(1) Subsection 2.1(1) of the Instrument prohibits the practices of price manipulation and deceptive trading, as these may create misleading price and trade activity which are detrimental to investors and the integrity of the market.

(2) Subsection 2.1(2) of the Instrument provides that despite subsection 2.1(1) of the Instrument, the provisions of the Securities Act (Alberta), the Securities Act (British Columbia), the Securities Act (Quebec) and The Securities Act, 1988 (Saskatchewan), respectively, relating to manipulation and fraud apply in Alberta, British Columbia, Quebec and Saskatchewan. This is because those jurisdictions have comparable provisions to subsection 2.1(1) of the Instrument in their legislation.

(3) Sections 2.1 and 2.2 apply to any instrument that comes within the definition of security in securities legislation, including non-exchange-traded commodity futures contracts or commodity futures options.

(4) For the purposes of subsection 2.1(1) and section 2.2 of the Instrument, and without limiting the generality of those provisions, the Canadian securities regulatory authorities, depending on the

circumstances, would normally consider the following to result in, contribute to or create a misleading appearance of trading activity in, or an artificial price for, a security:

(a) Executing transactions in a security if the transactions do not involve a change in beneficial ownership. This includes activities such as wash-trading or pre-arranged trades executed in order to give an impression of active trading.

(b) Effecting transactions with the intent to induce others to purchase or sell any security.

(c) Effecting transactions that have the effect of artificially raising, lowering or maintaining the price of the security. This includes placing buy or sell orders, or both, to change the price of the securities in an attempt to increase the value of a position (high selling) or to raise the price to attract other trades for the securities, thereby creating demand for the securities that the person or company carrying out the manipulation can satisfy by selling his, her or its securities.

(d) Entering orders that could reasonably be expected to create an artificial appearance of investor participation in the market.

(e) Executing prearranged transactions that have the effect of creating a misleading appearance of active public trading or that have the effect of improperly excluding other marketplace participants from the transaction.

(f) Effecting transactions if the purpose of the transactions are to defer payment for the securities traded.

(g) Entering orders to purchase or sell securities without the ability and the intention to

(i) make the payment necessary to properly settle the transaction, in the case of a purchase; or

(ii) deliver the securities necessary to properly settle the transaction, in the case of a sale.

This includes activities known as kiting or debit kiting, in which a person or company avoids having to make payment or deliver securities to settle a trade.

(h) Engaging in any transaction, practice or scheme that unduly interferes with the normal forces of demand for or supply of a security or that artificially restricts or reduces the public float of a security in a way that could reasonably be expected to result in an artificial price for the security.

(i) Engaging in manipulative trading activity designed to increase the value of a derivative position.

(5) The Canadian securities regulatory authorities do not consider market stabilization activities carried out in connection with a distribution to be activities in breach of subsection 2.1(1) and section 2.2 of the Instrument, if the market stabilization activities are carried out in compliance with the rules of the marketplace on which the securities trade or with provisions of securities legislation that permit market stabilization by a person or company in connection with a distribution.

(6) Sections 2.1 and 2.2 of the Instrument apply to transactions both on and off a marketplace. In determining whether a transaction results in, contributes to or creates a misleading appearance of trading activity in, or an artificial price for a security, it may be relevant whether the transaction takes place on or off a marketplace. For example, a transfer of securities to a holding company for bona fide purposes that takes place off a marketplace would not normally violate section 2.1 or 2.2 even though it is a transfer with no change in beneficial ownership.

(7) The Canadian securities regulatory authorities are of the view that section 2.1 of the Instrument does not create a private right of action.

(1) Subsection 4.1(1) of the Instrument prohibits a person or company from purchasing or selling securities on a marketplace in advance of an order for those securities. This is commonly known as "front running".

(2) Subsection 4.1(2) of the Instrument prohibits a person or company from informing, other than in the necessary course of business, another person or company of an order for securities or the potential purchase or sale of securities on a marketplace, if that information has not been generally disclosed. This is known as "tipping".

(3) Subsections 4.2(1) and (2) of the Instrument prohibit a person or company from trading with knowledge of an undisclosed material fact or material change with respect to a foreign non-reporting issuer or tipping another person or company as to such information. While Canadian securities legislation in most jurisdictions and corporate legislation in some jurisdictions also prohibit insider trading and tipping, they do so with respect to reporting issuers and generally with respect to non-reporting issuers incorporated under the applicable corporate legislation. Subsections (1) and (2) of section 4.2 of the Instrument only apply if the issuer is not incorporated under the laws of Canada or a jurisdiction and is not a reporting issuer. These subsections are necessary because an ATS may trade foreign securities.

(4) Section 4.3 of the Instrument contains defences to the prohibitions in sections 4.1 and 4.2 of the Instrument. One of the factors the Canadian securities regulatory authorities will look at in determining whether the person or company had actual knowledge for the purposes of paragraph 4.3(2)(d) of the Instrument is whether and to what extent the person or company has implemented and maintained reasonable policies and procedures to prevent contraventions of sections 4.1 and 4.2 of the Instrument by persons making or influencing investment decisions on its behalf and to prevent transmission of information contrary to sections 4.1 and 4.2 of the Instrument. These policies and procedures are commonly known as a "Chinese Wall".

(1) Subsection 5.1(1) of the Instrument requires a dealer acting as agent for a customer to make reasonable efforts to ensure that the customer receives the best execution price on a purchase or sale of securities by the customer. The Canadian securities regulatory authorities are of the view that in making reasonable efforts, a dealer should also consider whether it would be appropriate in the particular circumstances to look at markets outside of Canada.

(2) Subsection 5.1(2) of the Instrument prohibits a dealer acting as agent for a customer in any marketplace from "trading through" a better-priced order on another marketplace or with a market maker. In an environment where there are multiple competing marketplaces, it is important that all investors have access to the best price for their orders at time of execution. Without consolidation of these markets, fragmentation may occur if investors are not given information about the best price available or if they are unable to access the best price. In order to mitigate possible negative effects of fragmenting the markets, it is critical for these markets to be integrated to prevent trading through a better price existing in another marketplace.

(3) The Canadian securities regulatory authorities are of the view that in satisfying its fiduciary obligations to its customer, a dealer should make reasonable efforts to obtain a lower price on an order to buy or a higher price on an order to sell than is currently available in the consolidated market display by posting a better bid or offer. In order to achieve this price improvement for a customer, the dealer should have an order management system that has the capability of providing price improvement.

(1) Subsection 6.3(1) of the Instrument provides that each market maker that holds itself out as willing to buy or sell a debt security shall provide to an information processor the ask price, bid price and size of the market maker’s orders and the ask price, bid price and size of any of the market maker’s customer limit orders that would improve the ask or bid price of the market maker’s orders, unless the order has been submitted to a marketplace.

(2) Subsection 6.3(2) of the Instrument requires each market maker for debt securities to provide certain information regarding executed trades of those debt securities to an information processor, unless the trade has been executed on a marketplace.

(3) The requirement to provide the display of pre-trade and post-trade information set out in section 6.3 of the Instrument will be implemented in stages over a one year period. It is expected that, initially, this information will be provided to the information processor on an end of day basis. Details concerning implementation including the specified time to provide the information initially will be decided by the information processor. It is expected that, within one year, the required information will be provided to the information processor in real-time.

(1) Section 9.1 of the Instrument provides that each marketplace shall set requirements in respect of the hours of trading to be observed by marketplace participants. A marketplace may have after hours trading at any prices.

(2) An ATS can trade after hours at prices outside of the closing bid price and ask price of a security set by the marketplace where that security is listed or quoted.

(1) Subsection 10.1(2) of the Instrument provides that a recognized exchange and a recognized quotation and trade reporting system shall monitor and enforce compliance with requirements set under subsection 10.1(1) directly if it has been approved to do so by the Canadian securities regulatory authorities or through an approved agent. At this time, all exchanges in Canada have been approved for this purpose.

(2) Section 10.2 requires an approved agent to set requirements for a marketplace or dealer who executes trades that are not executed on a marketplace and to enter into an agreement with the marketplace and the dealer. A self-regulatory entity may be approved to act as an approved agent. For example, the Canadian securities regulatory authorities expect that the Investment Dealers Association of Canada will be the approved agent for ATSs, inter-dealer bond brokers and market markers trading a debt security.