAND CONDITIONS

1.CORPORATE GOVERNANCE

(vi) the Presidentof RS Inc. is deemed to be neither an independent nor a non-independentdirector;

(viii)it does not, without prior Commission approval, make changesto its corporate governance structure, articles, by-laws orany shareholders' agreement; and

(ix)it reviews its corporate governance model within 12 months ofrecognition and periodically after that to ensure that the modelappropriately reflects the evolution of the equity markets andpromptly reports to the Commission the results of its reviews. 2.FEES (a)RS Inc. will have a fair, transparent and appropriate processfor setting fees. These fees will: (i)be allocated on an equitable basis among marketplaces and marketplaceparticipants; and (ii)balance the need for RS Inc. to satisfy its responsibilitieswithout creating barriers to access.

(b)RS Inc. will ensure that it: (i)charges fees on a cost recovery basis;

(ii)does not, without prior Commission approval, make any significantchanges to its fee model; and (iii)reviews its fee model within 12 months of recognition and periodicallyafter that to ensure that it continues to meet the requirementsof this section and promptly reports to the Commission on theresults of its reviews. 3.ACCESS TO SERVICES AND DUE PROCESS (a)RS Inc.'s requirements will permit all marketplaces to accessits regulation services if they satisfy the criteria RS Inc.has established for this purpose. (b)RS Inc. will: (i)establish written criteria for granting access to its regulationservices; (ii)not unreasonably prohibit or limit access to its regulationservices; and (iii)keep records of: (A)each grant of access to its regulation services and, for eachentity granted access the reasons for granting access; and (B)each denial or limitation of access and the reasons for denyingor limiting access. (c)In addition, RS Inc. will enter into a written agreement withany marketplace authorized to operate under the ATS Rules thatsatisfies RS Inc.'s criteria for access and requests accessto its regulation services; the agreement will provide that: (i)RS Inc. will monitor the conduct of marketplace participantsand the activities of marketplaces; (ii)RS Inc. will enforce the requirements governing the conductof marketplace participants; (iii)the marketplace will transmit the audit trail information requiredunder Part 11 of National Instrument 21-101 Marketplace Operation; (iv)the marketplace will comply with all orders or directions madeby RS Inc.; and (v)if the marketplace is an ATS, the ATS will conduct its tradingactivities in compliance with the requirements set by RS Inc. (d)In connection with giving access to its regulation services,RS Inc. will ensure that: (i)its requirements, the limitations or conditions it imposes onaccess, and the decisions it makes to deny access are fair andreasonable; (ii)the parties are given notice and an opportunity to be heardor make representations; and (iii)it keeps a record, gives reasons and provides for appeals ofits decisions. 4.FINANCIAL VIABILITY (a)RS Inc. will maintain sufficient financial resources for theproper performance of its regulation functions. (b)RS Inc. will operate on a not-for-profit basis. (c)RS Inc. will have a risk management policy that will allow itto identify issues that may prevent it from allocating sufficientfinancial and other resources to carry out its regulation functionsin a manner that is consistent with the public interest andthe terms and conditions of the order. (d)Each month, RS Inc. will compare the revenues and expendituresincurred by RS Inc. with the revenues and expenditures forecastedfor that month in RS Inc.'s annual operating plan.

(e)If the actual numbers compared to the forecasted numbers resultin a deficit of 15% or more for a period of three months, RSInc. will report to the Commission and the President of RS Inc.will deliver a letter advising the Commission of the reasonsfor the deficit and the steps being taken to address any issuesarising from the deficit. (f)If the actual numbers compared to the forecasted numbers resultin a deficit of 25% or more for a period of three months, RSInc. will report to the Commission and will not, without theprior approval of the Commission, make any capital expendituresor pay any bonuses to any directors and officers not alreadyreflected in the financial statements, or make any loans, dividendsor other distributions of assets to any related company or shareholderuntil the deficiencies have been eliminated for at least sixmonths.

(g)RS Inc. will provide the Commission with a copy of the annualoperating plan each year once it is approved by its Board. 5.CAPACITY TO PERFORM REGULATORY FUNCTIONS

(a)RS Inc. will maintain its ability to perform its regulationfunctions including setting requirements governing the conductof ATSs and their subscribers, monitoring the conduct of marketplaceparticipants and the activities of marketplaces, and enforcingthe requirements governing the conduct of marketplace participantsand ATSs. (b)In particular, RS Inc. will:

(i)provide the Commission with an annual report in the form andwith the information specified by the Commission from time totime; (ii)not, without prior Commission approval, make significant changesto the manner in which RS Inc. performs its regulation services,functions, and processes and to its organizational structure,including any significant changes to its staffing complementby function and location; (iii)have the necessary financial, technological and other resourcesto efficiently and effectively provide its regulation services; (iv)adopt policies and procedures designed to ensure that confidentialinformation about its operations or any marketplace or marketplaceparticipant is maintained in confidence and not shared inappropriatelywith other persons, and use reasonable efforts to comply withthese policies and procedures; (v)promptly report to the Commission misconduct or apparent misconductby a marketplace, a marketplace participant or others if: (A)RS Inc. reasonably expects investors, one or more marketplaces,marketplace participants or their customers, the Canadian InvestorProtection Fund, or RS Inc. to suffer serious damage as a consequence,or (B)RS Inc. has reasonable grounds to believe that fraud may bepresent; (vi)promptly report to the Commission any material deficienciesin RS Inc.'s supervision or internal controls; (vii)notify the public and media of: (A)each disciplinary or settlement hearing by promptly issuinga press release that includes the names of the parties and identifiesthe nature of the alleged violation, and posting on its websitea copy of the notice of hearing no later than the day in whichthe notice of hearing is issued, and (B)the terms of each settlement and the disposition of each disciplinaryaction by promptly issuing a press release that includes thenames of the parties, the findings and the sanctions imposedand posting on its website a copy of the settlement agreementor decision; (viii)ensure that disciplinary and settlement hearings are open tothe public and media except when required for the protectionof confidential matters and establish written criteria for makinga determination on confidentiality; (ix)notify the Commission of all information required in AppendixC to the Memorandum of Understanding for the oversight of RSInc. among the regulators recognizing RS Inc., as amended fromtime to time (MOU); (x)not complete any transaction that would result in RS Inc. ceasingto perform its regulation services, discontinuing, suspendingor winding-up all or a significant portion of its operations,or disposing of all or substantially all of its assets without: (A)providing the Commission at least six months prior notice ofits intention, and (B)complying with any terms and conditions the Commission may imposein the public interest for the orderly discontinuance of itsoperations; and (xi)not assign, transfer, delegate or sub-contract the performanceof all or a substantial part of its regulation services or anyfunction set up to perform these services, to any party withoutthe prior approval of the Commission.

6.CAPACITY AND INTEGRITY OF SYSTEMS (a)RS Inc. will: