How We Are Regulated
Neo Exchange Inc. (“NEO Exchange” or “NEO”) and its parent company, Aequitas Innovations Inc. (“Aequitas”), are authorized by the Canadian Securities Administrators (“CSA”) to operate an exchange for listing and trading securities and certain financial products. To be authorized, exchanges are “recognized” or exempted from recognition under securities legislation in the jurisdictions in which they operate.
Recognition & Exemption Orders
The NEO Exchange is authorized to operate across Canada as an exchange for listing and trading equity and debt securities and certain financial products, including exchange-traded funds, closed-end funds and structured products. The initial recognition order for NEO and Aequitas was issued in November, 2014 by the Ontario Securities Commission (“OSC”), varied in February, 2015 and effective March 1, 2015. It was varied and restated on February 8, 2019 and August 31, 2020. The exemption orders issued by the other members of the CSA are also effective as of March 1, 2015. The current orders can be found below.
- Aequitas Innovations Inc. and Neo Exchange Inc. OSC Recognition Order (September 2020)
- Aequitas Innovations Inc. and Neo Exchange Inc. Multi-Jurisdiction Exemption Order (April 2021)
To operate nationally, an exchange must be recognized by at least one CSA jurisdiction (the “lead regulator”), in our case, the OSC. The lead regulator directly oversees the exchange, and exempting regulators rely on the lead regulator’s oversight. This model is set out in the CSA’s Memorandum of Understanding Respecting the Oversight of Exchanges and Quotation and Trade Reporting Systems. The OSC’s oversight includes review and approval of our rule and policy changes, significant structural and operational changes, and fees. OSC staff also receive other filings and reporting as required under the recognition order.
As a recognized exchange, we can carry out our market regulation activities directly or through a regulation services provider. Similar to the other equity exchanges in Canada, we have contracted with the Investment Industry Regulatory Organization of Canada (“IIROC”) to act as our regulation services provider.
Regulatory Policies & Procedures
Consistent with regulation as an exchange with a public interest mandate and our guiding principle of transparency, we will provide ongoing information on how we meet our regulatory obligations and seek input from our stakeholders.
The NEO Exchange is required, under its recognition order, to establish and maintain a Regulatory Oversight Committee (“ROC”). The structure and obligations of the ROC are set out in Schedule 2 to the recognition order and are reflected in the committee’s mandate, available below.
Conflicts of interest & Confidentiality policies
Mitigation of potential conflicts of interest and protection of confidential information are paramount to the integrity our marketplace. As a recognized exchange, Aequitas and NEO must identify, address and manage conflicts of interest and ensure that both act in the public interest. In addition, the recognition order imposes certain conflicts and confidentiality requirements, including but not limited to:
- ownership interests in Aequitas by any NEO Exchange marketplace participant with representation on the board of Aequitas or NEO Exchange,
- significant changes to the ownership of Aequitas, and
- the profit-making objective and the public interest responsibilities of NEO Exchange, including general oversight of the management of the regulatory and public interest responsibilities of Neo Exchange.
The following policies have been developed and are maintained to manage real or perceived conflicts of interests in these instances:
- Aequitas Innovations Inc. and Neo Exchange Inc. Conflicts of Interest and Confidentiality Policy Relating to Shareholders
This Policy covers:
- The involvement of a representative of a significant shareholder in the management or oversight of the exchange operations or regulation functions of NEO Exchange and the services and products it provides;
- The interactions between NEO Exchange and a significant shareholder where NEO Exchange may be exercising discretion that involves or affects the significant shareholder either directly or indirectly, including listing the shares of a significant shareholder; and
- Specific confidentiality provisions designed to ensure that information regarding marketplace operations and regulation functions of all NEO Exchange members and/or issuers are kept separate and confidential from the business or other operations of any significant shareholder and not be used to provide an unfair advantage to the significant shareholder or any of its affiliated entities.
- Neo Exchange Inc. Conflicts of Interest Policy Relating to Issuers
- Neo Exchange Inc. Listed Competitor Conflicts Policy
These Policies cover the regulation functions and the business activities of NEO Exchange.
Rules, Fees & Changes
The NEO Exchange’s rules and policies (the Trading Policies and Listing Manual and Listing Forms), as well as our fees and operational and governance structure, have been approved by the OSC.
New public interest rules and rule amendments must be provided by exchange staff to the Regulatory Oversight Committee, which is responsible for reviewing proposed rules and deciding on or making recommendations to the board of directors regarding the filing.
The rules must then be submitted to the OSC and the exempting regulators for review and approval by the OSC in accordance with Schedule 4 of the recognition order. Fee changes and changes to information on operations and governance previously filed must also be filed in accordance with Schedule 4 of the recognition order.
All non-housekeeping rule changes and certain significant changes, including those that are considered to have an impact or potential impact on the exchange’s market structure or members, or on issuers, investors or the capital markets or otherwise raise public interest concerns, must be published for comment.
In addition to the Trading Policies, trading on the NEO Exchange is governed by the Universal Market Integrity Rules (“UMIR”) maintained by IIROC (to reference UMIR, please go to www.iiroc.ca).
In accordance with its recognition order, NEO has adopted procedures setting out the steps for appealing a decision made by the NEO Exchange (“Appeal Procedures”). The Appeal Procedures were treated as a public interest rule, and were approved by the OSC on January 7, 2016.
A key element in re-focusing on the original purpose of an exchange is our approach to governance. We are re-mutualizing the exchange business, but this time with the participation of a cross-section of all users. The broad and diverse ownership structure of Aequitas, the parent company of NEO, with majority control by those representing investors and issuers, and its independent governance oversight, are built on the core founding principle of fostering innovation and competition, which we believe will enhance market integrity and promote the public interest. This governance model will ensure that we stay true to our mission.