The Canadian Depository for Securities Limited and CDS Clearing and Depository Services Inc. – ss. 21.2,144

Headnote

Subsection 144(1) of the Securities Act (Ontario) -- application for order varying the Commission's order recognizing the Canadian Depository for Securities Limited and CDS Clearing and Depository Services Inc. (CDS), as clearing agencies -- variation required to streamline and update applicable regulatory reporting requirements and to reduce regulatory burden -- requested order granted.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 21.2, 144(1).

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED ("Act") AND IN THE MATTER OF THE CANADIAN DEPOSITORY FOR SECURITIES LIMITED AND CDS CLEARING AND DEPOSITORY SERVICES INC.

ORDER
(Sections 21.2 and 144 of the Act)

WHEREAS the Ontario Securities Commission (Commission) issued an order dated July 4, 2012, which was varied and restated on December 21, 2012, varied on December 7, 2012, May 1, 2013, June 25, 2013, June 24, 2014, January 27,2015, March 27, 2015, December 20, 2016, February 28, 2018, September 25, 2018 and December 4, 2019 recognizing each of The Canadian Depository for Securities Limited (CDS Ltd.) and CDS Clearing and Depository Services Inc. (CDS Clearing) as clearing agencies pursuant to section 21.2 of the Act (CDS Recognition Order);

AND WHEREAS the Commission considers the proper operation of a clearing agency as essential to investor protection and maintaining a fair and efficient capital market, and the Commission may recognize a clearing agency, pursuant to section 21.2 of the Act, if it is satisfied that it is in the public interest to do so;

AND WHEREAS the Commission has received an application under section 144 of the Act to vary and restate the CDS Recognition Order to reflect the streamlining of certain reporting requirements, to reduce regulatory burden and to otherwise modernize the order (Application);

AND WHEREAS CDS Ltd. and CDS Clearing have each agreed to the applicable terms and conditions set out in the Schedule to the CDS Recognition Order;

AND WHEREAS based on the Application, the Commission has determined that:

(a) CDS Ltd. and CDS Clearing continue to satisfy the criteria for recognition set out in National Instrument 24-102 Clearing Agency Requirements;

(b) it is in the public interest to continue to recognize each of CDS Ltd. and CDS Clearing as a clearing agency pursuant to section 21.2 of the Act, subject to terms and conditions that are set out in Schedule A to this order; and

(c) it is not prejudicial to the public interest to vary and restate the current Recognition Order;

IT IS ORDERED, pursuant to section 144 of the Act, that the Application to vary and restate the CDS Recognition Order is granted.

IT IS ORDERED that:

(a) pursuant to section 21.2 of the Act, CDS Ltd. continues to be recognized as a clearing agency; and

(b) pursuant to section 21.2 of the Act, CDS Clearing continues to be recognized as a clearing agency;

provided CDS Ltd. and CDS Clearing comply with the terms and conditions set out in the Schedule to the CDS Recognition Order, as applicable.

DATED this 15th day of June, 2023.

SCHEDULE A -- TERMS AND CONDITIONS

PART I -- Definitions

For the purposes of this schedule:

"affiliated entity" has the meaning ascribed to it in subsection 1.2(1) of National Instrument 24-102 Clearing Agency Requirements;

"associate" has the meaning ascribed to it in subsection 1(1) of the Act;

"CDS" means each of CDS Ltd. and CDS Clearing;

"CDS Clearing" means CDS Clearing and Depository Services Inc.;

"CDS Ltd." means the Canadian Depository for Securities Limited;

"Critical Services" mean activities, functions or services of such a nature that any interruption in their provision could lead to the collapse of or present a serious impediment to the performance of one or more critical functions of the clearing agency;

"financial risk model" means the mechanisms adopted by CDS to manage the risk of potential loss in the provision of clearing, settlement and depository services for securities and derivatives transactions in the event of the failure of a Participant to fulfill its settlement obligations, and for greater certainty:

(i) includes margin and clearing fund calculation models, stress and backtesting policies and procedures for determining the adequacy of CDS's total financial resources, collateral and treasury management policies and procedures, and other tools to manage CDS's credit and liquidity risk, but

(ii) does not include mechanisms to manage business or operational risk;

"IT Systems" means CDS's information technology systems supporting the services or the business operations of CDS;

"Ontario securities law" has the meaning ascribed to it in subsection 1(1) of the Act;

"PFMIs" means the principles contained in the CPMI-IOSCO Principles for Financial Market Infrastructures, as amended from time to time, or any successor principles or recommendations;

"Participant" means a user of the services offered by CDS which are governed by the CDS Participant Rules;

"report" includes electronic data files and similar documents, as the context permits;

"Rule" has the meaning ascribed to it in section 2 of the Rule Protocol at Appendix A to this Schedule; and

"TMX Group" means TMX Group Limited.

PART II -- Terms and Conditions Applicable to CDS

1 OWNERSHIP OF CDS LTD.

1.1 CDS must not make any changes to its ownership structure without the prior approval of the Commission.

2 CRITERIA FOR RECOGNITION

2.1 CDS must continue to meet the criteria for recognition under applicable Ontario securities law.

3 PUBLIC INTEREST RESPONSIBILITY

3.1 CDS must conduct its business and operations in a manner that is consistent with the public interest, and the mandate of its board of directors must expressly include CDS's public interest responsibility.

4 GOVERNANCE

4.1 CDS must promote a governance structure that minimizes the potential for any conflict of interest between CDS and its shareholder(s) that could adversely affect the clearing of products cleared by CDS or the effectiveness of CDS' risk management policies, controls and standards.

4.2 CDS's governance arrangements must be designed to fulfill its public interest requirements under paragraph 3.1 and to balance the interests of its shareholders and its Participants and other users of its services.

4.3 CDS must ensure that:

(a) at least 33% of its board of directors are independent as that term is defined in paragraph 4.4;

(b) at least 33% of its board of directors are representatives of Participants, of which

(i) one representative must be nominated by the Canadian Investment Regulatory Organization, and

(ii) the representatives of Participants represent a diversity of Participants;

(c) either

(i) one additional director is independent; or

(ii) one director is a representative of an entity that is unaffiliated with TMX Group and

(A) uses services offered by, or is connected to, CDS, such as a transfer agent or a marketplace; or

(B) is a service provider to Participants, such as a technology service provider or a custodian;

(d) at least 50% of the directors have expertise in clearing and settlement; and

(e) the quorum for the board of directors consists of a majority of the directors, with at least 50% of such majority being independent.

4.4 For the purpose of paragraph 4.3:

(a) a director is independent if the director is not:

(i) an associate, partner, director, officer or employee of a Participant of CDS or such Participant's affiliated entities or an associate of such director, partner, officer or employee;

(ii) an associate, partner, director, officer or employee of a marketplace or such marketplace's affiliated entities or an associate of such partner, director, officer or employee, or

(iii) an officer or employee of CDS or its affiliated entities or an associate of such officer or employee.

(b) Notwithstanding 4.4(a)(i) and (ii), a director of the Canadian Derivatives Clearing Corporation (CDCC) is not considered to be non-independent solely on the ground that he or she is a director, or in the case of the chair of the board of directors only, an officer, of CDCC; and

(c) Notwithstanding 4.4(a)(iii), the chair of the board of directors of CDS is not considered non-independent solely on the ground that he or she is an officer of CDS.

4.5 CDS must actively consider any conflict of interest or potential conflict of interest that arises as a result of any CDS/CDCC mirror board structure, and if CDS identifies any conflict of interest or potential conflict of interest that arises as a result of such a CDS/CDCC mirror board structure, CDS will notify the Commission as soon as possible and provide the Commission with:

(a) a written summary of the relevant facts relating to the conflict of interest, or potential conflict of interest;

(b) a detailed description of how the conflict of interest will be resolved; and

(c) timing to resolve the conflict of interest.

4.6 CDS must identify in its notice of publication for any material rule change per the CDS Rule Protocol (attached as Appendix A to this Schedule) the specific impact of the rule change, if any, on CDCC and its activities as a Participant of CDS, and whether CDCC is impacted in a different manner than any other CDS Participant and, if it is, the reason for, and an explanation of, the difference.

4.7 An appeal of any decision of CDS management relating to the suspension of CDCC's participation in CDS will be directly made to the Commission pursuant to section 21.7 of the Securities Act (Ontario).

4.8 The CDS governance structure must provide for the use of one or more Participant committees and a marketplace committee to provide advice, comments and recommendations to assist the board of directors of CDS, and such committees must meet the following requirements:

(a) membership or application for membership must, in accordance with the mandate of the respective committee, be open to all Participants and marketplaces, as applicable, that connect to or use the services provided by CDS;

(b) the committees may on any matters that they deem appropriate, and must if requested by the Commission, report directly to the Commission without first requiring board approval or notification of such reporting; and

(c) staff representatives of the Commission may attend any meetings of the committees as observers.

4.9 CDS must obtain prior Commission approval before:

(a) making changes to its constating documents;

(b) making changes to the structure of its board of directors or any of its board committees; and

(c) establishing any additional committees whose membership includes persons external to CDS.

4.10 CDS must notify the Commission in writing at least 30 days before:

(a) making changes to the structure of its marketplace committee or of any of its Participant committees; or

(b) making changes to the mandates of its board of directors, board committees, marketplace committee, or Participant committees.

4.11 If Commission staff do not object in writing within 15 days of receiving written notice under paragraph 4.10, the Commission shall be deemed not to object to the changes.

4.12 CDS must establish and maintain a risk and audit committee of its board of directors, whose mandate includes, at a minimum, the following:

(a) providing advice and recommendations to the board of directors to assist it in fulfilling its risk management responsibilities, including reviewing and assessing CDS's risk management policies and procedures, the adequacy of the implementation of appropriate procedures to mitigate and manage such risks and CDS's participation standards and collateral requirements;

(b) monitoring the financial performance of CDS and providing financial management oversight and direction to the business and affairs of CDS;

(c) advising the board of directors on the fairness, reasonableness and competitiveness of its pricing and fees in the context of the Canadian capital market and trends relating to comparable services offered by clearing houses worldwide; and

(d) ensuring fair and equitable resources are dedicated to development projects for unaffiliated marketplaces.

4.13 The risk and audit committee's composition will be as follows:

(a) a minimum of five directors;

(b) an independent chair;

(c) at least two industry directors who represent a diversity of Participants, and which may include the nominee of the Canadian Investment Regulatory Organization; and

(d) a majority of directors who are either independent or who represent a diversity of Participants.

4.14 In the event that CDS fails to meet the requirements of this Part, it must immediately advise the Commission and take appropriate measures to promptly remedy such failure.

5 FITNESS

5.1 CDS must take reasonable steps to ensure that each director and officer of CDS is a fit and proper person. CDS must, among other things, consider whether the past conduct of each director or officer affords reasonable grounds for the belief that the director or officer will perform his or her duties with integrity and in a manner that is consistent with the public interest responsibility of CDS.

6 ACCESS

6.1 CDS must accept clearing of trades in securities that are eligible under its rules on a commercially reasonable and non-discriminatory basis, regardless of the marketplace of execution.

6.2 CDS must complete its review of an application for access and must grant or deny access at the earliest practicable date after receipt of such application, and must promptly notify the Commission of any applications for access that have been approved, delayed or denied and the reasons for any delay or denial.

6.3 CDS must, subject to compliance with CDS's eligibility criteria and its connectivity and other security standards or requirements, allow any person or company, including other third-party post-trade service providers, to interface or connect to any of its services or systems on a commercially reasonable basis, for the purposes of facilitating post-trade processing of securities transactions by Participants.

6.4 CDS must provide its services and products, including any interface or connection to its services or systems, to any person or company, including a third-party service provider, on a non-discriminatory basis and at a service level or performance standard comparable to that which would be provided to its affiliated entities.

7. FEES, FEE MODELS AND INCENTIVES

7.1 CDS's fees must not have the effect of unreasonably creating barriers to access CDS's services or discriminating between users of CDS's services or marketplaces, and must be balanced with the criterion that CDS has sufficient revenues to satisfy its responsibilities.

7.2 CDS must not, through any fee schedule, fee model or any contract with any Participant or other market Participant, provide any discount, rebate, allowance, price concession or similar arrangement on any services or products offered by CDS that is conditional upon the purchase of any other service or product offered by CDS or any affiliated entity.

7.3 The fees must be charged on a per transaction basis and must not provide a discount, rebate, allowance or similar price concession based on a Participant's level of activity.

7.4 CDS's process for setting fees for any of its services must provide for meaningful input from the relevant Participant committees and the risk management and audit committee of its board of directors.

7.5 CDS must operate under the fee setting process and the fee and rebate model described in Appendix B to this schedule.

7.6 CDS must obtain prior Commission approval before implementing any amendments to the fees set out in the fee schedule that was published on CDS's website and became effective November 1, 2011 (2012 Fee Schedule).

7.7 CDS must obtain prior Commission approval before implementing any new fees, any other fees for services or products designated by the Commission from time to time, or any change to the fee and rebate model.

7.8 For greater clarification, in paragraphs 7.6 and 7.7 "fees" means all fees whether for core or non-core services as defined by CDS from time to time.

7.9 If the Commission considers that it would be in the public interest, the Commission may require CDS to submit a fee, fee model or incentive that has previously been approved by the Commission for re-approval by the Commission. In such circumstances, if the Commission decides not to re-approve the fee, fee model or incentive, the previous approval for the fee, fee model or incentive will be revoked.

7.10 CDS must submit to the Commission all fees and fee models, and any amendments thereto, referred to in paragraphs 7.5, 7.6, 7.7 or 7.9, for approval in accordance with the procedure for a material rule as set out in the Rule Protocol.

7.11 CDS must annually engage an independent auditor to conduct an audit and prepare a report in accordance with established audit standards regarding its compliance with the approved fee and rebate model. CDS must provide the independent auditor's report to the Commission within 90 days of its fiscal year-end.

8 INTERNAL COST ALLOCATION MODEL AND TRANSFER PRICING

8.1 CDS must maintain an internal cost allocation model and policy or policies with respect to the allocation of costs or transfer of prices between CDS and its affiliated entities.

8.2 CDS must obtain prior Commission approval before making any non-technical amendments to the internal cost allocation model and policy or policies required to be maintained under paragraph 8.1.

8.3 CDS must annually engage an independent auditor to conduct an audit and prepare a report in accordance with established audit standards regarding compliance by CDS and its affiliated entities with the approved internal cost allocation model and transfer pricing policies. CDS must provide the independent auditor's report to its board promptly after the report's completion and then to the Commission within 90 days of its fiscal year-end.

8.4 The fees, costs or expenses borne by CDS, and indirectly by the users of CDS's services, for each of the services provided by CDS, must not reflect any cost or expense incurred by CDS in connection with an activity carried on by CDS that is not related to that service.

9 PFMI COMPLIANCE REPORTS

9.1 CDS must promptly notify the Commission in writing each time it publishes a report on its website regarding its compliance with the PFMIs.

10 RISK CONTROLS

10.1 CDS must have clearly defined and transparent procedures for the management of risk which specify the respective responsibilities of CDS and its Participants.

10.2 CDS must, as required by the Commission, engage an independent qualified party, acceptable to the Commission, to assess CDS's financial risk model and prepare a report on the findings, conclusions and any recommendations. The Commission will have the ability to provide input into the scope of such assessment, and may require that it include an assessment of how CDS's financial risk model balances the need for appropriate risk management and maintenance of fair and open access. CDS must provide the written report to its board of directors promptly after the report's completion and then to the Commission within 30 days of providing it to its board.

10.3 CDS must seek prior Commission approval at least 60 days before making material changes to its risk management framework. CDS must assess the materiality of a proposed change based on the effect of such a change on CDS, CDS Participants, the Canadian financial system, or the control of risk for the IT Systems supporting CDS's Critical Services.

10.4 CDS must notify the Commission in writing at least 20 days prior to implementing (i) a change to its risk management framework that would not have a material effect on any of CDS, CDS Participants, the Canadian financial system, or the control of risk for the IT Systems supporting CDS' Critical Services, or (ii) any technical/housekeeping changes made to its risk management framework.

10.5 If the Commission disagrees with CDS's categorization of the change to its risk management framework under paragraph 10.4, CDS must obtain the Commission's approval for the change under paragraph 10.3.

10.6 CDS must provide the Commission with an updated recovery plan at least annually.

10.7 CDS must provide the Commission with a written description of the scope of its annual internal audit plan in advance of such plan being provided to the audit committee for approval, and must provide the Commission at least 30 days prior written notice before finalizing the scope of the plan.

10.8 CDS must submit quarterly a written report detailing all of its internal audit activities during the quarter (including with respect to shared services). The report must include any corrective measures undertaken by CDS to address the internal audit gaps in the report.

11 OUTSOURCING

11.1 CDS must notify the Commission in writing at least 45 days prior to entering into or materially amending any outsourcing arrangement (including outsourcing to affiliated entities of CDS) related to any of its Critical Services.

11.2 CDS must notify the Commission in writing at least 15 days prior to renewing any outsourcing arrangement (including outsourcing to affiliated entities of CDS) related to any of its Critical Services.

11.3 CDS must promptly notify the Commission in writing of any material issues that arise in connection with its outsourcing arrangements with respect to Critical Services.

12 OPERATIONAL RELIABILITY

12.1 CDS must continue to meet the performance standards currently in effect for CDS, as amended by CDS and approved by the Commission from time to time. The performance standards must be made publicly available on the CDS website.

12.2 CDS must obtain prior Commission approval before changing its performance standards.

13 RULES

13.1 CDS's rules and the process for adopting new rules or amending existing rules must be transparent to Participants and the general public.

13.2 CDS must comply with the Rule Protocol included at Appendix A.

14 ENFORCEMENT OF RULES AND DISCIPLINE

14.1 The rules of CDS must set out appropriate sanctions in the event of non-compliance by Participants.

14.2 CDS must reasonably monitor Participant activities and impose sanctions to ensure compliance by Participants with its rules.

15 CONFIDENTIALITY OF INFORMATION

15.1 CDS must not release Participants' confidential information to a person or company other than CDS's affiliates, the Participant, a regulation services provider, CDS's regulators or another securities regulatory authority unless:

(a) the Participant has consented in writing to the release of the information;

(b) disclosure of the information is permitted by, and made in accordance with, the CDS Participant Rules;

(c) the release of the information is required by Ontario securities law or other applicable law; or

(d) the information has been publicly disclosed by another person or company, and CDS reasonably believes that the disclosure was lawful.

15.2 CDS must implement reasonable safeguards and procedures to protect Participants' information, including limiting access to such Participant information to employees of CDS, or persons or companies retained by CDS to operate the system.

15.3 CDS must implement adequate oversight procedures to ensure that the safeguards and procedures established under paragraph 15.2 are followed.

16 PROVISION OF INFORMATION

16.1 On request by the Commission, CDS must promptly provide the Commission with any and all data, information and analyses in the custody or control of CDS or any of its affiliates, without limitations, restrictions or conditions, including, without limiting the generality of the foregoing:

(a) data, information and analyses relating to all its or their businesses; and

(b) data, information and analyses of third parties in its or their custody and control.

16.2 CDS must provide the Commission with access to copies of all notices, bulletins and similar forms of communication that it sends its Participants in respect of their participation in CDS.

16.3 CDS must share information and otherwise cooperate with recognized self-regulatory organizations, investor protection funds and other appropriate regulatory bodies.

16.4 CDS must, on a commercially reasonable basis and subject to appropriate confidentiality protections being in force, share information and otherwise cooperate with other recognized or exempt clearing agencies, recognized or exempt exchanges, recognized or exempt quotation and trade reporting systems, and registered alternative trading systems.

16.5 CDS must make available to all Participants any reports required under paragraphs 7.11, 8.3, and 21.1 of this Schedule, subject to redaction of any information that CDS reasonably believes is competitively sensitive.

16.6 The disclosure or sharing of information by CDS pursuant to paragraphs 16.1, 16.3 or 16.4 must be subject to any confidentiality provisions contained in agreements entered into with the Bank of Canada pertaining to information received from the Bank of Canada in its roles as registrar, issuing agent, transfer agent or paying agent for the Government of Canada.

17 COMPLIANCE

17.1 If CDS, or its directors or officers, becomes aware of a breach or a possible breach of any of the terms and conditions applicable to CDS under this order, such person must, within two business days after becoming aware of the breach or possible breach, notify the risk and audit committee of the breach or possible breach. The director or officer of CDS must provide to the risk and audit committee details sufficient to describe the nature, date and effect (actual and anticipated) of the breach or possible breach.

17.2 The risk and audit committee must, within two business days after being notified of the breach or possible breach, notify the Commission and confirm that the breach or possible breach is under investigation as required by paragraph 17.3 below.

17.3 The risk and audit committee must promptly cause an investigation to be conducted of the breach or possible breach reported under paragraph 17.2. Once the risk and audit committee has made a determination as to whether there has been a breach, or that there is an impending breach, of any terms and conditions applicable to CDS under this order, the risk and audit committee must, within two business days of such determination, notify the Commission of its determination and must provide details sufficient to describe the nature, date and effect (actual and anticipated) of the breach or impending breach, and any actions that will be taken to address it.

18 FINANCIAL VIABILITY

18.1 CDS must provide to the Commission its annual budget, accompanied by the underlying assumptions, approved by its board of directors.

19 SYSTEMS CAPACITY, INTEGRITY AND SECURITY

19.1 At least 45 days prior to implementing a material change affecting its IT Systems, CDS must provide the Commission with a written description of the change.

19.2 For any change to its IT Systems other than a change contemplated in paragraph 19.1, CDS must provide the Commission with a written description of the change, within 30 days following the end of the calendar quarter during which the change occurred.

20 REPORTING OBLIGATIONS

20.1 CDS must comply with Appendix C to this Schedule setting out its reporting obligations to the Commission.

PART III -- Terms and Conditions Applicable to CDS Ltd.

21 FEES

21.1 On request by the Commission, CDS Ltd. must:

(a) engage a party acceptable to the Commission to conduct a review of its fees and fee models and the fees and fee models of its affiliated entities that are related to clearing, settlement, and depository and other services specified by the Commission that includes, among other things, a benchmarking or other comparison of the fees and fee models against the fees and fee models of similar services in other jurisdictions; and

(b) provide a written report on the outcome of such review to its board of directors promptly after the report's completion and then to the Commission within 30 days of providing it to its board.

22 ALLOCATION OF RESOURCES

22.1 CDS Ltd. must, subject to paragraph 22.2 and for so long as CDS Clearing carries on business as a clearing agency, allocate sufficient financial and other resources to CDS Clearing to ensure that CDS Clearing can carry out its functions in a manner that is consistent with the public interest and in compliance with Ontario securities law.

22.2 CDS Ltd. must notify the Commission immediately upon becoming aware that it is or will be unable to allocate sufficient financial or other resources to CDS Clearing as required under paragraph 22.1.

23 COMPLIANCE

23.1 CDS Ltd. must do everything within its control to cause CDS Clearing to:

(a) carry out its activities as a clearing agency recognized under section 21.2 of the Act and in accordance with Ontario securities law; and

(b) observe the PFMI Principles.

PART IV -- Terms and Conditions Applicable to TMX Group

24 PUBLIC INTEREST RESPONSIBILITY

24.1 TMX Group must conduct, and must ensure that CDS conducts, its business and operations in a manner that is consistent with the public interest.

25 FEES

25.1 TMX Group must ensure that none of its affiliated entities provide, through any fee schedule, fee model or any contract with any marketplace participant or other market participant, any discount, rebate, allowance, price concession or similar arrangement on any services or products offered by the affiliated entity that is conditional upon the purchase of any service or product provided by CDS.

26 ALLOCATION OF RESOURCES

26.1 TMX Group must, for so long as CDS Clearing and CDS Ltd. carry on business as clearing agencies, allocate sufficient financial and other resources to CDS to ensure that it can carry out its functions in a manner that is consistent with the public interest and in compliance with Ontario securities law.

26.2 TMX Group must notify the Commission immediately upon becoming aware that it is or will be unable to allocate sufficient financial and other resources to CDS, as required under paragraph 26.1.

27 PROVISION OF INFORMATION

27.1 On request by the Commission, TMX Group must, and must cause CDS to, promptly provide the Commission with any and all data, information and analysis in CDS's custody or control, without limitations, restrictions or conditions, including data, information and analysis relating to all of CDS' businesses.

27.2 TMX Group must, and must cause CDS to, share information and otherwise cooperate with other recognized or exempt entities, recognized self-regulatory organizations, investor protection funds and other appropriate regulatory bodies.

27.3 TMX Group must, and must cause CDS to, on a commercially reasonable basis and subject to appropriate confidentiality protections being in force, share information and otherwise cooperate with other recognized or exempt entities.

27.4 The disclosure or sharing of information by TMX Group and CDS pursuant to paragraphs 27.1, 27.2 and 27.3 is subject to any confidentiality provisions contained in agreements entered into with the Bank of Canada pertaining to information received from the Bank of Canada in its roles as registrar, issuing agent, transfer agent or paying agent for the Government of Canada.

28 CONFLICTS OF INTEREST

28.1 TMX Group must establish, maintain, and require compliance with policies and procedures that identify and manage any conflicts of interest or potential conflicts of interest, perceived or real, arising from its interest in CDS.

28.2 The policies established in accordance with paragraph 28.1 must be made publicly available on TMX Group's website.

28.3 TMX Group must review the effectiveness of the policies and procedures established under paragraph 28.1 on a regular, and at least annual, basis.

28.4 TMX Group must regularly review compliance with the policies and procedures established in accordance with paragraph 28.1, and must document each review and any deficiencies and how those deficiencies were remedied.

28.5 TMX Group must provide a report detailing the reviews conducted under paragraphs 28.3 and 28.4 to the Commission on an annual basis.

29 COMPLIANCE

29.1 TMX Group must promote fair access to CDS and must not unreasonably prohibit, condition or limit access by a person or company to any services provided by CDS.

29.2 TMX Group must promote within CDS a corporate governance structure that minimizes the potential for any conflict of interest between any marketplace owned or operated by TMX Group or TMX Group's affiliated entities and CDS that could adversely affect the clearance and settlement of trades in securities or the effectiveness of CDS's risk management policies, controls and standards.

29.3 TMX Group must do everything within its control to cause CDS Clearing and CDS Inc. to carry out their activities as clearing agencies recognized under section 21.2 of the Act and in compliance with Ontario securities law, and to observe the PFMI Principles.

29.4 TMX Group must certify in writing to the Commission, in a certificate signed by its chief executive officer and general counsel, annually or at other times required by the Commission, that TMX Group is in compliance with the terms and conditions applicable to it in this order and describe in detail:

(a) the steps taken to require compliance;

(b) the controls in place to verify compliance; and

(c) the names and titles of employees who have oversight of compliance.

29.5 If TMX Group, or its directors or officers, becomes aware of a breach or a possible breach of any of the terms and conditions applicable to TMX Group in this order, such person must, within two business days after becoming aware of the breach or possible breach, notify the governance and regulatory oversight committee of TMX Group of the breach or possible breach. The director or officer of TMX Group must provide to the governance and regulatory oversight committee details sufficient to describe the nature, date and effect (actual and anticipated) of the breach or possible breach.

29.6 The governance and regulatory oversight committee must, within two business days after being notified of the breach or possible breach, notify the Commission and confirm that the breach or possible breach is under investigation as required by paragraph 29.7 below.

29.7 The governance and regulatory oversight committee must promptly cause an investigation to be conducted of the breach or possible breach reported under paragraph 29.5. Once the governance and regulatory oversight committee has made a determination as to whether there has been a breach, or that there is an impending breach, of any terms and conditions applicable to TMX Group in this order, the governance and regulatory oversight committee must, within two business days of such determination, notify the Commission of its determination and must provide details sufficient to describe the nature, date and effect (actual or anticipated) of the breach or impending breach, and any actions that will be taken to address it.

APPENDIX A

RULE PROTOCOL REGARDING THE REVIEW AND APPROVAL OF CDS RULES BY THE COMMISSION

1. Purpose of the Protocol

This Protocol sets out the procedures for the submission of a Rule by CDS and the review and approval of a Rule by the Commission. The Commission will, to the extent possible, align and coordinate its process for reviewing and approving a Rule with that of other regulators having jurisdiction over such review and approval.

2. Definitions

In this Protocol:

"Rule" means a proposed new or amendment to or deletion of a Participant rule, operating procedure, manual or similar instrument or document of CDS setting out the respective rights and obligations between CDS and Participants or among Participants.

All other terms have the respective meanings ascribed to them in the Recognition Order and in securities legislation as that term is defined in National Instrument 14-101 Definitions.

3. Classification of Rules

CDS must classify a Rule as either "Material" or "Technical/Housekeeping" for the purposes of the approval process set out in this Protocol.

(a) Technical/Housekeeping Rules

For the purpose of this Protocol, a "Technical/Housekeeping" Rule means a Rule that:

(i) relates to non-core clearing services offered by CDS and/or does not have a material impact on Participants of CDS, or the Canadian financial markets;

(ii) involves matters of a technical nature in routine operating procedures and administrative practices relating to CDS services;

(iii) makes consequential amendments to implement a Material Rule that has been published for comment pursuant to this Protocol, and does not contain any additional material amendments that have not previously disclosed in the notice accompanying the Material Rule;

(iv) makes amendments to ensure consistency or compliance with an existing Rule, securities legislation or other regulatory requirement;

(v) corrects spelling, punctuation, typographical or grammatical mistakes, inaccurate cross-referencing, or stylistic formatting, including changes to headings or paragraph numbers.

(b) Material Rules

A Rule that is not a Technical/Housekeeping Rule, as defined in subsection 3(a) above, is a "Material" Rule.

4. Procedures for Review and Approval of Material Rules

(a) Prior Notice of a Significant Material Rule

CDS must notify Commission staff in writing at least 20 days prior to submitting a Material Rule that it anticipates will result in a significant change in its policy, will involve amendments to a significant number of Rules or may be the subject of significant public comment. Commission staff will not begin a formal review of the Material Rule until all relevant documents have been submitted.

(b) Documents to be Submitted with a Material Rule

At least 10 business days prior to publishing a Material Rule under subsection 4(e), CDS must submit the following documents to the Commission:

(i) a cover letter that contains the following information:

A. the classification of the Rule by CDS;

B. CDS's rationale for that classification; and

C. a statement that the Rule is not contrary to the public interest.

(ii) the Rule and, where applicable, a blacklined version of the Rule indicating the proposed changes to an existing Rule;

(iii) a notice of publication that contains the following information:

A. a description of the current Rule, including its nature and purpose, and a description of the nature and purpose of the new Rule, including a description of the new Rule's impact on the rights and obligations of CDS Participants;

B. a description and analysis of the possible effects of the Rule on CDS, CDS Participants and other market participants and the securities and financial markets in general, including but not limited to any impact on competition, risks and the costs of compliance, and where applicable, a comparison of the Rule to international standards;

C. a description of the context in which the Rule was developed, the process followed, the issues considered, consultation done, the alternative approaches considered, the reasons for rejecting the alternatives and a review of the implementation plan;

D. where applicable, a description of the Rule's impact on technological systems used by Participants, other market participants or CDS and, where possible, an implementation plan, including a description of how and when the Rule will be implemented;

E. where applicable, a brief description and comparative analysis of any comparable rules planned or implemented by other clearing agencies;

F. a statement that CDS has determined that the Rule is not contrary to the public interest; and

G. an explanation that all comments should be sent to CDS with a copy to the Commission, and that CDS will make available to the public on request all comments received during the comment period.

(c) Confirmation of Receipt

Commission staff will confirm receipt of documents submitted by CDS under subsection 4(b) within 3 business days.

(d) Notice of Publication Date

At least 5 business days prior to publishing a Material Rule under subsection 4(e), CDS must provide the Commission with notice in writing of the date on which the Rule will be published by CDS.

(e) Publication of a Material Rule by CDS

CDS must publish on its website the notice and Rule submitted by CDS under subsection 4(b) for a comment period of at least 30 days (comment period), beginning on the date on which the notice first appears on its website. CDS must inform Commission staff in writing that the Rule has been published as soon as practicable following its publication, and must provide Commission staff with a link to the publication. Where requested by Commission staff, CDS must provide a longer public comment period.

(f) Publication of Notice of Material Rule Submission by Commission Staff

As soon as practicable after publication of a Material Rule by CDS, Commission staff will publish a notice that contains the following information:

(i) CDS has submitted a Material Rule for approval by the Commission;

(ii) a brief description of the Rule;

(iii) a link to the Rule on the CDS website; and

(iv) the date on which CDS has indicated the comment period will close.

(g) Review by Commission Staff

Commission staff will use their best efforts to conduct their initial review of the Material Rule and provide comments to CDS during the comment period. However, there will be no restriction on the amount of time necessary to complete the review of the Material Rule.

(h) CDS Responses to Commission Staff's Comments and Public Comments

(i) Within 5 days of the end of the comment period, CDS must confirm to Commission staff in writing whether it received any public comments. If requested by Commission staff, CDS will provide Commission staff with a copy of any public comments it has received.

(ii) Within 60 days of the end of the comment period, CDS must provide Commission staff with a summary of all public comments received and its responses to those comments.

(iii) If CDS fails to respond to comments from Commission staff within 120 days after receipt of their comment letter, it will be deemed to have withdrawn the Material Rule unless Commission staff agree otherwise based on written submissions provided by CDS.

(i) Decision by the Commission and Publication of Approval Notice

Commission staff will use their best efforts to prepare the Material Rule for approval within 30 days of the later of (a) receipt of written responses from CDS to staff's comments or requests for additional information, and (b) receipt of the summary of public comments and CDS's response to the public comments, or confirmation from CDS that there were no comments received. If at any time during the review period, Commission staff determine that they have further comments or require further information from CDS in order to prepare the materials for Commission review, the review period will be extended by an additional period of 30 days commencing on the day that Commission staff receive responses to the comments, or the information requested.

Commission staff will notify CDS of the Commission's decision regarding the Material Rule within 5 business days of the Commission decision. If the Commission approves the Material Rule, Commission staff will prepare and publish a short notice of approval.

(j) Publication by CDS

As soon as practicable after receiving a notice of approval under subsection 4(i), CDS must publish the following information on its website:

(i) a short summary of the Material Rule;

(ii) CDS's summary of the public comments received and CDS's response to the comments, or as applicable a statement that CDS did not receive public comments on the Material Rule;

(iii) if changes were made to the version of the Rule published for public comment, a blacklined copy of the revised Material Rule; and

(iv) the effective date of the Rule, which must be at least 5 business days following the date of publication of the notice under this subsection.

(k) Significant Revisions to a Material Rule

When a Material Rule is revised subsequent to its publication for comment in a way that Commission and CDS staff determine has a material effect on the substance of the Rule or its effect, CDS must publish the revision and an explanatory notice on its website for a second 30 day comment period. Where requested by Commission staff, CDS must provide a longer public comment period. The request for comment must include CDS's summary of and responses to the comments that were submitted in response to the previous request for comments, together with an explanation of the revisions to the Material Rule and the supporting rationale for the amendment. A notice of the revisions may also be published by Commission staff.

(l) Withdrawal of a Material Rule

If CDS withdraws or is deemed to have withdrawn a Rule that was previously submitted, it must provide a notice of withdrawal to the Commission and publish the notice on its website. A notice will also be published by Commission staff.

5. Procedures for Filing a Technical/Housekeeping Rule

(a) Documents to be Submitted

For a Technical/Housekeeping Rule, CDS must submit to the Commission the following documents electronically, or by other means as agreed to by the Commission staff and CDS from time to time:

(i) a cover letter that indicates the classification of the Rule and the rationale for that classification;

(ii) the Rule and, where applicable, a blacklined version of the Rule indicating the proposed changes to an existing Rule; and

(iii) a short notice of publication to be published by CDS on its website that contains the following information:

A. a brief description of the Technical/Housekeeping Rule;

B. the reasons for the Technical/Housekeeping classification; and

C. the effective date of the Technical/Housekeeping Rule, or a statement that the Technical/Housekeeping Rule will be effective on a date subsequently determined by CDS.

(b) Confirmation of Receipt

Commission staff will within 3 business days send to CDS a confirmation of receipt of the documents submitted by CDS under subsection 5(a).

(c) Effective Date of Technical/Housekeeping Rules

The Technical/Housekeeping Rule will be effective upon on a date determined by CDS, and in any event no earlier than 10 days following its publication on the CDS website and 15 business days following its submission to the Commission.

(d) Publication of Notice of Technical/Housekeeping Rule Submission by Commission Staff

As soon as practicable after providing CDS with a confirmation of receipt under subsection 5(b), Commission staff will publish a notice that contains the following information:

(i) CDS has submitted a Technical/Housekeeping Rule to the Commission;

(ii) a brief description of the Rule;

(iii) a link to the Rule on the CDS website; and

(iv) if known, the date on which CDS has indicated that the Rule will come into effect.

(e) Disagreement with Classification

Where CDS has classified a Rule as "Technical/Housekeeping" and Commission staff disagree with the classification:

(i) Commission staff will communicate to CDS, in writing, the reasons for disagreeing with the classification of the Rule within 15 business days after receipt of CDS's submission.

(ii) After receipt of Commission staff's written communication, CDS must promptly publish a notice that the Rule has been reclassified as a Material Rule and that it will follow the procedure for review and approval of a Material Rule.

(iii) CDS must re-classify the Rule as Material and the Commission will review the Rule under the procedures set out in section 4.

(f) Comments received on Technical/Housekeeping Rules

If comments are raised in response to the publication of the notice or the implementation of the Technical/Housekeeping Rule, Commission staff may review the Rule in light of the comments received. Commission staff may determine that the Rule was incorrectly classified and require that the Rule be classified as a Material Rule and reviewed and approved by the Commission in accordance with the procedures set out in section 4 with necessary modifications. If the Commission subsequently disapproves the Material Rule, CDS must immediately withdraw or repeal the Material Rule and inform its Participants of the disapproval.

6. Immediate Implementation of a Material Rule

(a) Criteria for Immediate Implementation

CDS may make a Material Rule effective immediately where CDS determines that there is an urgent need to implement the Material Rule because of a substantial and imminent risk of material harm to CDS, Participants, other market participants, or the Canadian capital markets, or due to a change in operation imposed by a third party supplying services to CDS and its Participants.

(b) Prior Notification to Commission

Where CDS determines that immediate implementation is necessary, CDS must advise Commission staff in writing as soon as possible prior to the implementation of the Rule. Such written notice must include an analysis to support the need for immediate implementation.

(c) Notification to Participants

Prior to implementing the Material Rule, CDS must publish a notice on its website that includes the Rule and a brief description of the Rule.

(d) Disagreement on Need for Immediate Implementation -- Prior to Rule Implementation

If Commission staff do not agree that immediate implementation is necessary, the process for resolving the disagreement prior to implementation of the Rule will be as follows:

(i) Where feasible, prior to the Rule's implementation Commission staff will notify CDS in writing of the disagreement, or request more time to consider the immediate implementation.

(ii) Commission staff and CDS will discuss and resolve any concerns raised by Commission staff.

(iii) If Commission staff continue to disagree that immediate implementation is necessary, CDS must not proceed with immediate implementation and must follow the procedure set out in section 4 with any necessary modifications as may be agreed to by CDS and Commission staff.

(e) Disagreement on Need for Immediate Implementation -- Following Rule Implementation

If Commission staff do not agree that immediate implementation is necessary, the process for resolving the disagreement following the implementation of the Rule will be as follows:

(i) Commission staff will notify CDS, in writing, of the disagreement as soon as possible.

(ii) Commission staff and CDS will discuss and resolve any concerns raised by Commission staff.

(iii) If Commission staff conclude that immediate implementation was not necessary, CDS must withdraw the Rule and post a notice of withdrawal on its website.

(iv) If CDS wishes to proceed with the Rule, it must follow the procedure set out section 4 with any necessary modifications as may be agreed to by CDS and Commission staff.

(f) Review of Material Rules Implemented Immediately

A Material Rule that has been implemented immediately must be published, reviewed and approved in accordance with the procedures set out in section 4 with necessary modifications. If the Commission subsequently disapproves the Material Rule, CDS must immediately repeal the Material Rule and inform its Participants of the disapproval.

7. Miscellaneous Provisions

(a) Waiving Provisions of the Protocol

Commission staff may waive any part of this Protocol upon request from CDS. Such a waiver must be granted in writing by Commission staff.

(b) Amendments

This Protocol and any provision hereof may be amended at any time or times with the agreement of the Commission and CDS.

APPENDIX B

FEE AND REBATE MODEL APPROVED BY THE COMMISSION

1. Fees for services and products offered by CDS must be the prices on the 2012 Fee Schedule. CDS must make a copy of the 2012 Fee Schedule, including prices for delivery services, publicly available on its website.

2. CDS must not seek approval for fee increases on clearing and other core CDS services unless there is a significant change from current circumstances.

3. CDS must share 50% of any increase in annual revenue on clearing and other core CDS services as compared to annual revenues in the fiscal year ending on October 31, 2012, with Participants. Sharing of revenue on core services for any fiscal year must be paid through one or more of the following methods as may be determined by CDS: an annual adjustment of the quoted fee at the start of that fiscal year, intra-year discount(s) and a year-end proportionate rebate by core service category to Participants (paid pro rata to Participants in accordance with the fees paid by such Participants for such core service).

4. For the purposes of sections 2 and 3 above, "clearing and other core CDS services" means the services with the highlighted codes in the 2012 Fee Schedule.

5. CDS must rebate an additional amount to Participants each year in respect of clearing services for trades conducted on an exchange or ATS. The aggregate rebate for each 12-month period will be $4 million. This additional rebate for any 12-month period must be paid through one or more of the following methods as may be determined by CDS: an annual adjustment of the quoted fee at the start of that 12-month period, intra-year discount(s) and a proportionate rebate to Participants at the end of the 12-month period (paid pro rata to Participants in accordance with the fees paid by such Participants in respect of clearing services for trades conducted on an exchange or ATS).

APPENDIX C

REPORTING OBLIGATIONS

PART I -- REPORTING OBLIGATIONS OF CDS AND CDS LTD.

In addition to complying with the obligations set out in Schedule A to the Recognition Order and the requirements of National Instrument 24-102 Clearing Agency Requirements, CDS must also comply with all additional reporting obligations set out below.

1. Prior Notification

1.1 CDS must provide to Commission staff prior notification of a decision to enter into an agreement, memorandum of understanding or other similar arrangement with any governmental or regulatory body, self-regulatory organization, clearing agency, stock exchange, other marketplace or market.

2. Immediate and Prompt Notification

2.1 CDS must immediately notify the Commission of any event or occurrence that has caused or could reasonably be expected to cause an adverse material effect on:

(a) CDS;

(b) its Participants;

(c) any of its services; or

(d) the Canadian financial markets.

2.2 The events and occurrences referred to in 2.1 include but are not limited to:

(a) a Participant default;

(b) fraudulent activity; and

(c) a significant breach of the CDS rules by its Participant(s).

2.3 CDS must provide to the Commission prompt notice of:

(a) the appointment of any new director or officer, including a description of the individual's employment history; and

(b) the receipt of notice of resignation from, or the resignation of a director or officer or the auditors of CDS, including a statement of the reasons for the resignation.

2.4 CDS must immediately notify the Commission if it:

(a) becomes the subject of any order, directive or other similar action of a governmental or regulatory authority;

(b) becomes aware that it is the subject of a criminal or regulatory investigation; or

(c) becomes aware that it is or will become the subject of a material lawsuit.

2.5 CDS must provide the Commission with prompt access to all notices, bulletins and similar forms of communication that CDS sends its Participants in accordance with paragraph 16.2 of Schedule A, and must immediately notify the Commission of and provide a copy to the Commission of any such communication that CDS deems to be of critical importance to its Participants, including any communications made on an emergency basis.

2.6 CDS must promptly notify the Commission of all reportable incidents in accordance with applicable regulatory incident management protocols.

3. Quarterly Reporting

3.1 CDS must submit quarterly, or at any other frequency determined by the Commission, risk management reports related to Participant positions and the adequacy of CDS' financial resources and liquidity resources, including but not limited to the required levels of margins, default funds and liquidity funds, as well as stress testing and back testing results.

3.2 The reports required to be submitted to the Commission under 3.1 must include but not be limited to the list of reports included as Annex I to this Appendix, as may be modified from time to time with the agreement of Commission staff and CDS.

3.3 CDS must submit quarterly any approved minutes of meetings of board committees, management committees, and Participant committees, as well as approved minutes of all meetings of the board of directors.

3.4 CDS must submit quarterly to the Commission a list of all breaches reported of this Recognition Order, if any, and must include a reference to the paragraphs of the Order that were breached.

3.5 CDS must submit quarterly to the Commission a list of the risk management reports, internal audit reports and any other reports prepared by, or based on reviews conducted by, an independent party that have been issued in the previous quarter, and on request by the Commission must promptly provide copies of those reports to Commission staff.

3.6 CDS must submit quarterly its assessments of the risks facing CDS and its plans for addressing those risks.

3.7 CDS must submit quarterly to the Commission risk-related reports on cybersecurity and a risk events report.

3.8 CDS must provide the Commission with a written report detailing all of its internal audit activities during the quarter in accordance with paragraph 10.8 of Schedule A.

4. Annual Reporting

4.1 CDS must provide to the Commission annually CDS's strategic plan.

4.2 CDS must provide to the Commission an independent auditor's report regarding its compliance with the approved fee and rebate model within 90 days of its fiscal year-end, in accordance with paragraph 7.11 of Schedule A.

4.3 CDS must provide to the Commission an independent auditor's report regarding compliance by CDS and its affiliated entities with the approved internal cost allocation model and transfer pricing policies within 90 days of its fiscal year-end, in accordance with paragraph 8.3 of Schedule A.

4.4 CDS must provide to the Commission at least annually its updated recovery plan in accordance with paragraph 10.6 of Schedule A.

4.5 CDS must provide the Commission annually with a written description of the scope of its annual internal audit plan in accordance with paragraph 10.7 of Schedule A.

4.6 CDS must provide the Commission with its annual budget in accordance with paragraph 18.1 of Schedule A.

PART II -- ANNUAL REPORTING OBLIGATIONS OF TMX GROUP

5.1 TMX Group must provide to the Commission annually a report regarding the effectiveness of, and compliance with, its policies and procedures regarding conflicts of interest as described in paragraph 28.1 of Schedule A, in accordance with paragraph 28.5 of Schedule A.

5.2 TMX Group must provide to the Commission annually or at other times required by the Commission a written certification of its compliance with the applicable terms of this Recognition Order, as well as the steps taken to require compliance, the controls in place to verify compliance, and the names and titles of employees who have oversight of compliance, in accordance with paragraph 29.4 of Schedule A.

ANNEX I TO APPENDIX C

Reports Required to be Submitted to the Commission by CDS

1. Reports to be Submitted

1.1 All reports submitted by CDS under this Annex I must be submitted in a manner and a form acceptable to Commission staff.

1.2 The list of reports in the table below does not limit the scope of CDS's reporting obligations under the CDS Recognition Order or Ontario securities law, nor does it limit the information to be provided by CDS to the Commission on request under paragraph 16.1 of Schedule A to the Recognition Order.

1.3 This Annex may be amended from time to time with the agreement of Commission staff and CDS, without a formal amendment to the Recognition Order.

2. Table of Reports to be Submitted:

Item	Document Name/Content		Frequency and Timing
1.	CDS Supplementary Regulatory Report		Weekly
	•	liquidity exposures, credit exposures and collateral	•	+ adding participant level data, max one-week lag
2.	Collateral Credit Facilities and Resulting Credit Facilities		Weekly max one-week lag
3.	ACV Concentration and Average Haircut Rates by Instrument Type		Weekly (AMF, BoC and OSC)
			•	max one-week lag
4.	ACV Concentration, Average Haircut Rate and Market Value of Collateral
5.	CDS Liquidity Risk Report		Weekly
			•	max one-week lag
6.	CDS Exchange Traded Detailed		Weekly
			•	lag TBD
7.	Collateral Credit Facilities Breakdown		Weekly
			•	lag TBD
8.	Distribution of Equity Haircut		Weekly max one-week lag
9.	Liquidity Breakdown		Weekly
			•	lag TBD
10.	Risk Monitoring and Surveillance Report		Monthly
			•	max one-month lag