1. STIKEMAN ELLIOTT LLP www.stikeman.com The New World of Multiple Securities Marketplaces in Canada Simon Romano Raman Grewal Stikeman Elliott October 5, 2011

2. SLIDE 1 STIKEMAN ELLIOTT LLP Agenda 1. ATSs in Canada I. What is an ATS? II. Who are the players? III. Issues and Opportunities 2. ATS Regulations I. ATS Rules II. IIROC and TSX III. Upcoming Changes 3. Q&A The New World of Multiple Marketplaces

3. STIKEMAN ELLIOTT LLP www.stikeman.com PART 1 ATSs in Canada

4. SLIDE 3 STIKEMAN ELLIOTT LLP What is an ATS? ■ electronic trading system ■ automated trade matching ■ electronic process to buy and sell orders ■ multiple buyers and sellers ■ predetermined, non-discretionary trading methods ATSs in Canada 1

5. SLIDE 4 STIKEMAN ELLIOTT LLP What is NOT an ATS? ■ one-on-one systems (eg. equity offerings) ■ non-binding indications of interest (IOIs) that require further negotiation to produce a trade ATSs in Canada 1

6. SLIDE 5 STIKEMAN ELLIOTT LLP Advantages ■ “alternative trading systems” alternative to traditional exchanges – broader trading options and strategies – different pricing – customized services – access to markets I. ATSs in Canada ATSs in Canada 1

7. SLIDE 6 STIKEMAN ELLIOTT LLP Types of ATSs ■ Auction markets ■ Call markets ■ Crossing systems/networks ■ Dark pools ■ Market makers I. ATSs in Canada - continuous matching and execution - orders aggregated and executed in intervals - do not discover prices but allow crosses by buyers and sellers who quote on other markets - no pre-trade transparency - liquidity providers continuously quote bid and ask prices for immediate execution ATSs in Canada 1

8. SLIDE 7 STIKEMAN ELLIOTT LLP Equity ATSs in Canada ■ Alpha ATS ■ Bloomberg Tradebook Canada ■ Chi-X Canada ■ Instinet Canada Cross (ICX) ■ Liquidnet Canada I. ATSs in Canada ■ MATCH Now ■ Omega ■ Pure ■ TMX Select ■ Sigma X ATSs in Canada 1

9. SLIDE 8 STIKEMAN ELLIOTT LLP The Canadian Market – Equity ATSs LIQUIDNET CANADA RETAIL CLIENTS BLOOMBERG TRADE BOOK CANADA BROKERSINSTITUTIONS MATCH NowOMEGA PURE TRADING DATA VENDORS TSX Chi-XInstinetALPHASigma X Smart Order Routing Best Ex OPR, Trading Costs & Speed IIROC CDS Data Consolidation Cross-Market Surveillance Clearing & Settlement TMX Select ATSs in Canada 1 With thanks to Tracey Stern of the OSC

10. SLIDE 9 STIKEMAN ELLIOTT LLP Market Share I. ATSs in Canada ATSs in Canada 1

11. SLIDE 10 STIKEMAN ELLIOTT LLP New Players ■ Sigma X Canada – Launch announced by Goldman Sachs Canada in August, 2011 ■ TMX Select – Commenced trading in July, 2011 I. ATSs in Canada ATSs in Canada 1

12. SLIDE 11 STIKEMAN ELLIOTT LLP Issues (Opportunities) ■ Dark Pools Purpose: ■ Liquidity ■ Execution ■ Reduced trading costs due to less information leakage Issues: ■ Pre-trade transparency generally required ■ Cloak of darkness designed to, among other things, control market impact costs I. ATSs in Canada ATSs in Canada 1

13. SLIDE 12 STIKEMAN ELLIOTT LLP Issues (Opportunities) ■ Dark Pools and Dark Orders, Issues cont. ■ Can be fully or partially “dark” ■ Icebergs (reserve orders) I. ATSs in Canada ATSs in Canada 1

14. SLIDE 13 STIKEMAN ELLIOTT LLP Issues (Opportunities) ■ Pegged Orders (reference-priced) ■ Algorithmic Trading ■ High Frequency Trading (HFT) ■ Flash Trading ■ Co-location I. ATSs in Canada ATSs in Canada 1

15. SLIDE 14 STIKEMAN ELLIOTT LLP Issues (Opportunities) I. ATSs in Canada ATSs in Canada 1

16. SLIDE 15 STIKEMAN ELLIOTT LLP Issues (Opportunities) ■ Some Issues raised: – Fragmentation – Price Discovery – Liquidity – Internalization – Costs – Market Integrity I. ATSs in Canada ATSs in Canada 1

17. SLIDE 16 STIKEMAN ELLIOTT LLP Issues (Opportunities) ■ Some Issues raised – Specific Dealer/marketplace obligations: ■ Best price ■ Price-time priority ■ Best execution ■ Order protection I. ATSs in Canada ATSs in Canada 1

18. STIKEMAN ELLIOTT LLP www.stikeman.com PART 2 ATS Regulation

19. SLIDE 18 STIKEMAN ELLIOTT LLP – - DIAGRAM II. ATS Regulation  Securities Acts N1 21-101/N1 23-101 = ATS Rules N1 31-103 – Dealer and Advisor Registration and Requirements SRO – UMIR/Dealer Member Rules RSP (Regulation Services Provider) CSA IlROC ATSQTRSExchanges I. ATSs in Canada ATS Regulation 2 (None at present)

20. SLIDE 19 STIKEMAN ELLIOTT LLP ATS Rules – NI 21-101 and NI 23-101 ■ NI 21-101 – Largely operational and administrative ■ NI 23-101 – Substantive trading rules ■ Introduced in 2001 - exchange dominated environment ■ Continue to evolve to reality of multiple marketplaces ■ Currently subject to further amendments ■ Also subject to NI 24-101 governing trade matching and settlement II. ATS Regulation I. ATSs in Canada ATS Regulation 2

21. SLIDE 20 STIKEMAN ELLIOTT LLP ATS Rules – NI 21-101 ■ Rules Applicable only to ATSs ■ Rules Applicable only to Exchanges and QTRSs ■ Rules Applicable to all marketplaces II. ATS Regulation I. ATSs in Canada ATS Regulation 2

22. SLIDE 21 STIKEMAN ELLIOTT LLP ATS Rules – NI 21-101 ■ defines “marketplace” and “ATS” – ATS, like exchange: ■ brings together multiple buyers and sellers of securities using established, non-discretionary methods – ATS, unlike exchange – does not: ■ Require issuer to agree to have securities listed ■ Guarantee two-sided market ■ Govern conduct of subscribers (maybe) ■ Discipline subscribers II. ATS Regulation I. ATSs in Canada ATS Regulation 2

23. SLIDE 22 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable only to ATSs ■ Registration – shall not carry on business unless – Registered as dealer – SRO member (IIROC) – Compliant with ATS Rules (NI 21-101 and NI 23-101) ■ Can trade only in: – Exchange-traded securities – Corporate or government debt – Foreign exchange-traded securities (opportunity) II. ATS Regulation I. ATSs in Canada ATS Regulation 2

24. SLIDE 23 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable only to ATSs ■ Reporting ■ Threshold “trigger” notifications ■ Confidentiality protections ■ Risk Disclosure II. ATS Regulation I. ATSs in Canada ATS Regulation 2

25. SLIDE 24 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable only to ATSs ■ Clearing and Settlement – trades reported and settled through clearing agency – dealer (subscriber) or ATS decide who reports to clearing agency II. ATS Regulation I. ATSs in Canada ATS Regulation 2

26. SLIDE 25 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable only to Exchanges and QTRSs – Must apply for “recognition” (if granted, recognition order sets out additional requirements, including governance, financial statements, financial covenants, technology, etc.) – Reporting to CSA – Establish “compliance” rules – Rules ■ Not contrary to “public interest” ■ Cannot “unreasonably” discriminate among clients, issuers and members – Filing procedure – Can self-regulate, but to date all use IIROC as their RSP II. ATS Regulation I. ATSs in Canada ATS Regulation 2

27. SLIDE 26 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable to all marketplaces ■ S. 5.1/5.2 and 6.12/6.13 - Fair Access ** ■ Part 7 and 8- Transparency ** ■ Part 10 - Fees ■ Part 11 - Record Keeping ■ Part 12 - Systems ■ Part 14 - Information Processor II. ATS Regulation I. ATSs in Canada ATS Regulation 2

28. SLIDE 27 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable to all marketplaces ■ Fair Access – Must establish written standards for granting access – Not unreasonably prohibit, condition or limit access – Keep records of access granted ■ Cannot restrict trading on other marketplaces II. ATS Regulation I. ATSs in Canada ATS Regulation 2

29. SLIDE 28 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable to all marketplaces ■ Transparency – Provide information to “information processor” (IP) – Pre-trade - required for all displayed “orders” – Post-trade – required for all trades ■ IP to produce consolidated real-time feed – Marketplace must comply with IP’s requirements II. ATS Regulation I. ATSs in Canada ATS Regulation 2

30. SLIDE 29 STIKEMAN ELLIOTT LLP NI 21-101 - Rules Applicable to all marketplaces ■ Pre-Trade Transparency – Issues – What is an “order” – When is an indication of interest (IOI) an order – When is order “displayed” ■ Specific issues for Dark Pools and Dark Orders, among others II. ATS Regulation I. ATSs in Canada ATS Regulation 2

31. SLIDE 30 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Application – 23-101 vs. IIROC (UMIR) – SRO/RSP Jurisdiction – through monitoring and enforcement requirements – Jurisdiction over ATS and its Subscribers via “contractual agreements” required with RSP II. ATS RegulationI. ATSs in Canada ATS Regulation 2

32. SLIDE 31 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Prohibits – manipulation and fraud* ■ Requires – best execution* – order protection* – audit trail * Do not apply under N1 23-101 if person complies with similar rules of an exchange, QTRS or RSP II. ATS RegulationI. ATSs in Canada ATS Regulation 2

33. NI 23-101 – Trading Rules SLIDE 32 STIKEMAN ELLIOTT LLP II. ATS Regulation ■ Best Execution – Must make “reasonable efforts” to achieve best execution when acting for client – Includes making “reasonable efforts” to use facilities providing information on orders and trades ■ Enforcement actions against dealers for failing to connect to new ATSs ■ Does not apply under N1 23-101 to dealer that is an ATS complying with N1 21-101. II. ATS RegulationI. ATSs in Canada ATS Regulation 2

34. SLIDE 33 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Best Execution ■ price, speed, certainty and overall cost order size, reliability of quotes, liquidity, market impact and opportunity costs II. ATS RegulationI. ATSs in Canada ATS Regulation 2

35. SLIDE 34 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Order Protection Rule ■ Includes – trade-throughs – locked or crossed markets – anti-avoidance II. ATS RegulationI. ATSs in Canada ATS Regulation 2

36. SLIDE 35 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Order Protection Rule - Requires each marketplace to establish and comply with policies and procedures designed to prevent trade-throughs on that marketplace, subject to certain exceptions - Certain trades are exempt from trade-through restrictions, including where there is technology failure as well as non- standard, calculated-price and closing-price orders - Marketplace participants (dealers) – cannot enter directed action orders (DAOs) without having and complying with policies and procedures to prevent trade-throughs II. ATS RegulationI. ATSs in Canada ATS Regulation 2

37. SLIDE 36 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Order Protection Rule, cont. - Directed action orders (DAOs) - limit order for purchaser or sale of an exchange-traded security that: – when entered or routed to a marketplace is to be: ■ immediately executed against a protected order (remainder booked or cancelled), or ■ placed in order book, – is marked as a DAO, and – is entered or routed at the same time as one or more additional limit orders entered or routed to one or more marketplaces to execute against any protected order with a better price II. ATS RegulationI. ATSs in Canada ATS Regulation 2

38. SLIDE 37 STIKEMAN ELLIOTT LLP NI 23-101 – Trading Rules II. ATS Regulation ■ Best Execution and Order Protection Intersection with Price-Time Priority II. ATS RegulationI. ATSs in Canada ATS Regulation 2

39. SLIDE 38 STIKEMAN ELLIOTT LLP IIROC and TSX II. ATS Regulation ■ Dealers regulated by IIROC under Dealer Member Rules ■ Dealers and marketplaces regulated by UMIR – ATSs directly regulated by IIROC as both dealers and marketplaces – ATSs and ATS subscribers required to submit to and comply with RSP requirements ■ UMIR evolved over time – stretches to apply in multiple marketplace environment II. ATS RegulationI. ATSs in Canada ATS Regulation 2

40. SLIDE 39 STIKEMAN ELLIOTT LLP IIROC and TSX II. ATS Regulation ■ TSX rules apply to TSX participating organizations (POs) - extended via TSX Rule Book to apply to those related POs ■ Operation of a proprietary electronic trading system (PETS) by a PO also subject to TSX rules and limited to trading orders of greater than 1,200 units (or $10K for debt security) ■ Requires integration with TSX’s order book ■ Can impact dealers’ ability to establish in-house or affiliated ATSs II. ATS RegulationI. ATSs in Canada ATS Regulation 2

41. SLIDE 40 STIKEMAN ELLIOTT LLP Upcoming Changes II. ATS Regulation ■ Proposed Amendments to NI 21-101 and 23-101 – Minimum size threshold for dark orders – Clarify when IOI is an order – Lower threshold notification triggers for ATSs – New “fair and orderly markets” obligation II. ATS RegulationI. ATSs in Canada ATS Regulation 2

42. SLIDE 41 STIKEMAN ELLIOTT LLP Upcoming Changes II. ATS Regulation ■ Proposed NI 23-103 – Direct Market Access – Comprehensive regime to govern DMA – Broader than current TSX “eligible client” approach to trading access – Puts onus on “market participants” (NI 21-101) to govern trading access – Excludes EMDs ■ UMIR Integrated Fee Model – Proposal to charge fees based on number of “messages” vs. trades II. ATS RegulationI. ATSs in Canada ATS Regulation 2

43. STIKEMAN ELLIOTT LLP www.stikeman.com Questions and Answers Simon A. Romano sromano@stikeman.com Ramandeep K. Grewal rgrewal@stikeman.com

44. STIKEMAN ELLIOTT LLP