Securities Law & Instruments




(Section 21)

WHEREAS the Toronto Stock Exchange (the "TSE"), which term includes thecontinued corporation following the continuance of the TSE under the BusinessCorporations Act (Ontario) (the "demutualization") has sought Commission review ofits demutualization;

AND WHEREAS the Commission has considered it appropriate to set out in anorder the terms and conditions of the TSE's continued recognition as a stock exchangein Ontario following the demutualization;

AND WHEREAS the TSE has agreed to the terms and conditions attached;

AND WHEREAS the TSE has determined to establish a separate division("Regulatory Services") with clearly defined market regulation responsibilities and adistinct governance structure;

AND UPON considering the submissions of the TSE and based upon therepresentations and undertakings made and given by the TSE to the Commission;

AND UPON the Commission being satisfied that the continuance andrecognition of the TSE following the demutualization would not be contrary to the publicinterest;

The Commission hereby grants and continues the TSE's recognition as a stockexchange pursuant to section 21 of the Act effective upon the demutualization of theTSE, provided that the TSE meets and continues to meet the terms and conditionsattached hereto as Schedule "A" and the standards set out in the recognition criteriapublished at (1999) 22 OSCB 8284.

April 3rd, 2000.

"David Brown"      "Howard I. Wetston"




(a) The TSE's arrangements with respect to the appointment, removal fromoffice and functions of the persons ultimately responsible for making orenforcing the rules of the TSE, namely, the governing body, shall be suchas to ensure a proper balance between the interests of the differententities desiring access to the facilities of the TSE ("ParticipatingOrganizations"), and, in recognition that the protection of the publicinterest is a primary goal of the TSE, a reasonable number andproportion of directors shall not be associated with ParticipatingOrganizations within the meaning of the TSE's by-laws in order to ensurediversity of representation on the Board. In particular, the TSE shallensure that at least 50 per cent of its directors shall consist of individualswho are not associated with Participating Organizations within themeaning of the TSE's by-laws, and, in the event that at any time it failsto meet such requirement, it shall promptly remedy such situation.

(b) Without limiting the generality of the foregoing, the TSE's governancestructure shall provide for:

(i) fair and meaningful representation on its governing body, in thecontext of the nature and structure of the TSE, and anygovernance committee thereto and in the approval of rules;

(ii) appropriate representation of persons not associated withParticipating Organizations on TSE committees and on anyexecutive committee or similar body within the meaning of theTSE's by-laws; and

(iii) appropriate qualifications, remuneration, conflict of interestprovisions and limitation of liability and indemnification protectionsfor directors and officers and employees of the TSE generally.


(a) Any and all fees imposed by the TSE on its Participating Organizationsshall be equitably allocated. Fees shall not have the effect of creatingbarriers to access and shall be balanced with the criteria that the TSEhave sufficient revenues to satisfy its responsibilities.

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


(a) The requirements of the TSE shall permit all properly registered dealersthat are members of a recognized self-regulatory organization and thatsatisfy the TSE's criteria to access the trading facilities of the TSE.

(b) Without limiting the generality of the foregoing, the TSE shall:

(i) establish written standards for granting access to trading on itsfacilities;

(ii) not unreasonably prohibit or limit access by a person or companyto services offered by it; and

(iii) keep records of:

(A) each grant of access including, for each entity grantedaccess to its trading facilities, the reasons for granting suchaccess; and

(B) each denial or limitation of access, including the reasonsfor denying or limiting access to any applicant.


(a) The TSE shall maintain sufficient financial resources for the properperformance of its functions.

(b) The TSE shall file quarterly financial statements within 60 days of eachquarter end and audited annual financial statements within 90 days ofyear-end.

(c) The TSE shall report to the Commission when: (1) its liquidity measureis equal to or less than zero [working capital plus borrowing capacity: twoyears each of net operating income (less depreciation which is a non-cash item), capital investment and debt repayment requirements]; (2) itssolvency ratio is equal to or less than 1.3:1 (total assets: total liabilities);or (3) its financial leverage ratio is equal to or greater than 4.0 (totalassets: total capital).

(d) If the TSE fails to satisfy any of the above acceptable liquidity measure,solvency or financial leverage ratios for a period of more than threemonths, its President will deliver a letter advising the Commission of thereasons for the continued ratio deficiencies and the steps being taken torectify the problem, and the TSE will not, without the prior approval of theDirector, make any capital expenditures not already reflected in thefinancial statements, or make any loans, bonuses, dividends or otherdistributions of assets to any director, officer, related company orshareholder until the deficiencies have been eliminated for at least sixmonths.

(e) The TSE shall provide a report annually of the monthly calculation of themeasure and ratios, the appropriateness of the calculations and whetherany alternative calculations should be considered.


(a) The TSE shall provide the Commission with an annual report (includinga report on the operations of Regulatory Services) and with suchinformation regarding its affairs, including the affairs of RegulatoryServices, as may be requested from time to time. The annual report shallbe in such form as may be specified by the Commission from time totime.

(b) The TSE shall not make fundamental changes to the organizationalstructure of Regulatory Services or to the structure of the TSE that wouldmaterially affect Regulatory Services without prior Commission approval.

(c) Regulatory Services shall promptly report to the Commission misconductor apparent misconduct by Participating Organizations and theirApproved Persons and others where investors, ParticipatingOrganizations or their customers, the Canadian Investor Protection Fundor the TSE may reasonably be expected to suffer serious damage as aconsequence thereof, including where the solvency of a ParticipatingOrganization is at risk, the TSE has a reasonable apprehension thatmaterial fraud may be present or there may exist material deficiencies insupervision or internal controls.

(i) The public and media shall be notified by way of press release ofany disciplinary or settlement hearing not less than 10 days priorto the date of any such hearing, and such information shall alsobe published in the Ontario Securities Commission Bulletin(unless the Commission determines otherwise). The public andthe media shall be promptly notified by way of press release andpublication in the Ontario Securities Commission Bulletin of thedisposition of all disciplinary actions (unless the Commissiondetermines otherwise).

(ii) Disciplinary and settlement hearings shall be open to the publicand media except where required for the protection of confidentialmatters.

(d) The Commission shall be notified on a monthly basis of: (i) all newinvestigations initiated by Regulatory Services, including the personsinvolved and the nature of the investigation; and (ii) all investigationswhich do not lead to disciplinary proceedings and which are closed,including the date the investigation started, the conduct and personsinvolved and the disposition of the investigation.

(e) Subject to any changes that may be agreed between the TSE and theCommission, Regulatory Services shall be operated on the followingbasis:

(i) The functions of Regulatory Services shall be carried out with aview to operating on a cost-recovery basis and shall beindependent and structurally separated from the for-profitoperations of the TSE.

(ii) Regulatory Services shall be a separate division of the TSE whichshall be governed by the Board of Directors of the TSE. TheBoard shall establish a special committee of the Board (the"Regulation Committee") to oversee the operations of RegulatoryServices. The Regulation Committee shall consist of thePresident (if a Director) and such other Directors as the Boardmay determine, provided that more than 50% of the members ofthe Regulation Committee shall consist of directors who are notassociated with any Participating Organization within the meaningof the TSE's by-laws, rules or regulations. In addition to membersof the Board, the Regulation Committee may also consist ofmembers who are associated with a Participating Organization,including alternative trading systems which are ParticipatingOrganizations, as well as any alternative trading system for whichRegulatory Services provides services.

(iii) The chief operating officer of Regulatory Services (referred toherein as the "COO") shall, while reporting to the TSE's President,generally be present wherever practicable at all meetings of theRegulation Committee and at all meetings of the Board relating tothe operations of Regulatory Services unless the RegulationCommittee or the Board determines otherwise, and shall provideinformation upon request to the Regulation Committee or theBoard with respect to the operations of Regulatory Services. TheCOO and the President shall both be responsible for ensuring thatthe operations of Regulatory Services are conductedappropriately.

(iv) Regulatory Services shall have a segregated budget, including fortechnological support and development, which budget shall besubject to the approval of the Board upon the advice of theRegulation Committee and shall be administered by the COO inconsultation with the President. Regulatory Services shall also beallocated the necessary support from other departments of theTSE, including in the technology area, in accordance with itsbudgets and reasonable requirements.

(v) The TSE shall adopt and use all reasonable efforts to comply withpolicies and procedures designed to ensure that confidentialinformation concerning the operations of Regulatory Services ismaintained in confidence and not shared inappropriately with thefor-profit operations of the TSE or other persons.

(vi) The COO, the President, the Regulation Committee and the Boardshall provide information with respect to the operations ofRegulatory Services to the Commission upon request.

(vii) The TSE shall maintain the ability of Regulatory Services toperform its market regulation functions and shall advise theCommission at least annually of its staff complement, by function,and of any material changes or reductions in Regulatory Servicesstaff, by function.

(viii) Management of the TSE (including the President and the COO)shall at least annually self-assess the performance by RegulatoryServices of its market regulation functions and report thereon tothe Regulation Committee, together with any recommendations forimprovements. The Regulation Committee shall in turn report tothe Board as to the performance by Regulatory Services of itsmarket regulation functions. The TSE shall provide theCommission with copies or summaries of such reports and shalladvise the Commission of any proposed actions arising therefrom.

(ix) The TSE shall report to the Commission within 18 months of theoperation of Regulatory Services on how it has fulfilled the termsand conditions regarding Regulatory Services.


For each of its systems that support order entry, order routing, execution, data feeds,trade reporting and trade comparison, capacity and integrity requirements, the TSEshall:

(a) make reasonable current and future capacity estimates;

(b) conduct capacity stress tests of critical systems on a reasonably frequentbasis to determine the ability of those systems to process transactions inan accurate, timely and efficient manner;

(c) develop and implement reasonable procedures to review and keepcurrent the development and testing methodology of those systems;

(d) review the vulnerability of those systems and data centre computeroperations to internal and external threats including physical hazards andnatural disasters;

(e) establish reasonable contingency and business continuity plans;

(f) on an annual basis, perform an independent review, in accordance withestablished audit procedures and standards, of its current systemstechnology plans and whether there are appropriate processes in placeto manage the impact of change in technology on the exchange andparties interfacing with exchange systems. This will include anassessment of the TSE's controls for ensuring that each of its systemsthat support order entry, order routing, execution, data feeds, tradereporting and trade comparison, capacity and integrity requirements is incompliance with paragraphs (a) through (e) above. Senior managementwill conduct a review of a report containing the recommendations andconclusions of the independent review; and

(g) promptly notify the Commission of material systems failures andchanges.


The TSE shall, subject to the terms and conditions of this Recognition Order and thejurisdiction and oversight of the Commission in accordance with Ontario securitieslaws, through Regulatory Services and otherwise, establish such rules, regulations,policies, procedures, practices or other similar instruments as are necessary orappropriate to govern and regulate all aspects of its business and affairs and shall inso doing specifically govern and regulate so as to:

(a) seek to ensure compliance with securities legislation;

(b) seek to prevent fraudulent and manipulative acts and practices;

(c) seek to promote just and equitable principles of trade;

(d) seek to foster cooperation and coordination with persons or companiesengaged in regulating, clearing, settling, processing information withrespect to, and facilitating transactions in, securities; and

(e) seek to provide for appropriate discipline.


(a) The TSE, including Regulatory Services, shall comply with the existingprotocol between the TSE and the Commission, as it may be amendedfrom time to time, concerning Commission approval of changes in itsrules and regulations.

(b) All by-laws, rules, regulations and policy statements of generalapplication, and amendments thereto, adopted by the Board must be filedwith the Commission.


The TSE shall file audited annual and quarterly financial statements, with segmentedreporting for Regulatory Services.


The TSE shall appropriately discipline its Participating Organizations for violations ofsecurities legislation and the by-laws, rules, regulations, policies, procedures, practicesand other similar instruments of the TSE.


The TSE, including Regulatory Services, shall ensure that the requirements of the TSErelating to access to the facilities of the TSE, the imposition of limitations or conditionson access and denial of access are fair and reasonable, including in respect of notice,an opportunity to be heard or make representations, the keeping of a record, the givingof reasons and the provisions for appeals.


The TSE, including Regulatory Services, shall co-operate by the sharing of informationand otherwise, with the Commission and its staff, the Canadian Investor ProtectionFund and other Canadian exchanges, recognized self-regulatory organizations andregulatory authorities responsible for the supervision or regulation of securities firmsand financial institutions.


Following implementation of the Alternative Trading System proposal, the TSE shallfile any information required thereunder.