Marketplaces, SROs & Clearing Agencies
As a marketplace, an exchange is regulated under the Securities Act (Ontario) and National Instrument 21-101 Marketplace Operation (NI 21-101), National Instrument 23-101 Trading Rules and their related companion policies. NI 21-101 defines a marketplace as a facility that:
- brings together buyers and sellers of securities;
- brings together the orders for securities of multiple buyers and sellers; and
- uses established non-discretionary methods under which the orders interact with each other.
An exchange is a marketplace that may:
- list the securities of issuers;
- provide a guarantee of a two-sided market for a security on a continuous or reasonably continuous basis;
- set requirements governing the conduct of marketplace participants; or
- discipline marketplace participants.
To operate an exchange in Ontario, a person or company must first file with the OSC:
- an application for recognition as a stock exchange under the Securities Act (Ontario) or registration as a commodity futures exchange under the Commodity Futures Act (Ontario), or for exemption from the recognition/registration requirements; and
- if applying for recognition under the Securities Act (Ontario), a completed Form 21-101F1 to National Instrument 21-101 Marketplace Operation (NI 21-101).
A recognition application must set out how the exchange meets criteria set out in a number of areas including:
- corporate governance structure;
- rules, policies and other similar instruments;
- systems and operations;
- access requirements;
- listings criteria;
- financial viability; and
The OSC will assess the application to determine if the criteria described above are met. It may also impose terms and conditions on the recognition of an exchange. Examples of possible terms and conditions include requirements to:
- have appropriate representation of independent directors on the board of the exchange; and
- maintain sufficient financial resources for the proper performance of the exchange’s functions.
If recognized as an exchange under the Securities Act (Ontario) by the OSC, an exchange must conduct itself in accordance with the requirements outlined in NI 21-101, National Instrument 23-101 Trading Rules (NI 23-101) and any terms and conditions of recognition/registration or exemption. Additional guidance regarding the requirements in NI 21-101 and NI 23-101 may be found in their related Companion Policies.
Some of these requirements are:
- setting rules;
- monitoring the conduct of its members and enforcing its requirements either directly or indirectly through a regulation services provider;
- conducting an annual independent systems review;
- providing accurate and timely information to an information processor or to an information vendor regarding orders and trades executed on the exchange; and
- filing any changes to the information provided in Form 21-101F1.
Recognized exchanges may also be required to submit amendments to their rules, policies or other similar instruments to the OSC for review and approval, prior to their implementation.
The OSC oversees the compliance of an exchange with applicable regulatory requirements. As part of its oversight, the OSC reviews required filings (e.g. changes to information filed in Form 21-101F1), as well as proposals for amendments to an exchange’s rules, policies and other similar instruments, and performs on-site oversight reviews. The OSC also has an automation review program that applies to exchanges as part of its oversight.
Exchanges periodically publish notices of proposed changes to their rules and proposed changes to certain aspects of their operations. These exchange notices can be found here.
Exemption from Recognition
Exemptions from recognition as an exchange have been granted to certain domestic and foreign exchanges. Exemptions from recognition are usually granted on the basis that the exchange establishes that it:
- meets the criteria for exemption from recognition; and
- is subject to an appropriate regulatory regime.
For a more detailed explanation on the current approach for the regulation of foreign-based stock exchanges and the criteria for exemption from recognition, please see OSC Staff Notice 21-702 Regulatory Approach for Foreign-Based Stock Exchanges.
Exchanges either recognized or exempted from recognition by the OSC for operation in Ontario:
- TMX Group and TSX Inc. (recognized)
- CNSX Markets Inc. (CNSX) (recognized)
- Alpha Exchange Inc. and Alpha Trading Systems Limited Partnership (recognized)
- TSX Venture Exchange Inc. (exempted)
- Bourse de Montréal Inc. (exempted)
- Natural Gas Exchange Inc. (NGX) (exempted)
- ICE Futures Canada (formerly Winnipeg Commodity Exchange) (exempted)
- ICE Futures Europe (exempted)
- ICE Futures US (exempted)
- CME Group Exchanges (exempted)
For more information:
- National Instrument 21-101 - Marketplace Operation
- National Instrument 23-101 - Trading Rules
- OSC Staff Notice 21-702 - Regulatory Approach for Foreign-Based Stock Exchanges
- OSC Staff Notice 21-703 - Transparency of the Operations of Stock Exchanges and Alternative Trading Systems