NIN 97/36 - Market Fragmentation Request for Comments and Disclosure Forum [NIN - Rescinded]

The British Columbia Securities Commission, together with the Alberta Securities Commission ("ASC"), Saskatchewan Securities Commission ("SSC"), Ontario Securities Commission ("OSC") and the Commission des Valeurs Mobilières du Québec ("CVMQ"), is requesting comments on various issues raised by Electronic Trading Systems.

Electronic trading systems ("ETSs") are screen-based computer systems that automate all or part of the traditional trading process. For example, they can automate order handling within a brokerage firm, facilitate order routing from a brokerage firm to a stock exchange, or take the place of a stock exchange trading floor. ETSs may be sponsored by a recognized self-regulatory organization ("SRO") or by an entity that is not a SRO.

Over the past decade, the use of ETSs not sponsored by SROs ("NETS" -- non-SRO sponsored ETSs) has grown significantly in many jurisdictions, particularly in the Untied States. Securities regulators in Canada have been engaged since 1988 in discussions of the appropriate role of NETS.

On May 16, 1997, the OSC published a Request for Comments and Notice of Forum regarding NON-SRO Electronic Trading Systems ("NETS Request for Comments"). In the NETS Request for Comments, the OSC indicated it was seeking information from interested parties (including stock exchanges, NETS, brokers, dealers and investors) and was intending to convene a public meeting with a view to developing an appropriate regulatory framework for the operation of NETS and the role of the OSC.

The purpose of the public meeting is to permit all interested parties to participate in the discussions relating to the implications of market fragmentation and the development of the regulatory model that will govern NETS, including consideration of the following matters:

1. the causes and implications of market fragmentation;

2. the basis on which NETS should be permitted to operate in Canadian securities markets;

3. proposals for new regulations and the role of the various securities commissions.

On May 23, 1997, the United States Securities and Exchange Commission issued a concept release soliciting comment on both its overall approach to the regulation of markets as well as specific options under its current regulatory framework for addressing changes in its markets, particularly the development of alternative trading systems and the development of technology that allows U.S. investors to trade on foreign markets from the United States ("SEC Concept Release"). The SEC Concept Release can be found in the Federal Register, Release No. 34-38672; File No. S7-16-97 (File Name: 3438672.txt). Although the circumstances in the U.S. markets and Canadian markets are not identical, many of the issues raised in the SEC Concept Release are applicable in Canada. As the OSC believed that the process in Ontario would benefit from a review of the discussion of the issues as set forth in the responses to the SEC Concept Release, the OSC extended the time period for the responses to the NETS Request for Comments from July 15, 1997 until September 15, 1997 and postponed the public meeting to November 1997.

The Commission, together with the ASC, SSC and CVMQ, notified the OSC that they would like to participate in a joint public meeting by having representatives of their respective Commissions present at the proceedings and participating in the discussions on the same basis as OSC Commissioners. As a result of this development, other members of the public may decide that they have an interest in making a submission in response to the issues and questions raised by the NETS Request for Comment and may wish to participate in the public hearing. Accordingly, the OSC has agreed with the Commission and the ASC, SSC and CVMQ to extend the time period for the responses to the NETS Request for Comments from September 15, 1997 until October 15, 1997.

As a result of the participation of the other jurisdictions and other interested parties, the public meeting scheduled for November 1997 may be postponed to a later date. Notice of the date of the public meeting and the format for the proceedings will be provided at a later date.

All interested parties are invited to make written submissions with respect to the NETS Request for Comments and requests for appearances by October 15, 1997, which may be sent to the:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
Ontario Securities Commission

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8

Submission should also be addressed to the Commission des Valeurs Mobilières du Québec as follows:

Jacques Labelle, General Secretary
Commission des Valeurs Mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montreal, Quebec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. Comment letters submitted in response to requests for comments are placed on the public file in certain jurisdictions and form part of the public record, unless confidentiality is requested. Comment letters will be circulated amongst the securities regulatory authorities, whether or not confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the public file, freedom of information legislation in certain jurisdictions may require the securities regulatory authorities in those jurisdictions to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letters.

Questions may be referred to:

DATED at Vancouver, British Columbia, on August 27, 1997

Douglas M. Hyndman
Chair