To effect this structural separation, TSE Regulation Services ("TSE RS") has been launched as a separate division of TSE Inc. The Ontario Securities Commission Recognition Order for TSE Inc. acknowledges the importance of the separation of market regulation from the business operations of TSE Inc.
The TSE's objectives in creating an independent regulatory arm are to address the conflict of interest issues arising from a for-profit business carrying out a self-regulatory function while competing as a provider of trading services with other services that it regulates.
TSE RS is independent and structurally separate from the for-profit business operations of TSE Inc. Although the Board of Directors of TSE Inc. has ultimate corporate authority over TSE RS, a Regulation Committee of the Board oversees TSE RS. To reflect the broader investment community, the majority of the members of the Committee will be directors who are not associated with a Participating Organization; other members may be non-directors drawn from Participating Organizations.
The Committee oversees the management and operations of TSE RS to ensure they are carried out effectively and will: a) ensure that TSE RS has sufficient resources to carry out its regulatory responsibilities; b) ensure that TSE RS complies with applicable terms and conditions of the Recognition Order; c) oversee the policies and procedures of TSE RS to ensure that its responsibilities are carried out in a neutral and unbiased manner, having regard for potential conflicts of interest; and d) assess, at least annually, the operations of TSE RS and report the results of the assessments to the Board of TSE Inc.
TSE RS operates on a cost recovery basis and its costs and revenues are segregated from those of the for-profit arm of TSE Inc. In the near future, Participating Organizations will be charged for regulatory services separately and the revenue for these services will be reported separately. Trading feeswill be adjusted to reflect the change and charged separately. Details of these changes will be communicated when they are finalized.
TSE RS is comprised of five departments responsible for different aspects of market regulation. Assesses applicants for listing and approves new listed companies; regulates listed companies, including the application of continued listing standards.
Market Surveillance oversees market activity, including real time surveillance of the market; investigates and assesses irregular trading activity; conducts trade desk reviews of Participating Organizations.
Investigations & Enforcement enforces the TSE Inc. trading rules and provisions of securities Legislation applicable to the market; conducts background checks on the directors, officers and controlling shareholders of applicants for listing and acceptance as Participating Organizations.
Regulatory & Market Policy assesses developments in the market in light of their effect on the Trading environment and market integrity; develops new trading rules or changes to the trading rules; assesses applicants for acceptance as Participating Organizations.
Mining Services provides consultation and advice on mining and mineral exploration Companies to the other departments in TSE RS.
These activities are consistent with existing market and listed company regulation activities carried out by the Exchange.
Concerns have been raised about potential conflicts of interest that arise in TSE Inc.'s regulation of the market as a for-profit company in a competitive environment. The effective management of conflicts is the rationale for the establishment of TSE RS. Within TSE RS, potential conflicts of interest are managed through internal procedural restrictions. Regulatory information is classified as confidential and "firewall" policies and procedures have been implemented to ensure that regulatory information is not shared inappropriately with the business side of TSE Inc. or any other market participant. In effect, this formalization of procedures largely reinforces extant confidentiality policies.
The structural separation of TSE RS from TSE Inc. provides the benefits of independent market regulation while preserving the expertise developed in market regulation and the links with market operations. Maintenance of the links between TSE RS operations and TSE Inc.'s trading operations will foster continued responsive regulation that is focussed on maintaining the integrity and efficiency of the market. Flexibility and responsiveness will enable TSE RS to adapt to the needs of the market in the future.
