Notice and Request for Comments - Application for Recognition of Canadian Trading and Quotation System Inc. (CNQ)

A. Background

Canadian Trading and Quotation System Inc. (CNQ) has applied to the Commission for recognition as a quotation and trade reporting system in accordance with section 21.2.1 of the Securities Act (Ontario).

CNQ is a private Ontario corporation formed to own and operate an electronic marketplace for Ontario investment dealers to trade non-exchange listed equity securities of Ontario reporting issuers. CNQ will be a new marketplace primarily for small issuers.

Investment dealers will agree with CNQ to be bound by CNQ's rules (Rules) and enforcement and discipline jurisdiction. CNQ will contract with Market Regulation Services Inc. (RS Inc.) to provide market regulation services to CNQ's marketplace. Issuers that are reporting issuers in Ontario can apply to CNQ to qualify their securities for quotation and trading on CNQ's marketplace. Issuers will prepare a quotation statement and maintain an enhanced disclosure record on CNQ's website and agree with CNQ to follow CNQ's policies (Policies) and submit to CNQ's enforcement and discipline jurisdiction. Investors will be able to directly access trading data and an Issuer's enhanced disclosure record at CNQ's website at www.cnq.ca.

The Commission is publishing for comment the application of CNQ and the following related documents:

1. Policies and Rules - The Policies and Rules, which are attached, are subject to approval of the Commission. The Policies and Rules are being published for comment at this time. Subject to comments received, the Commission will consider whether to approve the Policies and Rules. The Forms, which are part of the Policies, are not being published but will be available on our website at www.osc.gov.on.ca.

2. Draft recognition order for CNQ - In the application, CNQ responded to each of the recognition criteria established. Subject to comments received, Staff will recommend that the Commission grant an order recognizing CNQ as a quotation and trade reporting system with terms and conditions based on the recognition order attached.

We are seeking comment on all aspects of CNQ's application for recognition and the related documents.

B. Policies and Rules

i) Policies

CNQ proposes to adopt Policies that deal with issuer obligations. The Policies include the following: qualification for quotation (Policy 2), timely disclosure and posting requirements (Policy 5), distributions (Policy 6), significant transactions and developments (Policy 7), fundamental changes (Policy 8) and name changes, stock splits and share consolidations (Policy 9).

We note that, in Policy 2, CNQ does not propose to exclude the freely tradeable shares held by or optioned to dealers when calculating an issuer's public float. Staff request comment on whether securities held by all dealers and various parties related to them (the professional group as defined in National Instrument 33-105 Underwriting Conflicts) should be excluded when calculating an issuer's public float.

Question 1: Should securities held by all dealers and various parties related to them (the professional group as defined in National Instrument 33-105 Underwriting Conflicts) be excluded when calculating an issuer's public float?

(ii) Rules

CNQ proposes to adopt the Universal Market Integrity Rules (UMIRs), as amended from time to time. In addition, CNQ proposes to adopt certain Rules that are specific to trading on CNQ. These Rules include the types of orders that may be entered, a fair price rule and provisions dealing with market makers. CNQ also proposes to adopt a sales practice rule.

C. Draft recognition order

Staff of CNQ and the OSC have engaged in extensive discussions leading to the publication of the application and the draft recognition order. The draft recognition order establishes terms and conditions in the following areas:

1. Corporate Governance
2. Fees
3. Fitness
4. Access
5. Financial Viability
6. Regulation
7. Capacity and Integrity of Systems
8. Purpose of Rules
9. Rules and Rule-Making
10. Financial Statements
11. Discipline Rules
12. Due Process
13. Information Sharing
14. Issuer Regulation
15. Clearing and Settlement
16. Transparency Requirements
17. Additional Information

CNQ must meet each term and condition to the satisfaction of the Commission.

D. Comment process

You are asked to provide your comments in writing and delivered on or before August 23, 2002 addressed to the attention of the Secretary of the Commission, Ontario Securities Commission, 20 Queen Street West, Toronto, Ontario, M5H 3S8.

We request that you submit a diskette containing an electronic copy of your submission. The confidentiality of submissions cannot be maintained as a summary of written comments received during the comment period will be published.

Questions may be referred to:

Susan Greenglass
Senior Legal Counsel, Market Regulation
(416) 593-8140
email: [email protected]

Barbara Fydell
Legal Counsel, Market Regulation
(416) 593-8253
email: [email protected]

Susan McCallum
Senior Legal Counsel, Corporate Finance
(416) 593-8248
email: [email protected]