Ontario Securities Commission Bulletin

Issue 45/49 - December 08, 2022

Ont. Sec. Bull. Issue 45/49

Table of Contents

A. Capital Markets Tribunal

Other Notices

• Mark Odorico

• Bridging Finance Inc. et al.

• Mark Edward Valentine

Orders

• Bridging Finance Inc. et al.

• Mark Edward Valentine

Reasons and Decisions

• Mark Odorico -s. 2(2) of the TAR, Rule 22(4) of the CMT Rules of Procedure and Forms

B. Ontario Securities Commission

Notices

• Ontario Securities Commission Staff Notice 51-734 Corporate Finance Branch 2022 Annual Report

• CSA Staff Notice 13-315 (Revised) Securities Regulatory Authority Closed Dates 2023

• CSA Staff Notice 25-306 Activist Short Selling Update

• Joint CSA and IIROC -- Staff Notice 23-329 Short Selling in Canada

• OSC Staff Notice 45-718 -- Ontario's Exempt Market

• Clearford Water Systems Inc. -- Notice of Correction

Orders

• CME Amsterdam B.V. -- s. 144

• BrokerTec Europe Limited -- s. 147

• Blockchain Foundry Inc.

• VentureLink Innovation Fund Inc.

Reasons and Decisions

• Evolve Funds Group Inc. and the Funds Listed in Schedule A

• GS Investment Strategies Canada Inc.

• BGO Capital (Canada) Inc.

• Horizons ETFS Management (Canada) Inc. and the Funds Listed in Schedule A

• RBC Global Asset Management Inc. and the Funds

• Advantage Energy Ltd.

Cease Trading Orders

• Temporary, Permanent & Rescinding Issuer Cease Trading Orders

• Temporary, Permanent & Rescinding Management Cease Trading Orders

• Outstanding Management & Insider Cease Trading Orders

Rules and Policies

• CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions and Changes to Companion Policy 45-106CP Prospectus Exemptions Relating to the Offering Memorandum Prospectus Exemption

IPOs, New Issues and Secondary Financings

Registrations

• Registrants

SROs, Marketplaces, Clearing Agencies and Trade Repositories

Marketplaces

• CME Amsterdam B.V. -- Application for Variation of Exemption Order -- Notice of Commission Order

• BrokerTec Europe Limited -- Application for Exemption from Recognition as an Exchange and from the Marketplace Rules -- Notice of Commission Order

• Instinet Canada Cross Ltd. -- Change to Instinet Canada Cross Trading System -- Notice of Proposed Change and Request for Comment

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

A. Capital Markets Tribunal

Other Notices

Mark Odorico

FOR IMMEDIATE RELEASE

December 1, 2022

MARK ODORICO, File No. 2022-18

TORONTO -- The Tribunal issued its Reasons for Decision in the above named matter.

A copy of the Reasons for Decision dated November 30, 2022 is available at capitalmarketstribunal.ca.

For Media Inquiries:

For General Inquiries:

Bridging Finance Inc. et al.

FOR IMMEDIATE RELEASE

December 2, 2022

BRIDGING FINANCE INC., DAVID SHARPE, NATASHA SHARPE AND ANDREW MUSHORE, File No. 2022-9

TORONTO -- The Tribunal issued an Order in the above named matter.

A copy of the Order dated December 2, 2022 is available at capitalmarketstribunal.ca.

For Media Inquiries:

For General Inquiries:

Mark Edward Valentine

FOR IMMEDIATE RELEASE

December 2, 2022

MARK EDWARD VALENTINE, File No. 2022-7

TORONTO -- The Tribunal issued an Order in the above named matter.

A copy of the Order dated December 2, 2022 is available at capitalmarketstribunal.ca.

For Media Inquiries:

For General Inquiries:

Orders

Bridging Finance Inc. et al.

IN THE MATTER OF BRIDGING FINANCE INC., DAVID SHARPE, NATASHA SHARPE AND ANDREW MUSHORE

File No. 2022-9

December 2, 2022

ORDER

WHEREAS on November 28, 2022, the Capital Markets Tribunal held a hearing by videoconference;

ON HEARING the submissions of the representatives for Staff of the Ontario Securities Commission and for each of the receiver of Bridging Finance Inc., David Sharpe, Natasha Sharpe and Andrew Mushore, and on reading the written submissions delivered by those parties on November 30, 2022;

IT IS ORDERED, for reasons to follow, that:

1. the motions for disclosure brought by each of David Sharpe and Natasha Sharpe are scheduled to be heard by videoconference on January 30, 2023, at 10:00 a.m., or on such other date and time as may be agreed to by the parties and set by the Governance & Tribunal Secretariat, and materials for the motions shall be delivered as follows:

a. Natasha Sharpe shall serve and file her motion record by 4:30 p.m. on December 2, 2022;

b. Staff of the Ontario Securities Commission shall serve and file its responding motion record, if any, by 4:30 p.m. on December 16, 2022;

c. David Sharpe and Natasha Sharpe shall each serve and file a reply record, if any, and written submissions by 4:30 p.m. on January 6, 2023;

d. Staff of the Ontario Securities Commission shall serve and file responding written submissions by 4:30 p.m. on January 18, 2023; and

e. David Sharpe and Natasha Sharpe shall each serve and file reply written submissions, if any, by 4:30 pm. on January 24, 2023;

2. the motions for a stay of this proceeding brought by each of David Sharpe and Natasha Sharpe are scheduled to be heard by videoconference on May 23, 2023, at 10:00 a.m., or on such other date and time as may be agreed to by the parties and set by the Governance & Tribunal Secretariat; and

3. the merits hearing shall take place by videoconference and commence on June 26, 2023, at 10:00 a.m., and continue on June 27, 28 and 29, July 24, 25, 26, 27, 28 and 31, September 12, 13, 14, 26, 27, 28 and 29, October 2, 3, 4, 5, 23, 24, 25 and 26 and December 4, 5, 6, 7, 8, 11, 12, 13, 14 and 15, 2023, at 10:00 a.m. on each day, or on such other dates and times as may be agreed to by the parties and set by the Governance & Tribunal Secretariat.

Mark Edward Valentine

IN THE MATTER OF MARK EDWARD VALENTINE

File No. 2022-7

December 2, 2022

ORDER

WHEREAS on December 2, 2022, the Capital Markets Tribunal held a hearing by videoconference;

ON HEARING the submissions of the representatives for Staff of the Ontario Securities Commission (Staff) and for Mark Edward Valentine;

IT IS ORDERED THAT:

1. each party shall serve the other party with a hearing brief containing copies of the documents, and identifying the other things, that the party intends to produce or enter as evidence at the merits hearing, by 4:30 p.m. on August 11, 2023;

2. each party shall provide to the Registrar a completed copy of the E-hearing Checklist for Videoconference Hearings by 4:30 p.m. on August 18, 2023;

3. a further attendance in this matter is scheduled for August 23, 2023 at 10:00 a.m., by videoconference, or on such other date and time as may be agreed to by the parties and set by the Governance & Tribunal Secretariat;

4. if Staff elects to file affidavits for any of its witnesses, Staff shall serve on the respondent a final unsworn draft of any affidavit, by 4:30 p.m. on September 5, 2023, and shall serve and file a final sworn version of any affidavit by 10:00 a.m. on September 26, 2023;

5. each party shall provide to the Registrar the electronic documents that the party intends to rely on or enter into evidence at the merits hearing, along with an index file containing hyperlinks to the documents in the hearing brief, in accordance with the Protocol for E-hearings, by 4:30 p.m. on September 21, 2023; and

6. the merits hearing shall take place by videoconference and commence on September 26, 2023 at 10:00 a.m., and continue on September 28, 29 and October 2, 3, 4, 5, 10, 11, 12, 13, 17, 18, 19, and 20, 2023 at 10:00 a.m. on each day, or on such other dates and times as may be agreed to by the parties and set by the Governance & Tribunal Secretariat.

Reasons and Decisions

Mark Odorico -s. 2(2) of the TAR, Rule 22(4) of the CMT Rules of Procedure and Forms

Citation: Odorico (Re), 2022 ONCMT 36

Date: 2022-11-30

File No. 2022-18

IN THE MATTER OF MARK ODORICO

REASONS FOR DECISION (Subsection 2(2) of the Tribunal Adjudicative Records Act, 2019, SO 2019, c 7, Sch 60 and Rule 22(4) of the Capital Markets Tribunal Rules of Procedure and Forms)

REASONS FOR DECISION

1. OVERVIEW

[1] Mark Odorico (Odorico) requested a confidentiality order over certain documents contained in the Record of Original Proceeding (Record) filed within his application seeking hearing and review of two decisions of the Investment Industry Regulatory Organization of Canada (IIROC). We initially ordered that the entire Record would remain confidential pending further order of the Tribunal.

[2] Odorico, IIROC Staff and Staff of the Ontario Securities Commission (OSC) were able to reach agreement on the requested redactions, except for two redactions sought by Mr. Odorico which were opposed by IIROC Staff and OSC Staff.

[3] On November 22, 2022, we issued a confidentiality order over the agreed upon redactions to the Record and dismissed the two additional requests by Mr. Odorico. These are our reasons for that decision.

2. ANALYSIS

[4] Under Rule 22(4) of the Capital Market Tribunal Rules of Procedure and Forms and subsection 2(2) of the Tribunal Adjudicative Records Act, 2019,{1} a panel may order that an adjudicative record be kept confidential, if it determines that "intimate financial or personal matters or other matters contained in the record are of such a nature that the public interest or the interest of a person served by avoiding disclosure outweighs the desirability of adhering to the principle that the record be available to the public."{2}

[5] The redactions sought to the Record relate to intimate personal medical information regarding Odorico. The Tribunal has previously acknowledged that disclosure of medical information may infringe on privacy and avoiding the disclosure of those medical specifics which are not relevant to the proceeding outweighs the desirability that the medical information be made available to the public.{3}

[6] We accordingly ordered that the portions of the Record regarding Odorico's medical information, as agreed to by the parties, be marked as confidential and only redacted versions be available to the public. We find that the redactions requested appropriately balance the principles of transparency and privacy.

[7] Odorico made two additional requests for a confidentiality order, which were opposed by IIROC Staff and OSC Staff. Firstly, he requested that his doctor's name and contact information be redacted from Exhibit 9 of the Record as Mr. Odorico did not want the doctor "bothered by members of the public."

[8] We dismissed this request. The doctor's professional contact information is presumably publicly available and the fact that members of the public "may bother him", as submitted by Odorico, is not a relevant consideration in these circumstances. Furthermore, it is not "personal information" of the nature that should presumptively be redacted in accordance with section 3 of the Capital Markets Tribunal Practice Guideline.

[9] Secondly, he requested that a document contained at tab 74 of Exhibit 1 of the Record be fully redacted. The document is a letter of reprimand and warning from Odorico's former employer relating to events which were connected to the subject of the IIROC proceedings below. Odorico submits that because the letter is marked "Personal and Confidential" he feels that there is no need for it to be in the public record.

[10] We dismissed this request. Simply because a document is marked as "personal and confidential" does not mean it meets the standard required to depart from the principle that Tribunal hearings and the documents submitted must be open to public. The letter contains information which relates to this proceeding and which is also contained in the IIROC merits decision below. Odorico has not persuaded us that this letter meets the test for a confidentiality order.

CONCLUSION

[11] For the reasons set out above, we ordered that only the redacted version of the Record be available to the public and that Odorico's additional requests for confidentiality be dismissed.

Dated at Toronto this 30th day of November, 2022

{1} SO 2019, c 7, Sch 60

{2} Kitmitto (Re), 2022 ONCMT 12 (Kitmitto) at para 80

{3} Kitmitto at para 81

B. Ontario Securities Commission

Notices

Ontario Securities Commission Staff Notice 51-734 -- Corporate Finance Branch 2022 Annual Report

Ontario Securities Commission Staff Notice 51-734 Corporate Finance Branch 2022 Annual Report is reproduced on the following internally numbered pages. Bulletin pagination resumes at the end of the Staff Notice.

OSC Staff Notice 51-734

Corporate Finance Branch

2022 Annual Report

December 1, 2022

Director's Message and Executive Summary

I am proud to share our annual Report, which provides an overview of the Branch's operational and policy work and guidance about our expectations and our interpretation of regulatory requirements in certain areas.

This year has brought new challenges to Ontario and capital markets worldwide, including geopolitical tensions, surging inflation, volatile crypto asset prices and continuing supply chain issues. These challenges and the resulting capital market uncertainty reinforce the need for balanced, tailored, flexible and responsive regulation to carry out the OSC's mandate to protect investors, to foster fair, efficient and competitive capital markets and confidence in capital markets, to foster capital formation and to contribute to the stability of the financial system and the reduction of systemic risk.

Capital raising in Ontario continued at a fast pace during Fiscal 2022, leading to a record number of prospectus filings; over 700 prospectuses were filed in Ontario.

Throughout Fiscal 2022, the Branch, with its CSA partners, continued to advance its policy work, including projects related to climate-related disclosure and diversity on board and in executive officer positions.

At the same time, the Branch, with its CSA partners, continued work on initiatives designed to reduce regulatory burden. On January 4, 2022, Ontario Instrument 44-501 Exemption from Certain Prospectus Requirements for Well-known Seasoned Issuers (Interim Class Order) came into effect, providing novel temporary exemptions from certain base shelf prospectus requirements for qualifying well-known seasoned issuers. On April 7, 2022, the CSA published proposed amendments to implement an access equals delivery model for prospectuses generally, annual financial statements, interim financial reports and related MD&A for non-investment fund Reporting Issuers.

These initiatives will continue to be part of the Branch's main policy focus in fiscal 2023. The Branch will continue to monitor and consider new market trends and potential areas of concern that may warrant a regulatory response.

This Report is an important tool for engaging with our stakeholders. We hope that this Report will serve as a guide to better understand disclosure and other regulatory obligations under Securities Law. We welcome any questions or feedback that you may have.

Kind regards,

Table of Contents

Glossary

The following terms are used widely throughout the Report and have the meanings set forth below unless otherwise indicated. Words importing the singular number include the plural, and vice versa.

Act: means the Securities Act, R.S.O. 1990, chapter s.5.

AIF: means an annual information form as such term is defined in Form 51-102F2 Annual Information Form.

AMF: means the Autorité des marchés financiers.

Branch: means the Corporate Finance branch at the OSC.

CD: means the continuous disclosure obligations of a reporting issuer as set out in NI 51-102.

CDR program: means the harmonized program established in 2004 by the CSA for continuous disclosure reviews.

COVID-19: means the global pandemic of coronavirus disease declared on March 11, 2020.

CPC: means a capital pool company as such term is defined in TSXV Policy 2.4 Capital Pool Companies.

CSA: means the Canadian Securities Administrators.

CSE: means the Canadian Securities Exchange.

ESG: means environmental, social and governance.

Fiscal 2021: means the fiscal year ended March 30, 2021.

Fiscal 2022: means the fiscal year ended March 31, 2022.

Form 51-102F1: means Form 51-102F1 Management's Discussion & Analysis.

FLI: means forward-looking information as such term is defined in NI 51-102.

IOR: means an issue-oriented review conducted by the Branch.

IOSCO: means the International Organization of Securities Commissions.

IPO: means an initial public offering as such term is defined in the Act.

Issuer: means an issuer as such term is defined in the Act.

MD&A: means management's discussion and analysis as such term is defined in Form 51-102F1.

NEO: means the Neo Exchange Inc.

NI 31-103: means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

NI 41-101: means National Instrument 41-101 General Prospectus Requirements.

NI 43-101: means National Instrument 43-101 Standards of Disclosure for Mineral Projects.

NI 44-101: means National Instrument 44-101 Alternative Forms of Prospectus.

NI 44-102: means National Instrument 44-102 Shelf Distributions.

NI 45-106: means National Instrument 45-106 Prospectus Exemptions.

NI 51-102: means National Instrument 51-102 Continuous Disclosure Obligations.

NI 52-112: means National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure.

NP 11-202: means National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions.

NGFM: Non-GAAP Financial Measures as such term is defined in NI 52-112.

OSC: means the Ontario Securities Commission.

PIF: means a personal information form as such term is defined in NI 41-101.

R&D: means research and development.

Report: means this 2022 annual report, published by the Branch.

Reporting Issuer: means a reporting issuer as defined in the Act.

Securities Law: means Ontario securities law as defined in the Act.

SEDAR: means the system for electronic document analysis as such term is defined in National Instrument 13-101 System for Electronic Document Analysis and Retrieval of the Act.

SEDI: means the system for electronic disclosure by insiders as such term is defined in National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI).

Staff: means staff at the Branch.

TSX: means the Toronto Stock Exchange.

TSXV: means the TSX Venture Exchange.

Venture Issuer: means a venture issuer as defined in NI 51-102.

Fiscal 2022 Snapshot*

* Note: all figures are as at / for Fiscal 2022 and are approximate or rounded.

** Includes public offerings and private placements of equity and convertible debentures.

Introduction

This Report provides an overview of the Branch's operational and policy work during Fiscal 2022, including a summary of key findings and outcomes from our regulatory oversight program (Part A), and the nature, purpose and status of ongoing issuer-related policy initiatives (Part B). The Report is intended for entities and individuals we regulate, their advisors, as well as investors.

In publishing this Report we aim to

• REINFORCE the importance of compliance with regulatory obligations,

• PROVIDE GUIDANCE to improve disclosure in regulatory filings,

• HIGHLIGHT trends in the capital markets, and

• INFORM AND UPDATE stakeholders on new and ongoing policy initiatives.

Ontario Securities Commission

The OSC continues to implement the Ontario government's five-point capital markets plan focused on strengthening investment in Ontario, promoting competition and facilitating innovation.{1}

• OSC VISION: to be an effective and responsive securities regulator -- fostering a culture of integrity and compliance and instilling investor confidence in the capital markets.

• OSC MANDATE: to provide protection to investors from unfair, improper or fraudulent practices; to foster fair, efficient and competitive capital markets and confidence in the capital markets; to foster capital formation; and to contribute to the stability of the financial system and the reduction of systemic risk.

• OSC VALUES:

Professional, People, and Ethical:

• protecting the public interest is our purpose and our passion;

• we value dialogue with the marketplace;

• we are professional, fair-minded and act without bias.

Each year, the OSC publishes a statement of priorities that sets out the OSC's strategic goals, priorities, and specific initiatives for the year. Our priorities are aligned with our statutory mandate and the annual mandate letter from the Minister of Finance.

Our 2022-2023 OSC Goals are

• GOAL 1 promote confidence in Ontario's capital markets,

• GOAL 2 reduce regulatory burden,

• GOAL 3 facilitate financial innovation, and

• GOAL 4 strengthen our organizational foundation.

Corporate Finance Branch: Who We Are & What We Do

In support of the OSC's mandate, the Branch regulates approximately 1,200 Reporting Issuers in Ontario that are not investment funds. The Branch assesses whether Reporting Issuers in Ontario provide the required level of disclosure of material information to investors so they can make informed investment decisions. Through this oversight role, the Branch supports the OSC's goal to improve transparency, trustworthiness, and efficiency in Ontario's capital markets.

To do this, our operational work includes:

• review of public offerings of securities;

• review of capital raising activities in the exempt market;

• review of CD filed by Reporting Issuers;

• review and consideration of applications for exemptive relief from regulatory requirements;

• review of insider reporting;

• review of credit rating agencies that are designated rating organizations;

• oversight of designated benchmarks and benchmark administrators;

• oversight of the listed Issuer function for OSC recognized exchanges;

• engagement with stakeholders through a number of activities, including external advisory committees;

• provision of guidance to stakeholders through staff notices that communicate expectations and interpretations of regulatory requirements in certain areas;

• delivery of Issuer education and outreach programs.

We regularly consult and partner with other branches across the OSC in executing our operational work. For example, we partner with the Market Regulation branch for oversight of recognized exchanges, the Compliance and Registrant Regulation branch for oversight of the exempt market and the Enforcement branch on matters of non-compliance with Securities Law requirements.

In addition, we also engage in policymaking to update, enhance and streamline securities regulation in alignment with the OSC's mandate.

Part A: Compliance

1. Continuous Disclosure Review Program

2. Public Offerings

3. Exemptive Relief Applications

4. Insider Reporting

5. Our Service Commitments

6. Administrative Matters

1. Continuous Disclosure Review (CDR) Program

This section of the Report provides an overview of the key findings and outcomes from our Fiscal 2022 CDR program. We discuss key or novel issues, suggest best practices, and specify applicable legislation and relevant guidance to assist Issuers in addressing each of the topic areas.

Under Canadian Securities Law, a Reporting Issuer must provide timely and periodic CD about its business and affairs.

CD includes periodic filings such as:

• interim and annual financial statements;

• MD&As;

• certificates of annual and interim filings;

• management information circulars;

• AIFs;

• technical reports.

The Branch has primary responsibility as principal regulator{2} over approximately 1,200 Reporting Issuers with an aggregate market capitalization of approximately $2,065 billion as at March 31, 2022. The three largest industries by market capitalization were banking, mining, and technology.

Market capitalization of Ontario Reporting Issuers by industry as at March 31, 2022

A) Overview

Our CDR program is risk-based and outcome focused. It includes planned reviews based on risk criteria as well as ongoing monitoring through news releases, media articles, complaints, and other sources. The CDR program is conducted pursuant to the powers in subsection 20(1) of the Act and is part of a harmonized CD review program conducted by the CSA.{3}

I) Objectives of the CDR program

The goal of the CDR program is to improve the completeness, quality and timeliness of CD provided by Reporting Issuers. This program assesses compliance with CD requirements through a review of a Reporting Issuer's filed documents, its website and social media. This review function is critical to facilitating fair and efficient markets, investor protection, and informed investment decision making and trading. Disclosure about a Reporting Issuer and its business is important not only when a Reporting Issuer first enters the market, but also on an ongoing basis; for example, many Reporting Issuers raise funds through short form prospectuses which incorporate CD documents by reference.

II) Types of CD reviews

In general, we conduct either a full review or an IOR of a Reporting Issuer's CD.

In planning full reviews, we draw on our knowledge of Reporting Issuers and the industries in which they operate and use risk-based criteria to identify Reporting Issuers with a higher risk of deficient disclosure. The criteria are designed to identify Reporting Issuers whose disclosure is likely to be materially improved or brought into compliance with Securities Law or accounting standards as a result of our intervention. Our risk-based assessment incorporates both qualitative and quantitative factors that we review regularly to keep current with our evolving capital markets.{4} We also monitor new or novel and high growth areas of financing activity when developing our review program and consider any complaints received regarding the Reporting Issuer.

IORs are generally focused on a specific accounting, legal or regulatory issue, an emerging issue or industry or to assess compliance with a new or amended rule that recently came into force.

Conducting CD reviews helps us to

• monitor compliance with CD requirements by Reporting Issuers,

• communicate Staff interpretations and expectations on specific requirements, and identify areas of concern,

• address specific areas where there is heightened risk of investor harm,

• identify common deficiencies,

• provide industry-specific or topic-specific disclosure guidance that may assist preparers in complying with regulatory requirements, and

• assess compliance with new accounting standards and new or amended rules.

III) Tips for Reporting Issuers that are selected for a CD review

Below are tips on what to do if you receive a comment letter from Staff in connection with a CD review:

• read the first paragraph of the letter which will state whether we are conducting a full review or an IOR;

• consider whether you need to seek advice from legal, accounting, and/or other advisors. If so, engage them early in the process;

• reach out to Staff if you require clarification about any of the comments. Note that Staff cannot provide legal or accounting advice;

• provide a thorough response, referencing Securities Law or IFRS{5}, where relevant;

• continue to file required CD documents during the review. An ongoing review does not alleviate or alter a Reporting Issuer's ongoing CD obligations;

• note the response deadline and plan accordingly. Reach out to Staff well in advance of the deadline, should you require additional time to provide a response letter. In appropriate circumstances, Staff may grant an extension request.

B) CDR program outcomes for Fiscal 2022

We track three categories of outcomes of the CD program: no action is required, prospective continuous disclosure enhancements are required, or immediate corrective action is required for deficiencies. Immediate corrective action includes the refiling of a previously filed CD document, a referral to the Enforcement branch or the issuance of a cease trade order. A CD review may result in more than one outcome. For example, a Reporting Issuer may be required to refile certain CD documents while also committing to prospective disclosure enhancements. Tracking these outcomes assists us in planning the CDR program in subsequent years, including the re-evaluation of existing risk-based factors.

Given our risk-based criteria to identify Reporting Issuers for review, the outcomes on a year-over-year basis should not necessarily be interpreted as trends since the issues and Reporting Issuers reviewed each year are generally different. Reviews may be issue-specific, focusing on a particular CD requirement for which we have noted widespread deficiencies. These reviews may result in an increased number of outcomes categorized as "prospective changes" or "immediate action required" if deficiencies identified are prevalent among several Reporting Issuers.

The following is the summary of the CD review outcomes for Fiscal 2022 and Fiscal 2021.

Outcomes of full CD reviews

Outcomes of IORs

The most common types of immediate action required from Reporting Issuers were the following:

• refiling of financial statements to correct material misstatements;

• refiling of an MD&A where the MD&A was materially deficient and did not meet the form requirements of Form 51-102F1;

• filing of a clarifying news release when a Reporting Issuer failed to include sufficient disclosure of material assumptions, milestones and risk factors pertaining to FLI or failed to update the market on FLI;

• refiling or filing (in instances when documents were not filed in the first place) of material contracts;

• refiling of a technical report where the report filed was not in compliance with NI 43-101.

Reporting Issuers that refile CD documents during a Staff review are placed on the Refilings and Errors List found on the OSC Website.

C) Trends and guidance

This section highlights some of the common deficiencies that were observed during our CD reviews in Fiscal 2022, and includes some best practices and guidance to assist Reporting Issuers and their advisors in meeting their regulatory obligations. We encourage Reporting Issuers to continue to review and improve the quality of their CD, including with reference to the guidance below.

I) Management's discussion & analysis

The MD&A is the cornerstone of an Issuer's overall financial disclosure and is intended to provide an analytical and balanced discussion of the Issuer's results of operations and financial condition through the eyes of management. MD&A disclosure should be specific, useful, and understandable. The MD&A requirements are set out in Part 5 of Form 51-102F1.

Over the past year, the world has been impacted by a number of major, ongoing events including COVID-19, geopolitical tensions (notably the war in Ukraine), rising interest rates, inflationary pressures and supply chain disruptions. These events have generally had a material adverse impact on the economy and continue to pose challenges for many Issuers. It is critical that Issuers provide meaningful disclosure about the impact of these events on their business. An Issuer should consider its specific business and operations, and provide clear, transparent and balanced disclosure of the business impacts and potential uncertainties regarding these events in its MD&A. Such information is necessary to meet Securities Law requirements and for investors to make informed investment decisions. It is important that each Issuer tailors its disclosure to provide investors with insight into the specific and material operational challenges, financial impacts and risks it faces, and its related responses. Issuers should also keep in mind that the financial statements may also need to reflect and disclose the impacts of these events.

Staff have discussed certain MD&A deficiencies below but refer Issuers to previous Branch reports (links in Part C) that discuss other MD&A matters that remain relevant.

Discussion of operations -- development stage issuers and significant projects without revenue

Issuers are required to discuss significant projects that have not yet generated significant revenue in their MD&A (Item 1.4(d) of Form 51-102F1). Staff frequently raised comments in respect of this requirement over the past year, both in the context of CD and prospectus reviews. We continue to see Issuers that do not provide sufficient information to enable the reader to understand the project, including timing and costs associated with the project. While this issue is most often observed with early-stage/development-stage Issuers or those with a change in business, this requirement applies to allIssuers that have significant projects that have not yet generated significant revenue. Over the past year, this has been particularly prevalent for technology-based and manufacturing Issuers conducting R&D and those developing new products or technologies. Issuers will often disclose the total expense incurred during the period in the variance analysis but will fail to provide sufficient disaggregation of the material components of the costs, how those costs impact timing and the remaining costs to take the project to the next stage. In addition, the disclosure often does not include sufficient detail to understand the Issuer's plan for the project, including significant milestones.

- - - - - - - - - - - - - - - - - - - -

Tip: Issuers should describe each significant project in sufficient detail, including, but not limited to, the following information:

• the Issuer's overall plan for the project and the status of the project relative to that plan. The discussion should include short and long-term plans. For R&D activity, this discussion should be included for each stage;

• the expected timeline of the project, including the Issuer's progress compared to the timeline;

• the key concrete milestones in the plan and what specific events need to occur to meet each milestone;

• the expenditures made to date for each project/stage/milestone, and how these expenditures relate to anticipated timing and costs to take the project to the next stage of the project plan;

• the license(s) and regulatory approval(s) that the Issuer must obtain. The discussion should include the anticipated timeline and expenditures associated with obtaining the license/regulatory approval and the risks and associated impact if regulatory approval and licenses are not obtained;

• the status of the project, including any delays in the disclosed timeline and/or anticipated cost overruns. In addition, if the Issuer previously disclosed material FLI, the MD&A must include a discussion of events and circumstances that occurred during the period that are reasonably likely to cause actual results to differ materially from the FLI and the expected differences.

- - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - -

Reminder: Venture Issuers without significant revenue from operations must provide a breakdown of material costs incurred, including, but not limited to, the following:

• exploration and evaluation assets or expenditures;

• expensed research and development costs;

• intangible assets arising from development;

• general and administration expenses.

If the Venture Issuer's business primarily involves mining exploration and development, the analysis of exploration and evaluation assets or expenditures must be presented on a property-by-property basis.

See item 5.3 of NI 51-102.

- - - - - - - - - - - - - - - - - - - -

Non-Venture Issuers must also include disclosure in their AIF about R&D. Item 5.1(1)(a)(iv) of Form 51-102F2 Annual Information Form requires Issuers with R&D to describe

• the stage of development of the products and services and, if the products are not at the commercial production stage, the timing and stage of R&D programs,

• whether the Issuer is conducting its own R&D, subcontracting out the R&D or using a combination of those methods, and

• the additional steps required to reach commercial production and an estimate of costs and timing.

Discussion of operations -- variance analysis

In discussing period-over-period financial statement variances, Issuers reviewed continued to provide limited narrative discussion of the factors resulting in the variances and any trends or potential trends.

Simply stating the percentage change or amount, which is information that is readily available from the financial statements, is not sufficient and does not provide investors with insight into the Issuer's operations, or how the economic environment and trends, events and uncertainties impact its business. It is important to be specific and to disclose information that readers need to make informed investment decisions.

When discussing variances in financial statement line items, Issuers should

• quantify changes and clearly explain the factors, drivers and reasons contributing to the period-over-period variances that affect revenues and expenses. For example, in discussing revenues, discuss variables such as price, volume or quantity of goods or services being sold, introduction of new products or services (or discontinuation) or other significant factors by segment. In discussing expenses, quantify the material components of the expense and provide a detailed explanation of each variance, and

• provide insight into the Issuer's past and future performance.

When discussing the changes in financial condition and results, it is also important to include an analysis of the effect on continuing operations of any acquisition, disposition, write-off, abandonment or other similar event.

Forward-looking information (FLI)

FLI is an area of interest to many investors and can provide valuable insight about a Reporting Issuer's business and how it intends to attain its corporate objectives and targets. It is important that investors receive transparent and clear disclosure that is specific, understandable, and relevant. The FLI, together with the accompanying disclosures, should be presented in an easy-to-read manner by, for example, providing the required disclosures near the FLI statement and presenting the information in tabular form that clearly links the particular FLI to the associated factors, assumptions and material risks. These disclosures will enable investors to interpret the FLI and simplify monitoring of progress in subsequent reporting periods.

FLI continued to be an area of challenge for Reporting Issuers over the past year, whether in the context of a prospectus or CD. We continue to see deficiencies, including a lack of balanced discussion of key factors and assumptions used and the material risk factors that could cause actual results to differ materially from the FLI. We have highlighted a few of the more common deficiencies below.

Updating and withdrawing FLI

We continue to see Reporting Issuers that do not provide updates to previously disclosed FLI or do not explain the reasons why they have withdrawn FLI.

Reporting Issuers that have previously disclosed FLI have an obligation to update the FLI in CD documents. Simply providing an update to the figures, without disclosing the underlying factors and assumptions that drive the change, does not provide insight on why the FLI is being updated. Reporting Issuers must provide a comparison of actual results to the previously disclosed FLI. The comparison of actual results to previously disclosed FLI is important for investors in making investment decisions, in their assessment of management and of the current and future business performance of the Reporting Issuer.

In certain circumstances, which may include broader economic and market developments, Reporting Issuers must consider whether they should withdraw previously published guidance and financial outlooks if these outlooks can no longer be supported by reasonable assumptions and there is no longer a reasonable basis for the achievement, or accurate updating, of conclusions, forecasts or projections in the FLI. Reporting Issuers that choose to withdraw or cease to report previously disclosed material FLI must disclose the decision to withdraw and discuss events and circumstances that led to the decision to withdraw previously disclosed FLI, including a discussion of any assumptions that are no longer valid. Simply deleting the FLI from the CD documents does not relieve the Reporting Issuer of its disclosure obligations under section 5.8 of NI 51-102.

FLI disclosed outside of MD&A

Many Reporting Issuers disclose FLI in news releases, marketing materials, investor presentations, social media platforms or on their website. Often, FLI in these documents is not supported by the required FLI disclosures. Most notably, some Reporting Issuers do not include the accompanying factors and assumptions to support such FLI and fail to discuss and/or update the FLI in the MD&A. Irrespective of where the FLI is disclosed, Reporting Issuers must comply with the disclosure requirements of Parts 4A/4B and section 5.8 of NI 51-102.

Multi-Year FLI

Some Reporting Issuers present FLI that span multiple years, without providing reasonable and sufficient quantitative and qualitative assumptions to support the FLI. While such multi-year FLI is more prevalent in prospectus filings, we have also observed multi-year FLI on a CD basis. Reporting Issuers must not disclose a financial outlook unless it is based on assumptions that are reasonable in the circumstances. The assumptions for financial projections should be specific and comprehensive, particularly with respect to quantitative details, such that an investor is able to clearly understand how each assumption was used to develop the FLI that contributes to the projections. In general, FLI or future-oriented financial information, must be limited to a time period that can be reasonably estimated, which generally will not go beyond the end of the Reporting Issuer's next fiscal year. Where FLI is presented for multiple years without sufficient support, Staff may ask Reporting Issuers to limit the disclosure of FLI to a shorter period that can be more clearly supported (for example, one or two years, depending on facts and circumstances).

We may also raise questions in cases where a Reporting Issuer's FLI assumptions are not reflected in the Reporting Issuer's track record. For example:

• the Reporting Issuer projects aggressive growth targets (i.e. revenue; store openings) over a certain number of years without the benefit of historical experience or concrete plans in place to support the growth;

• the disclosure does not provide detailed explanations for expected changes to items such as revenue, gross margins, costs or does not provide a reasonable basis for the targets, including the key drivers behind the projected growth with reference to specific plans and objectives that support the projected growth;

• the disclosure does not explain why management believes that each of the targets/FLI is reasonable;

• factors and assumptions do not appear reasonable in light of the Reporting Issuer's size and the scope of the Reporting Issuer's current business plans.

In some cases, Reporting Issuers have been able to address our concerns by amending the FLI disclosure in one or more of the following ways:

• providing more robust factors and assumptions to support the FLI;

• providing more recent information about its operations since the date of the Reporting Issuer's last MD&A in support of the FLI included in the prospectus;

• limiting the disclosure of FLI to a shorter period;

• removing the FLI.

Practice Points

II) Non-GAAP and other financial measures

NI 52-112 was issued in 2021 to replace the guidance in CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures (SN 52-306). Whereas SN 52-306 outlined disclosure expectations for non-GAAP financial measures (as previously defined in SN 52-306), NI 52-112 outlines disclosure requirements for six different categories of measures, being historical NGFMs, forward-looking NGFMs, non-GAAP ratios, capital management measures, total of segments measures and supplementary financial measures (as each are now defined in NI 52-112).

To assess compliance with certain aspects of NI 52-112, during Fiscal 2022, CSA staff reviewed the disclosures in the annual MD&A, related earnings release, and investor presentation of approximately 85 Issuers with financial years ended on or after October 15, 2021. The review primarily focused on disclosures that were "new or different" compared to SN 52-306. Reporting Issuers selected for review varied by size and industry.

Our reviews resulted in outcomes where no action was required, where prospective disclosure enhancements were made, where retrospective restatements were made, or where communication is ongoing to resolve any issues identified. While we were generally pleased with the quality of the disclosure that we observed, we noted the following areas where Reporting Issuers should improve their disclosure:

CSA staff identified the following key deficiencies:

• failure to include the required quantitative reconciliation to the most directly comparable financial measure disclosed in the primary financial statements (i.e. GAAP measure), in earnings releases;

• failure to comply in earnings releases with the requirement that NGFM must be presented with no more prominence than that of the most directly comparable financial measure disclosed in the primary financial statements of the entity to which the measure relates;

• failure to describe the significant differences between NGFMs that are FLI and the equivalent historical NGFMs;

• inappropriate identification of a total of segments measure and consequently, failure to include the required disclosure;

• mislabeling of supplementary financial measures that could lead to confusion or misleading disclosure;

• inappropriate incorporation of information by reference in investor presentations.

For a more fulsome discussion of CSA staff's findings, including examples, please refer to CSA Staff Notice 51-364 Continuous Disclosure Review Program Activities for fiscal years ended March 31, 2022 and March 31, 2021.

Non-GAAP and other financial measures continue to be an area of focus for Staff and we will continue to monitor and review disclosure of NGFMs as part of our normal course CD review program.

III) Overly promotional press releases

Disclosure must be factual and balanced, giving equal prominence to favorable and unfavorable information, with unfavorable information being disclosed as promptly and completely as favorable information.

Increasingly, we are observing Reporting Issuers that disseminate numerous news releases that include overly promotional or "good news" announcements and do not balance this disclosure with unfavorable information that may exist. This trend is particularly prevalent with early stage, pre-revenue Reporting Issuers that are engaged in multiple business opportunities. These Reporting Issuers provide news releases that frequently do not disclose material information or any new material facts and may obscure the true business activity of the Reporting Issuer. We have concerns that this type of promotional disclosure may cause an artificial increase in a Reporting Issuer's share price or trading volume, thereby undermining the integrity of the capital markets, and putting investors at risk of harm by making misinformed investment decisions. In these instances, we may request Reporting Issuers to limit these types of news releases or to issue a clarifying news release. In certain instances, it may also lead to further regulatory action. Further guidance is provided in CSA Staff Notice 51-356 Problematic Promotional Activity by Issuers and National Policy 51-201 Disclosure Practices (NP 51-201).

We have also observed Reporting Issuers that provide news releases announcing multiple partnerships, agreements, transactions or findings from R&D activities, but fail to provide an update on such matters in their MD&A or subsequent news releases. We emphasize that the MD&A is a core document of a Reporting Issuer's continuous disclosure (as well as the AIF, if applicable) and should provide investors with allthe relevant material information impacting the Reporting Issuer's business and operations. Reporting Issuers providing a chronology of news releases issued in the description of business and/or recent developments section of the MD&A should also supplement that disclosure with the necessary updates about the status of these developments.

Reporting Issuers are reminded that if a news release includes information that is forward-looking in nature (for example, estimating production targets, profitability and/or revenue estimates), supporting material factors and assumptions must be provided as required by Part 4A/B of NI 51-102.

- - - - - - - - - - - - - - - - - - - -

Tip: Reporting Issuers should consider the following disclosure best practices:

• establish appropriate written disclosure policies focused on promoting consistent disclosure practices aimed at providing informative, timely and broadly disseminated disclosure of material information to the market;

• consult with advisors, as appropriate, to ensure that the information in the news release is balanced and not misleading or overly-promotional;

• assess the materiality of the information being disseminated and consider whether a material change report should be filed;

• ensure that disclosure in any news release is sufficiently detailed to understand its substance and importance to the Reporting Issuer's business and operations;

• ensure the disclosure is consistent with disclosures previously filed by the Reporting Issuer in news releases or continuous disclosure documents;

• ensure FLI is appropriately supported by material factors and assumptions and updated as required;

• have the board of directors or audit committee review the disclosure in advance of public release, which may increase the quality, credibility and objectivity of such disclosure. Refer to 6.4 (1) of NP 51-201;

• ensure all material information has been included and discussed in the MD&A.

- - - - - - - - - - - - - - - - - - - -

IV) Material contracts

Timing of filing

We continue to see Reporting Issuers who do not file material contracts on a timely basis or at all. We encourage Reporting Issuers to review all contracts entered into within the last financial year, or before the last financial year if the contract is still in effect, to determine whether the contract is a "material contract" that must be filed on SEDAR. While material contracts entered into in the ordinary course of business are generally exempt from filing, we remind Reporting Issuers that any material contract on which the Reporting Issuer's business is substantially dependent must be filed.

The following chart sets out the timeline for filing material contracts that are required to be filed under NI 51-102.

- - - - - - - - - - - - - - - - - - - -

Tip: A Reporting Issuer must file any material contracts that are required to be filed under NI 51-102, but that have not been previously filed, at the same time as filing a preliminary prospectus, accelerating the timing for filing a material contract in the context of a prospectus offering. If a material contract is not executed at the time the final prospectus is filed, the Reporting Issuer must file an undertaking to file the contract no later than seven days after the document becomes effective.

- - - - - - - - - - - - - - - - - - - -

Redactions

Reporting Issuers may omit or redact a provision of a material contract that is required to be filed if there are reasonable grounds to believe that disclosing the omitted or redacted provision would violate a confidentiality provision. In these cases, subsection 12.2(5) of NI 51-102 directs the Reporting Issuer to include a description of the type of information that has been omitted or redacted. A brief description immediately following the omitted or redacted information is generally sufficient.

Staff have identified instances where redacted material contracts are filed without these required disclosures. Staff may ask Reporting Issuers to re-file material contracts in instances where the required description of omitted or redacted information has not been included.

V) Diversity on boards and in executive officer positions

Disclosure requirements for the representation of women on boards and in executive officer positions are set out in NI 58-101 and have been in place for eight annual reporting periods. The disclosure requirements are intended to increase transparency for investors and other stakeholders regarding the representation of women in these roles and the approach that specific TSX-listed Reporting Issuers take in respect of such representation. This transparency is intended to assist investors when making investment and voting decisions.

CSA Multilateral Staff Notice 58-314 Review of Disclosure Regarding Women on Boards and in Executive Officer Positions -- Year 8 Report (SN 58-314) was published on October 27, 2022. SN 58-314 reports the findings of our eighth review of disclosure regarding women on boards and in executive officer positions. Of note, 45% of board vacancies filled during the year were filled by women, resulting in 24% of overall board seats being occupied by women, compared to 22% in the prior year. 87% of Reporting Issuers in the review sample had at least one woman on the board and 70% of Reporting Issuers in the review sample had at least one woman in an executive officer position.

The CSA Diversity Initiative Working Group also concluded research and consultations with various stakeholders between June 2021 and October 2021 to determine whether and how the disclosure needs of Canadian investors and corporate governance practices among public companies have evolved since the above noted gender diversity requirements were originally adopted. A virtual 'Diversity in Capital Markets' roundtable, moderated and hosted by the OSC, was held on October 13, 2021. The AMF and ASC also held public roundtables on October 14, 2021 and December 10, 2021, respectively. CSA Staff are continuing to consider feedback received during these consultations.

VI) Related-party transactions/cross financial interests

Staff have observed M&A transactions where either the acquiror or the acquiree (or a director/executive officer of either entity) had an undisclosed financial interest in the other entity. Staff are of the view that, in the context of M&A transactions, detailed disclosure of the cross-ownership of financial interests (held either by the acquirer, the acquiree, or either of their directors or executive officers) is material information for investors and their investment/voting decisions and should be disclosed in the applicable disclosure document.

The cross-ownership of financial interests could give rise to conflicts of interest that may lead investors to re-examine other variables such as purchase price, transaction timing or contingent payments. These variables may not otherwise be considered in the same manner if the potential conflict of interest is not disclosed. Non-disclosure of the cross-ownership of financial interests may also cause investors to question whether the M&A transaction occurred on its own merits.

The document in which disclosure is required will vary depending on the structure of the proposed transaction, whether the Reporting Issuer is the acquiror or acquiree, and the applicable requirements of the stock exchange on which the Reporting Issuer's securities are listed. For example, an M&A transaction may give rise to an obligation to file a material change report, a take-over bid circular, a listing statement / filing statement, or an information circular. A prospectus may also be filed in connection with the M&A transaction. Regardless of the form of document required to be filed, we remind Reporting Issuers to disclose the cross-ownership of financial interests based on the broader materiality requirements of the applicable disclosure document.

Further information on this topic can be found in CSA Multilateral Staff Notice 51-359 Corporate Governance Related Disclosure Expectations for Reporting Issuers in the Cannabis Industry. We note that, while this topic was initially presented in a staff notice specific to the cannabis industry, the same principles are applicable to Reporting Issuers, especially those in emerging growth industries.

VII) Disclosure considerations pertaining to the war in Ukraine (the Conflict)

The unprecedented sanctions imposed by most major governments and disruptions to the global economy as a result of the Conflict have contributed to financial market volatility, and directly and indirectly impacted businesses in Canada and around the world. Issuers that have been or could be materially impacted should provide timely, meaningful, transparent, and balanced disclosures about the impact and the uncertainties to allow investors to make informed investment decisions. Issuers should also keep apprised of ongoing changes and continuously evaluate the necessity to update previously issued disclosure or to provide new disclosure.

Issuers should think broadly when assessing the impact and the uncertainties the Conflict has on its business and operations, for instance, disruption to supply-chains and the ability to access raw materials, and the prices paid for such raw materials, or heightened cybersecurity risks given the potential for cyberattacks perpetuated by state actors. While this list is not exhaustive, some disclosures that may be relevant to understanding the impact of the Conflict include:

• key risks that the conflict presents to the Issuer. Risks should be tailored and disclosures relating to such risks should not be boilerplate;

• known and expected trends, demands, events or uncertainties related to the Conflict that management reasonably believes will materially affect the Issuer's financial condition, future revenue, expenses or projects;

• operational challenges and other measures taken by management in response to the Conflict, including any detailed plans to divest investments or exit operations in Russia, Belarus or Ukraine;

• whether the Issuer has been impacted by the sanctions imposed by the Canadian Federal government or by other jurisdictions. Additionally, Issuers should disclose how management is monitoring compliance with the sanctions imposed;

• discussions about challenges relating to flow of funds and other resources (e.g. raw materials, utilities and labor) that might not be as accessible as a result of the Conflict;

• financial reporting considerations including areas subject to significant judgment and measurement uncertainties relating to the Conflict.

Issuers should carefully consider whether the requirement to file a material change report has been triggered as a result of the impact of the Conflict. Additionally, while Issuers might have provided detailed operational updates via news releases, we remind Issuers that such disclosure should also be included and updated in prospectuses and CD documents, such as MD&A and AIFs.

VIII) Syndicated mortgages

Following amendments to NI 45-106, NI 31-103, and OSC Rule 45-501 Ontario Prospectus and Registration Exemptions related to syndicated mortgages that came into force on July 1, 2021, the OSC assumed oversight of higher risk syndicated mortgages sold to retail investors in Ontario and introduced requirements for non-qualified syndicated mortgages distributed to non-permitted clients that are the same as, or stricter than, the requirements for the distribution of other forms of real estate investments.

Over the past 12 months, filers reported the issuance of syndicated mortgages for which the OSC has principal oversight under the amended regime with a value of approximately $390 million. The capital raising activity in the syndicated mortgage sector continues to increase at a steady pace.

Most distributions (98.3%) were completed under the accredited investor prospectus exemption under section 73.3 of the Act. The remaining distributions were completed using the minimum amount investment prospectus exemption under section 2.10 of NI 45-106 and the family, friends and business associates prospectus exemption under sections 2.5 and 2.6.1 of NI 45-106.

Based on our review of syndicated mortgage investment (SMI) filings, Staff note that Issuers have quickly aligned themselves with the new compliance and reporting requirements, and that legacy loans are being repaid or refinanced through conventional channels. Staff have also observed that non-qualifying SMI issuances are concentrated in a handful of Issuers and exempt market dealers, suggesting that the market is maturing and becoming more specialized.

The OSC works closely with the Financial Services Regulatory Authority to ensure that market participants are licensed or registered with the appropriate regulatory authority and meet the appropriate requirements. Educational information for investors is also regularly updated on https://www.getsmarteraboutmoney.ca/.

IX) Filing reports of exempt distribution

Issuers and underwriters that rely on certain prospectus exemptions to distribute securities are required to file a report of exempt distribution (RED Report) on Form 45-106F1 Report of Exempt Distribution within a prescribed timeframe set out in NI 45-106. We sometimes see Issuers that either file the RED Report late or not at all. The deadline for filing the report is generally 10 days after the distribution.

A distribution occurs in the jurisdiction where a purchaser is resident. In most cases, a distribution also occurs in the jurisdiction where the Issuer's head office is located. A distribution may also occur in a jurisdiction if the Issuer has a significant connection to that jurisdiction. A RED Report must be filed in each jurisdiction in which a distribution takes place.

To determine if a distribution has occurred in one or more jurisdictions of Canada, consult applicable Securities Law. If an Issuer is uncertain as to whether a distribution has occurred in a jurisdiction of Canada, should seek advice as to where the distribution occurred.

For more information on filing a RED Report, please refer to the "Frequently Asked Questions -- Form 45-106F1 Report of Exempt Distribution" document, available on the OSC's website.

X) Crypto asset industry

The crypto asset industry has continued to see growth as well as significant volatility. We have made the following observations regarding recent disclosure by Issuers in the crypto asset industry but also remind Issuers of previous guidance listed at the end of this section. We will continue to monitor disclosure in the crypto asset industry through our review program activities moving forward.

Applicable regulatory regime

Given that the regulatory environment for the crypto asset industry differs across jurisdictions and may, in some cases, be evolving or lack certainty, we consider the following disclosure to be necessary to fairly present all material facts, risks and uncertainties:

• For each jurisdiction in which the Issuer operates:

• details of the Issuer's operations in the jurisdiction;

• the applicable regulatory regime;

• any registrations, exemptions or no action letters relied upon by the Issuer;

• any terms and conditions on those registrations, exemptions or no action letters;

• discussion of any statements or other available guidance made by applicable regulators;

• whether legal advice has been obtained, either in the form of a legal opinion or otherwise, regarding compliance with applicable regulatory regimes;

• Discussion of the Issuer's policies and procedures for monitoring compliance with applicable regulatory regimes, including monitoring for any changes to those regimes;

• Related risks, which may include uncertainty around regulatory regimes applicable to the Issuer's business or crypto assets that are material to the issuer.

We expect the above disclosures to be clearly and prominently disclosed in prospectus filings and other required documents such as an Issuer's AIF, marketing materials, and MD&A (see for example Part 2, Item 1.2 of Form 51-102F1). We also expect Issuers that enter our capital markets through a reverse takeover or spinoff transaction to include these disclosures in their listing statement or other documents, as applicable.

Further to the OSC and CSA news releases from March 29, 2021{6}, we also remind Issuers with operations in Canada (whether providing products or services from a location in Canada or to residents of Canada) that there are potential public interest concerns if an Issuer that is not in compliance with Securities Law were to become an Reporting Issuer. For example, this would be the case if an Issuer that is conducting business that requires registration under Securities Law is not yet registered. If we receive a prospectus from such an Issuer , or an Issuer that is already a Reporting Issuer and not in compliance with Securities Law, we would likely have receipt refusal concerns. We encourage Issuers engaged in novel crypto businesses to consider submitting a confidential prospectus pre-file, if eligible.

Material changes

The determination of whether something is a material fact or material change under Securities Law is fact specific. The CSA has provided guidance on this determination in NP 51-201, which is applicable to Issuers in all industries.

In addition to the examples provided in section 4.3 of NP 51-201, we note the following non-exhaustive list of types of events or information that may be material to Issuers in the crypto asset industry:

• a collapse in the price of a crypto asset to which an Issuer has material exposure;

• an announcement by a regulator of its views about whether a crypto asset that an issuer has material exposure to is a security and/or derivative, or regulatory action taken that includes a view that it is a security and/or derivative;

• entering into by an Issuer of an arrangement for the borrowing or lending of a significant amount of crypto assets or any significant encumbering of the Issuer's crypto assets, including details of the counterparty;

• announcements by a regulator of its views about the business in which the Issuer is engaged, or regulatory action taken against an Issuer with a similar business;

• the issuance by a regulator of a cease-and-desist order against the Issuer, and if the regulator allows the Issuer to operate in the interim, any restrictions placed on its business.

In addition to disclosure requirements regarding material changes and material facts under Securities Law, we remind listed Issuers that the exchange on which they are listed may have timely disclosure policies in respect of material information.

Material contracts

We have observed Issuers that have not filed material contracts on SEDAR as required. We remind Issuers that the exception in subsection 12.2(2) of NI 51-102, for material contracts entered into in the ordinary course of business, is not available in respect of a contract on which the Issuer's business is substantially dependent. For example, if an Issuer enters into a crypto asset loan agreement upon which the solvency of its business is dependent, we would consider this to be a material contract required to be filed.

We also refer Issuers to section 12.3 of NI 51-102 as well as the above guidance regarding material changes (including whether entering into a contract constitutes a material change for the issuer) in regard to the timing for filing a material contract on SEDAR.

Corporate governance

We note there has recently been significant consolidation of Issuers within the crypto asset industry. We remind Issuers that the guidance in Multilateral Staff Notice 51-359 Corporate Governance Related Disclosure Expectations (SN 51-359) for Reporting Issuers in the cannabis industry is equally applicable to Issuers in other emerging growth industries, like the crypto asset industry.

As discussed in SN 51-359, Issuers should

• disclose the cross-ownership of financial interests by Issuers (or their directors and officers) involved in mergers, acquisitions or other significant corporate transactions (M&A transactions), as Staff are of the view that this is material information for investors and their investment/voting decisions,

• give adequate consideration to potential conflicts of interest, or other factors that may compromise their independence when identifying board members as being independent, and

• adopt a written code of business conduct and ethics, which includes standards for ethical decision making and compliance, and which addresses potentially challenging situations that may arise during the normal course of business.

- - - - - - - - - - - - - - - - - - - -

For more information and guidance issuers should also review:

• CSA Staff Notice 51-363 Observations on Disclosure by Crypto Assets Reporting Issuers

• Joint CSA/IIROC Staff Notice 21-330 Guidance for Crypto-Trading Platforms: Requirements relating to Advertising, Marketing and Social Media Use

• CSA Staff Notice 51-356 Problematic promotional activities by issuers

• National Policy 51-201 Disclosure Standards Multilateral Staff Notice 51-359

- - - - - - - - - - - - - - - - - - - -

2. Public Offerings

Under Canadian Securities Law, to distribute securities, an Issuer must file and obtain a receipt for a prospectus or rely upon a prospectus exemption. Another key component of our compliance work stream is the review of prospectuses in connection with public offerings. This section outlines data and trends with respect to public offerings and provides guidance on common issues that arise during our prospectus reviews.

In Fiscal 2022, 702 prospectuses were filed in Ontario (Fiscal 2021: 574). These filings covered a wide range of industries with mining, technology and cannabis being the most active sectors based on the number of offerings.

A) Trends and guidance

Fiscal 2022 was another record-breaking year for prospectus volumes, particularly in the first half of the year. Overall capital raising activity was high for that period, driven by an increase in offerings in the manufacturing and technology industries, as well as a range of other{7} industries. The last quarter of the year saw a drop in activity, partly attributed to geopolitical tensions, volatile markets and other economic factors.

- - - - - - - - - - - - - - - - - - - -

Tip: The guidance in this section also applies to prospectus-level disclosure included in an information circular in connection with a proposed significant acquisition or a restructuring transaction as required by section 14.2 of Form 51-102F5 Information Circular.

- - - - - - - - - - - - - - - - - - - -

Key takeaways from our reviews of prospectuses in Fiscal 2022 are set out below.

I) Primary business requirements in an IPO

Form 41-101F1 Information Required in a Prospectus (Form 41-101F1) requires an Issuer that is not an investment fund to include certain financial statements in its long form prospectus. This includes the financial statements of the Issuer and any business or businesses acquired, or proposed to be acquired, if a reasonable investor reading the prospectus would regard the primary business of the Issuer to be the business or businesses acquired, or proposed to be acquired. The purpose of the primary business requirements is to provide investors with the financial history of the business of the Issuer even if this financial history spanned multiple legal entities over the relevant time period.

On April 14, 2022, changes were made to Companion Policy 41-101CP related to primary business requirements. The purpose of the changes was to harmonize the interpretation of the financial statement requirements for a long form prospectus in situations where an Issuer has acquired a business, or proposes to acquire a business, that a reasonable investor would regard as being the primary business of the Issuer{8}. The changes provide additional guidance on the interpretation of primary business, including in what situations, and for which time periods, financial statements should be required. The changes provide guidance in circumstances when additional information may be necessary for the prospectus to meet the requirement to contain full, true and plain disclosure of all material facts relating to the securities being distributed.

The changes also clarify when an Issuer can use the optional tests in Part 8 of NI 51-102 to calculate the significance of an acquisition, and when an acquisition of mining assets would not be considered an acquisition of a business. The changes were informed by stakeholder feedback that certain inconsistent interpretations of the primary business requirements add time, cost and uncertainty for Issuers. These changes will facilitate a harmonized approach for Issuers across Canada and will reduce regulatory burden by giving Issuers additional clarity on the historical financial information required in an IPO, without compromising investor protection.

The changes came into effect on April 14, 2022.

II) Description of business

Where the business of the Issuer is in the early stages of development, and the business has little or no operations or revenues, we find that Issuers often do not provide sufficient detail on the business itself and/or its business plan. We note this trend particularly with Issuers completing CPC qualifying transactions and reverse takeover transactions. In order to comply with the requirements in Item 5 of Form 41-101F1, we remind Issuers that the disclosure of the business and/or business plan must be entity-specific and clear in the prospectus. Issuers should consider including this disclosure in one section (rather than dispersing the information throughout the prospectus). This is important for investors to be able to clearly understand the business and/or business plan of the Issuer.

We also encourage Issuers to segregate their disclosures about the business into two parts: (i) the current business of the Issuer, describing the Issuer's current operations, if any, and stage of product/service development, and (ii) future business plans of the Issuer, describing the Issuer's anticipated business plans and milestones, including any/applicable research and development.

In discussing current business and future business plans, Issuers should provide disclosure on at least all the following:

Current business

• description of the product/service currently provided,

• markets in which the products/services are being offered,

• regulatory framework applicable to those products/services,

• licenses and permits obtained,

• agreements/partnerships in place with individuals and/or entities to conduct the current business (such as distribution, manufacturing, construction, R&D agreements),

Future business plans

• identification of specific milestones in the issuer's business plans,

• for each milestone, a description of the steps and associated costs required to complete it or to take it to the next stage,

• identification of the anticipated timing of completion or timing to achieve the various stages in the business plan,

• regulatory framework applicable to these anticipated operations,

• discussion of material risk and uncertainties regarding these plans,

• if an R&D program is part of the anticipated operations, a discussion of the various stages of R&D, regulatory approvals required to achieve the objectives of the program, the activities completed to date, costs incurred to date and timing and costs anticipated to achieve the next stage.

Where business plans are preliminary in nature and there are no binding agreements, or where an Issuer currently has not commenced its execution of such plans, these facts should also be clearly disclosed in the prospectus.

In discussing future or anticipated business plans, Issuers should avoid using overly promotional language that is not based on the Issuer's current stage of development. For example, phrases such as "the largest of its type", "best in the market", or "leader in the field" should be supported by objective data that provides the Issuer with a reasonable basis on which to conclude that the statement is accurate.

In addition, Issuers should avoid disclosing FLI and long-range projections reflecting revenue, growth, and market share assumptions that appear speculative in comparison to the size and scope of the Issuer's current business plans. For example, without further information, it would appear speculative for an Issuer to forecast production targets of 50,000 units and sales of $10 million by 2024, when the production facilities have not been built. FLI must be supported by material factors and assumptions or removed from the disclosure as it may be misleading.

Further information on FLI is included throughout this Report.

III) Prospectus filings by investment issuers

We continue to review initial public offerings by Issuers that intend to invest the proceeds of the offering into a portfolio of assets, to determine if there are any novel business models giving rise to public interest concerns that cannot be addressed by disclosure alone. Where an Issuer is structured as a corporate finance Issuer, but its business objectives are similar to an investment fund or private equity fund, public interest concerns may arise due to the fact that substantive investor protections and registration requirements that apply to investment funds may not apply to the Issuer. Structural investor protections may be required to address such public interest concerns. We encourage Issuers to submit a pre-file application and consult with Staff in these circumstances.

IV) Base shelf prospectus -- sufficiency of proceeds and financial condition

For certain Reporting Issuers, the filing of a base shelf prospectus may not be appropriate given the Reporting Issuer's financial condition and uncertainty of financing. Typically, receipt refusal concerns on financial condition arise if the Reporting Issuer does not appear to have sufficient cash resources to continue operations for the next 12 months. In these cases, to address our concern that incremental drawdowns may be insufficient to satisfy the Reporting Issuer's short-term liquidity requirements, we may request that the Reporting Issuer

• withdraw the base shelf and file a short form prospectus with a minimum subscription amount,

• withdraw the base shelf and file a short form prospectus with a fully underwritten commitment, or

• arrange for additional committed sources of financing.

Staff note that any arrangements to address our concerns about a Reporting Issuer's financial condition should be finalized before a Reporting Issuer's prospectus is cleared for final.

In addition, Staff may question the size of a base shelf offering if it appears that the amount contemplated under the base shelf is significantly higher than the Reporting Issuer's current market capitalization. This imbalance may indicate a potential significant acquisition, transaction or change of business and, as such, Staff will inquire about the rationale for filing a base shelf prospectus with a contemplated offering in excess of its market capitalization.{9}

V) Prospectus lapse date

Under NI 41-101, an Issuer must not file its first amendment to a preliminary prospectus more than 90 days after the date of the receipt for the preliminary prospectus and must not file a final prospectus more than 90 days after the date of the receipt for the preliminary prospectus or an amendment to the preliminary prospectus. In addition, the final prospectus must be filed within 180 days from the date of the receipt for the preliminary prospectus.

Issuers are reminded to track the number of days that have passed since the date of the receipt of a preliminary prospectus and to file an amendment to a preliminary prospectus if it does not anticipate filing the final prospectus within 90 days of the date of the receipt for the preliminary prospectus or amendment to the preliminary prospectus. Issuers are encouraged to provide Staff with sufficient notice in advance of the lapse date to indicate their intentions with respect to the preliminary prospectus.

- - - - - - - - - - - - - - - - - - - -

Reminder: To avoid withdrawing a preliminary prospectus, an Issuer must

• file the final prospectus or an amendment to the preliminary prospectus within 90 days of the date of receipt of the preliminary prospectus, and

• file the final prospectus within 180 days of the date of the receipt of the preliminary prospectus.

- - - - - - - - - - - - - - - - - - - -

VI) Comfort letter requirements

Issuers filing a preliminary prospectus that is accompanied by an unsigned auditor's report must file a comfort letter (Letter) signed by the auditor and addressed to the applicable securities regulatory authorities where the prospectus is being filed under section 9.1(b)(iii) of NI-41-101 or section 4.1(b)(ii) of NI 44-101.

The Letter must be prepared in accordance with the relevant standards in the Handbook of the Chartered Professional Accountants of Canada, specifically, paragraph A38 of CICA Handbook 7150 Auditor's Consent to the Use of a Report of the Auditor Included in an Offering Document. The Letter provides comfort on the financial statements and informs the regulatory authorities that the audit has been substantially completed, except for the following matters:

• consideration of events between the dates of the preliminary and final prospectuses;

• review of comments issued by securities regulators;

• authorization of the financial statements by those charged with governance;

• reading of the final prospectus.

We remind Issuers and their advisors that the auditor comfort letter must be signed, dated and must not include other qualifications outside of the four qualifications noted above. For example, including a qualification that the audit procedures related to revenue are still outstanding would not be acceptable and the preliminary receipt (or the acceptance of the confidential pre-file) will not be issued until a revised letter is submitted. This may unnecessarily delay the review process.

VII) President's lists

A president's list is a list of potential investors in a securities offering that is provided by management of an Issuer to the underwriters. Where an Issuer proposes a president's list, the underwriting agreement may provide that the underwriters will receive a reduced commission (or no commission) on the securities sold to the investors on the president's list since the underwriters did not market the securities to them.

Subsection 130(1)(b) of the Act provides that each underwriter of securities that is required to sign a prospectus certificate is liable for misrepresentations in that prospectus. Staff are of the view that this liability extends to purchasers on a president's list. As such, where an Issuer identifies purchasers who will purchase securities in a prospectus offering, Staff may request that the prospectus contain a statement clearly indicating that purchasers who acquire securities from the Issuer have the same rights and remedies for rescission and/or damages against the Issuer and the underwriters, as the case may be, as purchasers who acquired securities through the underwriters.

VIII) Flow-through units

Staff are aware of a prospectus offering structure used by certain mining exploration companies where

• two types of flow-through units (FT Units and Premium FT Units) are offered at different prices (each for one common share and one-half of a common share purchase warrant at same exercise price per warrant share), and

• one type of flow-through unit (Premium FT Units) may be transferred from the initial purchasers to charities and then resold (Redistributed Units).

Reporting Issuers using this prospectus offering structure should include language in the prospectus which discloses that

• the tax benefits associated with the Premium FT Units are only available to the initial purchasers, and

• purchasers who acquire the Redistributed Units, either through a charitable organization or through arrangements made by the underwriters, will be afforded the same withdrawal rights, rescission rights and rights to damages against the Reporting Issuer or the underwriters, as the case may be, pursuant to applicable Securities Law as the initial purchasers of the Premium FT Units sold directly by the Reporting Issuer.

IX) Cessation of Canadian Dollar Offered Rate

We expect Reporting Issuers with outstanding securities that reference the Canadian Dollar Offered Rate (CDOR) to monitor developments in this area and consider whether appropriate fallback mechanisms are included in the relevant trust indenture, or other contractual document, for any relevant securities.

If a Reporting Issuer files a prospectus to qualify securities that will or may reference CDOR, we may raise comments, including why the Reporting Issuer still wants the ability to use CDOR as a reference rate given the announcement by Refinitiv Benchmark Services (UK) Limited (RBSL) regarding its cessation and the transition roadmap published by the Canadian Alternative Reference Rate Working Group (CARR). If a Reporting Issuer has a legitimate business rationale for issuing securities referencing CDOR, we expect the Reporting Issuer will

• monitor developments regarding the cessation of CDOR,

• include the provisions recommended by CARR in the relevant trust indenture, or other contractual document, providing a fallback mechanism if CDOR ceases to be available while the securities are outstanding, and

• include disclosure in the prospectus, or the relevant prospectus supplement in the case of a base shelf prospectus, on the fallback mechanism and the risks related to the fallback mechanism and CDOR ceasing to be available while the securities are outstanding.

Please see Part B -- Responsive Regulation of this Report for further information on the designation and regulation of financial benchmarks.

X) Underwriting conflicts disclosure requirements

On March 1, 2022, the OSC made, as a rule under the Act, OSC Rule 33-508 Extension to Ontario Instrument 33-507 Exemption from Underwriting Conflicts Disclosure Requirements (the Rule), which came into force on August 18, 2022.

The Rule extends the blanket relief issued on February 18, 2021 by Ontario Instrument 33-507 Exemption from Underwriting Conflicts Disclosure Requirements (Interim Class Order) (the OSC Blanket Order) by 18 months, therefore the OSC Blanket Order is still in effect until February 17, 2024.

The OSC Blanket Order provides an exemption from the underwriting conflicts disclosure requirements in National Instrument 33-105 Underwriting Conflicts (NI 33-105) if

• the distribution is made under an exemption from the prospectus requirement,

• the distribution is of a security that is an "eligible foreign security" as defined in NI 33-105, and

• each purchaser in Ontario that purchases a security pursuant to the distribution through such person or company is a "permitted client" as defined in section 1.1 of NI 31-103.

The OSC issued the OSC Blanket Order following discussions between the Compliance and Registrant Regulation branch, Staff and various institutional investors that had advised Staff that the underwriting conflicts disclosure requirement in NI 33-105 created barriers that prevent institutional investors in Ontario from participating in global offerings on a timely basis.

Staff are continuing to review options for a more permanent solution and may propose an amendment to NI 33-105 at a later date.

XI) Confidential prospectus pre-file review

In March 2020, Staff began accepting confidentially pre-filed prospectuses for review. We did so to provide Issuers with greater flexibility and more certainty in planning prospectus offerings, and to encourage continued capital formation during the pandemic.{10} On January 28, 2021, Staff issued a press release providing best practice guidance for confidential pre-file prospectuses. Since March 2020, we have reviewed 103 prospectuses on a confidential pre-filed basis.

- - - - - - - - - - - - - - - - - - - -

Tip: We would like to remind Issuers and advisors to carefully consider whether the draft preliminary prospectus is at an appropriate stage for a confidential pre-file review. We may determine that a draft is not at an appropriate stage for Staff review and ask that the submission be withdrawn. This may occur in any of the following circumstances:

• the disclosure in the draft document falls significantly short of the standard required of a preliminary prospectus. The pre-filed prospectus should contain all financial and non-financial disclosure that would be in the actual prospectus filing;

• there is no significant prospect of a transaction occurring within the foreseeable future. A deal timeline should be included in the filed cover letter to assist Staff in understanding when the review should ideally be completed. Staff will normally assume that the Issuer will file a preliminary prospectus shortly after the completion of the review of the pre-filed prospectus;

• the terms and conditions of the offering, and any related transactions, are still in flux.

In addition, the OSC will not review pre-files of:

• non-offering prospectuses, other than non-offering prospectuses pre-filed in connection with cross-border financings or where there is a specific legal or accounting matter requiring Staff input;

• prospectuses that solely qualify the issuance of securities on conversion of convertible securities, such as special warrants.

- - - - - - - - - - - - - - - - - - - -

Review Process

Any prospectus pre-filed confidentially will be subject to a full review, regardless of whether it is a long form, short form or shelf prospectus. Any legal or accounting questions where the Issuer is seeking a pre-filing interpretation or waiver should be highlighted.

The prospectus should be substantially complete. If the Issuer has not substantially settled the terms of offering or any related transactions, we may ask for the submission to be withdrawn. A substantially complete prospectus will also include all required financial statements. Accordingly, the financial statements included in a draft prospectus must include all the financial statements prescribed for a preliminary prospectus and be audited (or be accompanied by a comfort letter signed by the auditor) or reviewed, as applicable. Also refer to Section VI Comfort letter requirements of this Report.

The purpose of the pre-filing review is to expedite the review of the subsequently publicly filed preliminary prospectus. Accordingly, for existing Reporting Issuers, where it is clear from the Reporting Issuer's proposed timing that financial statements for a subsequent period will be required to be included in the publicly filed preliminary prospectus and those statements will be available shortly after the date of the pre-filing, we may defer our review until those financial statements are made available for our review.

In a slight departure from prior practice, we will generally accept confidential pre-filings for review that do not include all of the financial statements that will be required to be included in the publicly filed preliminary prospectus where:

1. The prospectus is being filed for an initial public offering or other transaction that will result in a new or substantially different Issuer, such as a spin-off transaction or special purpose acquisition corporation qualifying transaction;

2. The confidential pre-filed prospectus includes sufficient current financial history (recent financial statements for enough periods); and

3. The other disclosure in the draft prospectus is substantially complete.

To avoid the review of the confidential pre-filing being delayed,Issuers and their advisors should consult with staff to confirm which financial statements must be included in the prospectus pre-filed confidentially. Issuers and their advisors should be prepared to describe the rationale for commencing the pre-filing at an early stage and include submissions as to why the pre-filing should not lead to unnecessary duplication in the review of the prospectus.

Once the prospectus submission is deemed to be substantially complete, it will be assigned for review by Staff and an "acknowledgment of receipt" will be sent to counsel. We will use our best efforts to issue our first comment letter within published service standards for a long form prospectus starting from the date of the acknowledgement of receipt.

- - - - - - - - - - - - - - - - - - - -

Reminder: The process to submit a prospectus for a confidential pre-file review is outlined in CSA Staff Notice 43-310 Confidential Pre-File Review of Prospectuses (for non-investment fund issuers). The process to submit a pre-file application regarding interpretation of securities legislation to a particular offering or proposed offering or exemptive relief from securities legislation is outlined in NP 11-202.

- - - - - - - - - - - - - - - - - - - -

Refer to "Our Service Commitments" below for further information.

As the objective of the confidential prospectus pre-file review process is to provide Issuers with greater flexibility and more certainty in planning prospectus offerings and not to provide an open-ended review of a draft prospectus, we will consider a pre-file to be withdrawn and will close the file if Issuers are unresponsive (i.e. have not provided a response to Staff comment letters for an extended period of time). For greater certainty, we will consider the pre-file to be withdrawn if there is no response within 90 days of the date Staff last issued comments. If the pre-file has not been completed within 180 days from the initial pre-filing date, similar to the timing requirements in Item 2.3 of NI 41-101, Staff will close the file and the Issuer will be required to re-submit a new pre-file and pay the associated fees. In both cases, Staff will advise counsel that the pre-file will be closed.

XII) Actuarial consents

Insurance companies that provide a report of the appointed actuary with their annual financial statements that are included in a long form prospectus, or incorporated by reference into a final short form or base shelf prospectus, are required to file an expert's consent from the appointed actuary with the final prospectus in accordance with paragraph 9.2(a)(viii) of NI 41-101 or paragraph 4.2(a)(vii) of NI 44-101. The final prospectus must also include the disclosure required by Item 28 (Experts) of Form 41-101F1 or Item 15 (Interest of Experts) of Form 44-101F1, as applicable, in respect of the appointed actuary.

3. Exemptive Relief Applications

Staff review and make recommendations to appropriate decision makers on applications for exemptive relief. The review standard for granting relief varies, but it generally requires a decision maker to determine that granting the requested relief would not be prejudicial to the public interest. For further information about the process for exemptive relief applications, please refer to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

In Fiscal 2022, we completed reviews of 285 applications for exemptive relief from various Securities Law requirements, 14% higher than Fiscal 2021.

Exemptive Relief Applications by Type -- Fiscal 2022

A) Trends and guidance

We have noted an increase in applications compared with Fiscal 2021, with the majority of applications made in connection with relief from certain prospectus requirements and Reporting Issuer status. These two types of applications for relief have remained the most common. We will continue to monitor the types of applications we receive and the exemptive relief granted to determine whether we should consider changes to our rules or policies. Key takeaways from our exemptive relief work in Fiscal 2022 are set out below.{11}

I) Management cease trade orders (MCTO)

National Policy 12-203 Management Cease Trade Orders (NP 12-203) provides guidance as to when we will consider issuing an MCTO rather than a failure-to-file cease trade order. We previously provided certain guidance in OSC Staff Notice 51-731 Corporate Finance 2020 Annual Report regarding the timing of applications and our considerations of what constitutes an active, liquid market for a Reporting Issuer's securities. Reporting Issuers should consider when and how its determination of a failure to comply with a specified requirement will be disclosed. A Reporting Issuer should generally be able to determine that it will not comply with a specified requirement at least two weeks before the due date of the required filings and, as soon as it makes this determination, should issue the default announcement and submit the application as described in NP 12-203. We will generally not exercise our discretion to issue an MCTO unless a default announcement has been made.

4. Insider Reporting

We review compliance of reporting insiders and Reporting Issuers with insider reporting requirements through a risk-based compliance program. We actively and regularly assist Reporting Issuers and advisors by providing guidance on filing matters. The objective of our insider reporting oversight work is twofold:

Compliance

to assess whether Reporting Issuers are complying with insider reporting obligations.

Issuer Education and Outreach

to help Reporting Issuers better understand insider reporting obligations.

Insider reporting serves a number of functions, including deterring improper insider trading based on material undisclosed information and increasing market efficiency by providing investors with information about the trading activities of insiders, and, by inference, the insiders' views of the Reporting Issuer's future prospects. Non-compliance affects the integrity, reliability, and effectiveness of the insider reporting regime, which in turn has a negative impact on market efficiency. Where we identify non-compliance, we reach out to Reporting Issuers and request remedial filings. A Reporting Issuer should make remedial filings as soon as it becomes aware of an error to accurately inform investors of its activities, and to avoid any further late filing fees.

- - - - - - - - - - - - - - - - - - - -

Tip: Staff encourage Reporting Issuers to remind their insiders regarding their SEDI filing obligations and to file reports on time to avoid late fees.

Late insider reports (generally, those filed more than five calendar days after the date of the transaction) are subject to late filing fees. Late filing fees are set out in Appendix D of OSC Rule 13-502 Fees.

- - - - - - - - - - - - - - - - - - - -

We educate Reporting Issuers through our compliance reviews and we also reach out to new Reporting Issuers directly to inform them of insider reporting obligations. We encourage Reporting Issuers to implement insider trading policies and monitor insider trading to meet best practice standards in NP 51-201.

- - - - - - - - - - - - - - - - - - - -

Reminder: The definition of "reporting insider" can be found in National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104).

- - - - - - - - - - - - - - - - - - - -

We remind Reporting Issuers and insiders that they should also refer to the definition of "significant shareholder" and the interpretation of "control" in NI 55-104 as well as the interpretation of "beneficial ownership" in the Act when determining who is required to file on SEDI. Understanding these definitions and interpretations will help Reporting Issuers identify and comply with their obligations.

Staff often see problems with reporting the type of ownership (for example, not reporting by type of holding or reporting it incorrectly). For indirect ownership or control or direction holdings, we remind Reporting Issuers and insiders to report the name of the registered holder.

A person is an indirect beneficial owner when the person's securities are held through an Issuer, an affiliated Issuer, a family trust, a third person or other legal entity. If you are an insider and you are the beneficial owner of the securities held in trust, you must report the holdings and transactions of the trust on your insider report. The key information to be included:

• Ownership type: Indirect

• Disclose the name of the trust as the registered holder

If you are an insider and you exercise control or direction over securities held in trust, you must report the holdings and transactions of the trust on your insider report. The key information to be included:

• Ownership type: Control or Direction

• Disclose the name of the trust as the registered holder

Refer to sections 3.2 and 3.3 of Companion Policy 55-104CP Insider Reporting Requirements and Exemptions for additional information.

How do I submit a SEDI late fee waiver request?

A reporting insider or their agent (as applicable, a "filer") can submit a late fee waiver request in writing to sedilatefees@osc.gov.on.ca.

The filer should include the insider's name, the Reporting Issuer's name and invoice number in the email and provide a detailed explanation of why the late fee should be waived.

Staff will consider late fee waiver requests on a case-by-case basis. However, filers should note that late fee waiver requests will generally not be granted for the following reasons:

• unfamiliarity with the legal obligations of an insider (generally, within 10 calendar days of becoming a reporting insider and five days for any change in holdings);

• an insider's or an agent's misunderstanding of the five day reporting requirement (e.g., reporting within five business days rather than five calendar days);

• delays caused by vacations or business trips;

• miscommunication between the insider and their agent or broker (e.g., failure of a broker to provide the insider with the details of a trade);

• negligence of filing agents.

- - - - - - - - - - - - - - - - - - - -

Reminder to Insiders/Agents: Ensure the contact information is correct on the insider's profile and file any amendments within ten days of any change in name, relationship to a Reporting Issuer, or if the insider has ceased to be a reporting insider of the Reporting Issuer.

- - - - - - - - - - - - - - - - - - - -

5. Our Service Commitments

Staff remind Issuers to consider the following when filing a confidential pre-file prospectus, preliminary prospectus or exemptive relief application:

• see our service commitments on the OSC website for guidance on when we will aim to respond to inquiries and issue comment letters;

• if you send an email or voicemail to Staff outside of our normal business hours from 9 am to 5 pm from Monday to Friday, you may not receive a response until the following business day;

• note that novel pre-file prospectuses, preliminary prospectuses or exemptive relief applications that are complex or raise new policy issues generally take longer to review;

• if you file a preliminary short form prospectus or a preliminary base shelf prospectus for a novel product/structure or after completing a reverse take-over transaction, a restructuring transaction or similar transaction, we may place the file on "long form" timing pursuant to subsection 5.5(3) of NP 11-202;

• when you file a preliminary prospectus, please make sure that any PIFs delivered with the preliminary prospectus have been properly completed (e.g., that the PIF has a response for each question and is signed). Deficient PIFs will give rise to Staff comments in connection with a prospectus filing;

• if an Issuer is currently subject to an OSC enforcement proceeding, any application for a "not a Reporting Issuer" order under subsection 1(10) of the Act may take longer than usual and would not be considered "routine".

- - - - - - - - - - - - - - - - - - - -

Tip: Prior to filing a pre-file prospectus, preliminary prospectus or exemptive relief application check the OSC website at www.osc.ca for precedents, guidance and resources to assist with any questions you may have.

- - - - - - - - - - - - - - - - - - - -

6. Administrative Matters

A) Participation fee form

Under OSC Rule 13-502 Fees, if a Reporting Issuer files its annual financial statements before they are due, the participation fee must also be paid on the same date. If the participation fee is not paid at the same time the annual financial statements are filed, late fees will be applied starting from the date that the annual financial statements were filed.

Each Reporting Issuer must select the participation fee form applicable to its Reporting Issuer classification as the forms and related fees are substantively different.

Staff have observed that many new Reporting Issuers are submitting participation fees that are often not required with their first annual financial statements. As a result, Staff are seeing an increase in refund requests. On this point, please refer to section 2.2(4) of OSC Rule 13-502 Fees which states:

"Despite subsections (1) to (3), a participation fee is not payable by a participant under this section if the participant became a reporting issuer in the period that begins immediately after the time that would otherwise be the end of the previous fiscal year in respect of the participation fee and ends at the time the participation fee would otherwise be required to be paid under section 2.3."

For example: ABC Inc. became a Reporting Issuer on January 10, 2022 and has a December 31 year end. ABC Inc. filed its annual financial statements for the period ended December 31, 2021, together with Form 13-502F2 on April 29, 2022, and paid a participation fee of $890. However, a participation fee was not required to be paid because the first participation fee is not due until the filing deadline for the next annual period ended December 31, 2022.

An Issuer that is not yet a Reporting Issuer in Ontario and is adding Ontario as a recipient agency to its previously filed annual filings is not required to submit a participation fee form and pay a participation fee. Participation fees would only be required if, as at the financial year end, theIssuer was a Reporting Issuer in Ontario.

- - - - - - - - - - - - - - - - - - - -

Tip: Pay participating fees at the same time as filing financial statements to avoid incurring late fees and select the applicable fee form.

- - - - - - - - - - - - - - - - - - - -

B) Well-known seasoned issuers

On December 6, 2021, the CSA published temporary exemptions from certain base shelf prospectus requirements for qualifying well-known seasoned Issuers (WKSIs). These exemptions will reduce regulatory burden on qualifying large, well-known Reporting Issuers. The CSA has implemented the relief through local blanket orders that are substantively harmonized across the country, which in Ontario is: Ontario Instrument 44-501 Exemption from Certain Prospectus Requirements for Well-known Seasoned Issuers (Interim Class Order) (Ontario Instrument 44-501).

Reporting Issuers that meet the eligibility criteria in section 10 of Ontario Instrument 44-501 are exempt from the requirement to file and receive a receipt for a preliminary short form base shelf prospectus. Rather, Reporting Issuers file a final short form base shelf prospectus and receive a final receipt provided that required documentation is in good order.

To date, 22 Reporting Issuers have filed 25 WKSI prospectuses, with Ontario acting as the principal regulator.

XIII) Filing Procedure

A Reporting Issuer files, in place of a preliminary short form base shelf prospectus, a letter that is compliant with section 10 of Ontario Instrument 44-501. Specifically, this letter should be filed under the "Shelf Prospectus (NI 44-102)" filing type, "Preliminary short form prospectus" filing subtype. If the Reporting Issuer is a mining Issuer, any technical reports must also be filed under the "preliminary" subtype.

The Reporting Issuer then files a final short form base shelf prospectus under the "final" subtype together with all other documents typically filed with a final short form base shelf prospectus (for example: confirmation letter regarding final materials, legal consents, auditor consents, non-issuer submission to jurisdiction forms, material contracts).

Filing Type: Shelf Prospectus (NI 44-102)

• Filing Subtype: Preliminary Short Form Prospectus

Documents to be filed:

• WKSI letter (per section 10 of Ontario Instrument 44-501) Use document type: Preliminary short form prospectus

• Technical report (for mining Issuers) Use document type: Technical report (NI 43-101)

• Filing Subtype: Final Short Form Prospectus

Documents to be filed:

• Final short form base shelf prospectus

• List of directors and officers with locations of previously filed PIFs, if applicable

• Any PIFs that have not been previously filed

• All other documents typically filed with a final short form base shelf prospectus

XIV) WKSI FAQs

1. Are Reporting Issuers required to pay the $3,800 fee?

Yes, through SEDAR. The short form prospectus fee code remains the same (AI4A30).

2. What should be in the WKSI filing letter?

Please refer to requirements in section 10(l) of Ontario Instrument 44-501.

3. What documents should be filed under the preliminary subtype with the WKSI filing letter?

Only the document type "Technical reports (NI 43-101)" must be filed under the preliminary subtype (for mining Issuers). All other documents are to be filed under the final subtype.

4. Is the NP 11-202, section7.2(2) confirmation letter and qualification certificate required?

No. Please refer to section 10(k) of Ontario Instrument 44-501.

5. When do we file the final prospectus?

All documents are filed immediately after the WKSI filing letter preliminary submission.

6. Are PIFs required? If so, when should they be filed?

Yes. Unlike all other prospectuses, the PIFs are required to be filed with the final prospectus.

7. What additional documents are filed with the final prospectus?

Any documents typically filed with a final short form prospectus (see Item 4.2 of NI 44-101 section 7.3(4) of NP 11-202, i.e. confirmation letter, legal consents, auditor consents, non-issuer submission to jurisdiction forms, undertakings, material contracts etc.)

8. What will be the access level of the WKSI letter filed under "Preliminary Short Form Prospectus"?

The WKSI filing letter will be made public after the issuance of the final receipt.

9. What is the OSC's expected timing for issuance of a final receipt?

In the ordinary course, for a final base shelf prospectus filed before noon, and in compliance with the requirements of NI 44-102 and Ontario Instrument 44-501, we expect that the accelerated procedures will permit the receipt to be issued on the same business day. If a final base shelf prospectus is filed after noon, and in compliance with the requirements of NI 44-102 and Ontario Instrument 44-501, we expect that the accelerated procedures will permit the receipt to be issued before noon on the next business day.

C) Common preliminary prospectus filing deficiencies

Prospectus Review Officers in the Branch perform a basic preliminary review on all prospectus filings to ensure that there are no disclosure or fee issues that may cause us not to issue a preliminary receipt.

Staff would like to highlight some of the more common errors when filing a preliminary prospectus that often result in comments and requests for changes.

• Incorrect or missing red herring language. For example, missing either the short form and base shelf red herring language on the face page of a base shelf prospectus, or missing or incorrect jurisdictions.

• Incorrect language of the certificate pages of the prospectus. For example, long form language used on a short form prospectus, or missing or incorrect jurisdictions.

• Missing or incorrect Auditor's Comfort letter. For example, comfort letter does not reference the prospectus and date filed, or missing a statement that audit is substantially completed.

• Incorrect or missing reference to the national instrument in the qualification certificate. For example, the reference to Part 2 of NI 44-101 is incorrect or missing, or the certificate is not signed by an executive officer.

• Missed jurisdictions for documents incorporated by reference. For example, documents incorporated by reference are not filed in each jurisdiction where securities are being offered under the prospectus.

- - - - - - - - - - - - - - - - - - - -

Tip: Provide a complete list of current directors, officers and promoters in the cover letter. To facilitate our review of PIFs, Issuers are advised to provide the following information in the cover letter accompanying the materials filed with a preliminary prospectus:

• the name of each current director, executive officer and promoter of the Issuer (and, if the promoter is not an individual, each director and executive officer of the promoter);

• for each of the individuals, an indication as to whether a PIF has been delivered with the preliminary prospectus or a PIF or other acceptable authorization document for the individual was previously filed or delivered;

• for each of the individuals for whom the Issuer has not delivered a PIF because a PIF or other acceptable authorization document was previously filed, the SEDAR project number and submission number under which the PIF or other acceptable authorization document was previously filed.

See OSC Staff Notice 41-702, Prospectus Practice Directive #1 -- Personal information forms and other procedural matters regarding preliminary prospectus filings.

- - - - - - - - - - - - - - - - - - - -

D) Prospectus filings -- timing

- - - - - - - - - - - - - - - - - - - -

Reminder: A preliminary prospectus, together with all accompanying materials in acceptable form, should be filed before 12:00 noon on the day that the receipt is required. If materials are filed after 12:00 noon, the receipt will generally be issued before 12:00 noon on the next business day and dated as of that day.

- - - - - - - - - - - - - - - - - - - -

If Issuers anticipate filing a preliminary prospectus within a reasonable period of time after 12:00 noon (or 3:00 p.m. for a bought deal prospectus) and need a receipt issued that day, they should advise the Prospectus Review Officer by email at prospectusreviewofficer@osc.gov.on.ca and explain the reason for not filing before the applicable deadline. We will attempt to accommodate these requests but can provide no assurance that a receipt will be issued on the same day.

Where an Issuer plans to conduct an overnight marketed deal, the Issuer should: (a) advise the Prospectus Review Officer by email no later than the morning of the day on which the receipt is required (but prior to filing the materials), and (b) file all materials in acceptable form before 12:00 noon that day. In such cases, we will make reasonable efforts to issue a receipt for the preliminary prospectus at or just after 4:00 p.m. on the day of the filing.

We sometimes receive requests to issue a receipt for a preliminary prospectus at a specific time of the day. In rare circumstances, Staff may consider this request where the Issuer can demonstrate that there would be a material adverse consequence to the Issuer if a preliminary receipt is not issued at the specific time. The Issuer should make such a request, along with reasons in its cover letter accompanying the filing of the preliminary prospectus. The cover letter should also acknowledge that the Issuer bears the risk of the receipt being issued at a time other than the requested time. Issuers should note that we cannot guarantee that the request will be satisfied and it is possible that the receipt will be issued at a time other than the requested time.

Part B: Responsive Regulation

1. Access Equals Delivery

2. Continuous Disclosure Requirements

3. Listed Issuer Financing Exemption

4. Environmental, Social and Corporate Governance

5. Benchmarks

6. Designated Rating Organizations

7. NI 43-101 Consultation Paper

1. Access Equals Delivery

On April 7, 2022, the CSA published for comment proposed amendments to introduce an access equals delivery (AED) model for prospectuses, generally, annual financial statements, interim financial reports and related MD&A of non-investment fund Reporting Issuers. The proposed amendments contemplate that the delivery requirement for a document under Securities Law will be satisfied when the document is filed on SEDAR and, where applicable, a news release is issued to alert investors that the document is available and that a paper or an electronic copy can be obtained upon request. The proposed AED model does not remove an investor's ability to request documents in paper or electronic form or prevent an Issuer from delivering financial statements and related MD&A based on an investor's standing instructions. The purpose of the proposed amendments is to modernize the way documents are made available to investors and to provide a more cost-efficient, timely and environmentally friendly manner of communicating information to investors than paper delivery. The comment period expired on July 6, 2022. The CSA received 29 comments from various market participants, including Issuers, investors, industry associations and law firms and is currently considering the feedback.

2. Continuous Disclosure Requirements

On May 20, 2021, the CSA proposed changes to the CD requirements for non-investment fund Reporting Issuers to streamline and clarify annual and interim filings. The comment period ended on September 17, 2021 and the CSA received 36 comment letters.

The proposed changes are as follows:

• streamline and clarify certain disclosure requirements in the MD&A and AIF for non-investment fund Reporting Issuers;

• eliminate certain requirements that are redundant or no longer applicable;

• combine the financial statements, MD&A and, where applicable, AIF into one reporting document called the annual disclosure statement for annual reporting purposes, and the interim disclosure statement for interim reporting purposes;

• introduce a small number of new requirements to address gaps in disclosure.

The feedback in respect of the proposed changes to streamline and clarify annual and interim filings was generally supportive. The CSA has considered the feedback received and is in the process of revising the proposed changes to reflect certain of the comments received and to improve or clarify drafting. The revisions are not considered to be material changes. Provided all necessary approvals are obtained, the CSA expects to publish the final amendments in 2023.

The CSA also consulted on a proposed framework for semi-annual reporting on a limited basis. The framework would allow Venture Issuers, that are not SEC issuers, the choice of reporting on a semi-annual rather than a quarterly basis. Alternative disclosure would be required for interim periods where financial statements and MD&A would not be filed. While a rule was not published for comment, the CSA sought public comment on whether rules consistent with the proposed framework could further reduce regulatory burden for these Venture Issuers while still providing investors with adequate information to make informed decisions. The stakeholder feedback in response to the proposed semi-annual reporting framework was mixed. The CSA will consider the feedback received in connection with any future CSA proposal in relation to semi-annual reporting.

3. Listed Issuer Financing Exemption

On September 8, 2022, the CSA published amendments to NI 45-106 to introduce a new prospectus exemption, the listed Issuer financing exemption, that came into force on November 21, 2022. The exemption will allow a Reporting Issuer to distribute freely tradeable securities of a type that trades on a Canadian stock exchange to any class of investor, primarily based on its CD record. The exemption is expected to reduce costs for Reporting Issuers raising capital through the public markets. It will also allow Reporting Issuers greater access to retail investors and provide retail investors with a broader choice of investments.

The exemption will be available to a Reporting Issuer that has been a Reporting Issuer for at least 12 months, is listed on a Canadian stock exchange and has filed all continuous disclosure documents required under Canadian Securities Law. An eligible Reporting Issuer must file a short offering document to supplement and confirm the accuracy of the Reporting Issuer's continuous disclosure record. Under the exemption, a Reporting Issuer could raise up to the greater of $5 million or 10 per cent of the Reporting Issuer's market capitalization, to a maximum of $10 million, annually. More significant transactions that could affect a Reporting Issuer's overall business will continue to require the use of a prospectus or other available prospectus exemption.

4. Environmental, Social and Corporate Governance

On October 18, 2021, the CSA published for comment National Instrument 51-107 Disclosure of Climate-related Matters to address the need for more consistent and comparable information to help inform investment decisions. The proposed requirements contemplate disclosure largely consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The comment period closed on February 16, 2022. We received 131 comment letters in response to this consultation. The CSA is currently considering stakeholder feedback on this consultation. On October 12, 2022, the CSA issued a news release noting that it is actively considering international developments, including the proposals published by the International Sustainability Standards Board (ISSB) (further discussed below) and proposed rule amendments for climate-related information published by the United States Securities and Exchange Commission, and how they may impact or further inform the proposed climate-related disclosure rule published in October 2021.

The OSC continues to be involved with IOSCO's Sustainable Finance Task Force (STF), established in 2020 to carry out work to improve the consistency, comparability and reliability of sustainability-related disclosures. In March 2022, the ISSB, a newly created organization which will establish one of its two global offices in Montréal, published exposure drafts of a proposed general sustainability standard and climate-related disclosure standard. Staff, along with other OSC representatives, are also involved in the work of the IOSCO STF Technical Review Coordination Group Climate Working Group, which is conducting a deep-dive assessment of the ISSB's exposure drafts.

5. Benchmarks

A) Financial Benchmarks

On July 13, 2021, Multilateral Instrument 25-102 Designated Benchmarks and Benchmark Administrators (MI 25-102), which establishes a comprehensive regime for the designation and regulation of financial benchmarks and those that administer them, came into force in Ontario.

In Canada, the OSC and the AMF are the co-lead authorities for CDOR and RBSL. We conduct reviews of designated benchmarks, designated benchmark administrators and benchmark contributors using a risk-based approach.

When we identify a concern, or an area of material non-compliance, we may take various actions depending on the nature of the observation and the perceived or potential harm to the capital markets. This may include, but is not limited to, recommending changes to the designated benchmark administrator's or a benchmark contributor's policies, procedures or information and documents on the firm's website, or requiring training or specified oversight of the firm's staff in areas where we have seen non-compliance with the firm's policies or procedures.

B) Commodity Benchmarks

On April 29, 2021, the CSA published proposed amendments to MI 25-102, which would establish a regime for the designation and regulation of commodity benchmarks and those that administer them. The comment period ended on July 28, 2021 and we received five comment letters. The CSA is in the process of preparing the final version of the amendments.

6. Designated Rating Organizations

In April 2012, the CSA implemented a regulatory oversight regime for credit rating agencies (CRAs) through National Instrument 25-101 Designated Rating Organizations (NI 25-101) (DROs). The regime recognizes and responds to the role of CRAs in our credit markets, and the role of CRA-issued ratings, which are referred to in securities rules and policies. Under the regime, the OSC has the authority to designate a CRA as a DRO, to impose terms and conditions on a DRO, and to revoke a designation order, or change its terms and conditions, where the OSC considers it in the public interest to do so.

There are currently five CRAs that have been designated as DROs in Canada under NI 25-101:

1. DBRS Limited

2. Fitch Ratings, Inc. (Fitch)

3. Kroll Bond Rating Agency, LLC (Kroll)

4. Moody's Canada Inc. (Moody's)

5. S&P Global Ratings Canada (S&P)

Kroll has only been designated as a DRO for the purposes of the alternative eligibility criteria in section 2.6 of NI 44-101 and section 2.6 of NI 44-102 for Issuers of asset-backed securities to file a short-form prospectus or shelf prospectus, respectively.

In Canada, the OSC is the principal regulator of these DROs. We conduct reviews of DROs using a risk-based approach. Our reviews focus on credit rating activities of the CRAs in Canada or in respect of Canadian Issuers.

When we identify a concern, or an area of material non-compliance, we may take various actions depending on the nature of the observation and the perceived or potential harm to the marketplace. This may include, but is not limited to, recommending changes to the DRO's policies, procedures or information and documents on the DRO's website, or requiring training or specified oversight of DRO staff in areas where we have seen non-compliance with the DRO's policies or procedures.

Review program for Fiscal 2022

The DRO review program for Fiscal 2022 focused on the following four topics:

• deficiencies identified by DRO compliance monitoring and internal audit functions;

• ESG factors;

• digital assets;

• global transition from interbank offered rates (IBORs) to risk-free rates (RFRs).

These risk-based topics were chosen following consideration of current regulatory issues and the OSC's statement of priorities for that fiscal year. In particular, the DRO review sought to obtain information on certain topics that were being considered in other work streams of the Branch, to create the potential for "leveraging" knowledge and for regulatory efficiencies.

In terms of findings, we note that:

• most deficiencies reported by the DROs were related to adherence to policies, procedures and methodologies, followed by deficiencies related to management of conflicts of interest. Deficiencies were generally resolved through the DROs' internal processes;

• all the DROs consider ESG factors as part of their credit rating process;

• at the time of our review, the DROs had not rated any Canadian crypto asset Issuers or any Canadian entities that mine crypto assets;

• during the review period, DROs considered how discontinuation of the London Interbank Offered Rate (LIBOR) could impact existing or new ratings of securities or loan agreements that used LIBOR as a reference rate. In particular, the DROs considered how Issuers would transition from LIBOR to an RFR.

Review programfor 2022-2023 fiscal year

In our DRO review program for the 2022-2023 fiscal year, we plan to conduct further work regarding deficiencies identified by DRO compliance monitoring and internal audit functions and the use of ESG factors in determining credit ratings.

International cooperation

The OSC is a founding member of the Supervisory Colleges for the three largest global credit ratings agencies (S&P, Moody's and Fitch). The Supervisory Colleges were established by the SEC, ESMA and other securities regulators as a result of an IOSCO recommendation and hold virtual meetings on a quarterly basis. Staff also play a key role in other virtual meetings with securities regulators regarding CRAs. The OSC is also a member of IOSCO Committee 6 on CRAs.

7. NI 43-101 Consultation Paper

On April 14, 2022, the CSA published Consultation Paper 43-401 Consultation on National Instrument 43-101 Standards of Disclosure for Mineral Projects seeking comments on Canada's standards for disclosing scientific and technical information about mineral projects as the CSA considers ways to update and enhance mining disclosure requirements. The comment period closed on September 13, 2022. We received 74 comment letters in response to this consultation. The CSA is currently considering that feedback.

NI 43-101 was first adopted in 2001 and was last amended in 2011. The CSA continually monitors the mining disclosure requirements in NI 43-101, and has gathered data showing deficiencies in technical report disclosure identified through CD reviews, prospectus reviews, and targeted IORs. These deficiencies include:

• improper self-assessment by report authors of their independence, competence, expertise or relevant experience;

• poor quality of scientific and technical disclosure for early-stage exploration properties related to new stock exchange listings;

• inadequate mineral resource estimation disclosure, including disclosure related to reasonable prospects for eventual economic extraction;

• misuse of preliminary economic assessments;

• inadequate disclosure of all business risks.

The consultation paper is seeking general comments and asking specific questions touching on a wide range of issues, including:

• the application of innovative technologies to the requirement that a technical report author conduct a current personal inspection of a mineral project;

• verification of data from previous property owners;

• the broad, undefined range of precision of a preliminary economic assessment;

• the independence of and qualifications for technical report authors;

• disclosure requirements related to environmental matters;

• disclosure of the risks and uncertainties that arise as a result of the rights of Indigenous Peoples.

Part C: Resources

1. Prior Year Corporate Finance Branch Reports

2. Key Staff Notices

3. Staff Contact Information

1. Prior Year Corporate Finance Branch Reports

Many topics discussed in previous Branch reports remain relevant. These reports continue to be valuable resources for Issuers and their advisors to consult when preparing an Issuer's continuous disclosure or prospectus.

OSC Staff Notice 51-732 Corporate Finance Branch 2021 Annual Report

OSC Staff Notice 51-731 Corporate Finance Branch 2020 Annual Report

OSC Staff Notice 51-730 Corporate Finance Branch 2019 Annual Report

2. Key Staff Notices

New Staff Notices

Previous Staff Notices

3. Staff Contact Information

The OSC Inquiries & Contact Centre operates from 8:30 a.m. to 5:00 p.m. Eastern Time, Monday to Friday, and can be reached on the Contact Us page on the OSC website at:

osc.gov.on.ca

If you have questions or comments about this Report, please contact:

Winnie Sanjoto

Director

Corporate Finance

wsanjoto@osc.gov.on.ca

416-593-8119

 

Marie-France Bourret

Manager

Corporate Finance

mbourret@osc.gov.on.ca

416-593-8083

 

Christine Krikorian

Senior Accountant

Corporate Finance

ckrikorian@osc.gov.on.ca

416-593-2313

 

Joanna Akkawi

Legal Counsel

Corporate Finance

jakkawi@osc.gov.on.ca

416-593-8054

{1} See the 2022 Annual Report published by the Ontario Securities Commission.

{2} For a prospectus filing, pursuant to NP 11-202, an Issuer's principal regulator is the regulator of the jurisdiction in which the Issuer's head office is located. If the regulator identified is not in a specified jurisdiction, the principal regulator is the regulator in the specified jurisdiction with which the Issuer has the most significant connection. See subsections 3.4(4) -- 3.4(8) of NP 11-202.

{3} For more information see CSA Staff Notice 51-312 (Revised) Harmonized Continuous Disclosure Review Program.

{4} A full review generally includes a review of the Issuer's most recent annual and interim financial statements and MD&As, AIF, annual reports, information circulars, news releases, material change reports, website, social media disclosure, investor presentations, and SEDI filings.

{5} The standards and interpretations issued by the International Accounting Standards Board, as amended from time to time.

{6} OSC news release: https://www.osc.ca/en/news-events/news/osc-working-ensure-crypto-asset-trading-platforms-comply-securities-law CSA news release: https://www.osc.ca/en/news-events/news/canadian-securities-regulators-outline-regulatory-framework-compliance-crypto-asset-trading

{7} Other includes industries such as CPCs, hospitality, gaming, cryptocurrency and transportation.

{8} For more information, see CSA Notice of Changes to Companion Policy 41-101CP to National Instrument 41-101 General Prospectus Requirements Related to Financial Statement Requirements.

{9} For more information and guidance, Reporting Issuers and advisors, including those filing a base shelf or non-offering prospectus, should review CSA Staff Notice 41-307 (Revised) Concerns regarding an issuer's financial condition and the sufficiency of proceeds from a prospectus offering as well as section 5.4 of NI 44-102.

{10} See CSA Staff Notice 43-310 Confidential Pre-file Review of Prospectuses (for non-investment fund Issuers).

{11} Prior OSC orders and exemptive relief decisions can be found on the OSC website or on CanLII at https://canlii.org/en/on/onsec/.

CSA Staff Notice 13-315 (Revised) -- Securities Regulatory Authority Closed Dates 2023

CSA Staff Notice 13-315 (Revised) Securities Regulatory Authority Closed Dates 2023

December 8, 2022

We have a review system for prospectuses (including long form, short form and mutual fund prospectuses), prospectus amendments, pre-filings, and waiver applications. It is described in National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions (NP 11-202).

Under NP 11-202, a filer that receives a receipt from the principal regulator will be deemed to have a receipt in each passport jurisdiction where the prospectus was filed. However, the principal regulator's receipt will only evidence that the Ontario Securities Commission (OSC) has issued a receipt if the OSC is open on the date of the principal regulator's receipt and has indicated that it is "clear for final". If the OSC is not open on the date of the principal regulator's receipt, the principal regulator will issue a second receipt that evidences that the OSC has issued a receipt on the next day that the OSC is open.

The following is a list of the closed dates of the securities regulatory authorities for 2023 and January 2024. Bracketed information indicates those jurisdictions that are closed on the particular date. Issuers should note these dates in structuring their affairs.

1. Saturdays and Sundays (all)

2. Monday, January 2 (all)

3. Tuesday, January 3 (QC)

4. Monday, February 20 (BC, AB, SK, MB, ON, NB, PE, NS)

5. Friday, February 24 (YT)

6. Monday, March 20 (NL)

7. Friday, April 7 (all)

8. Monday, April 10 (all except AB, SK, ON, NL)

9. Monday, April 24 (NL)

10. Monday, May 22 (all)

11. Wednesday, June 21 (YT, NT)

12. Friday, June 23 (QC)

13. Monday, June 26 (NL)

14. Friday, June 30 (QC)

15. Monday, July 3 (all except QC)

16. Monday, July 10 (NL, NU)

17. Wednesday, August 2 (NL{*})

18. Friday, August 4 (SK)

19. Monday, August 7 (all except YT, QC, NL, PE)

20. Friday, August 18 (PE)

21. Monday, August 21 (YT)

22. Monday, September 4 (all)

23. Monday, October 2{**}

24. Monday, October 9 (all)

25. Monday, November 13 (all except AB, ON, QC)

26. Thursday, December 21 (NT)

27. Friday, December 22 (NT, NU, QC)

28. Friday, December 22 after 12:00 p.m. (NB, PE, NS), after 1:00 p.m. (YT, BC)

29. Monday, December 25 (all)

30. Tuesday, December 26 (all)

31. Wednesday, December 27 (NT, NU)

32. Thursday, December 28 (NT, NU)

33. Friday, December 29 (NT, NU, QC)

34. Friday, December 29 after 12:00 p.m. (NB), after 1:00 p.m. (BC)

35. Monday, January 1, 2024 (all)

36. Tuesday, January 2, 2024 (QC)

{*} Weather permitting, otherwise observed on the first following acceptable weather day, such determination made on morning of holiday.

{**} This is the National Day of Truth and Reconciliation. Please check securities regulatory authorities' websites closer to this date to see if a particular jurisdiction's offices will be closed.

CSA Staff Notice 25-306 -- Activist Short Selling Update

CSA Staff Notice 25-306 Activist Short Selling Update

December 8, 2022

Part 1. Introduction

On December 3, 2020, the Canadian Securities Administrators (CSA or we) published CSA Consultation Paper 25-403 Activist Short Selling (Consultation Paper) for a 90-day consultation period. The purpose of the Consultation Paper was to facilitate discussion relating to activist short selling and its potential impact on Canadian capital markets. We received 23 comment letters and thank all those who provided comments. A summary of comments and responses is attached at Appendix A. Since the Consultation Paper was published, we have also conducted informal discussions and consultations with various regulatory advisory committees and industry groups. We have actively monitored international developments related to short selling, including those directly relevant to activist short selling.

Part 2. Executive Summary

Our consultations and comments received in response to the Consultation Paper show that there continue to be negative views associated with activist short selling and, in general, with short selling. This perception is primarily held by issuers targeted in recent campaigns. Some stakeholders believe that changes to the regulatory requirements should be considered to address perceived problems with short selling, including activist short selling. Some commenters acknowledge there are positive aspects of activist short selling, particularly its contribution to price discovery.

We acknowledge the continued and persistent negative perception of short selling and the concerns some stakeholders have with the existing regulatory regime for short selling. Today, we are also publishing Joint CSA-IIROC Staff Notice 23-329 Short Selling in Canada (Joint CSA-IIROC Staff Notice 23-329) to seek feedback on general short selling issues and the existing regulatory framework. We encourage market participants and other stakeholders to provide comments on this notice. The feedback we receive will inform any future regulatory initiatives in this area.

At the same time, CSA staff, through its existing committees, continues to monitor and analyze activist short selling initiatives, and short selling in general, to understand whether there are gaps in the regulatory regime that need to be addressed to ensure investor protection and foster fair and efficient capital markets. In particular, we:

• continue to enforce securities legislation provisions relevant to activities of dishonest activist short sellers, including misrepresentation, fraud and market manipulation;

• monitor the number of activist short selling campaigns and review trends and campaign statistics;

• review complaints regarding activist short selling and possible manipulation in the regular course;

• monitor other domestic initiatives including, most importantly, the ongoing failed trades study conducted by the Investment Industry Regulatory Organization of Canada (IIROC) to see whether the findings support regulatory initiatives that may impact activist short selling; and

• monitor international short selling initiatives.

Part 3. Recent Developments

Since the publication of the Consultation Paper, there have been several developments that are relevant to short selling and activist short selling. We outlined them below and discussed them in more detail in Joint CSA-IIROC Staff Notice 23-329.

a. IIROC's Failed Trades Study

As highlighted in its public priorities,{1} IIROC conducted a failed trades study which analyzed data provided by the Canadian Depository for Securities (CDS) to take an in-depth look at the settlement process and the handling of fails to identify whether any systemic issues exist. IIROC last studied settlement fails in 2007, but this was done using limited data. IIROC updated this study with recent data covering a five-year period, in part to reassess the results of their previous study and to determine whether there is a connection between failed trades and short selling or other administrative causes. Joint CSA-IIROC Staff Notice 23-329 includes a high-level overview of the findings from this study. IIROC Notice 22-0190, also published today, provides additional detail.

b. Recent Activist Short Selling Activity

Figure 1 below shows the annual number of Canadian issuers that have been targeted by prominent activist short sellers between 2012 and 2021.{2} As of October 7^th, 2022, seven Canadian issuers have been the target of activist short seller campaigns since the start of the year. Over the same period, 50 US issuers have also been targeted by activist short sellers.

Figure 1 -- Annual Number of Canadian Issuers targeted by Activist Short Sellers (Note: the count for 2022 is as of October 7, 2022)

Contrasting these statistics with the total number of listed issuers in Canada, we observe that annually, less than 1% of all Canadian issuers have been the target of activist short selling campaigns.{3} In comparison, 3% of all U.S issuers and less than 0.5% of Australian issuers have been the target of similar activist short selling campaigns.

Part 4. Themes from the Consultation Paper

a. Commenters

We received 23 comment letters on the Consultation Paper from stakeholders that included:

• Seven issuers;{4}

• Four full-service business law firms;

• Seven industry groups;

• One exchange;

• One asset management company;

• One investment dealer;

• One financial advisory firm; and

• One individual.

We attached the summary of comments and the CSA's responses at Appendix A. We did not receive, through the public comment process or through outreach to retail investor groups, feedback from retail investor representatives.{5} Similarly, we did not receive comments from activist short sellers, although the asset management company that commented indicated that it had, in the past, participated in activist short selling campaigns.

b. Themes from comments received

The Consultation Paper focused on issues identified through CSA staff's research and solicited feedback from stakeholders, supported by evidence, whenever possible, on specific questions. The purpose was to further inform our analysis of the issues and to ensure that the CSA had all the relevant information before determining whether regulatory intervention is required. The topics in the Consultation Paper included:

• the nature and extent of activist short selling activity in Canada;

• the Canadian and international regulatory framework; and

• issues related to enforcement and other potential remedial actions.

Several themes emerged from the comments on the Consultation Paper:

(i) use of social media;

(ii) perception versus evidence;

(iii) the short selling regulatory regime; and

(iv) need for regulatory change.

Each of these themes will be further discussed below.

(i) Use of Social Media

While the Consultation Paper did not specifically focus on the impact of social media or other shared information platforms on capital markets, commenters raised many concerns related to the use of social media.

We acknowledge that social media has created an environment for investors, companies, dealers, advisers and other intermediaries to have access to an unprecedented amount of information and disinformation. The speed at which this information is conveyed and responded to, as well as questions about the accuracy and reliability of the information, are of significant concern. The CSA recognizes that social media can present challenges when used for sharing information with the market{6} and has cautioned investors to consider the source of information and advice when making investments decisions.{7}

These concerns were reiterated by commenters, particularly with respect to the speed of today's communication technologies which can cause damage to an issuer's reputation and valuation before the issuer has an opportunity to respond. Some commenters also focussed on the need for laws to ensure social media platforms preserve evidence for review and identification, particularly where the activist short seller relies on a pseudonym.{8} It should also be noted that commenters who had a negative perception towards activist short sellers did not distinguish the actions of anonymous activists as being more problematic than named ones.

We acknowledge that social media platforms are a significant data source in today's markets. We also note that there are current challenges with accessing data from some platforms and with parsing unstructured social media data to clearly identify activist short sellers from other users that may only be expressing a negative opinion. We see that industry participants are planning to monitor online platforms more closely, including for risk management and investor relation purposes. Off-the-shelf and custom-built surveillance tools are in development that would parse through social media. Issuers are starting to actively monitor social media platforms for comments, including those made by activist short sellers, and may respond to negative statements.{9} IIROC has also indicated that their surveillance alert workflow includes basic social media scans, including in circumstances when there is no relevant news to explain any unusual market activity.{10}

The problematic conduct observed in connection with the use of social media or other online platforms is not unique to activist short selling, but rather it can be seen as part of a broader trend in the market. Issuers, investors and activists (both long and short) increasingly rely on online platforms to promote their views. Unlike issuers and certain shareholders who are subject to specific securities law requirements on the long side, activist short sellers are not subject to any specific regulatory framework. The regulatory requirements applicable to activist short selling are limited to the general provisions applicable to all market participants, including prohibitions against fraud and market manipulation, the dissemination of false and misleading statements, and trading with knowledge of undisclosed material information. We acknowledge that this may create a perception of imbalance from a regulatory framework perspective. We note, however, that the purpose of regulation of public disclosure by issuers is to address the information asymmetry that may exist between an issuer's insiders and the market and to help price securities accurately. Activist short sellers do not generally have access to non-public information.

That said, there are initiatives such as the recent B.C. Securities Act amendments and proposed section 94(1) False or misleading statements, information about reporting issuers of the proposed Capital Markets Act (Ontario) which could help address the risk of dissemination of false and misleading statements and would capture those made through social media and would apply to statements made by activist short sellers. These are discussed in more detail below.

(ii) Perception versus Evidence

In the Consultation Paper, we published the results of CSA staff's research on activist short selling. We did not identify widespread market abuse related to activist short selling through our research and requested that commenters provide new sources of information or data that we could consider in determining whether there is evidence of systemic abusive related to activist short selling activities.

Based on the comments received, we are of the view that we considered all relevant sources of information when conducting our research. However, the comments highlighted that stakeholders such as issuers, law firms and related industry groups continued to see activist short selling in a negative light, with many believing that problematic conduct permeates this type of activity and that additional regulatory measures are necessary. Other market participants, however, noted the beneficial aspects of activist short selling. This latter group recognized that activist short sellers can play an important check and balance on the higher propensity for promotional information that exists in the market and may be the only voice expressing a "sell" recommendation where their research warrants. These stakeholders cited the lack of evidence of problematic activity as a reason against the introduction of regulatory measures and cautioned that new measures could potentially curtail or deter legitimate activity and negatively impact markets.

We agree that, to the extent any regulatory measures are considered, such measures should be tied to evidence of problematic conduct with activist short selling and consideration be given to potential impacts on the activity, including any unintended consequences on market efficiency and the price discovery process. The CSA have access to information regarding activist short selling campaigns. Should we see evidence that regulatory changes are needed, they would be considered.

(iii) The Short Selling Regulatory Regime

Many of the comment letters focussed on the short selling regime in general and raised some concerns that were not specific to the activist short selling issues raised in the Consultation Paper.{11} The views expressed by commenters included:

• concerns with perceived "naked" short selling and the need to impose pre-borrow requirements;

• potential harm caused by short selling in connection with prospectus offerings and private placements;

• a perceived negative impact that resulted from the removal of the tick test{12} in 2012 and a recommendation to consider adopting a regulation similar to the modified uptick rule of the Securities and Exchange Commission (SEC);{13} and

• inadequate frequency and disclosure of short selling positions and identities (unlike the European Union or Australia).

We acknowledge the concerns raised. As we noted above, the CSA and IIROC are publishing the Joint CSA-IIROC Staff Notice 23-329 to seek feedback on broader short selling issues and the existing regulatory regime. Any regulatory proposals that may emerge, either from IIROC or from the CSA, would be subject to the regular public comment and approval processes.

(iv) Need for Regulatory Change

The comments on the Consultation Paper provided a range of views on whether regulatory change was necessary. Some advocated for sweeping reforms to short selling regulation (as discussed above), while others were of the view that incremental and targeted changes are more appropriate when supported by evidence. Some commenters were of the view that no change was necessary at all. We found that certain market participants (mainly issuers, related industry associations and some law firms) were more supportive of regulatory change. The suggested changes are described below.

In the Consultation Paper, we asked whether:

• there are market developments that warrant revisiting the regulatory framework;

• there is a connection between failed trades and activist short selling; and

• there are relevant regulatory requirements in other jurisdictions that should be considered.

On the issue of market developments, the influence of social media figured prominently in responses received. We acknowledge the need to monitor the impact of social media on the capital markets.

Many commenters were also of the view that a comprehensive study on failed trades should be conducted but did not indicate that there was a connection between failed trades and problematic activist short selling activity. As we noted in Part 3 a above, IIROC conducted a new study of failed trades and the findings are outlined in the Joint CSA-IIROC Staff Notice 23-329 and in IIROC Notice 22-0190, published today.

We set out below the proposals that were put forward or addressed in the comment letters received on the Consultation Paper related to activist short selling concerns and we also identify some challenges or areas for further consideration.

a. Guidelines

Some commenters, including some who view activist short selling favourably, suggested that guidelines or best practices would benefit the market with respect to what may be considered problematic activity. This is similar to the approach taken by the Australian Securities and Investment Commission (ASIC), which published INFO 255 Activist short selling campaigns in Australia, an information sheet which, among others, described the existing Australian regulatory framework for short selling and recommended "better practices" for activist short sellers.{14}

With respect to issuing guidance regarding activist short selling, we note that typically guidelines are tied to a national instrument or rule and we do not presently have any rules which govern the conduct of activist short sellers (as noted above, there is no regulatory requirement specifically targeting activist short sellers). Should any regulatory requirements implemented in the future, we would consider what additional guidance is needed to complement such requirements.

b. Reporting and Disclosure Requirements

Comments received on this topic varied. For example:

• some commenters supported regulatory changes requiring that activist short sellers disclose their opening, changes in and closing positions, as well as their identity either to the regulator, the public, or both;{15}

• some noted that requiring additional disclosure should only be done once there has been focus on studying the Canadian liquidity environment, underlying data and the potential impact of new disclosure obligations;

• some cautioned that introducing public disclosure requirements could potentially lead to Reddit-type message board traders inciting short squeezes;

• it was noted that public disclosure and reporting, especially by activist short sellers could also have the unintended consequence of promoting herd behavior to further drive down the target's stock price;{16} and

• some commenters raised the issue of whether there should be symmetry for reporting obligations between activists on the long and short side.

Regulators in some foreign jurisdictions already impose reporting and disclosure requirements on short sellers with short positions above certain thresholds. International regulatory developments in this area are discussed in Joint CSA-IIROC Staff Notice 23-329. We are monitoring these developments and will consider whether additional disclosure of short selling activities, which may include those of activist short sellers, is needed. As noted above, however, imposing disclosure requirements on activist short sellers would first require defining who the activist short sellers are, creating a regulatory framework over them and determining whether that framework should include reporting of synthetic short positions. The creation of such a framework would likely require a change in securities legislation.

c. Implementation of a Hold Period

Some commenters proposed imposing a brief trading moratorium or minimum holding period on any stock promoter or short seller who opens a large position and disseminates market-moving information, irrespective of the medium.{17} The rationale is that a holding period could provide the market with an opportunity to evaluate the quality and credibility of the information. We are not aware of any securities regulators who have implemented such a measure at this time.

While we agree that the introduction of a hold period may give more time for the market to absorb information disseminated from an activist short seller's report, we note that it could also disincentivize activist short sellers from publishing short reports, resulting in less informationally efficient markets. Moreover, any hold period would need to be implemented equally on both the short and long sides of trades to be fair and would also need to consider synthetically held positions. A hold period could further raise practical challenges, such as identifying the duration of this hold period and imposing them on non-regulated entities.

The impact of such measures would have to be carefully studied and examined to determine whether the potential benefit outweighs the risks this measure introduces.

d. Advance Notice to Issuers

The proposal was for a requirement that the activist short seller provide their report to the issuer in advance of publishing. This would give the issuer an opportunity to review the report, identify factual errors and have the means to provide their own rebuttal before it is released into the public. The proposal recognizes that issuers may face practical impediments, such as the fact that they are constrained by disclosure rules and that there are practical difficulties in responding quickly to sometimes broad allegations in a timely manner to avoid or minimize the negative price impact of a short seller's report.

We acknowledge that issuers may find it difficult to respond on a timely basis to activist short seller campaigns spread through social media or other online platforms. Even if issuers are given advance notice, they may not be able to respond because existing insider trading rules would generally preclude the target from engaging with the activist short seller on an open access basis. Specifically, the targeted issuer would likely find itself constrained in its reply if the reply to the activist short-seller allegations would involve disclosing material facts. The same issue would arise if, for example, an unfavourable report is published in the media, or allegations arise from other parties not connected to short sellers. Further, imposing requirements on activist short sellers who are not market participants or otherwise registered also poses jurisdictional challenges for regulators. There are also challenges with determining an appropriate length for the advance notice to the issuer. The longer the duration, the higher the risk of information leaking into the market and impacting the issuer's stock price before the issuer has an opportunity to respond.

We also recognize the importance of timely dissemination of material undisclosed information to the market by bona fide short selling reports that improves price discovery.

e. Impose Disclosure of Interest Requirement or Standards

This proposal was to require that any person publishing a statement concerning an issuer's public disclosures and either (i) has either a long or short position in the securities of the issuer to which the statement relates, or (ii) is in any arrangement that may result in financial gain to the person as a result of, or in connection with the publication of the statement, adhere to standards of professionalism and objectivity such as those required by the CFA Institute of its members.

We note that activist short selling reports generally include disclosure that the short seller has a position in the securities of the issuer they cover and that they may stand to realize gains due to price changes.{18}

f. Expanded Offence for Misleading Information

Recent B.C. Securities Act amendments that came into force introduced an additional prohibition for making misleading statements for those engaged in "promotional activities". Under this prohibition, a person engaged in a promotional activity must not make a statement or provide information that is false or misleading in circumstances where a reasonable investor/person would consider that statement or information important when making an investment decision.{19} Unlike other securities law prohibitions against making a misrepresentation, this prohibition does not require that the statement or the information:

• be "materially" misleading or untrue; or

• be reasonably expected to have a significant effect on the market price or value of a security.

Similarly, in Ontario, section 94(1) False or misleading statements, information about reporting issuers, etc. of the proposed Capital Market Act{20} which, if adopted, would replace the Securities Act (Ontario) and the Commodity Futures Act (Ontario), would prohibit a person engaged in a promotional activity from making a statement or providing information about a reporting issuer or an issuer whose securities are publicly traded that the person knows or reasonably ought to know is false or misleading and would be considered to be important by a reasonable investor in determining whether to purchase or trade a security of the issuer or related financial instrument. Proposed section 94(2) prohibits attempts to make these statements and proposed section 94(3) allows the OSC to prescribe exceptions from this prohibition. These proposals are intended to implement Recommendation 57 of the Taskforce report{21} to create a prohibition to effectively deter and prosecute misleading or untrue statements about public companies and attempts to make such statements. The comment period for the proposed Capital Markets Act ended on February 18, 2022.

An activist short seller's attempt to depress an issuer's stock price by knowingly spreading material misinformation is already prohibited conduct under securities legislation. However, there are views that the thresholds for proving this contravention are too high and a reasonable investor standard may be a good balanced approach to improving public disclosure without adding excessive burden to market participants. A few commenters, however, indicated that the elimination of a market impact assessment and materiality threshold can be expected to have a significant chilling effect on short selling and that any benefit to these changes will outweigh the cost. Concerns were also raised that activist short sellers (and other market participants without access to non-public information on an issuer) should not be held to any standard resembling that of company insiders.

The changes to the BC Securities Act with respect to making misleading statements in the course of promotional activities in BC and the proposed section 94 in the Capital Markets Act in Ontario may introduce an additional deterrent to problematic conduct through potential enforcement action. It is too early to conclude whether they will be an effective tool as it relates to activists, or whether they will lead to a potential increase in prosecutable cases against potentially problematic activist short sellers or reduce the number of problematic campaigns against reporting issuers. The CSA will monitor their impact.

g. Civil Liability for Misleading Information

Currently, there is no mechanism under securities law to seek damages against activist short sellers conducting short and distort campaigns. Commenters noted that an issuer targeted by an abusive short selling campaign, as well as the issuer's security holders that are induced to sell their securities on the basis of misinformation, are often forced to wait and see whether the regulator will commence regulatory proceedings. Some foreign jurisdictions provide a private right of action for the making or dissemination of false or misleading information.{22} A private right of action could provide recourse for targets of "short and distort" campaigns while also providing a complementary deterrent to problematic activities associated with activist short selling. One commenter was of the view that a private right of action must be based on a short seller's deliberate and calculated conduct and not mere negligence or a good faith mistake, nor should such a provision become a form of insurance against losses that are actually caused by other forces such as investment risk.

At this point, we have not found evidence of systemic abuse related to activist short selling campaigns that would support regulatory changes such as the introduction of a private right of action against activist short sellers. However, as noted in our Consultation Paper, there are existing common and civil law remedies that could apply to problematic activist short selling campaigns, but those have not typically been used by issuers or favoured by the Courts given the freedom of expression issues they introduce.

Part 5. Questions

Please refer your questions to any of the following CSA staff:

Ruxandra Smith	Timothy Baikie
Senior Accountant, Market Regulation	Senior Legal Counsel, Market Regulation
Ontario Securities Commission	Ontario Securities Commission
ruxsmith@osc.gov.on.ca	tbaikie@osc.gov.on.ca
Kevin Yang
Manager, Regulatory Strategy and Research
Ontario Securities Commission
kyang@osc.gov.on.ca
Serge Boisvert	Roland Geiling
Senior Policy Advisor	Derivatives Analyst
Autorité des marchés financiers	Autorité des marchés financiers
Serge.boisvert@lautorite.qc.ca	Roland.geiling@lautorite.qc.ca
Jesse Ahlan	Jan Bagh
Regulatory Analyst, Market Structure	Senior Legal Counsel
Alberta Securities Commission	Alberta Securities Commission
Jesse.ahlan@asc.ca	Jan.bagh@asc.ca
Kathryn Anthistle	Michael Grecoff
Senior Legal Counsel, Legal Services	Securities Market Specialist
Capital Markets Regulation Division	British Columbia Securities Commission
British Columbia Securities Commission	mgrecoff@bcsc.bc.ca
kanthistle@bcsc.bc.ca
Eric Pau	Jennifer Whately
Senior Legal Counsel, Legal Services	Manager, Litigation, Enforcement
Corporate Finance	British Columbia Securities Commission
British Columbia Securities Commission	jwhately@bcsc.bc.ca
epau@bcsc.bc.ca
Tyler Ritchie
Investigator
Manitoba Securities Commission
Tyler.Ritchie@gov.mb.ca

{1} https://www.iiroc.ca/news-and-publications/notices-and-guidance/iiroc-priorities-2021

{2} Data sourced from Activist Insight and issuers identified based on their headquarter location.

{3} CSA analysis of activist short seller targets from Activist Insight and annual listed issuer counts from the World Federation of Exchanges for the period 2010 to 2021.

{4} The British Columbia Securities Commission is the principal regulator for four of the issuers, with the Alberta Securities Commission, the Ontario Securities Commission and the Manitoba Securities Commission each being principal regulator for the others.

{5} We note that, while it was published for comment, the Consultation Paper was also distributed to the OSC's Investor Advisory Panel at their meeting in January 2021, shortly after the publication of the Consultation Paper, but no comments were made.

{6} See CSA Staff Notice 51-348 Staff's Review of Social Media Used by Reporting Issuers and CSA Staff Notice 51-356 Problematic promotional activities by issuers.

{7} See Joint CSA -- IIROC statement on recent market volatility dated February 1, 2021: "We caution investors to consider the source of information and advice they are relying on to make investment decisions. Online chat rooms are unregulated and may contain information that is inaccurate or inappropriate for some investors. Investors should always check the registration of any person or business trying to sell them an investment or give them investment advice. To do this, investors can visit https://aretheyregistered.ca or IIROC's database of advisors working for IIROC regulated firms."

{8} One commenter went as far as recommending that activist short sellers should be strictly restricted in terms of their ability to promote their cause to the public via media/communications outlets (for example, short sellers should not be allowed to go on TV with their story).

{9} For example, see How to deal with rumors on social media at https://content.irmagazine.com/story/ir-magazine-summer-2021/page/19.

{10} IIROC reviews social media indicators such as buzz and sentiment analysis provided by third-party data vendors (Eikon and Bloomberg) but does not have full confidence in the effectiveness of these tools to date. The surveillance team also relies on manual search methods on well known websites such as stockhouse.com, AKN (for mining), StockTwits and Seeking Alpha.

{11} Several commenters also provided their views on recommendations from Ontario's Capital Markets Modernization Taskforce (Taskforce) report related to short selling, available at https://www.ontario.ca/document/capital-markets-modernization-taskforce-final-report-january-2021, regarding pre-borrow requirements (the recommendation was for IIROC to revise the Universal Market Integrity Rules (UMIR) to require an investment dealer to confirm the ability to borrow securities prior to accepting a short sale order); mandatory buy-in (the recommendation that short sellers be subject to a mandatory buy-in for short sales that failed to settle, triggered at settlement date + two days); limits on short selling in connection with prospectus offerings and private placements (the recommendation is for OSC to adopt a rule prohibiting market participants and investors who previously sold short securities from acquiring them under prospectus or private placements).

{12} The tick test referred to a previous requirement in UMIR that a short sale not be made at a price which is less than the last sale price of the security.

{13} SEC Rule 201 generally requires marketplaces to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a short sale at an impermissible price when a stock has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day (based on the prior day's closing price). Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply to short sale orders in that security for the remainder of the day and the following day, unless an exception applies.

{14} Available at https://asic.gov.au/regulatory-resources/markets/short-selling/activist-short-selling-campaigns-in-australia/.

{15} This is related to the reference in the Consultation of a group of U.S. academics who petitioned the SEC to impose a "duty to update" a short position when there has been a voluntary disclosure of that short position.

{16} For example, on May 17, 2019, Muddy Waters disclosed a 0.5% short position on Solutions 30 SE as required under European securities regulations. Following this disclosure and prior to the release of any short report, Solutions 30 SE's stock price dropped by 20% on May 21st, 2019. See "Muddy and 5 other HFs shorting Solutions 30," Breakout Point blog, August 2, 2019 and Michelle Celarier, "Shares of Solutions 30, a Muddy Waters Short, Tank After Auditor Raises Concerns," Institutional Investor, May 24, 2021.

{17} The Consultation Paper referenced a proposal for a 10-day minimum holding period that was mentioned in a news article. See Mark Cohodes, "Pump-and-dump stock trading needs new rules for the digital age", FT Online, April 26, 2020 at https://www.ft.com/content/01b765c2-854e-11ea-b6e9-a94cffd1d9bf.

{18} For example, see the terms of use for Muddy Waters' research reports and the legal disclaimer for Hindenburg's research reports.

{19} Securities Act (British Columbia), RSBC 1996, c 418, 50 (1). A similar amendment was also proposed by the Taskforce.

{20} Available at https://www.ontariocanada.com/registry/view.do?postingId=38527&language=en

{21} Ibid. footnote 11.

{22} See, for example, Australia Corporations Act 2001 (Cth), sections 1041E and 1041I.

APPENDIX A

Summary of Comments on CSA Consultation Paper 25-403 Activist Short Selling

List of Commenters

Summary of Comments

{23} https://www.osc.ca/sites/default/files/2021-02/joint-osc-iiroc-whistleblower-guidance.pdf

{24} Please also see CSA/IIROC Joint Notice 23-312 -- Transparency of Short Selling and Failed Trades at https://www.osc.ca/sites/default/files/pdfs/irps/csa_20120302_23-312_rfc-trans-short-selling.pdf

{25} https://www.osc.ca/en/securities-law/instruments-rules-policies/5/51-348

{26} At https://www.osc.ca/en/news-events/news/joint-statement-canadian-securities-administrators-and-investment-industry-regulatory-organization

Joint CSA and IIROC -- Staff Notice 23-329 Short Selling in Canada

Joint CSA and IIROC Staff Notice 23-329 Short Selling in Canada

December 8, 2022

Background and Introduction

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC and, together with the CSA, we) are publishing Joint Canadian Securities Administrators and Investment Industry Regulatory Organization of Canada Staff Notice 23-329 Short Selling in Canada (Notice) to provide an overview of the existing regulatory landscape surrounding short selling, give an update on current related initiatives and request public feedback on areas for regulatory consideration.

We believe that it is important and timely to review our regulatory framework to ensure it is current and appropriate given the way markets continue to evolve. This Notice reflects our commitment to do so, especially in light of public feedback we received with respect to short selling and international developments, described later in the Notice.

The CSA are also publishing today a summary of comments and responses to the CSA Consultation Paper 25-403 Activist Short Selling (Activist Short Selling Consultation Paper).{1} The Activist Short Selling Consultation Paper was published on December 3, 2020. Its purpose was to facilitate the discussion of concerns relating to activist short selling and its potential impact on capital markets. Some of the comments received in response to the Activist Short Selling Consultation Paper addressed topics broader than activist short selling activities and related to short selling and short selling regulation in general. Similar issues have also been raised by other stakeholders. These comments are summarized in the summary and responses to the Activist Short Selling Consultation Paper and published today in CSA Staff Notice 25-306 Activist Short Selling Update (Staff Notice 25-306). We discuss the broader comments related to short selling in this Notice.

While this Notice does not directly cover the Canadian trade settlement regime, we also discuss, at a high level, failed trades and related initiatives, to provide additional context to the extent that they may relate to short selling.

The Notice is organized as follows:

• Part 1 provides background on short selling and failed trades and includes an overview of existing regulatory requirements relating to short selling; and

• Part 2 includes a discussion of comments and concerns raised by stakeholders that are relevant to short selling and failed trades and sets out specific questions for public feedback.

Part 1. Background on short selling, failed trades, and the regulatory framework

A. Definition of Short Selling

IIROC's Universal Market Integrity Rules (UMIR) define a "short sale"{2} as a sale of a security, other than a derivative instrument, which the seller does not own either directly or through an agent or trustee.{3} It involves selling securities at the current market price either with the expectation of being able to cover the short position by purchasing later at a lower price, thus making a profit, or to lock in a profit arising from a difference in price between the securities sold short and a related security. Short selling is a legitimate trading practice that helps market participants manage risk, contributes to market liquidity and promotes price discovery.

Short selling carries certain risks. For example, a short seller may incur potentially unlimited costs to close the short position if the price of the particular security rises.

B. Definition of Failed Trades

The term "failed trade" is not defined in securities legislation. However, a failed trade is generally understood to occur when a seller (whether short or long) fails to deliver securities or the buyer fails to pay the funds when delivery/payment is due, currently on the second business day after the trade date, unless a later settlement date is agreed to by all parties at the time of the trade. Failed trades may also occur when there are issues with instructions of the buyer and the seller regarding settlement (for example, when there are different instructions from the buyer and the seller, or one party of the trade has not provided instructions or provided them too late). In the context of this Notice, "failed trades", "settlement fails or failures" and "fail to deliver", all mean failure to deliver securities on the settlement date.

UMIR Rule 1.1 defines "failed trade."{4} It includes a short sale by an account that has failed to make available the securities for settlement or has failed to make arrangements with a Participant or Access Person (as defined in UMIR){5} to borrow the securities in time to deliver on the settlement date.

C. Overview of the current short selling regulatory framework

Short selling is subject to a well-developed framework comprising Canadian securities legislation and IIROC requirements and is mostly overseen by IIROC. This framework includes a detailed reporting regime that provides IIROC with timely information which IIROC uses to monitor and supervise potentially inappropriate short selling practices.

i. Canadian securities legislation requirements

Canadian securities legislation requires a person who places an order for the sale of a security with a registered dealer to declare to the dealer at the time of placing the order if they do not own the security.{6}

Securities legislation{7} and National Instrument 23-101 Trading Rules{8} (NI 23-101) prohibit activities that are manipulative and/or deceptive, which could occur in connection with short selling.

ii. IIROC requirements

IIROC has several requirements relevant to short selling applicable to Participants{9} or Access Persons{10} including:

• a requirement to mark all orders representing a short sale as either "short" or "short-marking exempt";{11}

• a requirement to report "Extended Failed Trades" to IIROC;{12}

• a requirement that, if an Extended Failed Trade report is filed with IIROC, further short sales generally cannot be made by that Participant, acting as principal or agent, or by an Access Person without having made prior arrangements to borrow the securities necessary for settlement; {13}

• ability for IIROC to designate a security as a "Pre-Borrow Security";{14} and

• ability for IIROC to designate a security as a "Short Sale Ineligible Security".{15}

UMIR also requires Participants and Access Persons to calculate and report to IIROC the aggregate short positions of each individual account twice a month.{16} IIROC consolidates and publishes a Consolidated Short Position Report showing the aggregate short positions on all listed securities as of the current reporting date and the net change in short positions from the previous reporting date, on a per security basis, on its website.{17} IIROC also aggregates trades marked "short sale" from all marketplaces it monitors, consolidates that information, and publishes a semi-monthly report showing the total industry short sales for each security over the reporting period.{18}

Like securities legislation, UMIR also prohibits activities that are manipulative and/or deceptive. In the context of short selling, these include entering an order for the sale of a security without, at the time of entering the order, having a reasonable expectation of settling any trade that would result from the execution of the order on the settlement date. As such, short selling without having a reasonable expectation to settle the resulting trades on settlement date, generally two days after trade date, is not permitted under UMIR.{19}

On August 17, 2022, IIROC issued guidance confirming the existing obligation of a Participant to have a reasonable expectation to settle a resulting trade on the settlement date, rather than having the expectation to settle the trade on some future date, such as the date securities owned by the seller that are subject to resale restriction become freely tradeable.{20}

IIROC also monitors for potentially abusive trading activity. In the context of short selling activity, IIROC uses algorithms to monitor for unusual levels of short selling coupled with significant price movements and reviews alerts to determine the cause of the price movement and whether there is an indication of abusive trading activities. IIROC may also review social media or chatrooms as well as Extended Failed Trades reports for indications of settlement issues.

IIROC has additional alerts that detect changes in the historical pattern of short selling for a particular security. These alerts allow IIROC to determine if short selling is becoming concentrated within a particular dealer or client. If unusual levels of short selling are detected, IIROC can:

• intervene to vary or cancel any trade deemed "unreasonable";

• impose a halt on the trading of a particular security across all marketplaces;

• contact the listed issuer regarding unusual market activity;

• investigate activity that may not be compliant with UMIR; and

• refer matters to IIROC enforcement for further review and potential discipline.

If appropriate, IIROC may also refer the matter to the enforcement branch of the appropriate CSA jurisdiction for additional investigation and action.

As noted above, IIROC requires Participants to mark all orders representing a short sale as either "short" or "short-marking exempt". This is part of a broader requirement in UMIR that Participants use the correct identifier or designation on an order sent to a marketplace regulated by IIROC.{21} Where there is a missing or erroneous marker or identifier on the order and that order has been executed at least in part, the Participant is required to file a report to the Regulatory Marker Correction System.{22} IIROC reviews its Participants' use of order markers during compliance reviews.

IIROC recently completed a study of failed trades. The study was based on five years (April 1, 2015 -- March 31, 2020) of settlement data from the CDS Clearing and Depository Services Inc. (CDS) related to continuous net settlement (CNS),{23} outstanding positions, buy-ins and trade-for-trade (TFT){24} settlement transactions. IIROC Notice 22-0190 includes the results of IIROC's study and additional discussion of the CNS and TFT processes. In essence, the study identified several considerations:

• potential issues with settlement were not consistent across all listed securities and a "one size fits all" approach may not be appropriate;

• reasons for fails varied amongst dealers and several dealers with similar business models were identified as having disproportionate fails relative to the amount of their trading;

• correlations between short sales and settlement issues in securities listed on exchanges that list junior securities{25} were more significant than on other exchanges;

• securities listed on exchanges that list junior securities experience more overall settlement issues compared to securities listed on other exchanges, especially in the sectors of mining, healthcare, and energy; and

• higher correlation was observed between outstanding failed trades that were intended to settle through the CNS method of settlement and reported short positions than between failed trades that remained outstanding 10 days from settlement date and short positions for trades that were intended to settle through TFT processes.

At Appendix A, we have included a detailed history of IIROC's short selling requirements, a summary of studies that have been conducted over time to assess their continuing adequacy and the rationale supporting why such requirements continue to be included or have been removed.

Part 2. Discussion

A. Overview of comments regarding short selling

It is widely acknowledged that short selling plays an important role in the financial markets by promoting transparency and contributing to liquidity and price discovery, and thus contributing to market integrity and investor protection. Short selling can also be a legitimate investment management strategy used for mitigating portfolio risk by hedging short positions against long positions, so that losses are mitigated regardless of the direction of the market.

Short sellers, particularly activist short sellers who publicly announce that they have a short position in a security, may provide new information about issuers that can assist in ensuring the price of their securities is more reflective of their underlying value. For example, short sellers identify securities they think could be overvalued. Often, after disclosure by activist short sellers, a correction occurs in the market price of these securities. As we described in the Activist Short Selling Consultation Paper, sometimes issuers pursue certain actions in response to short selling campaigns which may include a change in management or hiring a new auditor or private investigator.

However, short selling is not without controversy and some stakeholders hold negative perceptions about short selling or certain aspects of short selling activities. A common theme of concerns expressed is that issuers perceive the Canadian regulatory regime as lax compared to other jurisdictions, especially the U.S., which makes it easier to conduct an activist campaign that unfairly targets Canadian issuers.

As we indicated in the past, and explain in further detail in Appendix A, we believe that Canada's regulatory regime governing short sales is generally consistent with the four principles for the effective regulation of short selling published by the International Organization of Securities Commissions (IOSCO) in 2009.{26} Further, as we concluded in Staff Notice 25-306, we have not received evidence of specific issues arising from activist short selling campaigns that would justify a regulatory response. That said, we acknowledge the comments surrounding short selling in general, some of which have been raised more recently. We discuss the key themes below and invite further feedback from the public.

i. Tick test{27}

The "tick test" was a restriction on the price at which certain types of trades can occur. In the case of short sales subject to the tick test, the sale could not occur at a lower price than the previous trade, subject to limited exceptions.

As explained in more detail in Appendix A, IIROC amended UMIR in March 2012 to repeal the tick test. This was supported by empirical evidence from short sales and failed trade studies in the Canadian market. These studies did not find a relationship between rapid price declines and unusual short selling activity and did not support adopting an alternative uptick rule similar to Rule 201 of the U.S. Securities and Exchange Commission (SEC).{28}

Concerns have been expressed regarding a perceived negative impact that resulted from the repeal of the tick test. Several commenters that provided responses to the Activist Short Selling Consultation Paper recommended that the CSA review the impact that the removal of the tick test has had on the market.

IIROC monitors the proportion of short selling relative to total sales, and the frequency of short sales that are executed on a downtick. Some results of this monitoring are included as Appendix C. These results show that:

• the frequency of short sales executed on downticks when compared to short sales executed on other ticks is relatively low,

• the rates of shorts sales executed on a downtick are lower on exchanges that list junior securities than on other exchanges, and

• on all exchanges, the frequency of trades executed on a downtick is lower on sales from a short position than a long position.

ii. Short selling and pre-borrow requirements

Concerns have been raised that market participants may engage in short selling where they enter short sale orders without an intention to settle the resulting trades on settlement date, purely as a means to drive down the price of an issuer's securities. The short seller fails to deliver the shares on the settlement date and anticipates settling the trade when the securities can be bought at a later date in the open market at a price that is profitable to the seller.

As noted above, there are existing requirements in Canadian securities legislation and UMIR that prohibit manipulative and deceptive activities. UMIR specifies that entering an order to sell a security without having a reasonable expectation of settling the resulting trade on settlement date is considered a false or misleading appearance of trading activity and thus a manipulative and deceptive activity.{29}

As noted earlier, IIROC published guidance on August 17, 2022 clarifying that Participants, before entering a short sale order, must have a reasonable expectation that they have or will have sufficient securities to allow the Participant to settle any resulting trade on the settlement date for that trade.{30} In this notice, IIROC provides examples where a Participant would not be able to demonstrate a reasonable expectation that sufficient shares would be available on settlement date and the entry of the order would be prohibited.

In addition, as described above, IIROC has certain "pre-borrow" requirements that apply, including the restriction on Participants or Access Persons from making further short sales where an Extended Failed Trade report that relates to a sale of a security failing to settle was filed with IIROC. Specifically, further short sales generally cannot be made by that Participant (acting as principal or as agent) or by an Access Person without prior arrangements to borrow the securities necessary for settlement.{31} Participants and Access Persons must also make prior arrangements to borrow any security designated by IIROC as a "Pre-Borrow Security" before entering an order to sell short on a marketplace.{32}

Despite these requirements, views were expressed in response to the Activist Short Selling Consultation Paper that the current requirements in Canada are not stringent enough, especially when compared with those in the U.S. Some stakeholders noted that in the U.S, Regulation SHO requires a broker-dealer to not accept a short sale order in an equity security unless it has (i) borrowed the security or entered into a bona-fide arrangement to borrow the security; or (ii) reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due; and (iii) documented compliance with this requirement.{33}

In Ontario, the Ontario Capital Markets Modernization Taskforce (CMM Taskforce) recommended that IIROC revise UMIR to require a Participant to confirm the ability to borrow securities prior to accepting a short sale order from another person or entering an order for its own account.{34}

We ask whether the market has changed to support the introduction of such requirements at this time. In particular, we have the following questions:

Questions:

1. Should the existing regulatory regime around pre-borrowing in certain circumstances be strengthened? What requirements would be appropriate? Specifically, should there be "pre-borrow" requirements similar to those in the U.S., as described above? Please provide supporting rationale and data.

2. What would be the costs and benefits of implementing such requirements?

iii. IIROC's Extended Failed Trades requirements

We have discussed above IIROC's requirements for Participants and Access Persons to report Extended Failed Trades. IIROC also has an anti-avoidance provision to prohibit Participants from entering into a transaction or series of transactions in an attempt to "re-age" the default in order to avoid filing an Extended Failed Trade Report, which would be a violation of the requirement in UMIR 2.1 to trade openly and fairly.{35}

The failed trade is not reportable until ten trading days following the settlement date. This was to allow for administrative delays that may impact settlement and to better identify those transactions of greater concern.

Some concerns have been raised by stakeholders about the ten-trading day threshold. The concern is that this timeline is too long for an unsettled trade to be reported and should be shortened.

Questions:

3. Does the current definition of a "failed trade", as described in Part 1, above, appropriately describe a failed trade?

4. Should a timeline shorter than ten days following the expected settlement date be considered? What would be an appropriate timeline? Please provide rationale and supporting data.

iv. Transparency of short selling positions

We described above how IIROC publicly discloses short positions by publishing the Consolidated Short Position Report twice monthly. In contrast to other jurisdictions (such as the European Union and Australia), there are no regulatory or public reporting requirements or obligations to disclose information on the short position of an individual account. Even so, it is not uncommon for an activist short seller to voluntarily disclose that they are short a particular security when they commence a campaign.

As described in Appendix A, IIROC has conducted extensive consultations on transparency measures that would provide timely information to the market. The Short Sale Trading Statistics Summary Report{36} was introduced in 2013, and in 2016, following additional consultation, IIROC also started publishing the Consolidated Short Position Report{37}, also described in Appendix A. IIROC also publishes the Short Sale Trading Corrections Report{38} twice a month. This report aggregates trade marker corrections affecting short sale traded volume submitted through the Regulatory Marker Correction System.

Comments provided in response to the Activist Short Selling Consultation Paper supporting additional transparency are summarized in Staff Notice 25-306 published today and include recommendations to require the reporting of the identity of short sellers and short positions to the regulator, the public or both. Other comments cautioned that additional transparency could have unintended consequences, such as promoting group behaviour that would drive down a target issuer's stock price.

We are reviewing international initiatives to enhance reporting and disclosure requirements, such as those described in Appendix B of this Notice.

Questions:

5. Should additional public transparency requirements of short selling activities or short positions be considered? Please indicate what such requirements should be and the frequency of any disclosure. Please also provide a rationale and empirical data to support your suggestions or to support why changes are not needed.

6. Should additional reporting requirements regarding short selling activities be considered by the securities regulatory authorities? Please indicate what such requirements should be and the frequency of any disclosure. Please also provide a rationale and empirical data to support your suggestions or to support why changes are not needed.

7. As noted above, IIROC's study of failed trades showed that correlations between short sales and settlement issues in junior securities were more significant, and that junior securities experience more settlement issues compared to other securities. Should specific reporting, transparency or other requirements be considered for junior issuers? Please provide additional relevant details to support your response.

v. Buy-in and close-out requirements

In Canada, eligible debt and equity securities are cleared and deposited through CDSX, the clearing and settlement system of the CDS. CDSX has a Continuous Net Settlement Service (CNS), which is designed to clear and settle primarily equity trades transacted on a Canadian marketplace.

Within CNS, a "buy-in" process enables a buyer in a transaction to accelerate the settlement of outstanding, unsettled CNS positions from its seller(s) which are identified in CDS procedures as "to-receive". Outstanding to-receive CNS positions are those quantities of shares which have failed to settle on the "value date" (the date on which the parties to a trade have agreed that it is to be settled). The buy-in process is initiated when a buyer (i.e. receiver) chooses to enter an "intent to buy-in" outstanding to-receive positions in CDSX against an outstanding quantity of shares owed to them. The participant owing the specified security is provided with a 48-hour notice that they may be held liable to deliver on some or all of their portion of the buy-in security.

The CMM Taskforce, in its Final Report,{39} noted that, in contrast with the U.S.{40} and the European Union{41}, there are no mandatory close-out or buy-in provisions in Canada. The CMM Taskforce recommended that, should a short sale fail to settle, the short seller be subject to a mandatory buy-in. To allow for fails due to administrative issues, the buy-in requirement would be triggered at settlement date +2 days. The CMM Taskforce recommended that the obligation to execute the buy-in rest with the investment dealer and that exemptions be considered for additional activities that may cause a legitimate settlement delay.

Question

8. Would mandatory close-out or buy-in requirements similar to those in the U.S. and the European Union be beneficial for the Canadian capital markets? Please provide rationale and data substantiating the costs and benefits of such requirements on market participants.

Conclusion

As we noted in the past, we are of the view that Canada's regulatory regime governing short sales is generally consistent with the four IOSCO principles for the effective regulation of short selling. However, we are aware of the comments raised by various stakeholders, including the expression of a number of concerns. In this Notice, we seek input on the items discussed above. In addition to answers to the questions set out above, we also seek general comment on other aspects of short selling where stakeholders believe there is room for regulatory initiatives.

Part 3. Comments

Please submit your comments in writing, on or before March 8, 2023. Please send your comments in writing to the following addresses:

The Secretary

Ontario Securities Commission

20 Queen Street West, 22nd floor, Toronto, Ontario M5H 3S8

comments@osc.gov.on.ca

Part 4. Questions

Please refer your questions to any of the following CSA and IIROC staff:

Timothy Baikie	Hanna Cho
Senior Legal Counsel, Market Regulation	Legal Counsel, Market Regulation
Ontario Securities Commission	Ontario Securities Commission
tbaikie@osc.gov.on.ca	hcho@osc.gov.on.ca
Ruxandra Smith	Serge Boisvert
Senior Accountant, Market Regulation	Senior Policy Advisor
Ontario Securities Commission	Autorité des marchés financiers
ruxsmith@osc.gov.on.ca	Serge.boisvert@lautorite.qc.ca
Roland Geiling	Jesse Ahlan
Derivatives Analyst	Regulatory Analyst, Market Structure
Autorité des marchés financiers	Alberta Securities Commission
Roland.geiling@lautorite.qc.ca	Jesse.ahlan@asc.ca
Michael Grecoff	H. Zach Masum
Securities Market Specialist	Manager, Legal Services
British Columbia Securities Commission	British Columbia Securities Commission
mgrecoff@bcsc.bc.ca	zmasum@bcsc.bc.ca
Tyler Ritchie	Doug Harris
Investigator	General Counsel, Director of Market Regulation and Policy and Secretary
Manitoba Securities Commission	Nova Scotia Securities Commission
Tyler.Ritchie@gov.mb.ca	doug.harris@novascotia.ca
Theodora Lam	Kevin McCoy
Senior Policy Counsel, Market Regulation Policy	Vice-President, Market Compliance and Policy
Investment Industry Regulatory Organization of Canada	Investment Industry Regulatory Organization of Canada
tlam@iiroc.ca	kmccoy@iiroc.ca

{1} At https://www.osc.ca/en/securities-law/instruments-rules-policies/2/25-403/csa-consultation-paper-25-403-activist-short-selling.

{2} Section 1.1 of UMIR; see also Policy 1.1 -- Definitions, Part 3 -- Definition of "Short Sale" of UMIR at https://www.iiroc.ca/rules-and-enforcement/umir-rules/11-definitions.

{3} The term "short sale" is used in securities legislation but not defined. See e.g., Securities Act, R.S.O. 1990 as am. S.48, Securities Act (Québec), CQLR, c. V-1.1, section 194 and s. 54 of the Nova Scotia Securities Act, which requires declaration of a short position and describes what is a "short position".

{4} Section 1.1 of UMIR at https://www.iiroc.ca/rules-and-enforcement/umir-rules/11-definitions.

{5} Section 1.1 of UMIR at https://www.iiroc.ca/rules-and-enforcement/umir-rules/11-definitions.

{6} Note for instance section 194 of the Securities Act (Québec), which provides that no person may sell a security short without previously notifying the dealer responsible for carrying out the transaction. See also, Securities Act (Ontario), section 48; NS Act s. 54.

{7} See e.g., Securities Act (Ontario), RSO 1990, c S.5, ss 126.1 and 126.2; Securities Act (Québec), CQLR, V-1.1, ss 195.2, 197, 199.1 and 200; Securities Act (Alberta), RSA 2000, c S-4, ss 93 and 221.1; Securities Act (British Columbia), RSBC 1996, c 418, ss 57 and 168.1; Securities Act (Manitoba), CCSM, c S50, ss 76 and 136(1); The Securities Act (Saskatchewan), 1988 c S-42.2, ss 55.1, 55.11, 55.13(1); NS Act ss. 132A and 132B; and Derivatives Act (Québec), CQLR, I-14.01, ss 150, 151, 152 and 156.

{8} See section 3.1 NI 23-101.

{9} A Participant is defined in the UMIR to include a dealer that is a member of an exchange, a user of a quotation or trade reporting system or a subscriber of an alternative trading system (ATS).

{10} An Access Person is defined in the UMIR as a person other than a Participant that is a subscriber or user of a marketplace.

{11} See UMIR, Part 3 -- Short Selling, Prohibition on the Entry of Orders, at https://www.iiroc.ca/rules-and-enforcement/umir-rules/32-prohibition-entry-orders. A short-marking exempt order includes an order for a security from an arbitrage account, an account of a market maker for that security, or other specified accounts that buy and sell securities and that has at the end of any trading day no more than a nominal long or short position in any security. UMIR, Part 1 -- Definitions and Interpretation, at https://www.iiroc.ca/rules-and-enforcement/umir-rules/11-definitions.

{12} A trade that did not settle and was not rectified within 10 trading days from the original settlement must be reported to IIROC. See: UMIR, Part 7 Trading in a Marketplace -- Extended Failed Trades, https://www.iiroc.ca/rules-and-enforcement/umir-rules/710-extended-failed-trades.

{13} UMIR, Part 6 -- Order Entry and Exposure -- Entry of Orders on Marketplace, at https://www.iiroc.ca/rules-and-enforcement/umir-rules/61-entry-orders-marketplace.

{14} "Pre-Borrow Security" means a security that has been designated by a Market Regulator to be a security in respect of which an order, that on execution would be a short sale, may not be entered on a marketplace unless the Participant or Access Person has made arrangements to borrow the securities that would be necessary to settle the trade prior to the entry of the order. UMIR, Part 1 -- Definitions and Interpretation and UMIR, Policy 1.1, Definition of Pre-Borrow Security at https://www.iiroc.ca/rules-and-enforcement/umir-rules/11-definitions. See also, , UMIR, Part 6 -- Order Entry and Exposure -- Entry of Orders on Marketplace at https://www.iiroc.ca/rules-and-enforcement/umir-rules/61-entry-orders-marketplace.

{15} "Short Sale Ineligible Security" is defined as a security or a class of securities that has been designated by a market regulator to be a security in respect of which an order on execution that would be a short sale may not be entered on a marketplace for a particular trading day or trading days. UMIR, Part 1 -- Definitions and Interpretation, at https://www.iiroc.ca/rules-and-enforcement/umir-rules/11-definitions; see also Rule 3.2 -- Prohibition on the Entry of Orders at https://www.iiroc.ca/rules-and-enforcement/umir-rules/32-prohibition-entry-orders.

{16} UMIR, Part 10 -- Compliance, Report of Short Positions, https://www.iiroc.ca/rules-and-enforcement/umir-rules/1010-report-short-positions.

{17} Consolidated Short Position Report is published twice monthly and based on the short position information submitted to IIROC by Participant and applicable Access Persons.

{18} The Short Sale Trading Statistics Summary Report prepared by IIROC shows the aggregate proportion of short selling in the total trading activity of a particular security, based on data for trades marked "short sale" supplied to IIROC by each marketplace monitored by IIROC. The report is produced twice monthly: (i) for the period from the first to the 15th of each month, and (ii) for the 16th to the end of each month.

{19} See: UMIR, Part 2 -- Abusive Trading, Manipulative and Deceptive Activities, at Part 2 (g) -- (h), at https://www.iiroc.ca/rules-and-enforcement/umir-rules/22-manipulative-and-deceptive-activities.

{20} See: IIROC Notice 22-0130 -- Guidance on Participant Obligations to have Reasonable Expectations to Settle any Trade Resulting from the Entry of a Short Sale Order.

{21} https://www.iiroc.ca/rules-and-enforcement/umir-rules/62-designation-and-identifiers

{22} https://www.iiroc.ca/news-and-publications/notices-and-guidance/marker-corrections-and-use-regulatory-marker-correction-system

{23} Canadian equity marketplaces send a daily report of all transactions directly to CDS. Most of these transactions will be designated to settle through CNS, through a process of novation (where a settlement transaction between two dealers is replaced by two transactions, one between each of the dealers and CDS) and netting.

{24} Some IIROC dealers that are CDS participants can provide settlement instructions directly to CDS. In the TFT mode, settlement occurs directly between two CDS participants.

{25} Exchanges that list junior securities are the TSXV, the Canadian Securities Exchange (CSE) and NEO Exchange (NEO).

{26} See: Regulation of Short Selling -- Final Report, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD292.pdf. The first principle: short selling should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets; the second principle: short selling should be subject to a reporting regime that provides timely information to the market or to market authorities; the third principle: short selling should be subject to an effective compliance and enforcement regime; and the fourth principle: short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.

{27} The tick test referred to a previous requirement in UMIR that a short sale not be made at a price which is less than the last sale price of the security.

{28} Rule 201 generally requires marketplaces to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a short sale at an impermissible price when a stock has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day (based on the prior day's closing price). Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply to short sale orders in that security for the remainder of the day and the following day, unless an exception applies.

{29} Part 2 -- False or Misleading Appearance of Trading Activity or Artificial Price of UMIR Policy 2.2 Manipulative and Deceptive Activities.

{30} See: IIROC Notice 22-0130 -- Guidance on Participant Obligations to have Reasonable Expectations to Settle any Trade Resulting from the Entry of a Short Sale Order.

{31} See: UMIR, Part 6 -- Order Entry and Exposure -- Entry of Orders on Marketplace, Rules 6.1(4) and 6.1(6).

{32} "Pre-Borrow Security" means a security that has been designated by a Market Regulator to be a security in respect of which an order, that on execution would be a short sale, may not be entered on a marketplace unless the Participant or Access Person has made arrangements to borrow the securities that would be necessary to settle the trade prior to the entry of the order. UMIR, Policy 1.1, Definition of Pre-Borrow Security, 1.1; See also Part 6 -- Order Entry and Exposure -- Entry of Orders on Marketplace, Rule 6.1(5).

{33} SEC Rule 242.203(b)(1) under Regulation SHO -- Regulation of Short Sales, at Regulations M, SHO, ATS, AC, NMS, and SBSR and Customer Margin Requirements for Security Futures.

{34} At https://files.ontario.ca/books/mof-capital-markets-modernization-taskforce-final-report-en-2021-01-22-v2.pdf.

{35} Subsection 2.1(1)(a) of UMIR 2.1 Specific Unacceptable Activities.

{36} https://www.iiroc.ca/sections/markets/reports-statistics-and-other-information/short-sale-trading-statistics-and-reports

{37} https://www.iiroc.ca/sections/markets/reports-statistics-and-other-information/short-sale-trading-statistics-and-reports

{38} https://www.iiroc.ca/sections/markets/reports-statistics-and-other-information/short-sale-trading-statistics-and-reports

{39} Ibid 34.

{40} In the U.S., Rule 204 Close-out requirement of Regulation SHO, at https://www.ecfr.gov/current/title-17/part-242/subject-group-ECFR1607681c7b4f78d, requires brokers and dealers that are participants of a registered clearing agency to take action to close out fail to deliver positions. The broker-dealer is required to purchase or borrow securities of like kind and quantity by no later than T+3 and, for bona-fide market making activities, by T+5.

{41} This referred to the requirement in Article 15 Buy-in procedures of the EU Short Selling Regulation, at https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:086:0001:0024:en:PDF, that a central counterparty in a Member State that provides clearing services for shares ensure that, among others, where a natural or legal person who sells shares is not able to deliver the shares for settlement within four business days after the day on which settlement is due, procedures be automatically triggered for the buy-in of the shares to ensure delivery for settlement. It should be noted that this requirement was removed from the regulation in March 2022 until November 2, 2025. See https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R1930. On November 10, 2022, the European Parliament published a draft report, at https://www.europarl.europa.eu/doceo/document/ECON-PR-736678_EN.pdf in which it is proposing to dispense with mandatory buy-ins.

APPENDIX A

HISTORY OF SHORT SELLING REGULATION IN CANADA

There has been a steady evolution of short selling regulation in Canada. Beginning in 2002, Market Regulation Services Inc. (RS), a predecessor organization to IIROC, imposed UMIR requirements on Participants{42} to:

• prohibit the short selling of a security on a marketplace unless the price is at or above the last sale price (tick test or tick rule);

• designate orders and trades as short sales on a marketplace; and

• file short position reports.{43}

These requirements reflected short selling rules already in place on exchanges that retained RS to act as regulation services provider.

In the following years, IIROC expanded on these requirements and, among other things{44}, provided specific exemptions{45} from the tick test, consistent with IOSCO's Principles of Short Sale Regulation.{46}

A. Review of Regulatory Regime on Short Selling and Failed Trades in Canada

To ensure the overall effectiveness of regulation of equity trading in Canada, IIROC took the following steps which culminated in the 2008 amendments to UMIR:

i. Strategic Review of the Short Selling Regime in UMIR

IIROC launched a strategic review that included looking at the short selling regime in UMIR{47} by:

• conducting a series of roundtable discussions across Canada{48}, where respondents:

• favoured a prohibition of market manipulation, as opposed to price restrictions on short sales; and

• indicated little support for importing the U.S. pre-borrowing requirements;

• reviewing the academic literature on short selling, which indicated the tick rule was of limited use in arresting market declines and may have a negative impact on price discovery, thus limiting any beneficial impact they may have in preventing market manipulation; and

• reviewing the regulation of short selling and failed trades in other jurisdictions, including the U.S., U.K. and Japan.

ii. Working Group on Short Selling and Failed Trade Issues

RS and the Investment Dealers Association of Canada (IDA), both IIROC's precursors, the CSA and staff from CDS, TSX and the Bourse de Montréal, looked at short selling further and formed a working group on Short Selling and Failed Trade Issues (Working Group).{49} This Working Group monitored regulatory developments in the U.S. including the 2004 SEC SHO Pilot Project{50} which evaluated the effectiveness and necessity of price restrictions (tick test) in short selling. The Working Group also looked at data on failed trades from November 2004 to February 2005 and found the market value of fails in the issues on the "fail list"{51} using the U.S. criteria would account for approximately 12.2% of the market value of all failed trades.{52}

As a result of this work, IIROC questioned whether the benefits of a US-style "fail list" for Canadian markets in 2007 would be commensurate with the costs due to:

• the link between short sales and failed trades in the U.S. was not present in Canada given the presence of uniform short sale restrictions across all Canadian equity marketplaces;

• generally lower rates of trade failure in Canada than the U.S.; and

• the fact that failed trades in securities on the fail list accounted for a limited percentage of the value in failed trades.

iii. 2007 Failed Trade Study{53}

To get data on the prevalence of failed trades, including on the contribution of short sales in the occurrence of failed trades, IIROC conducted a statistical study of failed trades on Canadian marketplaces and published its findings in April 2007 (2007 Failed Trade Study). The 2007 Failed Trade Study results showed that a short sale had a lower probability of failing than trades generally and that the principal reason for trade failures was administrative error. At the time, IIROC concluded that the concepts of short sale regulation and failed trade regulation were distinct and that the measures adopted to address failed trades should be broad enough to encourage timely settlement of trades in all circumstances. As a result, IIROC recommended looking further into:

• eliminating the requirement to file short position reports, or replacing them with summary periodic information on short sales conducted on marketplaces;

• introducing a "failed trade report" that would be filed when an account fails to deliver securities sold by the account within a specified period following settlement date; and

• introducing provisions for a regulation services provider to approve post-trade cancellations and variations.

iv. 2008 Trends Study{54}

As part of IIROC's ongoing commitment to monitor trading activity on equity marketplaces in Canada to ensure that its rules for market integrity are informed by relevant and timely data, IIROC completed a study of trends in trading activity, short selling and failed trades (2008 Trends Study) and published its report in February 2009. The 2008 Trends Study indicated, among other findings, that:

• short sales tended to have a lower volume but higher value than sales from a long position (indicating a concentration of short sale activity in more senior and liquid securities on each of the marketplaces);

• other than the increase in short sales of inter-listed securities, there had been no significant change in the pattern of short selling in comparison with the trading of securities generally; and

• the number of failed trades as a percentage of the overall number of trades had generally declined over the review period.

Findings from the 2008 Trends Study did not support the need in Canada to follow actions on short selling taken at the time by the SEC, including the Regulation SHO proposal.{55}

B. 2008 UMIR Amendments

Results from the body of work described above led to IIROC's decision to amend UMIR with respect to short selling and failed trades in 2008 (2008 UMIR Amendments), which included:

i. Additional restrictions in short selling

IIROC amended UMIR to provide for the ability to prohibit short selling in particular securities or class of securities in real-time (Short Sale Ineligible Security{56}) and respond to developments in trading where rates of failed trades had become excessive.{57}

IIROC also clarified requirements that must be met for a seller to be considered the owner of securities at the time of a sale, including that if a seller has not taken all necessary steps to become legally entitled to the security, the seller would be considered to be making a short sale and the order must be identified accordingly.{58}

ii. Enhanced monitoring of Failed Trades

IIROC required Participants and Access Persons to report "failed trades" where the failure was not resolved within ten trading days following the original settlement date of the trade (EFTR).{59} IIROC also implemented a new web-based reporting system for EFTRs to identify "problem" fails so that IIROC would be able to assess the reasons for the failure and monitor the steps taken to resolve the problem.{60} IIROC also included an anti-avoidance provision to prohibit Participants and Access Persons from entering into a transaction or series of transactions in an attempt to "re-age" the default in order to avoid filing an EFTR, which would be a violation of the requirement to trade openly and fairly in UMIR 2.1.

iii. Enhanced monitoring of Cancelled or Varied Trades

IIROC prohibited the cancellation or variation{61} of a trade unless the variation or cancellation was made by IIROC or with notice to IIROC (TVCR).{62} TVCR reports allowed IIROC to review these changes and ensure that the variation or cancellation is for a bona fide reason and not part of a manipulative or deceptive manner of trading.{63}

IIROC continued to monitor short selling and failed trades and enhanced its surveillance regime to see if further regulatory action would be required. The following measures adopted by IIROC and further studies ultimately led to further amendments in UMIR in 2012:

iv. New Surveillance Alerts

IIROC introduced additional alerts that detected changes in the historic pattern of short selling for a particular security. These alerts allowed IIROC to determine if short selling was becoming concentrated within particular dealers or clients.{64} If unusual levels of short selling were detected, IIROC would also have the ability to:

• intervene to vary or cancel the prices of any trade deemed "unreasonable";

• impose a halt on the trading of a particular security across all marketplaces.{65}

C. Studies Conducted Subsequent to 2008 UMIR Amendments

i. Short Prohibition Study{66}

IIROC continued to monitor against regulatory arbitrage opportunities by undertaking a study (Short Prohibition Study) to evaluate the impact of the CSA orders{67} (Orders), which prohibited short sales of certain financial issuers listed on the TSX that were also listed on an exchange in the U.S. (Restricted Financials). These temporary orders were issued by CSA jurisdictions as a precautionary measure to prevent regulatory arbitrage with respect to short selling of inter-listed financial sector issuers because of initiatives taken by the Securities and Exchange Commission to prohibit short selling of financial sector issuers.

The Short Prohibition Study compared rates of trade failure of Restricted Financials to those of other issuers in the financial sector that were only listed on the TSX (Non-Restricted Financials). The analysis covered the periods before, during, and after the Orders were in effect{68}. IIROC published its findings in February 2009 which indicated the issuance of the Orders:

• did not appear to have had any appreciable effect on the price of securities of either the Restricted Financials or Non-Restricted Financials (both of which performed better than the benchmark index of market performance);

• appeared to have had a significant impact on market quality for the trading of the Restricted Financials by:

• reducing liquidity available in the Restricted Financials; and

• increasing the "spread" for Restricted Financials as measured by the difference between the closing bid and ask prices.

ii. 2011 TSXV Study{69}

To see if short selling activity was the cause or a contributing factor to significant price declines, IIROC conducted and published a multi-year study (2011 TSXV Study) on the relationship between price movement and short sale activity on the TSXV during May 1, 2007 to April 30, 2010, when trading on the TSXV was subject to price restrictions on short sales{70}. IIROC found that the prices and rates of short selling activity tended to move in tandem and that, in periods of most significant price decline, "shorts" were in the market buying securities to cover their positions thereby providing price support.{71} The data from the 2011 TSXV Study also suggested that:{72}

• the steep price decline evidenced between July 2008 and December 2008 was neither caused by nor exacerbated by short selling activity; and

• the tick test was not an effective tool to restrict significant and rapid systemic price declines.

iii. 2011 Trends Study{73}

IIROC also updated its 2008 Trends Study by publishing a multi-year study on trends in trading activity, short sales and failed trades for the period May 1, 2007 to April 30, 2010 (2011 Trends Study). The 2011 Trends Study found that the rates of short sales were relatively constant throughout the period and that rates of trade failure generally declined. Based on the 2011 Trends Study and IIROC's previous empirical studies, IIROC found that the Canadian market did not experience problems with short selling, particularly naked short sales and failed trades that may have been evident in other jurisdictions.

iv. Short Sale Circuit Breaker Study{74}

To determine whether IIROC should consider similar short sale circuit breaker requirements as the SEC at the time, IIROC monitored and reviewed short selling activity on Canadian marketplaces from February 28 to April 29, 2011 in inter-listed securities where a short sale circuit breaker had been triggered in the U.S. Based on IIROC's empirical studies, IIROC did not find a relationship between rapid price declines and unusual short selling activity, and did not find there was evidence of a systemic migration of short selling activity of inter-listed securities to Canadian markets when short sale circuit breakers were in effect in the U.S. IIROC concluded that Canada did not need to adopt the same short sale circuit breaker system and alternative uptick rules similar to the SEC's Rule 201.{75}

D. 2012 UMIR Amendments

Supported by the empirical evidence from the above studies on short sales and failed trades in the Canadian market, IIROC amended UMIR in March 2012 to repeal the tick test (2012 UMIR Amendments).{76} This amendment paralleled the SEC's repeal of price restrictions on short sales that became effective on July 7, 2007, following a multi-year "pilot project" which concluded that price restrictions had no effect on market prices.{77} Before the 2012 UMIR Amendments, IIROC had to provide an exemption from the price restrictions on short sales with respect to securities that were inter-listed on an exchange in the U.S.{78}

Based on IIROC's studies, IIROC believed there were better mechanisms than the tick test to detect and address abusive short selling,{79} and implemented the following new initiatives on short selling and failed trades as part of the 2012 UMIR Amendments:

i. Pre-Borrow Requirements in certain circumstances

While short selling with no reasonable expectation to settle on settlement date was already prohibited as a type of manipulative and deceptive activity under UMIR 2.2{80}, IIROC introduced the following limited pre-borrow requirements in March 2012 that would apply even if there was a reasonable expectation to settle:{81} Participants or Access Persons must make arrangements to borrow the securities necessary for settlement before entering an order for a short sale on a marketplace for a security which has been designated by IIROC as a "Pre-Borrow Security", or where a Participant has filed an EFTR at any time in the past with respect to:

• a client or non-client account:

• the Participant must not sell short any listed securities on a marketplace on behalf of that client or non-client unless:

• the Participant has made arrangements to borrow the securities in order to settle the resulting trade, or

• the Participant is satisfied, after a reasonable inquiry, that the reason for the prior failed trade was not due to any intentional or negligent act of the client or non-client.

• a principal account: the Participant must not sell short that particular security on a marketplace unless:

• the Participant has made arrangements to borrow the securities in order to settle the resulting trade, or

• the Participant obtained IIROC's consent to enter the short sale on a marketplace.

ii. New Short-Marking Exempt Marker

IIROC also took additional steps to enhance its monitoring of short selling by introducing a new short-marking exempt marker{82}, which by identifying trading that is directionally neutral and has a horizon of a day or less, increased IIROC's ability to monitor selling that takes a directional position.

a. Short Sale Transparency Consultations

While the CSA and IIROC believed that the regulatory framework following the 2012 UMIR Amendments governing short selling and failed trades in Canada was generally consistent with IOSCO principles, on March 2, 2012, the CSA and IIROC issued a consultation paper on approaches to transparency of short sales and short positions.{83} The purpose of this consultation paper was to:

• explain the approach taken by a working group of CSA and IIROC staff to issues regarding the regulation of short sales and failed trades;

• provide a background on CSA and IIROC regulation of short sales and failed trades in Canada;

• provide an overview of recent international developments regarding the regulation of short sales and failed trades; and

• solicit feedback on whether further measures are needed or desirable to: (i) enhance the regulatory reporting and transparency of short sales, or (ii) introduce some transparency of failed trades in Canadian markets.

There was no clear consensus among the commenters who responded to the consultation paper that specific improvements were needed; the majority of respondents believed that the current requirements in UMIR, including the 2012 UMIR Amendments, were adequate. The working group concluded that additional measures were not needed or desirable at that time but monitoring of domestic and international developments should continue.{84}

b. Ongoing Review and Surveillance

As part of IIROC's overall strategy on the regulation of short selling and failed trades, IIROC believes in providing greater transparency regarding short selling in a way that would provide timely information to the market. As a result, IIROC began publishing the Short Sale Trading Summary Report in 2013 on its website on a semi-monthly basis.{85} This report sets out the proportion of short sales in the total trading activity of each listed security across all equity marketplaces for each period.{86} While no one data source can provide a "complete" picture of short sale activity or positions, these semi-monthly trading summaries provided timely information in a cost efficient manner and supplemented the information available through the semi-monthly short position reports.{87}

To further understand and explore issues affecting small-cap issuers, IIROC hosted roundtables in 2014{88} and 2016{89}. In order to facilitate discussions at the 2014 roundtable, IIROC reviewed trading data during January 1, 2012 to March 31, 2014 and found that:

• in the period since the repeal of the tick test, the proportion of short sales executed on a downtick increased to 6.58% of short sales, however the vast majority of short sales were still executed on an uptick or zero tick;

• notwithstanding the repeal of the tick test, a short sale is approximately half as likely to execute on a downtick as other sales. Equally interesting was the fact that a short sale is more likely to execute on an uptick than other sales.

As part of the response to the discussions at the 2016 roundtable, IIROC:

• began publishing the Consolidated Short Position Report{90} on its website on a semi-monthly basis to further increase transparency regarding short sales and

• refreshed the 2007 Failed Trade Study and published the 2022 Failed Trading Study to update the information on short selling activity and failed trades in Canada.

{42} Participant is defined in section 1.1 of the UMIR to include a dealer registered in accordance with securities legislation of any jurisdiction and who is: (i) a member of an Exchange; (ii) a user of a QTRS; or (iii) a subscriber of an ATS.

{43} See Appendix B -- Text of the Universal Market Integrity Rules of the Recognition Order of Market Regulation Services Inc., effective February 14, 2002.

{44} For example, IIROC clarified what is considered:

• a short sale and when a person would be considered to own a security (See MIN 2004-020 Sales of Restricted Securities (August 13, 2004), MIN 2004-023 Provisions Respecting Short Sales (August 27, 2004), MIN 2005-028 Sale of Securities Subject to Transfer Restrictions Only in the United States (July 29, 2005), MIN 2006-002 "When Issued" Trading (January 30, 2006), MIN 2006-010 Short Sale Designations and Restrictions (April 7, 2006)

• a short position and reminded Participants and Access Persons how to file short position reports (See MIN 2003-011 Short Position Reports (May 27, 2003) and MIN 2007-022 Short Position Calculation and Reporting (October 29, 2007).

{45} See the exemption for Basis Orders in 2005 (MIN 2005-010 Provisions Respecting a "Basis Order" (April 8, 2005), Closing Price Orders in 2007 (MIN 2007-002 Provisions Respecting Competitive Marketplaces (February 26, 2007), where the sale is undertaken in accordance with the requirement to move the market to execute a trade at a price lower than the prevailing market (MIN 2008-008 Provisions Respecting "Off-Marketplace" Trades (May 16, 2008), for persons with "Marketplace Trading Obligations" (IIROC Notice 11-0251 Provisions Respecting Market Maker, Odd Lot and Other Marketplace Trading Obligations (August 26, 2011)).

{46} In June 2009, IOSCO published a report on the Regulation of Short Selling, which sets out four principles for the effective regulation of short selling. The UMIR exemptions from price restrictions on short sales for market making and arbitrage activities complied with IOSCO's fourth principle which provided that short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development. (IIROC Notice 11-0075 Provisions Respecting Regulation of Short Sales and Failed Trades at p17).

{47} See MIN 2004-026 Strategic Review of the Universal Market Integrity Rules (October 4, 2004), MIN 2007-017 Request for Comments -- Provisions Respecting Short Sales and Failed Trades (September 7, 2007) and IIROC Notice 08-0143 Notice of Approval -- Provisions Respecting Short Sales and Failed Trades (October 15, 2008).

{48} RS established a series of roundtable discussions in Montreal, Toronto, Calgary and Vancouver with representatives from buy-side and sell-side firms, marketplaces and law firms (see MIN 2004-026).

{49} MIN 2007-017 -- Request for Comments -- Provisions Respecting Short Sales and Failed Trades (September 7, 2007) at page 11 and IIROC Notice 08-0143 -- Notice of Approval -- Provisions Respecting Short Sales and Failed Trades (October 15, 2008).

{50} See SEC Release No. 34-50104, July 28, 2004 and Economic Analysis of the Short Sale Price Restrictions Under the Regulation SHO Pilot (Securities and Exchange Commission, Office of Economic Analysis, February 6, 2007).

The SHO Study concluded that the removal of price restrictions on the securities included in the Pilot Project had an effect on the mechanics of short selling, order routing decisions, displayed depth and intraday volatility, but on balance has not had a deleterious impact on market quality or liquidity (see also MIN 2007-017 starting on p8).

{51} The Working Group developed a "fail list" using thresholds from Regulation SHO (of average fail positions over a five-day period of 10,000 shares or more that constitute 0.5% or more of the issued and outstanding shares of the issuer). The application of these criteria would have resulted in an average of 30 issuers on the "fails list" in February 2005. (MIN 2007-017 at p12).

{52} MIN 2007-017 -- Request for Comments -- Provisions Respecting Short Sales and Failed Trades (September 7, 2007) and IIROC Notice 08-0143 -- Notice of Approval -- Provisions Respecting Short Sales and Failed Trades (October 15, 2008).

{53} Statistical Study of Failed Trades on Canadian Marketplaces (Market Regulation Services Inc., April 2007).

{54} IIROC Notice 09-0037 Recent Trends in Trading Activity, Short Sales and Failed Trades (February 4, 2009).

{55} See for example, the T+3 close-out requirement introduced by the SEC in 2008 (SEC Release No. 34-58572 (September 17, 2008)).

{56} IIROC Notice 08-0143 Provisions Respecting Short Sales and Failed Trades (October 15, 2008).

{57} For example, IIROC may become aware of systemic failures to settle trades in a particular security or class of securities through its monitoring of failed trade reports, issuances of "buy-in" notices by CDS, increasing proportion of short selling on the marketplace, or unusual price or volume movements, etc. (see IIROC Notice 08-0143 Provisions Respecting Short Sales and Failed Trades (October 15, 2008) at p11).

{58} For example, with respect to the exercise of options, rights or warrants -- all necessary steps include: made any payment required; submitted to the appropriate person any required forms or notices; and submitted, if applicable, to the appropriate person any certificates for securities to be converted, exchanged or exercised. (IIROC Notice 08-0143 at p12-13).

{59} IIROC implemented EFTR requirements for all trades executed on a marketplace and settle through:

• the continuous net settlement facilities (CNS) on June 1, 2011 (IIROC Notice 11-0161 Reminder Regarding the Reporting of Extended Failed Trades (May 19, 2011)) and

• the trade-for-trade ("TFT") facility of CDS on April 15, 2013 (IIROC Notice 13-0014 Implementation Date for Reporting "Trade-for-Trade" Extended Failed Trades (January 14, 2013).

{60} IIROC Notice 11-0075 -- Request for Comments -- Provisions Respecting Regulation of Short Sales and Failed Trades (February 25, 2011) at p7 and IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{61} Variation with respect to price or volume of the trade, or the settlement date for the trade (see UMIR 7.11).

{62} IIROC implemented TVCR requirements on June 1, 2011 (see IIROC Notice 11-0079 Implementation Date for the Reporting of Trade Variations and Cancellations (February 25, 2011).

{63} IIROC Notice 11-0075 -- Request for Comments -- Provisions Respecting Regulation of Short Sales and Failed Trades (February 25, 2011) at p26 and IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{64} IIROC Notice 08-0143 Provisions Respecting Short Sales and Failed Trades (October 15, 2008), IIROC Notice 11-0075 -- Request for Comments -- Provisions Respecting Regulation of Short Sales and Failed Trades (February 25, 2011) and IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{65} IIROC Notice 11-0075- Request for Comments -- Provisions Respecting Regulation of Short Sales and Failed Trades (February 25, 2011) at p7 and IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{66} IIROC Notice 09-0038 -- Impact of the Prohibition on the Short Sale of Inter-listed Financial Sector Issuers (February 4, 2009).

{67} IIROC Notice 08-0098 Reminder Respecting Obligations in the Conduct of Short Sales (September 22, 2008) and IIROC Notice 08-0101 Restated Reminder Respecting Obligations in the Conduct of Short Sales (September 23, 2008). While IIROC Notices 08-0098 and 08-0101 referred to the orders issued by the OSC, other CSA jurisdictions, such as the AMF, ASC and BCSC also issued similar orders on the same terms as the OSC.

{68} The OSC orders were in effect from September 22, 2008 to October 8, 2008.

{69} IIROC, Price Movement and Short Sale Activity -- The Case of the TSX Venture Exchange (February 2011).

{70} During May 1, 2007 and April 30, 2010, no short sale of a particular security could be made at a price less than the last sale price of that security (tick test).

{71} IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012) at p12.

{72} IIROC, Price Movement and Short Sale Activity -- The Case of the TSX Venture Exchange (February 2011).

{73} IIROC Notice 11-0078 Trends in Trading Activity, Short Sales and Failed Trades (February 25, 2011).

{74} IIROC, Review of Trading on Canadian Equity Marketplaces of Inter-listed Securities Subject to the US Short Sale Circuit Breaker (February 2012).

{75} Under Rule 201 of Regulation SHO, if the price of a security declines at least 10% from the closing price on the primary listing market on the previous trading day, a circuit breaker would be triggered and any short sale executed during the balance of that trading day and the next trading day would have to be entered at a price which was at least one trading increment above the current national best bid.

{76} IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{77} IIROC Notice 11-0075-- Request for Comments -- Provisions Respecting Regulation of Short Sales and Failed Trades (February 25, 2011) and IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{78} MIN 2007-014 -- Guidance -- Exemption of Certain Inter-listed Securities from Price Restrictions on Short Sales (July 6, 2007).

{79} IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012) at p5.

{80} Once a Participant or Access Person becomes aware of difficulties in obtaining particular securities to settle a short sale, the Participant would no longer have a "reasonable expectation" of being able to settle a resulting trade and therefore would not be able to enter further short sale orders. Participants or Access Persons who do not have the ability to borrow that security may be precluded from entering short sales. (Ibid. at p10).

{81} Ibid.

{82} Ibid.

{83} Request for Comment -- CSA-IIROC Joint Notice 23-312 Transparency of Short Selling and Failed Trades, March 2, 2012, (2012) 35 OSCB 2099.

{84} CSA/IIROC Joint Notice 23-315 -- Summary of Comments on CSA/IIROC Joint Notice 23-312 -- Request for Comments -- Transparency of Short Selling and Failed Trades, February 28, 2013, (2013) 36 OSCB 1978.

{85} IIROC Notice 13-0020 Issuance of Initial Short Sale Trading Summary (January 21, 2013).

{86} Short Sale Trading Statistics Summary Reports can be found on the IIROC website at https://www.iiroc.ca/sections/markets/reports-statistics-and-other-information/short-sale-trading-statistics-and-reports

{87} IIROC Notice 11-0075 -- Rules Notice -- Request for Comments -- UMIR -- Provisions Respecting Regulation of Short Sales and Failed Trades (February 25, 2011) at p16 and IIROC Notice 12-0078 -- Notice of Approval -- Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012).

{88} IIROC Notice 14-0117 Selected Background Information for the IIROC Venture Market Roundtable (May 6, 2014).

{89} IIROC Notice 16-0240 Summary of Roundtable Discussions on Market Structure Issues Affecting Small-Cap Issuers (October 20, 2016).

{90} IIROC Notice 18-0062 Short Position Calculation and Reporting (March 22, 2018). Consolidated Short Position Reports can be found on the IIROC website at https://www.iiroc.ca/sections/markets/reports-statistics-and-other-information/short-sale-trading-statistics-and-reports

APPENDIX B

INTERNATIONAL REGULATORY INITIATIVES REGARDING DISCLOSURE AND REPORTING OF SHORT SELLING POSITIONS

In Europe, existing disclosure requirements are under review. Specifically, the European Securities and Market Authority (ESMA) published a Consultation Paper -- Review of certain aspects of the Short Selling Regulation{91} in which, among other things, they seek comment on the existing framework for transparency and publication of net short positions. ESMA published its final report to the European Commission on March 22, 2022. This final report proposed amendments to improve ESMA's operation, focused on clarifying the procedures for the issuance of short and long-term bans, ESMA's intervention powers and proposes to enhance its rules against uncovered short sales by introducing record keeping requirements and harmonization of sanctions. It also includes a review of the framework for transparency and the publication of net short position reports.{92}

In the U.S., the Financial Industry Regulatory Authority (FINRA) published a request for comment on potential enhancements to its short selling program, which would include modifications to its short interest reporting requirements.{93} The public comment period, initially set at August 4, 2021, was extended to September 30, 2021. If implemented, such changes would change the frequency and content of information reported to FINRA and the information that would be made publicly available.

Also in the U.S., on November 18, 2021, the SEC published for a 30-day comment period proposed new Exchange Act Rule 10c-1 (proposed Rule 10c-1), which would increase transparency of securities lending transactions. The proposal is to require lenders of securities to provide the material terms of securities lending transactions to a registered national securities association, such as FINRA. FINRA would make some of the information available to the public.{94} On February 25, 2022, the SEC indicated that it reopened the comment period for this proposed Rule 10c-1. The comment period for this proposal ended on April 1, 2022.

On February 25, 2022, the SEC proposed new Exchange Act Rule 13f-2 (proposed Rule 13f-2){95} and amendments to Regulation SHO and to the national market system plan governing the consolidated audit trail to increase market transparency regarding short selling. The proposed Rule 13f-2 and Form SHO would require that institutional money managers file on the SEC's EDGAR system, on a monthly basis, certain short sale related data, some of which would be aggregated and made public. The proposed Form SHO would be filed within 14 calendar days after the end of each calendar month for equity securities that exceed certain thresholds. Such information would include the name of the security, end of month gross short position and daily trading activity that affects a manager's reported gross short position for each settlement date during the calendar month reporting period. The SEC would publish certain information for the securities, including the aggregated gross short position across all reporting institutional money managers. The extended comment period for proposed Rule 13f-2 ended on April 26, 2022.

{91}Available at ESMA Consultation Paper -- Review of certain aspects of the Short Selling Regulation.

{92} See: Review of certain aspects of the Short Selling Regulation -- Final Report, available at https://www.esma.europa.eu/sites/default/files/library/esma70-448-10_final_report_-_short_selling_regulation_review.pdf.

{93} See: Regulatory Notice 21-19 FINRA Requests Comments on Short Interest Position Reporting Enhancements and Other Changes Related to Short Sale Reporting, available at Regulatory Notice 21-19 | FINRA.org.

{94} Fact sheet available at https://www.sec.gov/rules/proposed/2021/34-93613-fact-sheet.pdf.

{95} See: Short Position and Short Activity Reporting by Institutional Investment Managers -- Proposed Rule, available at https://www.sec.gov/rules/proposed/2022/34-94313.pdf.

APPENDIX C

SELECTED RESULTS OF IIROC MONITORING OF SHORT SELLING ON DOWNTICKS

***The vertical line indicates when the tick restrictions were removed***

Fig 1 -- Short Sale Volume Composition by Market Ticks -- TSX, All Securities

Fig 2 -- Long Sale (excluding SME) Volume Composition by Market Ticks -- TSX, All Securities

Fig 3 -- Short Sale Volume Composition by Market Ticks -- TSXV, All Securities

Fig 4 -- Long Sale (excluding SME) Volume Composition by Market Ticks -- TSXV, All Securities

The TSX and TSXV data is provided as a proxy for marketplaces that list junior securities and marketplaces that list senior securities. At the time the tick restriction was moved CSE had limited listings and market activity and NEO had not yet launched. As a result, the data from both CSE and NEO was less informative.

OSC Staff Notice 45-718 -- Ontario's Exempt Market

OSC Staff Notice 45-718 -- Ontario's Exempt Market is reproduced on the following internally numbered pages. Bulletin pagination resumes at the end of the Staff Notice.

Ontario's Exempt Market

A review of capital raised in Ontario through prospectus exemptions

OSC Staff Notice 45-718

Fall 2022

Contents

• Executive Summary ................................................................... 2

• Market Composition and Annual Trends ............................... 4

• Investor Trends ........................................................................... 9

• Ontario Issuer Trends .............................................................. 13

Executive Summary

Since 2019, capital raising activity in Ontario's exempt market{1} has continued to grow despite pandemic- related market turbulence. In 2021, the amount of capital raised through prospectus exemptions nearly doubled from pre-pandemic highs to reach a record $175 billion. Much of this increase was driven by significant growth in U.S. and other foreign debt investments. Approximately 98% of the capital raised came from institutional investors. Individual investor activity, which is typically concentrated in Canadian issuers, also increased but at a more moderate pace.

Our findings in this report include:

Issuer and Investor Trends

• In 2021, Canadian and foreign issuers conducting prospectus-exempt offerings raised a total of approximately $171 billion from institutional investors and an additional $4 billion from individual investors.

• As in previous years, Ontario institutional investors primarily invested in debt-related offerings ($113B) of which a large and increasing share was directed at U.S. and other foreign issuers ($78B).

• Investments by individual investors remain concentrated in equity offerings of Canadian issuers (68%).

• Real estate and mortgage-related investments continue to attract an increasing share of individual investor capital, growing from approximately 37% in 2019 to 43% in 2021.

Prospectus Exemptions

• The Start-up Crowdfunding Exemption has been used by 59 issuers that have raised an aggregate $1.5 million from Ontario investors since the initial interim class order came into effect in May 2020.{2}

• About a third of the capital raised though the Start-up Crowdfunding Exemption was by issuers in the professional, scientific, and technical services sector.{3}

• The Accredited Investor Exemption continues to be the most used prospectus exemption by both Ontario individual (90%) and institutional investors (97%).

Ontario Issuers

• Activity by Ontario-based issuers has increased both in terms of the number of issuers accessing the exempt market and the amount of capital raised.

• In 2021, approximately $270 million was raised from Ontario investors through syndicated mortgage issuances, and about 71% of this ($192M) was raised by Ontario issuers.

• Syndicated mortgage investments represented under 1% of individual capital ($25M) and institutional capital ($245M) invested in 2021.{4}

Background

Purpose

The primary goal of the report is to highlight key annual trends related to exempt market{5} financing activity in Ontario. The report summarizes exempt market activity both in terms of businesses raising capital and the Ontario investors allocating capital to these businesses.

The report discusses the following:

• Market composition and annual trends

• Investor trends

• Ontario issuer trends

Scope and Data

The report relies on information provided in Form 45-106F1 Report of Exempt Distributions ("F1 Report") and the accompanying Schedule 1 filed with the OSC. The scope of the report is limited to non-investment fund issuers that raised capital in 2020 and 2021 from Ontario investors under prospectus exemptions that trigger a requirement to file an F1 Report.{6} These include distributions by both Canadian and foreign issuers. Therefore, the information presented in this report does not represent all exempt market or private market financing activity, such as distributions made under the private issuer exemption.

The data in this report was collected at a point in time and may not incorporate the latest filer amendments or late filings. Similarly, this report may include updated historical figures that differ from previously reported numbers as historical data has now incorporated such filings.

For the period analyzed, approximately 1% of F1 Report filings were excluded because they contained data errors, incomplete records or were identified as duplicate filings. In addition, OSC staff relied on various data cleaning methods and conducted additional research to identify market segments that were not explicitly captured in the F1 Report. For example, issuers were categorized into one of three mortgage sub-segments (Mortgage Investment Entities, Mortgage Syndication or Other Mortgage) based on a combination of OSC staff's research, issuer's name, issuer's NAICS sector, type of securities distributed and additional issuer information.

Market Composition and Annual Trends

Market Composition in 2021

The composition of Ontario's exempt market remains largely unchanged compared to 2019. Institutional investments in foreign, predominantly U.S.-based issuers continue to account for the majority of capital raised. However, for the first time, the number of foreign-based issuers raising capital from Ontario investors was greater than the number of Canadian issuers.

Capital Source

$174.9 billion

Amount invested by Ontario investors through prospectus exemptions

Issuer Capital Raised

Other Key Components

Security Types{7}

Reporting Issuers

Key Sectors

AccreditedInvestor (AI) Exemption{8}

Annual Trends

Ontario's exempt market has grown significantly since 2018 across both institutional and individual investor market segments. There was a small decline in the amount of capital raised from individual investors in 2020 but overall activity, both in terms of the numbers of issuers and investors, has continued to rise.

Capital Raised

Growth in capital raising activity over the years has been concentrated in the institutional investor segment. Since 2018, the amount of capital invested by institutional investors through prospectus- exempt offerings has more than doubled. Much of this increase was through debt-related offerings of U.S.-based and other foreign issuers. In contrast, capital investment by individual investors, which continues to be concentrated in non-debt-related offerings of Canadian issuers, grew at a more moderate pace.

Capital Raised by Security Type

Capital Raised by Issuer Headquarters

Issuers

The number of Canadian and foreign issuers raising capital from Ontario investors through the exempt market has continued to increase.

In 2021, out of the approximately 4,500 issuers that raised capital from institutional investors, approximately 52% were foreign issuers.{9} Within the individual investor segment, Canadian issuers still outnumbered foreign issuers. Of the 3,200 issuers that raised capital from individual investors in 2021, 64% were Canadian-based issuers. However, in 2021, there was a notable uptick in the number of U.S.- based issuers raising capital from individual investors.

Investors

After a minor decline in 2020, the number of Ontario investors participating in prospectus-exempt distributions rebounded in 2021. There were approximately 36,100 individual investors and 9,400 institutional investors accessing the Ontario exempt market, representing a 26% and 36% increase, respectively, since 2019.

Real estate, finance, mortgage and mining sectors continue to attract the largest share of individual investors. Since 2019, mining and real estate sectors also experienced the largest percentage gain in the number of individual investors.

Individual Investors by Sector{10}

Prospectus Exemptions

Activity under both the Offering Memorandum (OM) Exemption and Family, Friends and Business Associates (FFBA) Exemption has continued to increase. There has also been some activity under the recently harmonized Start-up Crowdfunding Exemption, which was initially adopted under interim class orders starting in May 2020 before a rule was adopted in September 2021.

During 2020 and 2021, the OM Exemption continued to be predominantly used by mortgage and real estate issuers.{11}

Offering Memorandum Exemption (2020 & 2021)

The greatest proportion of issuers relying on the FFBA Exemption has been non-financial issuers, especially mining issuers.{12} However, mortgage issuers raised more capital under the exemption than issuers in other sectors.

Family, Friends & Business Associates Exemption (2020 & 2021)

The Start-up Crowdfunding Exemption has been predominantly used by non-financial issuers, mainly issuers in the professional, scientific, and technical sector (32%), and the manufacturing sector (18%).

Start-up Crowdfunding Exemption (2020 & 2021)

Investor Trends

Investor Trends

Where did investors allocate capital in 2021?

Issuer HQ

Individual investors allocated most of their capital to Ontario-based issuers, whereas institutional investors allocated more capital to foreign-based issuers, predominantly those based in the U.S.

Key Sectors

Finance, mortgage and real estate investments accounted for almost two- thirds of the capital invested by individual investors. In contrast, institutional investments were largely concentrated in the finance sector (41%).

Reporting Issuers

Reporting issuers received 31% of capital invested in the exempt market by individual investors ($1.2B) and 17% of capital invested by institutional investors ($28.8B).

For individual investors, investments in reporting issuers were concentrated in the mining (40%) and finance (24%) sectors.

Security Types{13}

The majority of capital invested by individual investors in 2021 was in equity securities. Institutional investors were more likely to invest in debt securities.

Mortgage and Real Estate Investments

Mortgage and real estate investments have increased for both institutional and individual investors since 2019.

In 2021, a large investment in a U.S. government sponsored mortgage-backed security issuer contributed to the three-fold increase in institutional capital invested in this sector.

Individual investments in mortgage investment entities (MIEs) rebounded in 2021 and there was a notable increase in real estate investments since 2019.

In 2021, approximately $270 million was invested in syndicated mortgages, with $245 million invested by institutional investors and $25 million invested by individual investors.

As in previous years, most of the capital invested in mortgage and real estate issuers by individuals was through offerings of equity securities (97%). In contrast, approximately 80% of the institutional investor capital invested in mortgage and real estate issuers was in debt securities.

Annual Investment in Real Estate and Mortgage Sub-segments{14}

Individual Investments in Real Estate and MIEs

Prospectus Exemptions

In 2021, the AI Exemption continues to be the most used exemption for individuals (90%) and institutional (97%) investors.

Amount Invested by Prospectus Exemption

After the AI Exemption, the OM Exemption was the second most used prospectus exemption for individual investors in 2021.

Number of Investors by Prospectus Exemption

Individual Investors

In 2021, individual investor activity under the AI Exemption and OM Exemption surpassed 2019 levels.

AI and OM Activity by Individual Investors

Ontario Issuer Trends

Ontario Issuers in 2021

Since 2019, the amount of capital raised by Canadian issuers has increased by approximately 56%, whereas the amount raised by U.S. issuers has more than doubled over the same period. Ontario- based issuers still account for over half (approximately 60%) of the capital raised by Canadian issuers. The sector composition of Ontario-based issuers accessing exempt market financings remains generally unchanged between 2019 and 2021.{15}

Issuer HQ

Key Ontario Sectors -- Financial Issuers

Issuers in the finance sector continue to comprise a large share of the capital raised by Ontario-based issuers.

Ontario Issuer Activity

Finance

2021 Finance Subsector/Industry

Mortgage and Real Estate

2021 Issuer Composition

2021 Investor Composition

Key Ontario Sectors -- Non-Financial Issuers

Ontario Non-Financial Issuer Activity

Issuer's Asset Size{16}

Over half of all non- financial issuers had less than $5 million in total assets in 2021.

Mining Issuer Size

Other Non-Financial Issuer Size

Prospectus Exemption{17}

Ontario mining and other non-financial issuers predominantly used the AI Exemption to raise capital.

Mining{18}

Other Non-Financial

Contacts

Please refer your questions to the following OSC staff:

Jiayi Cheng

Research Analyst, Regulatory Strategy and Research Ontario Securities Commission

416-263-7720

jcheng@osc.gov.on.ca

 

Tamara Driscoll

Senior Accountant, Corporate Finance Ontario Securities Commission

416-596-4292

tdriscoll@osc.gov.on.ca

 

Erin O'Donovan

Manager (Acting), Corporate Finance Ontario Securities Commission

416-204-8973

eodonovan@osc.gov.on.ca

 

Kevin Yang

Manager, Regulatory Strategy and Research Ontario Securities Commission

416-204-8983

kyang@osc.gov.on.ca

{1} For the purpose of this report, "individual investors" refers to investors who were identified by their full legal name and not a corporate or legal entity name. "Institutional investors" refers to non-individuals such as companies, trusts or managed accounts purchasing on behalf of a beneficiary or group of beneficiaries.

{2} Activity as of December 2021 includes distributions reported under National Instrument 45-110 Start-Up Crowdfunding Registration and Prospectus Exemptions, Ontario Instrument 45-505 Relief in respect of the Distribution of Securities through a Funding Portal Operated by Silver Maple Ventures Inc. (Interim Class Order), and Ontario Instrument 45-506 Start-Up Crowdfunding Registration and Prospectus Exemptions (Interim Class Order). See CSA Notice of Publication of National Instrument 45-110 and OSC Staff Notice 45-505 for more information.

{3} Issuer sector categories were based on their reported NAICS (North American Industry Classification System) code with the exception of mortgage and real estate issuers, which were identified based on additional OSC staff research.

{4} On July 1, 2021, amendments to National Instrument 45-106 Prospectus Exemptions, National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, and OSC Rule 45-501 Ontario Prospectus and Registration Exemptions related to syndicated mortgages came into force.

{5} For more information about the exempt market, please see: "The Exempt Market at <http://www.osc.gov.on.ca/en/exempt-market.htm> and "The Exempt Market Explained" at <https://www.getsmarteraboutmoney.ca>.

{6} For more information on which exemptions require the filing of an F1 Report in Ontario, see Part 6: Reporting Requirements of National Instrument 45- 106 Prospectus Exemptions.

{7} Equity includes all classes of common shares, preferred shares, flow-through shares, partnership units, depository receipts and subscription receipts. Debt securities include notes, debentures, bonds, and certificates.

{8} See definition of "accredited investor" in Part 1: Definitions and Interpretation of National Instrument 45-106 Prospectus Exemptions.

{9} Issuer headquarter (HQ) information is not reported for about 1% of issuers that submitted filings in 2018 to 2021.

{10} Annual number of investors that invested capital in issuers in each sector. Some investors may have invested in issuers in multiple sectors.

{11} The number of issuers in the pie charts indicate total distinct issuers from 2020 to 2021.

{12} Non-financial issuers consist of issuers in a NAICS sector other than the finance sector that were not identified as a real estate or mortgage issuer by OSC staff's categorization.

{13} Equity securities include all classes of common shares, preferred shares, flow-through shares, partnership units, depository receipts and subscription receipts. Debt securities include notes, debentures, bonds, and certificates. "Other Securities" include all other security types and for distributions where the security type was not reported.

{14} Issuers categorized under MIEs are predominantly mortgage investment corporations or similarly structured entities; Real Estate includes real estate investment trusts (REITS); Other Mortgage comprises all other mortgage-related investments such as mortgage-backed securities.

{15} This section focuses on Ontario issuers that raised capital from Ontario investors under prospectus exemptions that trigger a requirement to file an F1 Report.

{16} Based on the reported size of issuer's assets from recently available annual financial statements or the size of issuer's assets at the time of distribution end date.

{17} Other Exemptions consists of seven reportable prospectus exemption types, including the Minimum Amount Investment Exemption, Asset Acquisition Exemption, Crowdfunding Exemption, Petroleum, Natural Gas and Mining Properties Exemption, Securities for Debt Exemption, Isolated Distribution by Issuer Exemption, and Existing Security Holder Exemption.

{18} The total percentage of issuers by exemption will exceed 100% since some issuers rely on multiple prospectus exemptions to raise capital. For example, 90% (or 9 in 10) non-financial issuers relied on the AI Exemption and 30% (or 3 in 10) non-financial issuers relied on the FFBA Exemption.

Clearford Water Systems Inc. -- Notice of Correction

NOTICE OF CORRECTION

Clearford Water Systems Inc., dated October 7, 2022, was published on October 20, 2022, at (2022), 45 OSCB 8975.

At paragraph 12, the correct date is "October 7, 2022", and reads in full "The effective date of the Corporate Reorganization was October 7, 2022 (the Effective Date)."

Orders

CME Amsterdam B.V. -- s. 144

Headnote

Application to very and restate an order that a Multilateral Trading Facility regulated by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Marketen) is exempt from the requirement to be recognized as an exchange in Ontario and from the requirements of NI 21-101, NI 23-101 and NI 23-103 in their entirety -- requested order granted.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 21, 144.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S. 5, AS AMENDED (the Act) AND IN THE MATTER OF CME AMSTERDAM B.V.

ORDER (Section 144 of the Act)

WHEREAS CME Amsterdam B.V. (the Applicant) has filed an application on behalf of the Facilities (as defined below) dated October 20, 2022 (the Application) with the Ontario Securities Commission (Commission) requesting an order pursuant to section 144 of the Act for the following relief (collectively, the Requested Relief):

(a) exempting the Applicant from the requirement to be recognized as an exchange under subsection 21(1) of the Act pursuant to section 147 of the Act; and

(b) exempting the Applicant from the requirements in National Instrument 21-101 Marketplace Operation (NI 21-101) pursuant to section 15.1 of NI 21-101, the requirements of National Instrument 23-101 Trading Rules (NI 23-101) pursuant to section 12.1 of NI 23-101 and the requirements of National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103) pursuant to section 10 of NI 23-103.

AND WHEREAS the Commission granted exemptive relief to the Applicant in an order dated August 25, 2020 (the Original Order). On March 11, 2021, the Commission varied the Original Order by replacing Schedule "A" -- Terms and Conditions to streamline the terms and conditions of the Original Order and reduce the regulatory burden on the Applicant (the March 2021 Variation Order). The Applicant is currently relying on the Original Order, as varied by the March 2021 Variation Order. The Applicant has filed for an order pursuant to section 144 of the Act to revoke the Original Order as of the date hereof;

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant (formerly known as NEX Amsterdam B.V.) is a limited liability company organized under the laws of the Netherlands. The ultimate parent company of the Applicant is CME Group Inc. (CME Group), a publicly traded for-profit corporation organized under the laws of Delaware and listed for trading on the NASDAQ National Market. CME Group acquired NEX Group plc and its group companies, including the Applicant, on November 2, 2018;

2. The Applicant is authorised by the Dutch Minister of Finance as a "market operator" (Market Operator) and supervised and regulated by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) (the AFM) with permission to operate the BrokerTec EU Regulated Market platform (the BrokerTec EU RM), a regulated market, and the EBS Direct Forwards platform (the EBS MTF), a multilateral trading facility (MTF);

3. On March 12, 2019, the Dutch Minister of Finance authorised the Applicant to act as the Market Operator of the the BrokerTec EU RM and EBS MTF (each a Facility and together, the Facilities) in the Netherlands and the AFM has commenced supervision and regulation of the Applicant on an ongoing, active basis;

4. The European Markets in Financial Instruments Directive 2004/39/EC and Directive 2014/65/EU (collectively, MiFID) requires that multilateral trading by European Union (EU)/European Economic Area (EEA) participants takes place on a trading venue (i.e., a "regulated market", a "multilateral trading facility" or an "organized trading facility", as those terms are defined under MiFID);

5. The Applicant operates the Facilities for, among other things, trading fixed income securities, foreign exchange (FX) derivatives and other financial instruments. The Facilities are made up of different trading platforms, but the subjects of this order are (1) the BrokerTec EU RM, which trades European repurchase securities collateralized by European government bonds (and repurchase securities collateralized by European and U.S. corporate bonds (collectively EU Repos)) and European government bonds (EGBs), and (2) the EBS MTF, which trades FX derivatives, FX Swaps and Non-Deliverable Forwards (collectively with EU Repos and EGBs, the MTF Instruments). The Applicant may add other types of financial instruments in the future, subject to obtaining the required regulatory approvals;

6. As a Market Operator, the Applicant must comply with the Netherlands Financial Supervision Act (Wet op het financieel toezicht, Wft), MiFID, the Markets in Financial Instruments Regulation, other applicable regulation in the EEA (such as Regulation (EU) No 596/2014 -- Market Abuse Regulation), the rules pertaining to this legislation and the applicable guidance from the AFM and De Nederlandsche Bank (the Applicable Rules), which include, among other things, rules on (i) the conduct of business (including rules regarding client categorization, communication with clients and other investor protections and client agreements) (ii) market conduct (including rules applicable to firms operating a trading venue) and (iii) systems and controls (including rules on outsourcing, governance, record-keeping and conflicts of interest);

7. The AFM requires the Applicant to comply at all times with a set of threshold conditions for authorisation and ongoing requirements, including requirements that the Applicant has sound business and controlled business operations to be authorised and that it has appropriate resources for the activities it carries on. Breach of a threshold condition could lead to enforcement action or the Applicant's authorisation being revoked by the AFM;

8. In addition to complying with detailed AFM rules and guidance governing the organization and conduct of the Applicant's business, the Applicant is required to act in accordance with Section 4:90 of the Wft, which requires the Applicant to act honestly, fairly and professionally and refrain from actions that are detrimental to the integrity of the market. Additionally, pursuant to Section 4:14(2)(a) of the Wft, in conjunction with Article 29a(2) of the Decree on Conduct of Business Supervision (Besluit Gedragstoezicht Financiële ondernemingen Wft) and Article 15(5) of the Markets in Financial Instruments Directive 2014/65/EU of the European Parliament and of the Council (MiFID II), the Applicant must establish adequate risk management policies and procedures and adopt effective arrangements to manage the risks relating to its activities, processes and systems;

9. The Applicant is subject to prudential requirements, including minimum regulatory capital and liquidity requirements, and is capitalized in excess of regulatory requirements;

10. A Market Operator is required under the Applicable Rules to set rules, conduct compliance reviews, monitor Participants' trading activity and take enforcement action against Participants when appropriate. Pursuant to Section 4:26 of the Wft, the Applicant is required to report to the AFM where (a) there is a significant breach of the Applicant's rules; (b) there are disorderly trading conditions or (c) the Applicant identifies conduct that may involve market abuse. Furthermore, the Applicant has established, publishes, maintains and implements transparent and non-discriminatory rules, based on objective criteria, governing access to its facility (as required under Article 18(3) of MiFID II). The Facilities are required under the EU Market Abuse Regulation Article 16(1) to "establish and maintain effective arrangements, systems and procedures aimed at preventing and detecting insider dealing, market manipulation and attempted insider dealing and market manipulation";

11. The Applicant has instituted procedures and controls to collect information, examine participants' records, supervise trading on the Facilities, maintain sufficient compliance staff, establish procedures for and conduct audit trail reviews, perform automated real-time market monitoring and market surveillance and establish an automated trade surveillance system to evaluate participants' compliance with the Applicant's rules and applicable law;

12. The Applicant is required by MiFID to ensure that its fee structure is sufficiently granular to allow users to predict the payable fees on the basis of at least the following elements: (a) chargeable services, including the activity which will trigger the fee, (b) the fee for each service, stating whether the fee is fixed or variable, and (c) rebates, incentives or disincentives. MiFID also requires the Applicant to publish objective criteria for the establishment of its fees and fee structures, together with execution fees, ancillary fees, rebates, incentives and disincentives in one comprehensive and publicly accessible document on its website;

13. A Market Operator must submit all trades that are required to be cleared to a clearing house for clearing. The Applicant provides direct connectivity to LCH S.A. (LCH) for clearing EU Repos and EGBs. LCH is exempted from the requirement to be recognized as a clearing agency in Ontario. For the EBS MTF, settlement takes place between the counterparties. Although the EBS MTF's rules require counterparties to settle any deals, the Applicant is not involved in, nor is it responsible for, settlement or clearing and counterparties make their own bilateral arrangements;

14. The Applicant requires that its participants be "eligible counterparties" or "professional clients," each as defined in MiFID. Additionally, each prospective participant must:

(a) in respect of EBS MTF:

(i) enter into a valid and effective customer agreement with the Facility;

(ii) satisfy the Applicant's internal client on-boarding requirements including, but not limited to, "know your client" procedures;

(iii) agree to adhere, on an on-going basis, to the terms of the Applicant's Facility rulebook (the EBS MTF Rulebook), customer agreements, user guides and any guidance or other requirements of the Applicant;

(iv) have the legal and regulatory capacity to undertake trading in derivatives on a trading venue;

(v) have adequate organisational procedures and controls to limit erroneous trades and the submission of erroneous orders to the Facility, including, but not limited to, the ability to cancel unexecuted orders;

(vi) meet the technical specifications and standards required by the Applicant;

(vii) be an investment firm or credit institution (each as defined by MiFID and Directive 2013/36/EU of the European Parliament and of the Council, respectively) or other person which (A) is of sufficiently good repute, (B) has a sufficient level of trading ability, competence and experience, and (C) has sufficient resources for their role as a participant; and

(viii) satisfy any additional eligibility criteria set out in any appendix to the EBS MTF Rulebook;

(b) in respect of BrokerTec EU RM:

(i) satisfy the Applicant's internal client on-boarding requirements including committing to and remaining in compliance with customer agreements and the Applicant's Facility rulebook (the BrokerTec EU RM Rulebook), and be classified by the Applicant as an "eligible counterparty" or "professional client" (each as defined in MiFID), unless otherwise detailed in any relevant appendix to the BrokerTec EU RM Rulebook;

(ii) be an investment firm or credit institution (each as defined by MiFID and Directive 2013/36/EU of the European Parliament and of the Council, respectively) or other person which (A) is of sufficiently good repute, (B) has a sufficient level of trading ability, competence and experience, and (C) has sufficient resources for their role as a participant;

(iii) have the legal and regulatory capacity to undertake trading in derivatives on an RM;

(iv) comply with the Facility's operational parameters annex (the BrokerTec EU RM Operational Parameters Annex);

(v) have adequate arrangements for entering into transactions, order management, clearing (if relevant) and settlement of orders;

(vi) have adequate organisational procedures and controls to limit erroneous trades and the submission of erroneous orders to the Facility, including, but not limited to, the ability to cancel unexecuted orders;

(vii) meet the technical specifications and standards required by the Applicant; and

(viii) satisfy any additional eligibility criteria set out in any appendix to the BrokerTec EU RM Rulebook;

15. Additionally, participants on the Facilities are responsible for all the acts, omissions, conduct and activity of their authorised employees and must ensure that their authorised employees have sufficient training, are properly supervised and have adequate experience, knowledge and competence to participate on the Facilities in accordance with the Applicant's customer agreements and with respect to the BrokerTec EU RM, the BrokerTec EU RM Rulebook and BrokerTec EU RM Operational Parameters Annex, and with respect to the EBS MTF, the EBS MTF Rulebook and any communications sent by the EBS MTF concerning its operations to participants;

16. All participants that are located in Ontario, including participants with their headquarters or legal address in Ontario (e.g., as indicated by a participant's Legal Entity Identifier (LEI)) and all traders conducting transactions on its behalf, regardless of the traders' physical location (inclusive of non-Ontario branches of Ontario legal entities), as well as any trader physically located in Ontario who conducts transactions on behalf of any other entity (Ontario Participants) are required to be registered under Ontario securities laws, exempt from the registration requirements or not subject to the registration requirements. An Ontario Participant is also required to immediately notify the Applicant if it ceases to meet any of the above criteria represented by it on an ongoing basis. Additionally, all Ontario Participants will be "permitted clients" as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

17. Because the Facilities set requirements for the conduct of their participants, they are considered by the Commission to be an exchange;

18. Because the Applicant intends to provide Ontario Participants with direct access to trading the MTF Instruments on the Facilities, the Commission will consider the Applicant to be carrying on business as an exchange in Ontario and will be required to be recognized as such pursuant to subsection 21(1) of the Act or exempted from recognition;

19. The Applicant has no physical presence in Ontario and does not otherwise carry on business in Ontario except as described herein; and

20. The Applicant satisfies the exemption criteria in Appendix I to Schedule "A";

AND WHEREAS the products traded on the Facilities are not commodity futures contracts as defined in the Commodity Futures Act (Ontario) and the Applicant is not considered to be carrying on business as a commodity futures exchange in Ontario;

AND WHEREAS the Commission will monitor developments in international and domestic capital markets and the Applicant's activities on an ongoing basis to determine whether it is appropriate for the Requested Relief to continue to be granted subject to the terms and conditions set out in Schedule "A" to this order;

AND WHEREAS the Applicant has acknowledged to the Commission that the scope of the Requested Relief and the terms and conditions imposed by the Commission set out in Schedule "A" to this order may change as a result of the Commission's monitoring of developments in international and domestic capital markets or the Applicant's activities, or as a result of any changes to the laws in Ontario affecting trading in derivatives or securities;

AND WHEREAS based on the Application, together with the representations made by and acknowledgments of the Applicant to the Commission, the Commission has determined that the Applicant satisfies the criteria set out in Appendix I to Schedule "A" and that the granting of the Requested Relief would not be prejudicial to the public interest;

IT IS HEREBY ORDERED by the Commission that, (i) pursuant to section 144 of the Act, the Applicant is exempt from the requirement to be recognized as an exchange under subsection 21(1) of the Act, and (ii) pursuant to sections 15.1 of NI 21-101, 12.1 of NI 23-101 and 10 of NI 23-103, the Applicant is exempt from the requirements in NI 21-101, NI 23-101 and NI 23-103 in order to operate the BrokerTec EU RM and the EBS MTF,

PROVIDED THAT the Applicant complies with the terms and conditions contained in Schedule "A".

DATED December 1, 2022.

SCHEDULE "A"

TERMS AND CONDITIONS

Meeting Criteria for Exemption

1. The Applicant will continue to meet the criteria for exemption included in Appendix I to this Schedule.

Regulation and Oversight of the Applicant

2. The Applicant will maintain its authorisation as the Market Operator of one or more multilateral trading facilities or regulated markets (collectively, the Facilities) with the Dutch Minister of Finance and will continue to be subject to the supervision and regulatory oversight of the AFM.

3. The Applicant will continue to comply with the ongoing requirements applicable to it as a Market Operator authorised by the Dutch Minister of Finance and supervised and regulated by the AFM.

4. The Applicant will promptly notify the Commission if its authorisation as a Market Operator has been revoked, suspended, or amended by the Dutch Minister of Finance, or the basis on which its authorisation as a Market Operator has been granted has significantly changed.

5. The Applicant must do everything within its control, which includes cooperating with the Commission as needed, to carry out its activities as an exchange exempted from recognition under subsection 21(1) of the Act in compliance with Ontario securities law.

Access

6. The Applicant will not provide direct access to a participant in Ontario, including a participant with its headquarters or legal address in Ontario (e.g., as indicated by a participant's Legal Entity Identifier (LEI)) and all traders conducting transactions on its behalf, regardless of the traders' physical location (inclusive of non-Ontario branches of Ontario legal entities), as well as any trader physically located in Ontario who conducts transactions on behalf of any other entity (Ontario User), unless the Ontario User is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements, and qualifies as an "eligible counterparty" or "professional client", each as defined in MiFID.

7. For each Ontario User provided direct access to the Applicant's Facilities, the Applicant will require, as part of its application documentation or continued access to the Applicant's Facilities, the Ontario User to represent that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements.

8. The Applicant may reasonably rely on a written representation from the Ontario User that specifies either that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements, provided the Applicant notifies such Ontario User that this representation is deemed to be repeated each time it enters an order, request for quote or response to a request for quote or otherwise uses the Applicant's Facilities.

9. The Applicant will require Ontario Users to notify the Applicant if their registration as applicable under Ontario securities laws has been revoked, suspended, or amended by the Commission or if they are no longer exempt from or become subject to those requirements and, following notice from the Ontario User and subject to applicable laws, the Applicant will promptly restrict the Ontario User's access to the Applicant if the Ontario User is no longer appropriately registered or exempt from those requirements.

Trading by Ontario Users

10. The Applicant will not provide access to an Ontario User to trading in products other than FX derivatives or debt securities without prior Commission approval.

Submission to Jurisdiction and Agent for Service

11. With respect to a proceeding brought by the Commission arising out of, related to, concerning or in any other manner connected with the Commission's regulation and oversight of the activities of the Applicant in Ontario, the Applicant will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Ontario and (ii) an administrative proceeding in Ontario.

12. The Applicant will maintain with the Commission a valid and binding appointment of an agent for service in Ontario upon whom the Commission may serve a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal, penal or other proceeding arising out of, related to, concerning or in any other manner connected with the Commission's regulation and oversight of the Applicant's activities in Ontario.

Prompt Reporting

13. The Applicant will notify staff of the Commission promptly of:

(a) any authorisation to carry on business granted by the AFM is revoked or suspended or made subject to terms or conditions on the Applicant's operations;

(b) the Applicant institutes a petition for a judgment of bankruptcy or insolvency or similar relief, or to wind up or liquidate the Applicant or has a proceeding for any such petition instituted against it;

(c) a receiver is appointed for the Applicant or the Applicant makes any voluntary arrangement with creditors;

(d) the Applicant marketplace is not in compliance with this Order or with any applicable requirements, laws or regulations of the AFM where it is required to report such non-compliance to the AFM;

(e) any known investigations of, or disciplinary action against, the Applicant by the AFM or any other regulatory authority to which it is subject; and

(f) the Applicant makes any material change to the eligibility criteria for Ontario Users.

Semi-Annual Reporting

14. The Applicant will maintain the following updated information and submit such information in a manner and form acceptable to the Commission on a semi-annual basis (by July 31 for the first half of the calendar year and by January 31 of the following year for the second half), and at any time promptly upon the request of staff of the Commission:

(a) a current list of all Ontario Users and whether the Ontario User is registered under Ontario securities laws or is exempt from or not subject to registration, and, to the extent known by the Applicant, other persons or companies located in Ontario trading on the Applicant's Facilities as customers of participants (Other Ontario Participants);

(b) the legal entity identifier assigned to each Ontario User, and, to the extent known by the Applicant, to Other Ontario Participants in accordance with the standards set by the Global Legal Entity Identifier System;

(c) a list of all Ontario Users whom the Applicant has referred to the AFM, or, to the best of the Applicant's knowledge, whom have been disciplined by the AFM with respect to such Ontario Users' activities on the Applicant's Facilities and the aggregate number of all participants referred to the AFM since the previous report by the Applicant;

(d) a list of all active investigations since the last report by the Applicant relating to Ontario Users and the aggregate number of active investigations since the last report relating to all participants undertaken by the Applicant;

(e) a list of all Ontario applicants for status as a participant who were denied such status or access to the Applicant since the last report, together with the reasons for each such denial; and

(f) for each product,

(i) the total trading volume and value originating from Ontario Users, and, to the extent known by the Applicant, from Other Ontario Participants, presented on a per Ontario User or per Other Ontario Participant basis; and

(ii) the proportion of worldwide trading volume and value on the Applicant's Facilities conducted by Ontario Users, and, to the extent known by the Applicant, by Other Ontario Participants, presented in the aggregate for such Ontario Users and Other Ontario Participants;

provided in the required format.

Information Sharing

15. The Applicant will provide such information as may be requested from time to time by, and otherwise cooperate with, the Commission or its staff, subject to any applicable privacy or other laws (including solicitor-client privilege) governing the sharing of information and the protection of personal information.

APPENDIX I

CRITERIA FOR EXEMPTION OF A FOREIGN EXCHANGE TRADING OTC DERIVATIVES FROM RECOGNITION AS AN EXCHANGE

PART 1 REGULATION OF THE EXCHANGE

1.1 Regulation of the Exchange

The exchange is regulated in an appropriate manner in another jurisdiction by a foreign regulator (Foreign Regulator).

1.2 Authority of the Foreign Regulator

The Foreign Regulator has the appropriate authority and procedures for oversight of the exchange. This includes regular, periodic oversight reviews of the exchange by the Foreign Regulator.

PART 2 GOVERNANCE

2.1 Governance

The governance structure and governance arrangements of the exchange ensure:

(a) effective oversight of the exchange,

(b) that business and regulatory decisions are in keeping with its public interest mandate,

(c) fair, meaningful and diverse representation on the board of directors (Board) and any committees of the Board, including:

(i) appropriate representation of independent directors, and

(ii) a proper balance among the interests of the different persons or companies using the services and facilities of the exchange,

(d) the exchange has policies and procedures to appropriately identify and manage conflicts of interest for all officers, directors and employees, and

(e) there are appropriate qualifications, remuneration, limitation of liability and indemnity provisions for directors, officers and employees of the exchange.

2.2 Fitness

The exchange has policies and procedures under which it will take reasonable steps, and has taken such reasonable steps, to ensure that each director and officer is a fit and proper person and past conduct of each officer or director affords reasonable grounds for belief that the officer or director will perform his or her duties with integrity.

PART 3 REGULATION OF PRODUCTS

3.1 Review and Approval of Products

The products traded on the exchange and any changes thereto are submitted to the Foreign Regulator, and are either approved by the Foreign Regulator or are subject to requirements established by the Foreign Regulator that must be met before implementation of a product or changes to a product.

3.2 Product Specifications

The terms and conditions of trading the products are in conformity with the usual commercial customs and practices for the trading of such products.

3.3 Risks Associated with Trading Products

The exchange maintains adequate provisions to measure, manage and mitigate the risks associated with trading products on the exchange that may include, but are not limited to, daily trading limits, price limits, position limits, and internal controls.

PART 4 ACCESS

4.1 Fair Access

(a) The exchange has established appropriate written standards for access to its services including requirements to ensure

(i) participants are appropriately registered as applicable under Ontario securities laws, or exempted from these requirements,

(ii) the competence, integrity and authority of systems users, and

(iii) systems users are adequately supervised.

(b) The access standards and the process for obtaining, limiting and denying access are fair, transparent and applied reasonably.

(c) The exchange does not unreasonably prohibit, condition or limit access by a person or company to services offered by it.

(d) The exchange does not

(i) permit unreasonable discrimination among participants, or

(ii) impose any burden on competition that is not reasonably necessary and appropriate.

(e) The exchange keeps records of each grant and each denial or limitation of access, including reasons for granting, denying or limiting access.

PART 5 REGULATION OF PARTICIPANTS ON THE EXCHANGE

5.1 Regulation

The exchange has the authority, resources, capabilities, systems and processes to allow it to perform its regulation functions, whether directly or indirectly through a regulation services provider, including setting requirements governing the conduct of its participants, monitoring their conduct, and appropriately disciplining them for violations of exchange requirements.

PART 6 RULEMAKING

6.1 Purpose of Rules

(a) The exchange has rules, policies and other similar instruments (Rules) that are designed to appropriately govern the operations and activities of participants and do not permit unreasonable discrimination among participants or impose any burden on competition that is not reasonably necessary or appropriate.

(b) The Rules are not contrary to the public interest and are designed to

(i) ensure compliance with applicable legislation,

(ii) prevent fraudulent and manipulative acts and practices,

(iii) promote just and equitable principles of trade,

(iv) foster co-operation and co-ordination with persons or companies engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in the products traded on the exchange,

(v) provide a framework for disciplinary and enforcement actions, and

(vi) ensure a fair and orderly market.

PART 7 DUE PROCESS

7.1 Due Process

For any decision made by the exchange that affects a participant, or an applicant to be a participant, including a decision in relation to access, exemptions, or discipline, the exchange ensures that:

(a) parties are given an opportunity to be heard or make representations, and

(b) it keeps a record of, gives reasons for, and provides for appeals or reviews of its decisions.

PART 8 CLEARING AND SETTLEMENT

8.1 Clearing Arrangements

The exchange has or requires its participants to have appropriate arrangements for the clearing and settlement of transactions for which clearing is mandatory through a clearing house.

8.2 Risk Management of Clearing House

The exchange has assured itself that the clearing house has established appropriate risk management policies and procedures, contingency plans, default procedures and internal controls.

PART 9 SYSTEMS AND TECHNOLOGY

9.1 Systems and Technology

Each of the exchange's critical systems has appropriate internal controls to ensure completeness, accuracy, integrity and security of information, and, in addition, has sufficient capacity and business continuity plans to enable the exchange to properly carry on its business. Critical systems are those that support the following functions:

(a) order entry,

(b) order routing,

(c) execution,

(d) trade reporting,

(e) trade comparison,

(f) data feeds,

(g) market surveillance,

(h) trade clearing, and

(i) financial reporting.

9.2 System Capability/Scalability

Without limiting the generality of section 9.1, for each of its systems supporting order entry, order routing, execution, data feeds, trade reporting and trade comparison, the exchange:

(a) makes reasonable current and future capacity estimates;

(b) conducts capacity stress tests to determine the ability of those systems to process transactions in an accurate, timely and efficient manner;

(c) reviews the vulnerability of those systems and data centre computer operations to internal and external threats, including physical hazards and natural disasters;

(d) ensures that safeguards that protect a system against unauthorized access, internal failures, human errors, attacks and natural catastrophes that might cause improper disclosures, modification, destruction or denial of service are subject to an independent and ongoing audit which should include the physical environment, system capacity, operating system testing, documentation, internal controls and contingency plans;

(e) ensures that the configuration of the system has been reviewed to identify potential points of failure, lack of back-up and redundant capabilities;

(f) maintains reasonable procedures to review and keep current the development and testing methodology of those systems; and

(g) maintains reasonable back-up, contingency and business continuity plans, disaster recovery plans and internal controls.

9.3 Information Technology Risk Management Procedures

The exchange has appropriate risk management procedures in place including those that handle trading errors, trading halts and respond to market disruptions and disorderly trading.

PART 10 FINANCIAL VIABILITY

10.1 Financial Viability

The exchange has sufficient financial resources for the proper performance of its functions and to meet its responsibilities.

PART 11 TRADING PRACTICES

11.1 Trading Practices

Trading practices are fair, properly supervised and not contrary to the public interest.

11.2 Orders

Rules pertaining to order size and limits are fair and equitable to all market participants and the system for accepting and distinguishing between and executing different types of orders is fair, equitable and transparent.

11.3 Transparency

The exchange has adequate arrangements to record and publish accurate and timely information as required by applicable law or the Foreign Regulator. This information is also provided to all participants on an equitable basis.

PART 12 COMPLIANCE, SURVEILLANCE AND ENFORCEMENT

12.1 Jurisdiction

The exchange or the Foreign Regulator has the jurisdiction to perform member and market regulation, including the ability to set rules, conduct compliance reviews and perform surveillance and enforcement.

12.2 Member and Market Regulation

The exchange or the Foreign Regulator maintains appropriate systems, resources and procedures for evaluating compliance with exchange and legislative requirements and for disciplining participants.

12.3 Availability of Information to Regulators

The exchange has mechanisms in place to ensure that the information necessary to conduct adequate surveillance of the system for supervisory or enforcement purposes is available to the relevant regulatory authorities, including the Commission, on a timely basis.

PART 13 RECORD KEEPING

13.1 Record Keeping

The exchange has and maintains adequate systems in place for the keeping of books and records, including, but not limited to, those concerning the operations of the exchange, audit trail information on all trades, and compliance with, and/or violations of exchange requirements.

PART 14 OUTSOURCING

14.1 Outsourcing

Where the exchange has outsourced any of its key services or systems to a service provider, it has appropriate and formal arrangements and processes in place that permit it to meet its obligations and that are in accordance with industry best practices.

PART 15 FEES

15.1 Fees

(a) All fees imposed by the exchange are reasonable and equitably allocated and do not have the effect of creating an unreasonable condition or limit on access by participants to the services offered by the exchange.

(b) The process for setting fees is fair and appropriate, and the fee model is transparent.

PART 16 INFORMATION SHARING AND OVERSIGHT ARRANGEMENTS

16.1 Information Sharing and Regulatory Cooperation

The exchange has mechanisms in place to enable it to share information and otherwise co-operate with the Commission, self- regulatory organizations, other exchanges, clearing agencies, investor protection funds, and other appropriate regulatory bodies.

16.2 Oversight Arrangements

Satisfactory information sharing and oversight agreements exist between the Commission and the Foreign Regulator.

PART 17 IOSCO PRINCIPLES

17.1 IOSCO Principles

To the extent it is consistent with the laws of the foreign jurisdiction, the exchange adheres to the standards of the International Organisation of Securities Commissions (IOSCO) including those set out in the "Principles for the Regulation and Supervision of Commodity Derivatives Markets" (2011).

APPENDIX II

DEFINITION OF PROFESSIONAL CLIENTS

This Appendix II provides the definition of an "Eligible Counterparty" as defined in Article 30 of Directive 2014/65/EU (MiFID) and a "Professional Client," as defined in Annex II of MiFID "Professional Clients for the Purpose of this Directive".

DEFINITION OF ELIGIBLE COUNTERPARTIES

I. Categorises of Clients who are Considered to be Eligible Counterparties

The following are recognised as eligible counterparties for the purposes of this Article.

1. Investment firms;

2. Credit institutions;

3. Insurance companies;

4. Collective investment schemes authorised under the UCITS Directive and their management companies;

5. Pension funds and their management companies;

6. Other financial institutions authorised or regulated under European Union law or under the national law of a European Economic Area Member State;

7. National governments and their corresponding offices including public bodies that deal with public debt at national level;

8. Central banks, and

9. Supranational organisations.

DEFINITION OF PROFESSIONAL CLIENTS

Professional client is a client who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risks that it incurs. In order to be considered to be professional client, the client must comply with the following criteria:

I. Categories of Clients who are Considered to be Professionals

The following shall all be regarded as professionals in all investment services and activities and financial instruments for the purposes of the Directive.

1. Entities which are required to be authorised or regulated to operate in the financial markets. The list below shall be understood as including all authorised entities carrying out the characteristic activities of the entities mentioned: entities authorised by a Member State under a Directive, entities authorised or regulated by a Member State without reference to a Directive, and entities authorised or regulated by a third country:

a. Credit institutions;

b. Investment firms;

c. Other authorised or regulated financial institutions;

d. Insurance companies;

e. Collective investment schemes and management companies of such schemes;

f. Pension funds and management companies of such funds;

g. Commodity and commodity derivatives dealers;

h. Locals;

i. Other institutional investors;

2. Large undertakings meeting two of the following size requirements on a company basis:

a. balance sheet total: EUR 20 000 000

b. net turnover: EUR 40 000 000

c. own funds: EUR 2 000 000

3. National and regional governments, including public bodies that manage public debt at national or regional level, Central Banks, international and supranational institutions such as the World Bank, the IMF, the ECB, the EIB and other similar international organisations.

4. Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.

The entities referred to above are considered to be professionals. They must however be allowed to request non-professional treatment and investment firms may agree to provide a higher level of protection. Where the client of an investment firm is an undertaking referred to above, the investment firm must inform it prior to any provision of services that, on the basis of the information available to the investment firm, the client is deemed to be a professional client, and will be treated as such unless the investment firm and the client agree otherwise. The investment firm must also inform the customer that he can request a variation of the terms of the agreement in order to secure a higher degree of protection.

It is the responsibility of the client, considered to be a professional client, to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.

This higher level of protection will be provided when a client who is considered to be a professional enters into a written agreement with the investment firm to the effect that it shall not be treated as a professional for the purposes of the applicable conduct of business regime. Such agreement shall specify whether this applies to one or more particular services or transactions, or to one or more types of product or transaction.

II. Clients who may be Treated as Professional on Request

II.1. Identification criteria

Clients other than those mentioned in section I, including public sector bodies, local public authorities, municipalities and private individual investors, may also be allowed to waive some of the protections afforded by the conduct of business rules.

Investment firms shall therefore be allowed to treat any of those clients as professionals provided the relevant criteria and procedure mentioned below are fulfilled. Those clients shall not, however, be presumed to possess market knowledge and experience comparable to that of the categories listed in Section I.

Any such waiver of the protection afforded by the standard conduct of business regime shall be considered to be valid only if an adequate assessment of the expertise, experience and knowledge of the client, undertaken by the investment firm, gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making investment decisions and understanding the risks involved.

The fitness test applied to managers and directors of entities licensed under Directives in the financial field could be regarded as an example of the assessment of expertise and knowledge. In the case of small entities, the person subject to that assessment shall be the person authorised to carry out transactions on behalf of the entity.

In the course of that assessment, as a minimum, two of the following criteria shall be satisfied:

• the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters,

• the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments exceeds EUR 500 000,

• the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

Member States may adopt specific criteria for the assessment of the expertise and knowledge of municipalities and local public authorities requesting to be treated as professional clients. Those criteria can be alternative or additional to those listed in the fifth paragraph.

II.2. Procedure

Those clients may waive the benefit of the detailed rules of conduct only where the following procedure is followed:

• they must state in writing to the investment firm that they wish to be treated as a professional client, either generally or in respect of a particular investment service or transaction, or type of transaction or product,

• the investment firm must give them a clear written warning of the protections and investor compensation rights they may lose,

• they must state in writing, in a separate document from the contract, that they are aware of the consequences of losing such protections.

Before deciding to accept any request for waiver, investment firms must be required to take all reasonable steps to ensure that the client requesting to be treated as a professional client meets the relevant requirements stated in Section II.1.

However, if clients have already been categorised as professionals under parameters and procedures similar to those referred to above, it is not intended that their relationships with investment firms shall be affected by any new rules adopted pursuant to this Annex.

Firms must implement appropriate written internal policies and procedures to categorise clients. Professional clients are responsible for keeping the investment firm informed about any change, which could affect their current categorisation. Should the investment firm become aware however that the client no longer fulfils the initial conditions, which made him eligible for a professional treatment, the investment firm shall take appropriate action.

BrokerTec Europe Limited -- s. 147

Headnote

Section 147 of the Securities Act (Ontario), section 15.1 of NI 21-101, section 12.1 of NI 23-101 and section 10 of NI 23-103 -- Application for an order that a multilateral trading facility authorized by the United Kingdom Financial Conduct Authority is exempt from the requirement to be recognized as an exchange in Ontario and from the requirements of NI 21-101, NI 23-101 and NI 23-103 in their entirety -- requested order granted.

Applicable Legislative Provisions

Securities Act, RSO 1990 c. S.5, as am., ss. 21, 147.

National Instrument 21-101 Marketplace Operation, s. 15.1.

National Instrument 23-101 Trading Rules, s. 12.1.

National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces, s. 10.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S. 5, AS AMENDED (the Act) AND IN THE MATTER OF BROKERTEC EUROPE LIMITED

ORDER (Section 147 of the Act)

WHEREAS BrokerTec Europe Limited (Applicant) has filed an application dated October 20, 2022 (Application) with the Ontario Securities Commission (Commission) requesting an order for the following relief (collectively, the Requested Relief):

(a) exempting the Applicant from the requirement to be recognized as an exchange under subsection 21(1) of the Act pursuant to section 147 of the Act; and

(b) exempting the Applicant from the requirements in National Instrument 21-101 Marketplace Operation (NI 21-101) pursuant to section 15.1 of NI 21-101, the requirements of National Instrument 23-101 Trading Rules (NI 23-101) pursuant to section 12.1 of NI 23-101 and the requirements of National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103) pursuant to section 10 of NI 23-103;

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant is a private limited company organized under the laws of England & Wales. The ultimate parent company of the Applicant is CME Group Inc. (CME Group), a publicly traded for-profit corporation organized under the laws of Delaware and listed for trading on the NASDAQ National Market;

2. CME Group provides electronic trading globally in futures, options, cash and over-the-counter markets and also offers clearing and settlement services across asset classes, and is the parent company of the four CME Group Exchanges: Chicago Mercantile Exchange Inc., Board of Trade of the City of Chicago, Inc., New York Mercantile Exchange, Inc., and Commodity Exchange, Inc., and the cash markets businesses of EBS (for FX) and BrokerTec (for fixed income), of which the Applicant forms a part;

3. CME Group acquired NEX Group plc and its group companies, including the Applicant, on November 2, 2018;

4. On December 1, 2001, the U.K. Financial Conduct Authority (the FCA or Foreign Regulator), a financial regulatory body in the United Kingdom (U.K.), authorized the Applicant to act as the operator of the BrokerTec EU MTF, a multilateral trading facility (MTF). The Applicant currently has approval from the FCA to offer the following products for trading on the BrokerTec EU MTF: certificates representing certain security; commodity futures; commodity options and options on commodity futures; contracts for differences (excluding a spread bet and, a rolling spot forex contract and a binary bet); debentures; futures (excluding a commodity future and a rolling spot forex contract); government and public securities; options (excluding a commodity option and an option on a commodity future); rights to or interests in investments (contractually based investments); rights to or interests in investments (security); units; and warrants;

5. The Applicant received approval from the FCA on July 15, 2022 to operate the EBS UK MTF, a separate MTF for trading foreign exchange (FX) over-the-counter (OTC) derivatives and the EBS UK MTF began operations on September 12, 2022 (each of the BrokerTec EU MTF and the EBS UK MTF are hereinafter referred to as a Facility, and together as the Facilities);

6. The subjects of this order are the Facilities, which trade: (a) for the Brokertec EU MTF: repurchase agreements collateralized by U.K. gilts and U.K. covered bonds (Gilt Repos), repurchase agreements collateralized by Australian government bonds (Australian Repos), and repurchase agreements collateralized by corporate bonds (Corporates); and (b) for the EBS UK MTF: FX non-deliverable forwards (FX NDFs, and together with Gilt Repos, Australian Repos and Corporates, the MTF Instruments). The Applicant may add other types of financial instruments in the future, subject to obtaining the required regulatory approvals;

7. Each of the Facilities support a central limit order book, known as BrokerTec CLOB and EBS Market. Additionally, the BrokerTec EU MTF supports a request-for-quote trading platform, known as BrokerTec Quote;

8. The Applicant is subject to regulatory supervision by the FCA and is required to comply with the FCA's Handbook (FCA Rules), which includes, among other things, rules on (a) the conduct of business (including rules regarding client categorization, communication with clients and other investor protections and client agreements), (b) market conduct (including rules applicable to firms operating an MTF), and (c) systems and controls (including rules on outsourcing, governance, record-keeping and conflicts of interest). The FCA requires the Applicant to comply at all times with a set of threshold conditions for authorization, including requirements that the Applicant has sound business and controlled business operations and that it has appropriate resources for the activities it carries on. The Applicant is subject to prudential regulation, including minimum regulatory capital requirements, and is capitalized in excess of regulatory requirements. The Applicant is required to maintain an independent compliance function, which is headed by the Applicant's Chief Compliance Officer, an FCA-approved person. The Applicant's Compliance Department is responsible for identifying, assessing, advising, monitoring and reporting on the Applicant's compliance risk (i.e., the risk that the Applicant fails to comply with its obligations under the Financial Services and Markets Act 2000, the retained EU law version of the Markets in Financial Instruments Regulation (600/2014), the rules pertaining to this legislation, the applicable guidance from the FCA and the FCA Rules);

9. An MTF is obliged under the FCA Rules to have requirements governing the conduct of participants, to monitor compliance with those requirements and report to the FCA (a) significant breaches of MTF rules, (b) disorderly trading conditions, and (c) conduct that may involve market abuse. The Applicant will also notify the FCA when a participant's access is terminated as a result of a significant rule infringement, and may notify the FCA when a participant is temporarily suspended or subject to condition(s). As required by FCA rules, the Applicant has implemented a trade surveillance program. As part of the program, the Applicant's Compliance Department conducts real-time market monitoring of trading activity on the Facilities to identify disorderly trading and market abuse or anomalies. The trade surveillance program is designed to maintain a fair and orderly market for the Facilities' participants;

10. BrokerTec CLOB and EBS Market are available to participants via CME Group's Globex technology, which can be accessed through a graphical user interface (GUI) or Financial Information eXchange application programming interface (FIX). BrokerTec Quote is available to participants via a technology platform provided by an external vendor, Adaptive Financial Consulting Limited, which can also be accessed via a web delivered GUI or FIX;

11. An MTF must submit all trades that are required to be cleared to a clearing house for clearing. The Applicant provides direct connectivity to LCH Limited, which is recognized as a clearing agency in Ontario, to clear Gilt Repos. The Applicant is not involved in, nor is it responsible for, settlement or clearing of Australian Repos, Corporates or FX NDFs and the counterparties to such trades make their own bilateral arrangements;

12. The Applicant requires that its participants be "professional clients" or "eligible counterparties," as defined by the FCA in COBS 3 of the FCA Rules and are investment firms or credit institutions (each as defined in the FCA Rules) or other persons who (a) are of sufficiently good repute, (b) have a sufficient level of trading ability, competence and experience; and (c) have sufficient resources for their role as a participant. Each prospective participant must: have the legal and regulatory capacity to undertake trading in the relevant MTF Instruments on a Facility, satisfy the Applicant as to their adequate arrangements for entering into transactions in the MTF Instruments, order management, clearing (if relevant) and settlement of all orders submitted to the Facilities, have adequate organisational procedures and controls to limit error trades and the submission of erroneous orders to the Facilities, including, but not limited to, the operation of a kill functionality, meet the technical specifications and standards required by the Applicant for participation on the Facilities, including for those participants accessing the Facilities via an API, and satisfy any participant eligibility criteria set out in the Facilities' rulebooks, including any applicable product appendix;

13. Additionally, participants on the Facilities are responsible for all the acts, omissions, conduct and activity of their authorised employees and must ensure that their authorised employees have sufficient training, are properly supervised and have adequate experience, knowledge and competence to participate on the Facilities in accordance with the Applicant's customer agreements and the Applicant's rules;

14. All participants that are located in Ontario, including participants with their headquarters or legal address in Ontario (e.g., as indicated by a participant's Legal Entity Identifier (LEI)) and all traders conducting transactions on its behalf, regardless of the traders' physical location (inclusive of non-Ontario branches of Ontario legal entities), as well as any trader physically located in Ontario who conducts transactions on behalf of any other entity (Ontario Participants) are required to be registered under Ontario securities laws, exempt from registration or not subject to registration requirements. An Ontario Participant is required to immediately notify the Applicant if it ceases to meet any of the above criteria represented by it on an ongoing basis. Additionally, all Ontario Participants will be "permitted clients" as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

15. Because the Facilities set requirements for the conduct of their participants and surveil the trading activity of their participants, they are considered by the Commission to be exchanges;

16. Because the Applicant has participants that are Ontario Participants, it is considered by the Commission to be carrying on business as an exchange in Ontario and is required to be recognized as such or exempted from recognition pursuant to section 21 of the Act;

17. The Applicant has no physical presence in Ontario and does not otherwise carry on business in Ontario except as described above; and

18. The Applicant satisfies the exemption criteria as described in Appendix I to Schedule "A";

AND WHEREAS the products traded on the Facilities are not commodity futures contracts as defined in the Commodity Futures Act (Ontario) and the Applicant is not considered to be carrying on business as a commodity futures exchange in Ontario;

AND WHEREAS the Commission will monitor developments in international and domestic capital markets and the Applicant's activities on an ongoing basis to determine whether it is appropriate for the Requested Relief to continue to be granted subject to the terms and conditions set out in Schedule "A" to this order;

AND WHEREAS the Applicant has acknowledged to the Commission that the scope of the Requested Relief and the terms and conditions imposed by the Commission set out in Schedule "A" to this order may change as a result of the Commission's monitoring of developments in international and domestic capital markets or the Applicant's activities, or as a result of any changes to the laws in Ontario affecting trading in derivatives or securities;

AND WHEREAS based on the Application, together with the representations made by and acknowledgments of the Applicant to the Commission, the Commission has determined that the Applicant satisfies the criteria set out in Appendix I to Schedule "A" and that the granting of the Requested Relief would not be prejudicial to the public interest;

IT IS HEREBY ORDERED by the Commission that, (i) pursuant to section 147 of the Act, the Applicant is exempt from recognition as an exchange under subsection 21(1) of the Act, and (ii) pursuant to sections 15.1 of NI 21-101, 12.1 of NI 23-101 and 10 of NI 23-103, the Applicant is exempt from the requirements in NI 21-101, NI 23-101 and NI 23-103,

PROVIDED THAT the Applicant complies with the terms and conditions contained in Schedule "A".

DATED December 1, 2022

SCHEDULE "A"

TERMS AND CONDITIONS

Meeting Criteria for Exemption

1. The Applicant will continue to meet the criteria for exemption included in Appendix I to this Schedule.

Regulation and Oversight of the Applicant

2. The Applicant will maintain its authorisations as an operator of one or more multilateral trading facilities (MTFs) with the U.K. Financial Conduct Authority (FCA) in the United Kingdom (U.K.) and will continue to be subject to the regulatory oversight of the FCA.

3. The Applicant will continue to comply with the ongoing requirements applicable to it as an operator of an MTF authorised with the FCA.

4. The Applicant will promptly notify the Commission if its authorisation as an operator of an MTF has been revoked, suspended, or amended by the FCA, or the basis on which its authorisation as an operator of an MTF has been granted has significantly changed.

5. The Applicant must do everything within its control, which includes cooperating with the Commission as needed, to carry out its activities as an exchange exempted from recognition under subsection 21(1) of the Act in compliance with Ontario securities law.

Access

6. The Applicant will not provide direct access to a participant in Ontario including a participant with its headquarters or legal address in Ontario (e.g., as indicated by a participant's Legal Entity Identifier (LEI)) and all traders conducting transactions on its behalf, regardless of the traders' physical location (inclusive of non-Ontario branches of Ontario legal entities), as well as any trader physically located in Ontario who conducts transactions on behalf of any other entity (Ontario User) unless the Ontario User is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements, and qualifies as a "professional client" or an "eligible counterparty", as defined by the FCA in COBS 3 of the FCA's Handbook.

7. For each Ontario User provided direct access to the Applicant's MTFs, the Applicant will require, as part of its application documentation or continued access to the Applicant's MTFs, the Ontario User to represent that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements.

8. The Applicant may reasonably rely on a written representation from the Ontario User that specifies either that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements, provided the Applicant notifies such Ontario User that this representation is deemed to be repeated each time it enters an order, request for quote or response to a request for quote or otherwise uses the Applicant's MTFs.

9. The Applicant will require Ontario Users to notify the Applicant if their registration as applicable under Ontario securities laws has been revoked, suspended, or amended by the Commission or if they are no longer exempt from or become subject to those requirements and, following notice from the Ontario User and subject to applicable laws, the Applicant will promptly restrict the Ontario User's access to the Applicant's MTFs if the Ontario User is no longer appropriately registered or exempt from those requirements.

Trading by Ontario Users

10. The Applicant will not provide access to an Ontario User to trading in products other than derivatives or debt securities, each as defined in subsection 1(1) of the Act, without prior Commission approval.

11. With respect to debt securities, the Applicant will only permit Ontario Users to trade a debt security that is a foreign security or a debt security that is denominated in a currency other than the Canadian dollar as such terms are defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, including:

(a) debt securities issued by the United States (U.S.) government (including agencies or instrumentalities thereof);

(b) debt securities issued by a foreign government;

(c) debt securities issued by corporate or other non-governmental issuers (U.S. and foreign); and

(d) asset-backed securities (including mortgage backed securities), denominated in either U.S. or foreign currencies.

12. The Applicant will only permit Ontario Users to trade those securities which are permitted to be traded in the U.K. under applicable securities laws and regulations.

Submission to Jurisdiction and Agent for Service

13. With respect to a proceeding brought by the Commission arising out of, related to, concerning or in any other manner connected with the Commission's regulation and oversight of the activities of the Applicant in Ontario, the Applicant will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Ontario and (ii) an administrative proceeding in Ontario.

14. The Applicant will maintain with the Commission a valid and binding appointment of an agent for service in Ontario upon whom the Commission may serve a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal, penal or other proceeding arising out of, related to, concerning or in any other manner connected with the Commission's regulation and oversight of the Applicant's activities in Ontario.

Prompt Reporting

15. The Applicant will notify staff of the Commission promptly of:

(a) any authorization to carry on business granted by the FCA is revoked or suspended or made subject to terms or conditions on the Applicant's operations;

(b) the Applicant institutes a petition for a judgment of bankruptcy or insolvency or similar relief, or to wind up or liquidate the Applicant or has a proceeding for any such petition instituted against it;

(c) a receiver is appointed for the Applicant or the Applicant makes any voluntary arrangement with creditors;

(d) the Applicant marketplace is not in compliance with this Order or with any applicable requirements, laws or regulations of the FCA where it is required to report such non-compliance to the FCA;

(e) any known investigations of, or disciplinary action against, the Applicant by the FCA or any other regulatory authority to which it is subject; and

(f) the Applicant makes any material change to the eligibility criteria for Ontario Users.

Semi-Annual Reporting

16. The Applicant will maintain the following updated information and submit such information in a manner and form acceptable to the Commission on a semi-annual basis (by July 31 for the first half of the calendar year and by January 31 of the follow year for the second half), and at any time promptly upon the request of staff of the Commission:

(a) a current list of all Ontario Users and whether the Ontario User is registered under Ontario securities laws or is exempt from or not subject to registration, and, to the extent known by the Applicant, other persons or companies located in Ontario trading on the Applicant's MTFs as customers of participants (Other Ontario Participants);

(b) the legal entity identifier assigned to each Ontario User, and, to the extent known by the Applicant, to Other Ontario Participants in accordance with the standards set by the Global Legal Entity Identifier System;

(c) a list of all Ontario Users whom the Applicant has referred to the FCA, or, to the best of the Applicant's knowledge, whom have been disciplined by the FCA with respect to such Ontario Users' activities on the Applicant's MTFs and the aggregate number of all participants referred to the FCA since the previous report by the Applicant;

(d) a list of all active investigations since the last report by the Applicant relating to Ontario Users and the aggregate number of active investigations since the last report relating to all participants undertaken by the Applicant;

(e) a list of all Ontario applicants for status as a participant who were denied such status or access to the Applicant since the last report, together with the reasons for each such denial; and

(f) for each product,

(i) the total trading volume and value originating from Ontario Users, and, to the extent known by the Applicant, from Other Ontario Participants, presented on a per Ontario User or per Other Ontario Participant basis; and

(ii) the proportion of worldwide trading volume and value on the Applicant's MTFs conducted by Ontario Users, and, to the extent known by the Applicant, by Other Ontario Participants, presented in the aggregate for such Ontario Users and Other Ontario Participants;

provided in the required format.

Information Sharing

17. The Applicant will provide such information as may be requested from time to time by, and otherwise cooperate with, the Commission or its staff, subject to any applicable privacy or other laws (including solicitor-client privilege) governing the sharing of information and the protection of personal information.

APPENDIX I

CRITERIA FOR EXEMPTION OF A FOREIGN EXCHANGE TRADING OTC DERIVATIVES FROM RECOGNITION AS AN EXCHANGE

PART 1 REGULATION OF THE EXCHANGE

1.1 Regulation of the Exchange

The exchange is regulated in an appropriate manner in another jurisdiction by a foreign regulator (Foreign Regulator).

1.2 Authority of the Foreign Regulator

The Foreign Regulator has the appropriate authority and procedures for oversight of the exchange. This includes regular, periodic oversight reviews of the exchange by the Foreign Regulator.

PART 2 GOVERNANCE

2.1 Governance

The governance structure and governance arrangements of the exchange ensure:

(a) effective oversight of the exchange,

(b) that business and regulatory decisions are in keeping with its public interest mandate,

(c) fair, meaningful and diverse representation on the board of directors (Board) and any committees of the Board, including:

(i) appropriate representation of independent directors, and

(ii) a proper balance among the interests of the different persons or companies using the services and facilities of the exchange,

(d) the exchange has policies and procedures to appropriately identify and manage conflicts of interest for all officers, directors and employees, and

(e) there are appropriate qualifications, remuneration, limitation of liability and indemnity provisions for directors, officers and employees of the exchange.

2.2 Fitness

The exchange has policies and procedures under which it will take reasonable steps, and has taken such reasonable steps, to ensure that each director and officer is a fit and proper person and past conduct of each officer or director affords reasonable grounds for belief that the officer or director will perform his or her duties with integrity.

PART 3 REGULATION OF PRODUCTS

3.1 Review and Approval of Products

The products traded on the exchange and any changes thereto are submitted to the Foreign Regulator, and are either approved by the Foreign Regulator or are subject to requirements established by the Foreign Regulator that must be met before implementation of a product or changes to a product.

3.2 Product Specifications

The terms and conditions of trading the products are in conformity with the usual commercial customs and practices for the trading of such products.

3.3 Risks Associated with Trading Products