Canadian Trading and Quotation System Inc. (CNQ) - s. 147 of the Act and s. 15.1 of NI 21-101

Headnote

Section 147 of the Act and Section 15.1 of NI 21-101 -- exemption granted, for 2006 and 2007, with respect to the Horizon System, from the requirement in CNQ's recognition order and National Instrument 21-101, respectively, to cause an independent systems review and report to be performed.

Ontario Statutory Provisions Cited

Securities Act, R.S.O. 1990, c. S.5, as am., s. 147.

Rule Cited

National Instrument 21-101 Marketplace Operation, ss. 12.1(b), 15.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER 5,

AS AMENDED (the "Act")

AND

IN THE MATTER OF

CANADIAN TRADING AND QUOTATION SYSTEM INC.

ORDER

(Section 147 of the Act and Section 15.1 of National Instrument 21-101)

WHEREAS Canadian Trading and Quotation System Inc. ("CNQ") has filed an application dated November 8, 2006 (the "Application") to the Ontario Securities Commission (the "Commission") requesting an order pursuant to section 147 of the Act exempting CNQ, with respect to its Horizon trading system (the "Horizon System"), from section 7(b) of the Commission order dated May 7, 2004 recognizing CNQ as a stock exchange (the "Recognition Order") for the years 2006 and 2007;

AND WHEREAS CNQ has in the application also applied to the Director under section 15 of National Instrument 21-101 Marketplace Operation ("NI 21-101") for an order exempting CNQ from paragraph 12.1(b) of NI 21-101 with respect to the Horizon System for the years 2006 and 2007;

AND WHEREAS section 7(b) of the Recognition Order and section 12.1(b) of NI 21-101 require CNQ to annually cause an independent review and written report, in accordance with established audit procedures and standards (ISR), of CNQ's controls for ensuring it is in compliance with requirements in the Recognition Order and NI 21-101 to maintain capacity and integrity of its systems that support order entry, order routing, execution, data feeds, trade reporting and trade comparison, capacity and integrity requirements, which includes the Horizon System;

AND WHEREAS CNQ has represented to the Commission and the Director that

1. currently, CNQ operates two markets on two different trading systems: the CNQ listed market uses the Horizon system, and Pure Trading, an alternative market for trading securities listed on other exchanges, uses X-Stream trading software (X-stream system);

2. CNQ intends to decommission the Horizon System and migrate securities traded on the Horizon System to its X-Stream system in 2007;

3. CNQ's current trading and order entry volumes in the CNQ listed market are less than 1% of the current design and peak capacity of the Horizon System and CNQ has not experienced any failure of the Horizon System;

4. CNQ is a start-up marketplace and the cost of an ISR would represent a significant portion of CNQ's revenue from trading fees;

5. the Horizon System is monitored 24 hours a day, 7 days a week to ensure that all components continue to operate and remain secure;

6. on a reasonably frequent basis, and in any event, at least annually, CNQ

(i) makes reasonable current and future capacity estimates for the Horizon System;

(ii) conducts capacity stress tests of the Horizon System to determine the ability of the Horizon System to process transactions in an accurate, timely and efficient manner;

(iii) develops and implements reasonable procedures to review and keep current the development and testing methodology of the Horizon System; and

(iv) reviews the vulnerability of the Horizon System and data centre computer operations to internal and external threats including physical hazards, and natural disasters;

7. CNQ has established disaster recovery and business continuity plans covering all foreseeable contingencies; and

8. CNQ has completed a management review and written report of the Horizon System and of its controls for ensuring it will continue to comply with these representations and has provided a copy of the report to staff of the Commission;

AND WHEREAS the Commission and the Director have received certain other representations and undertakings from CNQ in connection with the Application;

AND WHEREAS based on the Application and the representations and undertakings made to the Commission and the Director, the Commission is satisfied that granting an exemption from section 7(b) of the Recognition Order with respect to the Horizon System would not be prejudicial to the public interest;

AND WHEREAS based on the Application and the representations and undertakings made to the Commission and the Director, the Director is satisfied that granting an exemption from paragraph 12.1(b) of NI 21-101 with respect to the Horizon System would not be prejudicial to the public interest;

IT IS HEREBY ORDERED by the Commission that, pursuant to section 147 of the Act, CNQ is exempted from the requirements of section 7(b) of the Recognition Order with respect to the Horizon System for the years 2006 and 2007;

AND IT IS HEREBY ORDERED by the Director that pursuant to section 15.1 of NI 21-101 CNQ is exempted from the requirements of paragraph 12.1(b) of NI 21-101 with respect to the Horizon System for the years 2006 and 2007;

PROVIDED THAT:

1. CNQ shall promptly notify the Commission of any material failures of and changes to the Horizon System and of any failure to comply with the representations set out herein.

2. CNQ shall in 2007 and 2008 complete updated management reviews of the Horizon System and of its controls for ensuring it continues to comply with the representations set out herein and shall prepare written reports of its reviews which shall be filed with staff of the Commission no later than January 30, 2007 and January 30, 2008 or 30 days after the decommissioning of the Horizon system, whichever occurs first.

DATED December 19, 2006