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Notice 2004-005 - CNQ's Exchange Recognition


On May 7, 2004, the Ontario Securities Commission recognized CNQ as a stock exchange. CNQ�s decision to pursue recognition as a stock exchange was the culmination of extensive consultations with investment dealers and public companies on how to best serve their needs.

Originally, the OSC recognized CNQ as a quotation and trade reporting system (QTRS) signaling an important reversal of the trend toward the consolidation of stock markets in Canada. The OSC�s recognition of CNQ as a stock exchange further solidifies CNQ�s standing in the industry.

With an electronic central limit order book, regulatory oversight, and comprehensive market surveillance, CNQ effectively operated in the same manner as an exchange. However, formal exchange recognition will eliminate any confusion caused by CNQ�s original classification as a QTRS.

Impact on Issuers and Dealers

As a result of the status change, reporting issuers or equivalents in good standing in any Canadian jurisdiction can apply and be listed on CNQ without first making application to the OSC to become an Ontario reporting issuer. As well, CNQ listed issuers that were not Ontario reporting issuers have automatically become Ontario reporting issuers and must make the appropriate filings with the OSC.

There will not be any other material changes to CNQ�s current market model, trading rules or issuer policies. However, some technical amendments are required, such as changing references from �quotation� to �listing� and removing the requirement that issuers that are not Ontario reporting issuers determine whether they have a substantial connection to Ontario. The latter requirement is no longer necessary as all CNQ issuers will be Ontario reporting issuers by virtue of being listed.

The consequential rule amendments are attached to this notice as Appendix �A.� Updated versions of the policies, rules and forms incorporating these amendments will be posted to the CNQ website shortly. In the meantime, issuers may continue to use the old forms for their CNQ filings.

Comments Received

The rule amendments were published for comment on November 21, 2003 in CNQ Notice 2003-011 along with the application for recognition as a stock exchange.

CNQ received comments from the TSX Group (�TSX�), Douglas G. Reeson and Market Regulation Services Inc. (�RS�) with respect to the recognition application. All supported CNQ�s application and CNQ thanks them for taking the time to make their comments.

The TSX stated that it welcomed �competition from marketplaces such as CNQ that will provide listings opportunities to emerging companies while maintaining a solid level of investor protection achieved through effective regulatory oversight.� The TSX noted that CNQ has retained RS to act as regulation services provider and that the Universal Market Integrity Rules (�UMIR�) apply to trading on CNQ, thus ensuring a level playing field with the other Canadian exchanges. The TSX queried whether CNQ would review materials filed in connection with a reverse take-over to ensure prospectus-level disclosure and stated that CNQ should comply with audit trail standards to be established by the Trade Reporting and Electronic Audit Trail Standards Committee.

Mr. Reeson stated that �it is important to Canada�s financial markets that CNQ be allowed to evolve into a full and complete stock exchange.� He stated that many public companies in Canada are frustrated with the current monopoly situation, and recognition would materially assist CNQ in achieving a sustainable critical mass of listings and trading.

RS stated that recognition would have no impact on the existing regulation services agreement between RS and CNQ and would not have any implications for the application and administration of UMIR.

In response to the questions raised by the TSX, CNQ subjects companies undergoing a reverse take-over to the same requirements as a company applying for quotation, including filing a quotation statement that contains prospectus-level disclosure. This ensures a level playing field with companies making an original application. The quotation statements are reviewed to ensure they are complete. CNQ also will comply with any audit trail requirements.

None of the comments addressed the proposed rule and policy amendments, but a subsequent review indicated a need to make a minor change to the proposed revision to Item 25.1(a) of Form 2A (Listing Statement) to clarify that applicants for listing must include financial statements for the preceding three years as they do today. The version published for comment would have inadvertently repealed this requirement. The wording of section 1.1 of Policy 2 (Qualification for Listing) was also revised to conform to the terms of the recognition order. The version published for comment would have repealed this section.



Be it resolved that:

1. Section 1.4 of Policy 1, as previously amended, is further amended by replacing the phrase �Ontario securities law� with �applicable securities legislation� wherever it appears.

2. Section 1.1 of Policy 2, as previously amended, is repealed and replaced with the following:

"Only an Issuer that is a reporting issuer or the equivalent in a jurisdiction in Canada and that is not in default of any requirements of securities legislation in any jurisdiction in Canada is eligible for listing."

3. Paragraph 2.3(i) of Policy 2 is repealed.

4. Sections 3.2-.4 of Policy 2 are repealed.

5. Item 25.1 (a) of Form 2A, as previously amended, is further amended by repealing the phrase �prepared and filed with the Commission under Ontario securities law, as if the issuer were subject to such law,� with �prepared and filed under applicable securities legislation.�

6. All references to �quote� and �quotation� and grammatical variations thereof in the Rules, Policies and forms, when referring to a CNQ Issuer or a company applying to become a CNQ Issuer, are replaced with references to �list�, �listing� and appropriate grammatical variations thereof.

PASSED AND ENACTED on the 4th day of September and further amended on the 6th day of May, 2004, to be effective upon approval by the Ontario Securities Commission following public notice and comment and upon approval by the Ontario Securities Commission of the Corporation�s application for recognition as a stock exchange.



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