HeadnoteExemptionpursuant to section 15.1 of National Instrument 21-101 MarketplaceOperation and section 12.1 of National Instrument 23-101 TradingRules from the requirement to comply with National Instrument21-101 and National Instrument 23-101 until the earlier of July1, 2002 and the date on which Archipelago Canada is in a positionto comply with the requirements of the ATS Rules.
INTHE MATTER OF
NATIONALINSTRUMENT 21-101 MARKETPLACE OPERATION
ANDNATIONAL INSTRUMENT 23-101 TRADING RULES
INTHE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM
FOREXEMPTIVE RELIEF APPLICATIONS
INTHE MATTER OF
WHEREASthe securities regulatory authority or regulator in each ofthe Provinces of Ontario and British Columbia (the "DecisionMaker") has received an application (the "Application") fromArchipelago L.L.C. ("Archipelago") for a decision under section15.1 of National Instrument 21-101 Marketplace Operation andsection 12.1 of National Instrument 23-101 Trading Rules thatthe requirement to comply with National Instrument 21-101 MarketplaceOperation and National Instrument 23-101 Trading Rules (together,the "ATS Rules") does not apply to Archipelago until the earlierof July 1, 2002 and the date on which Archipelago Canada isin a position to comply with the requirements of the ATS Rules.
ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System"), the OntarioSecurities Commission is the principal jurisdiction for thisApplication;
ANDWHEREAS Archipelago has represented to the DecisionMakers that:
1.Archipelago is a limited liability company organized under thelaws of the State of Delaware with its registered office inChicago.
2.Archipelago is a registered broker-dealer under the United StatesSecurities Exchange Act of 1934, and is also registered as an"alternative trading system" ("ATS") pursuant to RegulationATS in the United States.
3.Archipelago is a member in good standing of the National Associationof Securities Dealers in the United States and a participantin the Securities Investor Protection Corporation.
4.Archipelago owns and operates an ATS that matches electronicbids and offers for publicly traded equity securities of U.S.registered companies (the "ARCA System"). Archipelago has effectivelycreated a national limit order book for national markets, includingsecurities listed or quoted on the Nasdaq Stock Market, theNew York Stock Exchange and the American Stock Exchange. Subscribersto the ARCA System are broker-dealers and institutional investors.
5.On July 19, 2000, Archipelago became registered with the OntarioSecurities Commission as an International Dealer and has beenproviding access to the ARCA System to Ontario residents pursuantto the terms of such registration.
6.In connection with its International Dealer registration, Archipelagois required to comply with certain terms and conditions of registration(the "Terms and Conditions"), which are attached hereto as ScheduleA.
7.Outside of Ontario, in Canada Archipelago currently providesaccess to its ATS solely to registered investment dealers inBritish Columbia in reliance on the exemption set out in subsection45(2)(7) of the Securities Act (British Columbia).
8.In March 2000, Archipelago signed an agreement with the PacificExchange, Inc. ("PCX") pursuant to which the ARCA System isbeing transformed into a new market, which is called the ArchipelagoExchange ("ArcaEx"). ArcaEx is being operated by ArchipelagoExchange L.L.C., a wholly-owned subsidiary of Archipelago Holdings,L.L.C. (the parent entity of Archipelago), as a trading 'facility'(as such term is defined in Section 3(a)(2) of the United StatesSecurities Exchange Act of 1934) of PCX Equities Inc. ("PCXE"),a wholly owned subsidiary of PCX, and will replace the equitymarketplace currently offered by PCX (options trading will continueon the PCX). ArcaEx will provide automatic order execution capabilitiesfor NYSE, Amex, Nasdaq and PCX-traded equity securities.
9.PCX and PCXE will be responsible for regulating the tradingactivity on the facility, and Archipelago Exchange, L.L.C. willbe responsible for the business of the facility.
10.In connection with these plans, new exchange rules were filedwith the SEC in June 2000 and SEC approval was granted on October25, 2001.
11.The transformation of the ARCA System into ArcaEx is being carriedby a migration process that began on March 22, 2002, with themigration of 28 stocks to ArcaEx and will continue throughout2002 with the migration of additional stocks from the ARCA Systemto ArcaEx.
12.On March 18, 2002, Archipelago and REDIBook ECN, LLC., ("RediBook"),closed a business combination announced on November 29, 2001.As a result of the business combination, Archipelago is nowaffiliated with the operator of the RediBook ATS (the "AcquiredSystem"). The Acquired System is an ATS that matches electronicbids and offers for publicly traded equity securities of U.S.registered companies, including securities listed or quotedon the Nasdaq Stock Market, the New York Stock Exchange andthe American Stock Exchange. RediBook is a registered broker-dealerunder the United States Securities Exchange Act of 1934 andis also registered as an ATS pursuant to Regulation ATS in theUnited States. RediBook is not registered as a dealer in anyCanadian jurisdiction.
13.The current intention is for listed securities that trade onthe ARCA System and the Acquired System to migrate to the ArcaEx,while the Nasdaq quoted securities that trade on the ARCA Systemand the Acquired System are to be integrated onto the AcquiredSystem. The current intention is for the Acquired System tobe transferred to and operated by Archipelago as part of theintegration of the RediBook and Archipelago businesses during2002. Ultimately, the current intention is that the Nasdaq quotedsecurities will also migrate to the ArcaEx from the AcquiredSystem.
14.Archipelago undertakes to comply with the Terms and Conditionsuntil July 1, 2002.
15.Archipelago proposes to establish a wholly-owned subsidiaryunder the laws of Canada ("Archipelago Canada") and to causeArchipelago Canada to diligently pursue satisfaction of InvestmentDealers Association membership requirements and to proceed expeditiouslyto become registered as an investment dealer or its equivalentin each of the jurisdictions where Archipelago Canada will carryon its business of an ATS by providing and maintaining the ARCASystem and the Acquired System in Canada during such time asthese systems trade securities until completion of the migrationof securities trading to ArcaEx has been completed.
16.As soon as Archipelago Canada obtains such registration andmembership and is able to comply with the other requirementsof the ATS rules, Archipelago will cease to carry on the businessof an ATS in the jurisdiction.
ANDWHEREAS pursuant to the System, this MRRS DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");
ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the ATS Rules that provides the DecisionMaker with the jurisdiction to make the Decision has been met;
THEDECISION of the Decision Makers is that:
1.Archipelago is exempt from the requirements of the ATS Rulesuntil the earlier of July 1, 2002 and the date on which ArchipelagoCanada is in a position to comply with all of the requirementsof the ATS Rules; and
2.the exemption provided in 1. above shall not apply to the Archipelagoin respect of the operation of the Acquired System.
Registrationof Archipelago L.L.C. as an International Dealer
Termsand Conditions of RegistrationArchipelagoL.L.C. has been granted registration as an International Dealerwhich permits it to provide Ontario resident Designated Institutions(as defined in s. 204 of the Regulation to the Securities Act)terminals to trade foreign non-interlisted securities, providedit complies with certain Terms and Conditions set out below.
PartA: Trading Restrictions
Inthis Part A:
"Canadianissuer" means an issuer incorporated, formed or created underthe laws of Canada or any province or territory of Canada.
"foreignsecurity" means a security issued by an issuer that is not aCanadian issuer.
Theregistrant shall be permitted to execute orders on behalf ofcustomers resident in Ontario but only in foreign securitiesthat are not listed and posted on the Toronto Stock Exchange,The Montreal Exchange or the Canadian Venture Exchange ("CDNX").
PartB: Information to be Supplied by the Registrant on a ConfidentialBasisTheregistrant agrees to:
(a)advise the Ontario Securities Commission (the "Commission") ofany substantial or material changes to its electronic tradingsystem and business including, but not limited to, substantialor material changes in the criteria used to screen potential customers,changes in the algorithm regarding matching orders and complyingwith trading rules (but without prejudice to the registrant'sdiscretion to exercise its business judgement in accepting andevaluating customers), and whether securities listed only on anyof The Toronto Stock Exchange, The Montreal Exchange or CDNX areproposed to be traded through the registrant's electronic tradingsystem;
(b)furnish, upon the request of the Commission, access on a confidentialbasis to filings and/or copies of filings effected by the registrantwith the Securities and Exchange Commission of the United States("SEC"); the most recent No-Action Letter dated January 12, 2001,its Form BD and its Focus Report and notify the Commission ifit discontinues the filing of any of these documents;
(c)furnish on a quarterly basis a report identifying Ontario residentcustomers by code and listing stocks traded on behalf of Ontarioresident customers so that compliance with the trading restrictionsset forth in Part A can be monitored. (Ontario resident customersmay be identified on such quarterly reports by identificationcodes only);
(d)make available on a quarterly basis a list of foreign securitiesand securities of Canadian issuers traded through the registrant'selectronic trading system which cannot be traded on behalf ofthe registrant's customers resident in Ontario by virtue of thetrading restrictions set forth in Part A;
(e)furnish promptly upon a request of the Commission any of the followinginformation:
(i)a complete list of names and addresses of Ontario-resident customerson the system and their identification codes ("Ids");
(ii)a complete list of customer IDs for Ontario resident customerswhose access to certain securities traded through the registrant'selectronic trading system has been blocked by a mechanism (the"Blocking Mechanism") implemented by virtue of the trading restrictionsset forth in Part A;
(iii)a list of identification acronyms used for Ontario resident customerswith Canadian addresses;
(iv)an exception report showing Ontario addresses with IDs out ofrange or with the Blocking Mechanism switched off;
(v)a complete description of the controls over and procedures foridentifying Ontario resident customers on the system and implementingthe Blocking Mechanism to prevent trading through the registrant'sterminals in both interlisted and Canadian non-interlisted securitiesincluding specifically, who initially activates the switch, whohas access to or the ability to change the setting, and how changesare authorized and logged;
(vi)records of all trades by Ontario-resident customers includinga description of the securities traded;
(vii)identification from the trading records of those trades made directlythrough a terminal of the registrant and those trades which weremade by other means;
(viii)the process and criteria used by the registrant to screen potentialcustomers, the identification of parties that have not been acceptedas customers and documentation of procedures and reasons for acceptingor rejecting a specific customer application;
(ix)information regarding the system's algorithm for matching ordersand compliance with trading rules; and
(x)confirmation of trades and settlement process including proceduresfor dealing with failed trades.
(f)maintain books and records necessary to record properly the registrant'sbusiness transactions and financial affairs and make these availableupon request to staff of the Commission for any valid regulatorypurpose.
(g)report all information to the Securities and Exchange Commissionwhich shall include transactions involving Ontario resident customerinvestors and which can be segregated from other information andmade available on that basis.
PartC: Expiration of Terms and Conditions
TheTerms and Conditions set forth in Parts A and B shall cease toapply to the registrant upon the expiry of the sixty day periodfollowing the date that Proposed National Instrument 21-101 MarketplaceOperation becomes effective.