(1) The Instrument uses the term "marketplace" to encompass the different types of trading systems that match trades.

(2) Two of the characteristics of a "marketplace" are

(a) that it brings together orders for securities of multiple buyers and sellers; and

(b) that it uses established, non-discretionary methods under which the orders interact with each other.

(3) The Canadian securities regulatory authorities consider that a person or company brings together orders for securities if it

(a) displays, or otherwise represents to marketplace participants, trading interests entered on the system; or

(b) receives orders centrally for processing and execution (regardless of the level of automation used).

(4) The Canadian securities regulatory authorities are of the view that "established, non-discretionary methods" include any methods that dictate the terms of trading among the multiple buyers and sellers entering orders on the system. Such methods include providing a trading facility or setting rules governing trading among marketplace participants. Common examples include a traditional exchange and a computer system, whether comprised of software, hardware, protocols, or any combination thereof, through which orders interact, or any other trading mechanism that provides a means or location for the bringing together and execution of orders. Rules imposing execution priorities, such as time and price priority rules, would be "established, non-discretionary methods."

(5) The Canadian securities regulatory authorities do not consider the following systems to be marketplaces for purposes of the Instrument:

1. A system operated by a person or company that only permits one seller to sell its securities, such as a system that permits issuers to sell their own securities to investors.

2. A system that merely routes orders for execution to a facility where the orders are executed.

3. A system that merely provides information to marketplace participants about other marketplace participants’ trading interests, without facilities for execution.

In the first two cases, the criteria of multiple buyers and sellers would not be met. In addition, in the last two cases, routing systems and bulletin boards do not establish non-discretionary methods under which parties entering orders interact with each other.

(6) A person or company operating any of the systems described in subsection (5) should consider whether the person or company is trading for the purposes of securities legislation and is required to be registered under securities legislation.

(7) The Canadian securities regulatory authorities are of the view that a dealer that does not provide direct or indirect access to a marketplace for exchange-traded securities should be considered to be a marketplace. In respect of the definition of "marketplace" in the Instrument, a dealer that is not a marketplace participant that uses internal systems to trade and manage orders for exchange-traded securities, either by using discretionary methods or by using established non-discretionary methods, would be considered to be a marketplace.

(8) The Canadian securities regulatory authorities have excluded inter-dealer bond brokers from the definition of marketplace. Inter-dealer bond brokers are expected to comply with Part 8 of the Instrument dealing with information transparency requirements.

(1) In order to be an ATS for the purposes of the Instrument, a marketplace cannot engage in certain activities or meet certain criteria such as

(a) requiring listing agreements,

(b) having market makers,

(c) setting rules governing the conduct of subscribers, and

(d) disciplining subscribers.

A marketplace, other than a quotation and trade reporting system, that engages in any of these activities or meets these criteria would, in the view of the Canadian securities regulatory authorities, be an exchange and would have to be recognized as such in order to carry on business.

(2) A marketplace that would otherwise meet the definition of an ATS in the Instrument may apply to the Canadian securities regulatory authorities for recognition as an exchange.

(3) Part 6 of the Instrument applies only to an ATS that is not a recognized exchange or a member of an exchange. If an ATS is recognized as an exchange, the provisions of the Instrument relating to marketplaces and recognized exchanges apply.

(4) If the ATS is a member of an exchange, the by-laws, rules, policies and other similar instruments of the exchange apply to the ATS.

(5) Under subsection (a) of section 6.1 of the Instrument, an ATS that is not a member of a recognized exchange must register as a dealer if it wishes to carry on business. The requirements imposed by the Instrument are in addition to any requirements applicable to dealers registered under Canadian securities legislation.

(6) Subsection (b) of section 6.1 of the Instrument prohibits an ATS to which the provisions of the Instrument apply from carrying on business unless it is a member of a self-regulatory entity. Membership in a self-regulatory entity is required for purposes of membership in the Canadian Investor Protection Fund, capital requirements and clearing and settlement procedures. At this time, the Investment Dealers Association of Canada is the only entity that would come within the definition.

(7) Section 6.8 of the Instrument requires that an ATS that is trading non-exchange-traded securities provide its subscribers with disclosure as set out in that section and must obtain an acknowledgement from each subscriber that the subscriber has received the disclosure before any order for a non-exchange-traded security is entered onto the ATS by that subscriber. The acknowledgement may be obtained in a number of ways, including requesting the subscriber’s signature or requesting that the subscriber initial an initial box or check a check-off box. The acknowledgement must be specific to the information required to be disclosed under section 6.8 and must confirm that the subscriber has received the required disclosure. The Canadian securities regulatory authorities are of the view that it is the responsibility of the ATS to ensure that an acknowledgement is obtained from the subscriber in a timely manner.

(1) In determining whether to recognize an exchange or quotation and trade reporting system, the Canadian securities regulatory authorities must determine whether it is in the public interest to do so.

(2) In exercising this discretion, the Canadian securities regulatory authorities will look at a number of factors, including

(a) the manner in which the exchange or quotation and trade reporting system proposes to comply with the Instrument;

(b) whether the exchange or quotation and trade reporting system has fair and meaningful representation on its governing body, in the context of the nature and structure of the exchange or quotation and trade reporting system;

(c) whether the exchange or quotation and trade reporting has sufficient financial resources for the proper performance of its functions; and

(d) whether the by-laws, rules, policies and other similar instruments of the exchange or quotation and trade reporting system ensure that its business is conducted in an orderly manner so as to afford protection to investors.

(1) The term "order" is defined in section 1.1 of the Instrument as a firm indication by a person or company, acting as either principal or agent, of a willingness to buy or sell a security. By virtue of this definition, a marketplace that displays good faith, non-firm indications of interest, including, but not limited to, indications of interest to buy or sell a particular security without either prices or quantities associated with those indications, is not displaying "orders".

(2) The label put on a transaction is not determinative of whether the transaction constitutes an order. Instead, whether or not an indication is "firm" will depend on what actually takes place between the buyer and seller. At a minimum, the Canadian securities regulatory authorities will consider an indication to be firm if it can be executed without further agreement of the person or company entering the indication. Even if the person or company must give its subsequent agreement to an execution, the Canadian securities regulatory authorities will still consider the indication to be firm if this subsequent agreement is always, or almost always, granted so that the agreement is largely a formality. For instance, an indication where there is a clear or prevailing presumption that a trade will take place at the indicated price, based on understandings or past dealings, will be viewed as an order.

(3) A firm indication of a willingness to buy or sell a security includes bid or offer quotations, market orders, limit orders and any other priced orders. The Canadian securities regulatory authorities do not consider special terms orders such as all or none, minimum fill or cash or delay delivery to be firm indications.

(4) The determination of whether an order has been placed does not turn on the level of automation used. Orders can be given over the telephone, as well as electronically.

(1) Subsection 3.1(1) of the Instrument requires an applicant for recognition as an exchange to file Form 21-101F1. This subsection does not apply to an exchange that was recognized before the Instrument came into force.

(2) The forms filed by a marketplace under the Instrument will be open for public inspection unless the person or company filing the form applies to the securities regulatory authority to keep the form confidential and the securities regulatory authority agrees to do so. In determining whether to keep a form confidential, the securities regulatory authority will look at the type of information on the form and determine whether the desirability of avoiding disclosure outweighs the desirability of public disclosure.

(3) Under section 3.2(1) of the Instrument, at least 45 days prior to implementing a significant change involving a matter set out in Form 21-101F1, a recognized exchange must file information describing the change or an amendment to Form 21-101F1, in the manner set out in Form 21-101F1. In the view of the Canadian securities regulatory authorities, a significant change includes a change to the information contained in Exhibits A, C, D, E, G and J of Form 21-101F1. This is also applicable to recognized quotation and trade reporting systems under subsection 4.2(1) of the Instrument.

(4) A recognized exchange or recognized quotation and trade reporting system that files amendments to Form 21-101F1 should number each amendment consecutively.

(5) Securities legislation in a number of jurisdictions requires that a recognized exchange or recognized quotation and trade reporting system that is voluntarily surrendering its recognition file a notice or application with the securities regulatory authority. The Canadian securities regulatory authorities consider a voluntary surrender to be a change to information described on Form 21-101F1 that is significant requiring the filing of an amendment to Form 21-101F1.

(6) Under subsection 6.2(2) of the Instrument, an ATS is required to file an amendment to Form 21-101F2 at least 45 days before implementing a significant change to its operations. The Canadian securities regulatory authorities consider that a significant change to the operations of an ATS includes any change to the operating platform of an ATS, the types of securities traded, or the types of subscribers.

(7) Subsection 6.2(4) of the Instrument requires an ATS to file Form 21-101F3 by the following dates: April 30 (for the quarter ending March 31), July 30 (for the quarter ending June 30), October 30 (for the quarter ending September 30) and January 30 (for the quarter ending December 31).

(1) Subsection 6.6(2) of the Instrument provides that an ATS shall not carry on business as an ATS unless it has implemented reasonable safeguards and procedures to protect a subscriber’s trading information. These include

(a) limiting access to the trading information of subscribers, such as the identity of subscribers and their orders, to those employees of, or persons or companies retained by, the ATS to operate the system or to be responsible for its compliance with Canadian securities legislation; and

(b) having in place procedures to ensure that employees of the ATS cannot use such information for trading in their own accounts.

(2) The procedures referred to in subsection (1) should be clear and unambiguous and presented to all employees and agents of the ATS, whether or not they have direct responsibility for the operation of the ATS.

(3) Subsection 6.6(4) of the Instrument provides that nothing in that section shall prohibit an ATS from complying with National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer. This subsection is necessary because an investment dealer that operates an ATS may be an intermediary for the purposes of National Instrument 54-101 and required to disclose information under that Instrument.

(1) Subsections 7.1(1) and 7.2(1) of the Instrument require a marketplace that displays orders of equity or preferred securities or orders of put and call options to any person or company to provide to the data consolidator information as required by the data consolidator. Initially, the data consolidator will receive information regarding the total disclosed volume at each of the five best bid price and ask price levels for each equity or preferred security traded on the marketplace. In addition, the data consolidator will receive information regarding the total disclosed volume at each of the best bid and ask price levels for every series of option traded on the marketplace. The term "total disclosed volume" refers to the amount of the orders that is displayed in the marketplace. Volumes that are not disclosed or that are "reserve" or hidden volumes are not required to be displayed. The data consolidator may determine that additional or different information should be received and displayed.

(2) The Canadian securities regulatory authorities expect that information required to be provided to the data consolidator under the Instrument will be provided in real time or as close to real time as possible.

(3) Section 7.5 of the Instrument requires the data consolidator to produce a consolidated feed showing the information provided to the data consolidator. For pre-trade information, the data consolidator will initially disseminate the total volume bid or offered at each of the best five price levels for each security.

(1) Subsection 8.1(1) of the Instrument requires inter-dealer bond brokers or marketplaces that display orders of debt securities to provide to an information processor information as required by the information processor. Initially, the information processor will require the inter-dealer bond broker or marketplace to provide the total disclosed volume at the best bid and best offer for each debt security traded by that inter-dealer bond broker or marketplace. The Canadian securities regulatory authorities recognize that the number of issues for which information will be made available will vary according to each inter-dealer bond broker or marketplace. The term "total disclosed volume" refers to the amount of the orders that is displayed in the marketplace. Volumes that are not disclosed or that are "reserve" or hidden volumes are not required to be displayed. The information processor may determine that additional or different information should be received and displayed.

(2) The Canadian securities regulatory authorities expect that information required to be provided to an information processor under Part 8 of the Instrument will be provided in real time or as close to real time as possible.

(3) Section 8.3 of the Instrument requires the information processor to produce a consolidated feed showing the information provided to the information processor. For pre-trade information for the government debt market and the corporate debt market, it is expected that initially, the information processor will disseminate the total volume bid or offered at each of the best five price levels for each security. The Canadian securities regulatory authorities note that, in cases where this level of information is not available, the information processor will disseminate less than five levels of pre-trade information.

(1) As market integration is a complex task and raises some significant technology challenges, the Canadian securities regulatory authorities believe that a phased approach to market integration is preferable. Accordingly, section 9.2 provides requirements for the first phase of market integration ("Phase 1 Integration") that will be in place until any requirements are established by the market integrator ("Phase 2 Integration").

(2) Phase 1 Integration will require any ATS who wishes to operate in Canada to establish a connection to the principal market for the securities being traded on its system. ATSs will be permitted to begin operations when they have established this connection to the principal market. The Canadian securities regulatory authorities consider that, for exchange-traded securities, the principal market will be any of the exchanges on which the security is listed. If a security is listed on more than one exchange in Canada, the principal market will be the exchange that has the largest trading volume for that security in Canada. For non-exchange-traded securities, the principal market will be considered to be the market which has the largest trading volume for that security in Canada. In Phase 1 Integration, each ATS must satisfy any better priced bids or offers on the principal market before execution of a match in its system. In addition, the principal market will also be required to satisfy a better priced bid or offer on any ATS. The Canadian securities regulatory authorities note that, during Phase 1 Integration, integration will only be required between ATSs and the principal markets; ATSs will not be required to satisfy better bids and offers on other ATSs.

(3) Section 9.2 of the Instrument requires that an ATS establish a connection to the principal market for securities traded on its system. The data consolidator will determine within 10 days of the end of the calendar year which market is the principal market for equity securities, preferred securities and options. The information processor will determine within 10 days of the end of the calendar year which market is the principal market for government debt and corporate debt securities. The ATS then has thirty days from the date the determination is made to establish a connection to the appropriate principal market, as determined by the data consolidator or information processor.

(4) Phase 2 Integration will establish more complete market integration and order routing between all marketplaces in order to ensure that there will be price protection for all orders between all competing marketplaces. Each marketplace will have the responsibility to monitor the orders in all other marketplaces and will send their orders to other systems by way of a direct connection or through a market integrator. Each system will maintain control over its own orders and will have responsibility for managing order execution.

(1) Subsections (a) to (e) of section 12.1 of the Instrument require an ATS, a recognized exchange and a recognized quotation and trade reporting system to meet certain systems, capacity, integrity and security standards. Subsections (f) and (g) of section 12.1 of the Instrument require an ATS that exceeds the threshold in section 12.2 of the Instrument, a recognized exchange and a recognized quotation and trade reporting system to meet certain additional systems, capacity, integrity and security standards.

(2) The activities in subsections (a) to (e) of section 12.1 of the Instrument must be carried out at least once a year. The Canadian securities regulatory authorities would expect these activities to be carried out even more frequently if there is a change to the marketplace that is material either in terms of structure or volume of trading that necessitates that these functions be carried out more frequently in order to ensure that the marketplace can appropriately service its marketplace participants.

(3) The independent review contemplated by subsection (f) of section 12.1 of the Instrument should be performed by competent, independent audit personnel following established audit procedures and standards.

(4) An ATS becomes subject to subsections (f) and (g) of section 12.1 of the Instrument after it first satisfies the volume test in section 12.2 of the Instrument. It remains subject to subsections (f) and (g) of section 12.1 even if, thereafter, it no longer satisfies the volume test, unless it is successful in obtaining relief under section 16.1 of the Instrument.

(1) Section 13.1 of the Instrument requires that all trades made through or by an ATS be reported, confirmed and settled through a clearing agency listed in Appendix B. At this time, the Canadian Depository for Securities and the Canadian Derivatives Clearing Corporation are the only entities under the Instrument that are specified for this purpose. If a marketplace wished to perform its own clearing and settlement, it would have to apply to the Canadian securities regulatory authorities for recognition to perform these functions or for an exemption from the requirements of the Instrument.

(2) The Canadian securities regulatory authorities are of the view that direct reporting of executed trades to a clearing agency may be done either by an ATS or by a subscriber where the subscriber has a settlement account with a clearing agency.