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Becoming a Regulated Marketplace



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 Application Components

 
A new marketplace application with IIROC is comprised of the following:
  1. Dealer Member application for Alternative Trading Systems. If you chose to conduct your new marketplace as an alternative trading system and a new corporation, you will require IIROC approval as an IIROC Dealer Member. The application process usually
    takes approximately six months. The application will require IIROC Board approval. IIROC requires a minimum $25,000 new membership fee, plus a payment towards the IIROC Restricted Fund of 0.5% of your initial capital. IIROC staff will track its time
    spent on the new Dealer Member process. If the time cost spent is greater than $25,000, IIROC will bill you for the remainder. All new Dealer Member fees, including your first year’s Dealer Member Annual Fee, must be received by IIROC prior to the effective date
    of membership.

  2. Regulation Services Agreement. IIROC will require you to enter into an IIROC regulation services agreement (“RSA”), setting out our respective rights and obligations. The negotiation of the RSA will run concurrently with the new Dealer Member application process. RSAs require IIROC Board approval. IIROC requires a minimum $25,000 fee for the RSA. IIROC staff will track its time spent on the RSA drafting and negotiations. If the time cost spent is greater than $25,000, IIROC will bill you for the remainder upon launch of the marketplace.

  3. Information Technology connectivity and testing. IIROC will require your marketplace to connect to and test with the IIROC surveillance systems. This process generally takes a minimum of 65 work days of effort. The minimum fee, including third-party costs incurred by IIROC, is $66,500. IIROC staff will track its time spent on the connectivity and testing process. If the time cost spent is greater than $66,500, IIROC will bill you for the remainder upon launch of the marketplace. IIROC’s availability for testing is often dependent upon third parties. Testing windows may not be available until 90-180 days after a request for testing is made.

  4. Information Technology development. IIROC will require you to provide a written description of your proposed marketplace model in sufficient detail for IIROC to perform a meaningful review. If your marketplace model contains unique features, new functionality for STEP may be required. All costs of the IT development, including any third-party costs, are borne by the marketplace. IIROC may require a deposit before any such development work begins. IIROC may bill you for the remainder upon completion of the specific work or upon launch of the marketplace. All new functionality must be tested with the IIROC surveillance systems. IIROC’s availability for development and testing is often dependent upon third parties. Development/testing windows may not be
    available until 90-180 days after a request for development/ testing is made.
All cost amounts are subject to applicable taxes. All timing estimates are based on our past experience. The specific and unique features of your marketplace may require additional time.
 
The following is a chart which outlines more specifically the steps IIROC must follow when we review your new marketplace application. If you would like to discuss it further, please do not hesitate to contact Doug Harris at IIROC.
 

 Application Phases

 
Phase 1 - Initial Steps
  • Initial meeting between applicant and IIROC.
  • IIROC delivers letter describing application costs/timeline, requesting a non-refundable $45,000 plus taxes deposit ($10,000 new member fee deposit plus $10,000 IT fee deposit, plus $25,000 RSA fee) and detailed written description of marketplace model
Phase 2 - Applicant submissions
  • IIROC receives $45,000, plus taxes, deposit from applicant
  • IIROC receives from applicant a written description of marketplace model in sufficient detail for IIROC to perform a meaningful Marketplace and Dealer Member review (and/or copies of draft Form F1/F2 and final technology specifications for accessing marketplace, both as required by the OSC and the National Instrument)
  • IIROC IT provides applicant with IT build documentation
Phase 3 - IIROC review and RSA
  • Applicant provides (if has not done so before) copy of draft Form F1/F2 and final technology specifications for accessing marketplace, both as required by the OSC and National Instrument
  • IIROC provides first draft of RSA
  • IIROC meets with applicant to review marketplace model and Dealer Member application and to identify whether marketplace model requires new functionality for STEP(surveillance tool)
  • IIROC liaises with OSC, if requested by OSC and/or applicant
  • IIROC provides written comments to applicant on marketplace model and Dealer Member application, including estimated marketplace specific cost and timeline for new STEP functionality, if any
  • IIROC IT requests SMARTS to add a new marketplace to STEP
  • IIROC IT provides applicant with STEP testing window availability
Phase 4 - Applicant response
  • Applicant provides written response to IIROC marketplace model and Dealer Member application comments, if necessary
  • Applicant provides written comments on draft RSA
  • IIROC receives written authorization from applicant to proceed with build for new STEP functionality, if necessary, based on costs/time estimates received from IIROC
Phase 5 - IT build
  • IIROC receives from applicant written confirmation that OSC is in final review of F1/F2
  • IIROC receives from applicant remaining non-refundable $56,500 IT fee, plus taxes plus additional funds for development of new STEP functionality, if required
  • IIROC schedules testing with STEP
  • If required, development of new STEP functionality commences
Phase 6 - OSC confirmation
  • Applicant provides IIROC with written confirmation of OSC publication of Form F1/F2 for comment
  • Applicant provides IIROC with comment letters responding to OSC publication of Form F1/F2 for comment
 
Phase 7 - IIROC Board
  • IIROC Board approves applicant (draft RSA approved and if required, Dealer Member application approved).
  • Prior to effective date of new Dealer Membership, IIROC collects from Applicant remaining $15,000 Dealer Member new application fee plus IIROC Restricted Fund Fee and Dealer Member Annual Fee, plus taxes
Phase 8 - IT testing
  • STEP testing completed
Phase 9 - OSC Sign off
  • Applicant provides IIROC with written confirmation of OSC notice of completion of review of Form F1/F2
Phase 10 - IIROC Sign off
  • Applicant and IIROC agree on proposed launch date
  • IIROC issues Market Policy notice and new Dealer Member Notice, if required
  • IIROC and applicant sign RSA
Phase 11 - Launch
  • Applicant and IIROC coordinate launch
Phase 12 - Post-launch matters
  • Final billing by IIROC to applicant for any IT and RSA fees accrued by IIROC over deposit amounts, plus taxes
  • IIROC receives final payment from marketplace within 90 days of launch
 

 National Instrument Criteria

 
 
In reviewing an application for marketplace membership of IIROC, IIROC staff considers many regulatory and operational factors.  Among these are ATS requirements set out by the Canadian Securities Administrators (“CSA”) in the applicable National Instruments (21-101 and 23-101) and their Companion Policies.
 
The ATS must:
  1. be an alternative trading system which:
    1. is registered as a dealer in a jurisdiction administered by a securities regulatory authority that is a member of the CSA,
    2. is a member of a self-regulatory entity recognized as a self-regulatory body or a self-regulatory organization, and
    3. has filed Form 21-101F2 with the applicable securities regulatory authority

  2. employ an operational model which is consistent with trading in compliance with the Universal Market Integrity Rules.

  3. be able to provide accurate and timely data to IIROC surveillance staff including:
    1. complete and accurate pre-trade transparency of all order related activity by subscribers on a real-time basis,
    2. complete and accurate post-trade information relating to trades by subscribers on a real-time basis,
    3. all information in a format which will allow IIROC to monitor all required trading related activity on the ATS, and
    4. any information relating to trading activity on the ATS as IIROC will require to charge the trading regulation fee to the ATS or its subscribers.

  4. be able to, where the applicant provides pre-trade transparency to persons other than the marketplace’s operational staff or IIROC staff, provide accurate and timely information to an information vendor approved by IIROC or another regulation services provider.

  5. be able to provide accurate and real-time post-trade transparency to an information vendor approved by IIROC or another regulation services provider.

  6. keep adequate records for the recording of its business, including:
    1. record of all subscribers who have been granted marketplace access;
    2. daily trading summaries in electronic form which would include a list of securities traded, transaction volumes (number of issues traded, number of trades, total unit volume and total dollar value);
    3. record of each order including the order identifier, subscriber identifier, marketplace identifier, the issuer, the security, the price, whether the order is a buy or sell, whether a sale is a short sale, whether the order is a market or limit order, date and time of order entry, whether the account is retail, wholesale, employee or proprietary, whether the order is a cross, whether the order is a jitney and the currency of the order.

  7. only allow execution of trades in relation to the following securities:
    1. exchange-traded securities;
    2. corporate debt securities;
    3. government debt securities; and
    4. foreign exchange-trade securities.

  8. have standards for granting trading access which do not unreasonably prohibit access to services and keep records of each grant of access or refusal to provide access and the reasons for doing so.  Such standards shall not create a prohibition or restriction for subscribers trading on another marketplace.

  9. have a satisfactory method of ensuring clearance of trades through a recognized clearing agency.  The ATS must have an agreement with its subscribers that clarifies whether the trade be reported and settled through the ATS, the subscriber, or an agent for the subscriber.

The regulation services agreement between the ATS and IIROC shall include the following provisions:

    1. the ATS will conduct trading activities in compliance with UMIR and NI 23-101;
    2. IIROC will monitor the conduct of the ATS and its subscribers;
    3. IIROC will enforce compliance of the ATS and its subscribers with UMIR and NI 23-101;
    4. the ATS will provide IIROC with the required data relating to its trading activities; and
    5. the ATS will comply with all orders and directions made by IIROC.

The ATS will enter into an agreement with each subscriber that:

    1. the subscriber will conduct its trading in compliance with UMIR and 23-101;
    2. the subscriber acknowledges that IIROC will monitor its conduct and enforce requirements under UMIR and 23-101; and
    3. the subscriber will comply with all orders and directions of IIROC.
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