A marketplace is generally considered to be an exchange if it:
- regulates issuers
- provides a guarantee of a two-sided market
- sets rules for marketplace participant conduct
- disciplines participants for non-compliance with those rules
How to become recognized as an exchange
To operate an exchange in Ontario, a person or company must apply for one of the following with the Ontario Securities Commission (OSC):
- recognition as a stock exchange under Ontario’s Securities Act
- registration as a commodity futures exchange under Ontario’s Commodity Futures Act
- exemption from the recognition or registration requirements
If applying for recognition under Ontario’s Securities Act, a person or company must file a completed application through the OSC’s electronic filing portal. The applicant must also provide the OSC with a completed Form 21-101F1 detailing the exchange’s proposed structure and operations.
The OSC will assess the application for recognition, registration, or exemption and evaluate how the exchange meets the criteria for:
- corporate governance structure
- rules, policies, and other similar instruments
- systems and operations
- access requirements
- listings standards
- fees for the exchange’s products and services
- financial viability
Once recognized by the OSC under Ontario’s Securities Act, an exchange must comply with the requirements outlined in NI 21-101, NI 23-101, and NI 23-103, along with any terms and conditions of recognition or exemption.
These requirements of an exchange include:
- setting rules
- monitoring the conduct of its members and enforcing its requirements either directly or indirectly through a regulation services provider
- conducting an annual, independent systems review
- providing accurate and timely information to an information processor or to an information vendor regarding orders and trades executed on the exchange
- filing any changes to the information provided in Form 21-101F1
In some cases, certain additional terms and conditions related to the recognition of an exchange may be imposed on an exchange by the OSC, such as:
- having an appropriate representation of independent directors on the board of the exchange
- maintaining sufficient financial resources for the proper performance of the exchange’s functions
- requiring a recognized exchange to submit amendments to their rules, policies, or other similar instruments to the OSC for review and approval, prior to their implementation
As part of its oversight responsibilities, the OSC may:
- review required filings (e.g. changes to information filed in Form 21-101F1)
- review proposals for amendments to an exchange’s rules, policies, and other similar instruments
- perform on-site oversight reviews
Exemptions from recognition
Exemptions from recognition as an exchange have been granted to certain domestic and foreign exchanges.
For a more detailed explanation on the current approach for the regulation of foreign-based stock exchanges and the criteria for exemption from recognition, please refer to OSC Staff Notice 21-702 Regulatory Approach for Foreign-Based Stock Exchanges.
A number of swap execution facilities and multilateral trading facilities have also been exempted from the requirement to be recognized as an exchange.
Pending applications and pre-filings
There are no pending applications and pre-filings at present.