Mr. David Brown Chair Ontario Securities Commission 20 Queen by ujl89480

VIEWS: 18 PAGES: 35

									                                                                          Barbara G. Stymiest, FCA
September 17, 2002                                                          Chief Executive Officer

                                                                               The Exchange Tower
Mr. David Brown                                                                130 King Street West
Chair                                                                    Toronto, Canada M5X 1J2
Ontario Securities Commission
                                                                                  T (416) 947-4707
20 Queen Street West                                                              F (416) 947-4332
Suite 1903, Box 55
Toronto, Ontario                                                           barbara.stymiest@tsx.ca
M5H 3S8


Dear Mr. Brown:

Thank you for your letter of August 15th. You asked for the analysis and views of the
TSX as to whether it would be appropriate for us to adopt as mandatory requirements in
the market that you regulate many of the new measures now mandated by the United
States in legislation, regulations and securities exchange requirements.

As you are aware, of course, the TSX Group operates two exchanges, the TSX itself and
the TSX Venture Exchange. We must consequently consider your request in the context
of our responsibilities as the operator of both Canada’s senior equity market, which is
under your regulatory jurisdiction, and Canada’s public venture market, which is under
the purview of your colleagues among Canadian Securities Administrators.

I have therefore provided you, in the attached charts, with our detailed consideration of
the appropriateness of the U.S. measures for both the TSX marketplace and the venture
marketplace. My colleague Linda Hohol, President of TSX Venture Exchange, is
forwarding the two sets of analysis to the regulators of that exchange.

Our proposals for changes – consistent with past changes we have made – involve our
publishing proposals for comment by issuing companies and others, and providing a
phase-in period for implementation. The consultative approach is especially important in
present circumstances because seldom, if ever, has there been such high awareness of
the importance of corporate governance or such a volume of changes to be assessed,
with yet more changes in prospect.

TSX proposals for changes

Those measures we consider appropriate represent a tightly focussed group of changes
that we believe would be appropriate in our distinct circumstances and clearly consistent
with Canada’s traditional corporate governance culture.

As you know, our Canadian approach has been to set out comprehensive governance
guidelines based on the paramountcy of the underlying principles that are involved. We
then require that companies disclose the extent of their compliance with the guidelines
                                          -2-




and explain publicly why they may choose not to follow certain of them. In the U.K.,
European and Australian markets, a similar principles-based approach is preferred.

The effect of strong guidelines in combination with mandatory disclosure is to place in
the hands of investors the information they require to punish or reward companies, by
their trading and pricing choices, for their governance practices.

The American approach, in contrast, has been heavily oriented toward mandatory
compliance with highly detailed legislation, regulation and stock exchange listing
requirements, with a much greater emphasis on regulatory enforcement rather than
voluntary compliance.

The U.S. legislative and regulatory changes of the last two months seem largely
consistent with their past rules-based approach. The appeal of ‘strong’ action in the face
of unprecedented problems in their markets notwithstanding, I am convinced that our
approach has been the more effective.

The changes we are proposing to put out for consultation, therefore, put a premium on
preserving the soundness of our existing approaches while responding to the much
greater emphasis investors everywhere now place on the quality of good corporate
governance and their demand for greater disclosure.

To summarize the attached charts, the proposed changes are narrowly focussed on two
areas, on expanding the listing requirements of the Exchange and on enhancing the
framework of disclosure within which our listed companies must operate. The concern
for harmonization is secondary.

Harmonization is primarily a concern to the 177 companies on the TSX that are inter-
listed on U.S. exchanges and which, therefore, must now comply with the new U.S. laws
and regulations. These companies, as you note, constitute the biggest share of the
market capitalization of TSX companies and it will be important to ensure that they not
be burdened unnecessarily by conflicts between our laws and American laws.

But it is just as important, in considering how to do this, that we avoid imposing
unwarranted costs on the far larger number of TSX companies that can derive little or no
benefit from the wholesale adoption in Canada of U.S. rules. Some 572 TSX issuers, 44
per cent, have a market capitalization of $50 million or less.

In that context, our main changes are as follows:

First and foremost, to enhance the independence of company boards of directors, we
believe that it should be a requirement for a continued listing on the TSX that a
company’s board have at least two independent directors. This would serve to
complement our requirement for an initial listing.
                                            -3-




All issuers listed on the TSX will be required to have an audit committee with at least two
independent committee members. The audit committee would also be required to have a
charter setting out its role and responsibilities.

With regard to TSX guidelines, the amended guidelines sent to you last spring
recommended that all directors on an audit committee, not just be majority, be
independent – that is, free from any “other relationship which could reasonably be
perceived to materially interfere with the director’s ability to act with a view to the best
interests of the issuer.”

We propose to maintain this as a guideline, rather than making it a listing requirement, in
that making it a listing requirement could effectively prohibit significant shareholders of a
large number of closely held public companies – especially those controlled by founding
families or their descendants – from serving on the audit committees of their own firms.

The way we propose to define “independent,” I would note, goes beyond what the NYSE
and NASDAQ are doing, in that TSX issuers would be required to identify which
directors are related, which are unrelated, and the nature of the relationship between
each director and the corporation.

In combination, these enhanced guidelines raise the bar for TSX issuers in terms of
disclosure, just as we are raising the bar in terms of board and director independence by
expanding our initial and continuing listing requirements.

In order to further enhance the framework of disclosure for issuers, chief executive
officers would certify annually the accuracy of their disclosure in reference to TSX
corporate governance guidelines. We would also support legislation requiring CEO and
Chief Financial Officer certification of a company’s finances.

In addition to these measures, the TSX contemplates publishing an annual review of
governance disclosure, reviewing the quality of management of all issuers, not just non-
exempt issuers, on a three-year rotating basis, and requiring that issuers adopt and
publish a code of business conduct.

A history of leadership on good governance

I would note that these proposed changes represent enhancements to a system of
governance that is internationally recognized as being among the most trustworthy in the
world, a view that seems to be fully borne out by the most recent evidence from the
OSC’s own reviews.

On August 16th, for example, you made public the results of your review of 517
Canadian listed companies and said that “We have not found any serious evidence of
wrong doing.” Your more recent findings of relatively minor compliance deficiencies
                                             -4-




among investment advisors and fund managers provides additional support for
confidence in Canadian corporate governance.

Our own field research in Europe indicates a broad belief among European investment
professionals that Canadian corporate governance is stronger than the American. Even
more telling are the recent findings in the McKinsey and Company Survey of Investor
Opinion in 31 countries.

McKinsey found that 60 per cent of institutional investors said they would avoid
investments in companies where there were concerns about corporate governance and
pay a higher price for companies with good corporate governance. The “good
governance” premium for Canadian securities found by McKinsey was 11 per cent, the
lowest in the world. The premium demanded for investing in U.S. companies was
almost 30 per cent higher, at 14 per cent.

This is not by accident. For a long time, we have been ahead of the curve and ahead of
the Americans on corporate governance. This is reflected in some significant differences
in the governance of Corporate Canada versus that in the United States.

For example, 70 per cent of the largest public companies in Canada now split the roles
of Chief Executive Officer and Board Chair, compared with 25 per cent in the U.S.
Canadian boards have a smaller percentage of related directors than U.S. companies,
and they’re more likely than U.S. boards to have independent lead directors and to
formally evaluate the performance of the board as a whole as well as that of individual
directors. In considerable measure these differences are the result of specific initiatives
by the TSX, either alone or in concert with other organizations concerned with corporate
governance.

In 1993, for example, we established a corporate governance task force headed by
Peter Dey which reported in 1994, five years before U.S. regulators began to give
serious attention to issues related to corporate governance. The Dey report was largely
implemented in 1995. In 1997, another TSX task force headed by Thomas Allen dealt
with “responsible corporate disclosure.”

The Allen report recommended, among other things, that provincial legislation establish
a civil liability – with fines up to $1 million or five per cent of a company’s capitalization,
whichever is greater – for directors, offices and others who misrepresented a company’s
finances. However, the legislation was not passed. Liability for CEOs who knowingly
misrepresent their company’s finances is, of course, among the highest visibility actions
that have been taken to deal with corporate fraud in the U.S., five years after the Allen
Report addressed this issue in Canada.

More recently, in 1999, we reconvened the Dey Task Force to review progress, and as a
result of their finding that significant progress could still be made, we established with
the CICA a second task force under Guylaine Saucier. As a result of its report last
                                            -5-




November – before the Enron, Andersen and other U.S. scandals broke – we proposed
a series of enhancements to our governance guidelines, to which you allude approvingly
in your letter.

Along the way, we have helped to establish mining industry standards in the wake of the
Bre-X scandal and we joined with the Investment Dealers of Canada to create a task
force to deal with securities analyst standards, again before this became a major
American issue.

Quite clearly, what has happened in recent weeks in the U.S. creates an entirely new
context within which the adequacy of Canadian corporate governance must be
assessed. No one would deny that.

More U.S. changes to come

The Sarbanes/Oxley or “SOX” legislation is unprecedented since the 1930s in that
country. And the flood of change is not yet over. The Securities and Exchange
Commission has a year to bring in regulations putting the SOX legislation into effect.
The SEC estimates it will take some 24 complex packages of new regulations to do the
job.

Meanwhile, Congressional hearings are delving into still more dark corners – into
investment banking practices, for example, and the way IPO shares were allocated to
favoured clients. More legislation is clearly possible. Litigation is certain.

A lengthy period in which legislation is tested in the courts, and regulations are tested in
practice, may extend into years. It is inevitable, in something so sweeping and so new,
that mistakes will be made and will have to be corrected. Corporate America faces, in
consequence, the prospect of being whipsawed between mistakes, interpretations and
corrections until their system of securities regulation settles again into relative stability.

Clearly, American legislators and regulatory agencies believe that such huge changes in
corporate governance, and such risks of instability, were necessary in light of the
catastrophic failures of some of the country’s largest and best known companies and the
effect of those failures on investor confidence.

But in the absence – in your words – of “any serious evidence of wrong-doing” on the
part of Canadian companies, what justifications exist for similarly draconian and
potentially costly measures in Canada?

In light of the U.S. changes, your letter describes this as a defining moment in the
evolution of our capital markets. I agree. How we respond will shape our regulatory
future in untold ways.
                                           -6-




Your view of what we must do, as you set it out in your August 15th letter, is that “it is
essential that we undertake in Canada a second phase of corporate governance
focussed primarily but not exclusively on reforms that have been proposed and/or
implemented in the U.S. and elsewhere.” Or, as you put in your subsequent, open letter
to listed companies in Ontario and to other Ontario market participants, “it makes sense
to harmonize with the U.S. initiatives unless there are cogent reasons for not doing so.”

I believe, and this is the test we have applied to the group of measures we propose, that
we must act on the basis of whether there are cogent and compelling reasons for
adopting any of the American initiatives.

We must be concerned about the impact of throwing our markets, which are under
stress already because of the American-born “contagion of distrust” to which you allude,
into this tidal wave of American change in mid-passage.

We have to ask ourselves whether investors will feel more confident because we have
embraced the American rules, or less confident because our embracing those rules
implies that we have the same problems as the U.S. – even though we don’t – of fraud
and conspiracy.

Clearly the answers represent a judgment call on our future. And I would rather hear a
great deal more from those most affected, and work from a much firmer base of certainty
about what American legislators and regulators have actually done before making that
call.

Questions remain about whether U.S. has taken the best course

But it is not obvious to either of us, I know, that the best way to restore confidence in
Canadian capital markets that are working is by making them more like American
markets that are not.

Nor is it obvious to me that the U.S. has found the answer in Sarbanes/Oxley to its
corporate governance troubles. The SOX legislation prescribes a massive dose of new
rules and regulations we have yet to see.

But a great many sophisticated observers of the U.S. situation see their troubles, in large
part, as a consequence of a corporate culture based on an overdose of highly
prescriptive rules that provided fertile ground for the fraudulent and dishonest, the
unprincipled and the avaricious, to flourish.

This faith in the efficacy of ever more detailed rules was neatly captured by Jim
Copeland, the chief executive of the global accounting firm of Deloitte Touche Tohmatsu
in a speech on August 16th in Cleveland. He quoted T.S. Eliot to invoke the American
penchant for “dreaming of systems so perfect that no one will need to be good.”
                                            -7-




In fact, for a number of years, the regulation of American securities markets had become
a race between closing loopholes with new rules and finding new loopholes to get
around the new rules.

Our approach, despite our having been in reasonable harmony with prevailing
approaches in the United States – far more than Europe or Japan, for example – has
been sufficiently different and sufficiently based on the “need to be good” as to sustain a
more principled corporate culture in Canada, less susceptible to their loophole mentality.
Or, as Purdy Crawford, who is chairing the OSC’s Five-Year Review, recently described
it: “Our auditors and people on the whole have a greater culture of independence.”

That emphasis on principle and on independent judgment, rather than on the literal
obedience to rules – and the corollary of that obedience, that the absence of a rule
constitutes a licence to act in ways that are dishonest – may have provided us, thereby,
with a measure of immunity to the worst of America’s corporate afflictions, though not
from distrust and not from the usual scoundrels that lurk in the shadows of any and
every market in the world, including ours.

Has the U.S., with the SOX legislation and its promise of volumes of new rules to come,
turned away from its past faith in rules toward a greater reliance on principle?

In some ways it has. For example, SOX strips away the veil that the phrase “generally
accepted accounting principles” has provided for questionable practices. Now, a
company can be fully in compliance with U.S.GAAP but still be convicted of a crime for
failing to fairly present its financial situation in all material aspects.

That said, the jury is out on the possibility that what the U.S. is doing, far from changing
direction, is speeding headlong down the dead-end road it has been travelling all along,
still sustained by a belief that the answer to too many prescriptive rules lies in still more
rules.

If this is what the future can hold, and we can hope that it does not, would it serve
Canadian corporate governance, with its more principled basis, to follow the Americans
down that road?

One of the more immediate issues with which we must be concerned requires broader
consultation than has so far been possible: the costs to Canadian issuers of whatever
change we make, and who bears them.

The U.S. laws and regulations draw no distinctions between large and small issuers.
Imposing the same burden on large and small companies alike, by dint of size alone,
imposes a proportionately greater burden on smaller companies. What American
legislators wish to impose on American companies is their business.
                                            -8-




Smaller companies will bear a disproportionate burden

But we have proportionately more, smaller companies than the U.S. Along with the
significantly larger number of Canadian companies with controlling shareholders, this is
one of the key distinctions between Canada and the U.S. markets that bears on how we
approach changes to governance standards.

More than 82 per cent of Canadian listed companies have less than $500 million in
market capitalization and 44 percent have less than $50 million in market capitalization.
On the other hand, more than half of listed U.S. companies are larger than that, and
already have in place much of the corporate bureaucracy that will allow them to absorb
the new regulations at reasonable cost.

For us to embrace the U.S. rules, as a result, would impose a comparatively greater
burden on Canadian markets than U.S. markets will have to bear, and would be most
acutely felt by those least able to bear them, especially our small and micro cap issuers.

This effect on Canada’s smallest companies is accentuated by the fact that Canadian
companies that are inter-listed on a U.S. exchange, or are issuers of securities to U.S.
investors, would gain no obvious benefit from harmonization in that these companies are
required to meet the U.S. requirements, anyway, if they wish to continue trading their
securities in the U.S.

We need to be sensitive to the possibility of conflicts arising for our largest companies as
SOX is implemented, as I have noted.

However, the main burden of thorough-going harmonization with U.S. law would fall
most heavily on companies that would not benefit from it.

Indeed, given that Canadian companies whose securities trade in U.S. markets have
been harmonized de facto by the American extra-territorial extension of their securities
law, it is difficult to identify any Canadian beneficiaries to additional harmonization.

The extra-territoriality of the new U.S. approach, parenthetically, raises an issue that is
urgent. The national governments of other countries – the U.K., Germany, the European
Union, Japan and others – have objected strongly to U.S. law being extended to their
companies and to their professionals, including accountants and securities lawyers.

In our case, our diplomats have maintained a close watch on the evolution of the new
American regulatory regime. But the federal government does not exercise authority for
securities jurisdiction, and the provinces do not exercise jurisdiction for foreign policy.

We are the only country in this situation, this at a time when it is critical that we be able
to speak with one voice where decisions affecting Canadian companies and our
                                            -9-




provincial and national interests are being made daily and where other countries are
lobbying for their own interests.

Of particular immediate relevance is the matter raised above, the possibility that the
progressive implementation of the new U.S. law will create conflicts with our law and
problems for our inter-listed companies. Effective regulation may be able to head off
such problems before they arise.

Regardless of how we proceed on aligning our securities regulation with the U.S., we
need to find some solution to this gaping hole in our capacity to represent our interests
abroad.

How should we proceed from here?

Let me turn, finally, to the question of how we might proceed to answer some of the
questions I have raised above.

While regulatory jurisdiction over securities is fragmented in Canada, the issues we face
are clearly of national import and, indeed, international in their reach. They will touch
investors and issuers in every province and territory. No one regulatory authority or
government can grasp within its control all means necessary to deal with the implications
and interests at stake.

How, then, should we deal with all the interests and implications?

As you know, I have been sceptical that the harmonization of Canadian securities
regulation can serve as an effective long-term response to our regulatory fragmentation.
Not least is the risk that regulations, once harmonized within our country, can be thrown
into disharmony by one province or territory abruptly going in a different direction, just as
the Americans have thrown international regulation into disharmony.

In the absence of an alternative, however, harmonization among ourselves is our only
real option for dealing with the challenge that U.S. actions present for every Canadian.

I believe, therefore, that it would be wise for you to engage your fellow securities
administrators fully in judging the best course to take. This can best be done through
your umbrella organization, the Canadian Securities Administrators, under the aegis of
which policies intended to apply in all 13 provincial and territorial jurisdictions are
promulgated.

Through the CSA, I believe a broad and transparent consultative process should be set
in train that will engage all the stakeholders in our capital markets, from corporate
directors and executive officers to institutional and individual investors and the
professionals who serve the people and institutions in our markets.
                                           - 10 -




It would also be helpful, through the CSA, to engage federal regulators in the process
and, as a first priority, establish a working basis for the effective representation in
Washington and elsewhere of all Canadians on issues related to the future of our capital
markets.

This may take some time, I would agree, but given that we cannot know with precision
where the American changes are taking capital markets – because they don’t yet know –
we have the time.

I believe, further, that if we are to seek to restore confidence among investors by
regulatory change we need to be seen to take the time to do right what needs to be
done.

I am, of course, ready to work closely with you, your counterparts in all other jurisdictions
and all those with a stake in our having healthy capital markets as we make our way
through this time of unprecedented change.

Thank you for your letter and, on behalf of Canadian listed companies and investors,
your obvious concern and diligence. In that your letter is in the public domain, it is my
intention to make this response public as well.

Sincerely,




Barbara Stymiest,
CEO, TSX Group


cc.    Mr. Douglas Hyndman
       Chair, Canadian Securities Administrators

       Mr. Joseph Oliver
       President, Investment Dealers Association

       Mr. David Smith, FCA
       President and CEO, Canadian Institute for Chartered Accountants
     COMPARISON OF CANADIAN EQUIVALENTS TO RECENT U.S. CORPORATE
                      GOVERNANCE INITIATIVES

Section Reference                                                          Abbreviation

Sarbanes-Oxley Act of 2002                                                    SO s. #

NYSE Corporate Governance Rule Proposals reflecting Recommendations          NYSE s. #
from the NYSE Corporate Accountability and Listing Standards Committee
As Approved by the NYSE Board of Directors August 1, 2002

Report of NYSE Corporate Accountability and Listing Standards Committee,   NYSE ROI s. #
Recommendations to Other Institutions

Nasdaq Corporate Governance Proposals August 21, 2002                        NASDAQ
                                                                             proposal

Business Corporations Act (Ontario)                                         OBCA s. #

Canada Business Corporations Act                                            CBCA s. #

Securities Act (Ontario)                                                     OSA s. #

Toronto Stock Exchange Company Manual                                         TSX s.#

Proposed amended TSX corporate governance disclosure guidelines             TSX AG s. #




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             U.S. Proposal                            Source                    Status in Canada                                     Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                      Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                           Note       line    Req’t


Auditor Independence

1.    It is unlawful for an officer or               SO s. 303    •   OSA s. 122(1) makes it an offence to file       •   No change is required. In any event, any      ●                                                 ●
      director of an issuer, or a person                              a financial statement that is in a material         change would be the subject of a change
      acting under their direction, to                                respect misleading or untrue and OSA s.             to securities legislation.
      influence the audit of the financial                            122(3) provides that every director or
      statements of that issuer for the                               officer who authorizes, permits or
      purpose of rendering such financial                             acquiesces in an offence under s. 122(1) is
      statements materially misleading.                               guilty of an offence.

2.    Any auditing or non-audit service              SO s. 202,   •   No equivalent                                   •   This will be addressed as a proposed                    ●                    ●
      provided by the independent auditor            NYSE s.                                                              guideline requiring consideration for the
      must be pre-approved by the audit              7(a)     &                                                           audit committee charter.
      committee.                                     NASDAQ
                                                     proposal

3.    An auditor of a public company that            SO s. 201    •   The proposed Independence Standards of          •   The Public Interest and Integrity                       ●          ●                                     ●
      performs any audit will be prohibited                           the CICA (s. 204) set out rules for                 Committee of the CICA should complete
      from providing any non-audit                                    ensuring auditor independence and                   its final report and recommendations on
      services, including:                                            disclosure of threats to auditor                    independence standards before any
                                                                      independence. The Standards require that            prescriptive rules are proposed.
      (a)     Bookkeeping services;                                   auditors be independent, such that the
      (b)     Financial        information                            auditor is free of any influence, interest or   •   Prohibiting non-audit services should be
              systems      design       and                           relationship which, in respect of the               considered when formulating the audit
              implementation;                                         engagement, impairs the professional                committee’s charter.
      (c)     Appraisal     or    valuation                           judgement or objectivity of the auditor, or
              services, fairness opinions,                            which, in the view of the reasonable
              or       contribution-in-kind                           observer, would impair the professional
              reports;                                                judgement or objectivity of the auditor.
      (d)     Actuarial services;                                     The Standards also provide an illustrative
      (e)     Internal audit outsourcing                              list of prohibited relationships and
              services;                                               services that would pose a threat auditor
      (f)     Management functions or                                 independence. Auditors are required to



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            U.S. Proposal                            Source                  Status in Canada                                    Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                   Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                        Note       line    Req’t

             human resources;                                       identify and disclose threats to
     (g)     Broker or dealer, investment                           independence and either apply safeguards
             adviser,   or     investment                           to reduce the threat or eliminate the
             banking services;                                      activity or relationship that created the
     (h)     Legal services and expert                              threat.
             services unrelated to the
             audit; and
     (i)     Any other service that the
             PCAOB       determines    is
             impermissible.

4.   Any non-audit service approved by              SO s. 202   •   The Five Year Review Committee Draft         •   This should be considered by the new                                                              ●        ●
     the audit committee must be                                    Report on the OSA recommends that                Canadian Public Accountability Board or
     disclosed to investors in the                                  companies be required to disclose in their       the CICA before any prescriptive rules are
     company’s next periodic report.                                proxy statements expenditures for                proposed.
                                                                    auditing and non-auditing consulting
                                                                    services (Rec. 51).                          •   Any change should be addressed in the
                                                                                                                     form of a change to securities legislation.

5.   The lead audit partner, or the audit           SO s. 203   •   The proposed Independence Standards of       •   This should be considered by the new                      ●          ●                                     ●
     partner responsible for reviewing the                          the CICA (s. 204.4(20)) requires lead            Canadian Public Accountability Board or
     audit, must be rotated, at least every                         engagement partner rotation every five           the CICA before any prescriptive rules are
     five years.                                                    years.                                           proposed.

                                                                                                                 •   This is a matter to be considered by the
                                                                                                                     audit committee in determining its charter
                                                                                                                     and will be addressed in a practice note.

6.   If an auditor performs an audit for a          SO s. 204   •   No equivalent                                •   This should be considered by the new                      ●          ●                                     ●
     public company, the auditor must                                                                                Canadian Public Accountability Board or
     provide a report to the audit                                                                                   the CICA before any prescriptive rules are
     committee setting out:                                                                                          proposed.

     (a)     All    critical    accounting                                                                       •   This will be addressed in a practice note.
             policies and practices used;



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             U.S. Proposal                            Source                  Status in Canada                                     Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                    Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                         Note       line    Req’t

              policies and practices used;

      (b)     All alternative treatments of
              financial information within
              GAAP that have been
              discussed with management,
              ramifications of the use of
              such treatments, and the
              treatment preferred by the
              auditor; and

      (c)     Other  material           written
              communications           between
              the     auditor              and
              management.

7.    Public companies are limited in their          SO s. 206   •   The proposed Independence Standards of        •   This should be considered by the new                     ●          ●                                     ●
      ability to recruit employees and               & NYSE          the CICA (s. 204.4(32)) prohibits an audit        Canadian Public Accountability Board or
      management from audit firms that               s. 7            firm, and certain related entities, from          the CICA before any prescriptive rules are
      perform their external audit (SO                               providing recruiting assistance to clients.       proposed.
      prohibits auditor from acting if a                             Safeguards may be required where a
      certain officers of the company were                           partner or member of the accounting           •   This will be addressed in a practice note.
      employed by the accounting firm                                firm’s engagement team becomes a
      within one year prior to the audit;                            director or officer of the issuer or an
      NYSE simply requires the audit                                 employee of the issuer with influence
      committee to establish hiring policies                         over the engagement.
      for employees or former employees
      of the auditor).


Audit Committee

8.    All listed companies are required to           NYSE        •   TSX AG s. 473(13): The board of               •   The TSX proposes to require all of its                   ●                             ●
      have an audit committee and a formal           Company         directors should adopt a charter for the          listed issuers to have an audit committee
      audit committee charter which sets             Manual s.       audit committee which sets out the roles          with a proper charter.
      out the duties of the audit committee          303.01,         and responsibilities of the audit



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             U.S. Proposal                            Source                    Status in Canada                                    Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                      Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                           Note       line    Req’t

      (which must meet certain minimum               NYSE s.           committee which should be specifically
      standards; NYSE minimum standards              7       &         defined so as to provide guidance to the
      include assisting board oversight of           NASDAQ            audit committee members as to their
      the performance of the company’s               Listing           duties.
      internal    audit    function    and           Manual
      independent auditors).                         Rule 4350
                                                     (d)

9.    The SEC is required to prohibit U.S.           SO s. 301     •   CBCA s. 171/OBCA s. 158: Public               •   As per items 8 & 10, failure to comply                   ●                             ●
      securities        exchanges     and                              companies must have an audit committee            with TSX audit committee requirements
      associations from permitting the                                 composed of not fewer than three                  may result in suspension or delisting.
      continued listing of companies that                              directors of the company, a majority of
      do not have an audit committee that                              whom are not officers, employees or
      complies with the prescribed                                     employees of an affiliate.
      standards.

10.   The audit committee of an issuer               SO       s.   •   TSX AG s. 473(13):      Every audit           •   The proposed guideline will be retained.                 ●          ●         ●        ●
      must be comprised solely of                    301(3),           committee should be composed of only
      independent directors (the NASDAQ              NSYE              unrelated directors.                          •   The TSX proposes as a listing
      proposal allows a non-independent              Company                                                             requirement that audit committees be
      director to serve on the committee for         Manual s.                                                           composed of a majority of unrelated
      up to two years under “exceptional             303.01,                                                             directors.
      and limited circumstances”).                   NASDAQ
                                                     Listing                                                         •   The “majority” standard is reflective of
                                                     Manual                                                              the character of Canadian companies and
                                                     Rule 4350                                                           the available pool of eligible directors.
                                                     &
                                                     NASDAQ                                                          •   A practice note will be included
                                                     proposal                                                            suggesting that issuers disclose the
                                                                                                                         rationale for including a related director
                                                                                                                         as a member of the audit committee.

11.   Audit committees should be solely              SO      s.    •   CBCA s.162 and OBCA s.149 provide             •   This will be addressed as a guideline                    ●                    ●
      responsible for retaining and                  301(2),           that the shareholders appoint the auditors.       respecting the content of an audit
      terminating the outside auditors.              NYSE s.                                                             committee charter.



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             U.S. Proposal                            Source                     Status in Canada                                     Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                        Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                             Note       line    Req’t

      terminating the outside auditors.              7        &                                                           committee charter.
                                                     NASDAQ
                                                     proposal

12.   Audit committees have the authority            SO       s.   •   The board of directors should implement        •   Existing TSX guideline gives authority to       ●                              ●
      to engage independent counsel and              301(5),           a system which enables an individual               any director, not just the audit committee.
      other advisors.                                NYSE s.           director to engage an outside advisor at
                                                     7,       &        the expense of the company in
                                                     NASDAQ            appropriate circumstances (TSX AG s.
                                                     proposal          473(14)).

13.   Issuers will provide appropriate               SO     s.     •   See items 11 & 12.                             •   This will be addressed as a part of the                   ●                    ●
      funding, as determined by the audit            301(6)                                                               guideline respecting the audit committee
      committee,     for   payment      of                                                                                charter discussed in item 11.
      compensation     to   the    auditor
      employed for issuing an audit report,
      and to any advisors employed by the
      audit committee.

14.   Audit committees must establish                SO       s.   •   No equivalent                                  •   Proposed as a practice note as no                         ●          ●
      procedures for the receipt and                 301(4) &                                                             significant additional benefit would be
      treatment of complaints received by            NASDAQ                                                               derived by making this a guideline.
      the company regarding accounting or            proposal
      audit matters and the anonymous
      submission by employees of concerns
      regarding questionable accounting or
      auditing matters.

15.   Public companies must have at least            SO s. 407,    •   All of the members the audit committee         •   Leaving as a guideline maintains the            ●                              ●
      one financial expert on the audit              NYSE              should be financially literate, and at least       flexibility required to ensure the audit
      committee (the NASDAQ proposal                 Company           one member should have accounting or               committee is comprised of the most
      reiterates that in identifying the             Manual s.         related financial expertise (TSX AG s.             suitable directors.
      committee member with financial                303.01 &          473(13)).
      sophistication, issuers should look at         NASDAQ
      the education and any experience of            proposal




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            U.S. Proposal                            Source                 Status in Canada                                    Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                  Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                       Note       line    Req’t

      the individual as a CEO, CFO, senior          proposal
      financial officer, etc.).

16.   Audit committee or comparable body            NASDAQ     •   OSC Rule 61-501 and Companion Policy         •   Adequately provided for under securities        ●                                                 ●        ●
      must review and approve all related           proposal       61-501 note that special committee               legislation.
      party transactions.                                          review generally would be appropriate for
                                                                   related party transactions involving         •   Any prescriptive rule should be
                                                                   greater than 25% of market capitalization.       incorporated in securities and/or corporate
                                                                                                                    legislation.
                                                               •   CBCA s. 120 and OBCA s. 132 provide
                                                                   that directors with a conflict of interest
                                                                   cannot vote.


Board of Directors Independence

17.   The board of directors of listed              NYSE s.    •   The board of directors of every              •   To keep as a guideline.                                   ●                    ●        ●
      companies must have a majority of             1&             corporation should be constituted with a
      independent directors.                        NASDAQ         majority of unrelated directors (TSX AG      •   To also require as a continued listing
                                                    proposal       s. 473(2)).                                      requirement that there are at least two
                                                                                                                    unrelated directors on the board at all
                                                                                                                    times.

18.   Executive     sessions       of        the    NYSE s.    •   The chair or lead director should ensure     •   Already addressed as a guideline.               ●                              ●
      independent directors        must       be    3&             that the board carries out its
      regularly convened.                           NASDAQ         responsibilities effectively, which will
                                                    proposal       involve the board meeting on a regular
                                                                   basis without management present (TSX
                                                                   AG s. 473(12)).

19.   Controlled companies (companies of            NYSE s.    •   TSX AG s. 473(2): If the corporation has     •   TSX guidelines exempt shareholdings             ●                              ●
      which more than 50% of the voting             1              a significant shareholder in addition to a       from a determination of whether a
      power is held by one person or                comment        majority of unrelated directors, the board       director is “unrelated” for all purposes.
      group) are exempt from the                    &              should include a number of directors who
      requirements   for    a   majority            NASDAQ         do not have interests in or relationships



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             U.S. Proposal                            Source                    Status in Canada                                     Commentary                           No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                        Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                             Note       line    Req’t

      independent       board,    executive          proposal        with either      the corporation or the
      sessions of the independent directors,                         significant    shareholder, and board
      and independent compensation and                               composition     should fairly reflect the
      nominating committees (but not audit                           investment     in the corporation by
      committee requirements).                                       shareholders   other than the significant
                                                                     shareholder.


Director Independence

20.   An independent director is a director          SO s.       TSX AG s. 472 defines 4 types of directors:         Proposed new definition of “unrelated                          ●                             ●
      who has no relationship to the                 301(3),                                                         director”:
      company that may interfere with the            NYSE s.     “inside director”: a director who is a member       an outside director who is not a member of
      exercise of their independence from            2, NYSE     of management but does not include a chair,         management and is free from any interest and
      management and the company                     Listed      vice-chair or other officer that is not part of     any business, family or other relationship
      (NYSE Listed Company Manual s.                 Company     management.                                         which could reasonably be perceived to
      303.01(2)).                                    Manual s.                                                       materially interfere with the director’s ability
                                                     303.00,     “outside director”: a director who is not a         to act with a view to the best interests of the
      An independent director is a person            NASDAQ      member of management.                               issuer, other than interests and relationships
      other than an officer or employee of           proposal                                                        arising solely from holdings in the issuer; and
      the company or its subsidiaries or any         &           “related director”: a director who is not an        who
      other individual having a relationship         NASDAQ      unrelated director or is a member of                (a) is not currently, or has not been within the
      which, in the opinion of the                   Listing     management.                                         last three years, an officer, employee of or
      company’s board of directors, would            Manual                                                          material service provider to the issuer or any
      interfere with the exercise of                 Rules       “unrelated director”: a director who is             of its subsidiaries or affiliates; and
      independent judgement in carrying              4200 &      independent of management and is free from          (b) is not an officer, employee or controlling
      out the responsibilities of a director         4350        any interest and any business or other              shareholder of an entity that has a material
      (NASDAQ Listing Manual).                                   relationship which could, or reasonably be          business relationship with the issuer.
                                                                 perceived to, materially interfere with the
      An independent director is a director                      director’s ability to act with a view to the best   •   The new TSX definition continues to
      who has no relationship to the                             interests of the company, other than interests          reflect the concept that undue influence of
      company that may interfere with the                        and relationships arising from shareholding.            an issuer does not result solely from the
      exercise    of    the      director’s                                                                              holdings of the director in that issuer or
      independence from management and                                                                                   the relationship of that director to a
      the    company    (NYSE       Listed                                                                               significant shareholder of the issuer.
      Company Manual s. 303.01(2)).                                                                                      Significant shareholders have the right to



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       U.S. Proposal                           Source   Status in Canada                   Commentary                            No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                               Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                    Note       line    Req’t

Company Manual s. 303.01(2)).                                                  board representation through the election
                                                                               of directors, and investors often rely on
Specifically, a director will not be                                           the presence on the board of significant
“independent” if:                                                              shareholders.

•   The board of directors does not                                        •   TSX Guideline 3 goes farther than NYSE
    issue       an       affirmative                                           or NASDAQ since it requires disclosure
    determination of no material                                               as to the measures taken by issuers with a
    relationship with the company                                              significant shareholder to ensure that the
    (NYSE s. 2).                                                               interests of minority shareholders are
                                                                               accounted for.
•   The director owns 20% or more
    of the controlling stock of the                                        •   The TSX definition reflects the principle
    company (NASDAQ proposal).                                                 based approach resulting in boards having
                                                                               to examine each significant relationship.
•   The director       is a former
    employee of        the company                                         •   TSX Guideline 3 also requires disclosure
    (NYSE s. 2).                                                               of the status of each director, the nature of
                                                                               their relationship with the issuer and the
•   The director is affiliated with or                                         basis of the determination of their status.
    employed by an auditor of the
    company (NYSE s. 2).

•   The director receives payments
    from the company other than for
    board service (under SO s.
    301(3) this is only an indicator of
    the independence of a member of
    the audit committee; under the
    NASDAQ proposal a director
    may receive payments, other
    than for board service, of up to
    $60,000 without affecting his or
    her independence).




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             U.S. Proposal                            Source                 Status in Canada                                Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                               Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                    Note       line    Req’t


      •   The director is a part of an
          interlocking directorate (NYSE
          s. 2).

      •   The company makes payments to
          a charity (of which the director is
          an executive officer) that exceed
          the greater of $200,000 or 5% of
          either the company’s or the
          charity’s      gross      revenue
          (NASDAQ proposal).

      •   Any of the director’s immediate
          family members fall into one of
          the above listed categories
          (NYSE s. 2; the NASDAQ
          proposal only stipulates that
          relatives of the director may not
          be executive officers of the
          company).

21.   There will be a “cooling-off” period           NYSE s.    •   To be determined by the board of          •   A three-year “cooling-off” period will be                ●                             ●
      for directors who are not independent          2&             directors. No cooling off period              imposed for former employees and
      (under NYSE s. 2 the period is five            NASDAQ         mandated.                                     service providers. This is consistent with
      years; under the NASDAQ proposal               proposal                                                     the TSX listing requirement found in s.
      the period is three years and only                        •   Definition of “independent director” in       311 of the Company Manual and is
      applies to directors who are not                              Rule 61-501 imposes a one-year period         reflective of the TSX issuer base and the
      independent due to: (1) interlocking                          rather than the three-year period under       smaller pool of qualified directors
      compensation committees; (2) the                              former OSC Policy 9.1.                        available to Canadian based issuers.
      receipt by the director, or a family
      member, of any payments in excess
      of $60,000 other than for board
      service; (3) family members of the
      director being employed as executive
      officers of the issuer or any of the



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             U.S. Proposal                            Source                 Status in Canada                                  Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                 Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                      Note       line    Req’t

      issuer’s affiliates; or (4) having been
      a partner or employee of the outside
      auditor who worked on the
      company’s audit engagement).

22.   A member of the audit committee                SO s.      •   To be determined by the board of           •   The TSX definition of unrelated director        ●                              ●
      will not be independent if he or she           301(3),        directors.                                     requires consideration of any payments
      receives payments from the company             NYSE s.                                                       that would materially affect a director’s
      other than for board service.                  6&                                                            ability to act in the best interest of the
                                                     NASDAQ                                                        issuer.
                                                     proposal
                                                                                                               •   [The TSX principle would also include
                                                                                                                   perquisites and other benefits which
                                                                                                                   may not be caught by the U.S.
                                                                                                                   definition]

23.   Under SO s. 301(3) and the                     SO s.      •   To be determined by the board of           •   The new TSX definition continues to             ●                                       ●
      NASDAQ proposal a member of the                301(3) &       directors.                                     reflect the concept that undue influence of
      audit committee will not be                    NASDAQ                                                        an issuer does not result solely from the
      independent if he or she is affiliated         proposal                                                      holdings of the director in that issuer or
      with the issuer or a subsidiary                                                                              the relationship of that director to a
      thereof.                                                                                                     significant shareholder of the issuer.
                                                                                                                   Significant shareholders have the right to
                                                                                                                   board representation through the election
                                                                                                                   of directors, and investors often rely on
                                                                                                                   the presence on the board of significant
                                                                                                                   shareholders.


Nominating and Compensation

24.   Director     nominations      require          NYSE s.    •   TSX AG s. 473(4): Every board should       •   Already addressed as a guideline.               ●                              ●
      independent director approval (NYSE            4&             appoint     a  committee      composed
      recommendation requires the creation           NASDAQ         exclusively of outside directors, a
      of an independent committee charged            proposal       majority of whom are unrelated, with the




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             U.S. Proposal                            Source                   Status in Canada                                    Commentary                        No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                   Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                        Note       line    Req’t

      with nominating and corporate                                  responsibility    for   proposing   new
      governance that has a written charter                          nominees to the board, and for assessing
      which addresses the committees                                 directors on an ongoing basis.
      goals, responsibilities and purposes;
      NASDAQ        permits      one    non-
      independent director to be on the
      committee     in     certain   limited
      circumstances).

25.   CEO and executive compensation                 NYSE s.     •   Executive Compensation Disclosure              •   CEO and executive compensation should                  ●                    ●
      require independent director approval          5&              (Form 40) requires a report on executive           be reviewed by a committee comprised
      (NYSE recommendation requires the              NASDAQ          compensation by the compensation                   solely of unrelated directors.
      creation of         an independent             proposal        committee or the board and mandates
      compensation committee, which is                               disclosure of relationships of the relevant
      required to have a written charter that                        directors       which       affect     their
      addresses the committee’s goals,                               “independence”.         Such report must
      responsibilities    and      purposes;                         address compensation of executive
      NASDAQ          permits     on    non-                         officers, particularly the CEO.
      independent director to be on the
      committee      in    certain   limited
      circumstances).

26.   The adoption of all equity                     NYSE s.     •   TSX ss. 629& 630: Only certain share           •   s. 613(a) of proposed amendments to the                ●                             ●
      compensation plans and any material            8&              compensation arrangements are subject to           TSX Company Manual provides that all
      modification of such plans require             NASDAQ          security-holder approval.                          share compensation arrangements will
      shareholder      approval,      except         proposal                                                           require security holder approval.
      inducement options, plans relating to                                                                             Management and board insiders
      mergers or acquisitions, and tax                                                                                  benefiting under such arrangements will
      qualified and excess benefit plans.                                                                               not be permitted to vote.

27.   If a public company is required to             SO s. 304   •   No equivalent                                  •   Although the TSX would support the                                                             ●
      prepare an accounting restatement                                                                                 enactment of a provision of this nature,
      due to material non-compliance with                                                                               this type of regulation should be
      financial reporting requirements as a                                                                             accomplished through changes to
      result of misconduct, the CEO and                                                                                 securities legislation.




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              U.S. Proposal                            Source                     Status in Canada                                     Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                        Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                             Note       line    Req’t

       CFO are required to reimburse the                                                                                   securities legislation.
       company for any bonus or other
       incentive-based         compensation                                                                            •   CSA may wish to see whether SEC enacts
       received as well as profits from the                                                                                any exemptions.
       sale of the company’s securities.

28.    Issuers are prohibited from making or          SO s. 402      •   Recently moved to a disclosure regime         •   Any prescriptive requirements should be                                                          ●
       arranging loans or extensions of               &                  under corporate statutes from a                   addressed by changes to securities or
       credit to any executive officer or             NASDAQ             prohibition against loans unless certain          corporate legislation. However, securities
       director (with certain exceptions).            proposal           solvency tests are met. For example, s.           regulators may wish to wait to see
       Existing loans may remain in place,                               20(2) of the OBCA requires disclosure of          proposed SEC rules to facilitate
       but they may not be renewed or                                    all material financial assistance provided        harmonization.
       extended and the original terms                                   to directors, officers and their associates
       cannot be materially modified.                                    subject to certain exceptions.


Officer’s Responsibilities

29.    The CEOs of listed companies must              NYSE      s.   •   No equivalent                                 •   TSX issuers must certify, on an annual                   ●                             ●
       certify to the NYSE each year that             12                                                                   basis, compliance with their listing
       the CEO is not aware of any violation                                                                               agreement.
       by the company of NYSE corporate
       governance listing standards.

30.    In each annual or quarterly report             SO s. 302      •   No equivalent                                 •   Although the TSX is supportive of this                                                           ●
       submitted to the SEC, the CEO and              & NYSE                                                               type of certification, it should be
       CFO of the issuer must certify that:           ROI s. 2                                                             addressed by changes to securities
                                                                                                                           legislation.
       (a)     They have reviewed the
               report;

       (b)     Based on their knowledge, it
               does not contain any untrue
               statements or omission of




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      U.S. Proposal                          Source   Status in Canada       Commentary     No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                          Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                               Note       line    Req’t

       material fact;

(c)    Based on their knowledge,
       the financial information
       fairly presents the financial
       condition of the issuer;

(d)    They are responsible for
       establishing and maintaining
       (and     have     established)
       internal controls to ensure
       that     relevant      material
       information is made known
       to them by others in the
       corporation; that they have
       evaluated the controls within
       the last 90 days; and that
       they      have      presented
       conclusions in the report
       about the effectiveness of
       the internal controls;

(e)    They have disclosed to the
       company’s auditors and the
       audit committee:

       !   All           significant
           deficiencies    in    the
           design or operation of
           internal controls;

       !   Any fraud that involves
           management or other
           employees who have a
           significant role in the




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             U.S. Proposal                             Source                  Status in Canada                  Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                  Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                       Note       line    Req’t

                    company’s            internal
                    controls; and

      (f)      They have indicated in the
               report whether or not there
               were significant changes in
               internal controls or in other
               factors       that      could
               significantly affect internal
               controls subsequent to the
               date of their evaluation.

31.   Accompanying each periodic report               SO s. 906   •   No equivalent               •   Although the TSX is supportive of this                                                          ●
      filed with the SEC, the CFO and                                                                 type of certification, it should be
      CEO must certify that the report fully                                                          addressed by changes to securities
      complies with the requirements of                                                               legislation.
      section 13(a) or 15(d) of the
      Securities Exchange Act of 1934, and
      that the information contained in the
      report fairly presents the financial
      condition of the issuer. There is only
      liability under this section if the
      signer knowingly or wilfully signs a
      certificate that is untrue.


Insider Trading

32.   Directors and senior officers are               SO s. 306   •   No equivalent               •   Although the TSX is supportive of this                                                          ●
      prohibited from trading equity                                                                  type of regulation, it is properly within
      securities received by virtue of their                                                          the jurisdiction of the CSA.
      position as a director or senior officer
      during blackout periods for trading
      by participants in an issuer’s pension
      fund and other retirement plans. Any
      profit realized by a director or senior



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             U.S. Proposal                            Source                   Status in Canada                                    Commentary                           No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                      Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                           Note       line    Req’t

      officer as a result of a trade in
      violation of this provision is
      recoverable by the company.

33.   Require directors, officers, and               SO s. 403,   •   OSA s. 108 & OSA Reg. s. 167: Insider        •   Although the TSX is supportive of                                                                  ●
      principal stockholders of U.S.                 NYSE             trade reports due within 10 days of the          moving to shorter reporting periods, any
      domestic companies to file insider             ROI s. 7,        trade.                                           change to existing securities legislation is
      reports within two business days of a          &                                                                 within the jurisdiction of the CSA.
      trade (NASDAQ is continuing to                 NASDAQ       •   The Five Year Review Committee Draft
      explore a requirement for accelerated          proposal         Report of the OSA recommends
      disclosure of insider transactions that                         shortening the time frame when SEDI is
      would harmonize with, and reinforce,                            implemented (Rec. 84).
      the provisions of the Sarbanes-Oxley
      Act and any SEC rules that may be
      promulgated thereunder).


Lawyer’s Responsibilities

34.   The SEC has the power to order that            SO s. 602    •   Under the OSA s. 127(1), the OSC has         •   The TSX would be supportive of this type                                                           ●
      a person may not practice before it if                          the power to order that a person or              of initiative, but it is properly within the
      that person is found:                                           company be reprimanded if, in the OSC’s          jurisdiction of the CSA.
                                                                      opinion, this would be in the public
      (a)      Not to possess the requisite                           interest.
               qualifications to represent
               others;                                            •   In Wilder v. Ontario Securities
                                                                      Commission (2001), 53 O.R. (3d) 519
      (b)      To be lacking in character or                          C.A., the Court of Appeal recognized that
               integrity, or to have engaged                          the OSC’s power under s. 127(1) includes
               in unethical or improper                               the power to order that a lawyer be
               professional conduct; or                               reprimanded for his or her conduct as a
                                                                      solicitor before the OSC, notwithstanding
      (c)      To have wilfully violated, or                          that a lawyer is generally governed by the
               wilfully aided and abetted                             Law Society’s rules of professional
               the    violation   of    any                           conduct.
               provision of the securities



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            U.S. Proposal                            Source                  Status in Canada                                    Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                  Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                       Note       line    Req’t

              laws or the         rules      and                •   The BCSC’s New Proposal for Securities
              regulations                 issued                    Regulation, “A New Way to Regulate”,
              thereunder.                                           proposes that the Commission may
                                                                    prohibit a professional from practising
                                                                    before it if the professional has
                                                                    intentionally contravened the securities
                                                                    legislation, or has intentionally assisted
                                                                    others to do so.


35.   Attorneys appearing and practising            SO s. 307   •   Lawyers are under a duty to only give         •   Although the TSX is supportive of this                                                          ●        ●
      before the SEC are required:                                  opinions that are based on sufficient             type of initiative, it is something that
                                                                    knowledge of the facts, and are under a           should be addressed jointly by the CSA
      (a)     To report evidence of a                               duty to not knowingly assist in or                and the Canadian Bar Associations.
              material     violation    of                          encourage fraud, crime or illegal conduct.
              securities law or breach of                           (LSUC Rules of Professional Conduct s.
              fiduciary duty or similar                             2.01(1), (2), & 202(5))
              violation to the chief legal
              counsel or CEO of the                             •   Although there are no rules explicitly
              company; and                                          requiring lawyers to go to the CEO or
                                                                    board of directors, a lawyer retained on
      (b)     If that person does not                               behalf of a corporation should report a
              appropriately respond, to                             material violation of securities law to the
              report the evidence to the                            directors of the corporation, as it is the
              audit committee or to the                             directors that are under a duty to manage
              board of directors.                                   or supervise the management of the
                                                                    corporation.


Powers and Duties of Regulator

36.   The NYSE may issue a public                   NYSE s.     •   The TSX may temporarily halt trading in       •   TSX Company Manual to be amended to                     ●                             ●
      reprimand letter to any listed                13              any listed securities, or suspend from            provide that issuers which fail to comply
      company that violates an NYSE                                 trading or delist a company's securities if       with the requirement to republish, or who
      listing standard.                                             the company fails to comply with its              continuously fail to comply with the




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             U.S. Proposal                             Source                  Status in Canada                                        Commentary                        No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                       Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                            Note       line    Req’t

      listing standard.                                               Listing Agreement or any other Exchange           disclosure requirements will be subject to
                                                                      requirement; or if such action is necessary       public    reprimand    and/or     possible
                                                                      in the public interest (TSX Company               suspension and delisting or other legal
                                                                      Manual s. 701).                                   proceedings and will be referred to the
                                                                                                                        OSC.

37.   The SEC is permitted to obtain a                SO s.       •   OSA s. 126(1): If the OSC considers it        •   Addressed        by   current     securities     ●                                                 ●
      freeze order in U.S. federal court              1103            expedient for the due administration of           legislation.
      over the assets of a public company                             securities law or the regulation of capital
      where the SEC believes the company                              markets in Ontario or another jurisdiction,
      will make extraordinary payments to                             it may direct a person or company having
      directors, officers, or controlling                             on deposit or under its control any funds,
      persons during an investigation for                             securities or property of any person or
      possible    U.S.    securities  law                             company to retain those funds, security or
      violations.                                                     property and to hold them until the OSC
                                                                      consents to release, or until the Ontario
                                                                      Court orders otherwise.

38.   The SEC should have the authority to            NYSE        •   OSA s. 127(7)&(8): If the OSC believes it     •   Section 716 of Proposed Amendments to                      ●                             ●
      bar officers and directors of public            ROI s. 10       is in the public interest, it may make an         TSX Company Manual will require all
      companies from holding these                                    order that a person resign as a director or       listed issuers to meet, on an ongoing
      positions after they have failed to                             officer of an issuer, or that a person is         basis, the management requirements
      fulfill their responsibilities.                                 prohibited from becoming or acting as a           relevant to its category of listing. The
                                                                      director or officer of any issuer.                Exchange may suspend from trading or
                                                                                                                        delist the securities of an issuer that has
                                                                  •   TSX may deny listing if an officer or             failed to meet such management
                                                                      director is unsuitable or may deny                requirements.
                                                                      continued listing to a non-exempt issuer if
                                                                      a new director or officer is unsuitable.

39.   The SEC will review      the continuous         SO s. 408   •   OSC Staff Notice 51-703: It is the goal of    •   TSX Company Manual to be amended to                        ●                                       ●
      disclosure documents     filed by public                        the OSC to subject every reporting issuer         provide that the TSX will review annually
      companies on a           “regular and                           with a head office in Ontario to a                a sample of the corporate governance
      systematic basis” –       at least once                         continuous disclosure review, on average,         disclosure of a number of its listed
      every three years.                                              once every four years.                            issuers. The goal of the TSX is to review



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                 U.S. Proposal                           Source                     Status in Canada                                   Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                        Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                             Note       line    Req’t

          every three years.                                                                                                the disclosure of each listed issuer once
                                                                       •   The OSC is building up its Continuous            every three years. Results of this review
                                                                           Disclosure Review Team to ensure that all        will be published on an annual basis. The
                                                                           of the largest 100 TSX companies that are        disclosure of non-complying issuers will
                                                                           headquartered in Ontario are reviewed            be reviewed more frequently.
                                                                           this year. The OSC is applying a risk-
                                                                           based approach to focus reviews on
                                                                           companies that have a large impact on the
                                                                           capital market or on those whose past
                                                                           record suggests attention could be needed
                                                                           (OSC News Release, Aug. 15, 2002).

                                                                       •   Five Year Review Committee Draft
                                                                           Report on the OSA recommends the OSA
                                                                           be amended to explicitly refer to
                                                                           continuous disclosure reviews (Rec. 33).


Corporate Governance Guidelines and Ethics

40.       Public companies are required to               NYSE     s.   TSX AG s. 472:                                   •   Already addressed by TSX Company              ●                                       ●
          adopt and disclose their corporate             9                                                                  Manual s. 472.
          governance guidelines (the NYSE                              •   Every listed corporation shall make full
          commentary suggests that each                                    and complete disclosure of its system of
          company’s website include its                                    corporate governance on an annual basis
          corporate governance guidelines,                                 in its annual report or information
          charters of its most important                                   circular.
          committees and the company’s code
          of ethics).                                                  •   Such disclosure shall be made in
                                                                           accordance with Section 473, and where
•     Subjects that should be addressed in                                 the company’s system differs from the
      corporate governance guidelines include                              guidelines, each difference and the reason
      director qualification standards; director                           for such difference must be clearly
      responsibilities; director access to                                 disclosed.
      management and, as necessary and
      appropriate,     independent     advisors;



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                 U.S. Proposal                            Source                   Status in Canada                                  Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                      Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                           Note       line    Req’t

      director     compensation;       director                       •   Every listed company which is not a
      orientation and continuing education;                               corporation shall also make full and
      management succession; and annual                                   complete disclosure of its system of
      performance evaluation of the board.                                governance on an annual basis.

                                                                      •   Every listed company shall also disclose,
                                                                          in general terms, the operation of its
                                                                          system of governance.

41.       Public companies are required to               SO s. 406,   •   No equivalent.                              •   In light of the importance of this issue,               ●                             ●
          adopt and disclose their code of               NYSE s.                                                          this will become a listing requirement.
          business conduct and ethics (the               10,      &
          Sarbanes-Oxley Act only requires               NASDAQ                                                       •   The board of directors of every
          issuers to disclose whether or not             proposal                                                         corporation must adopt a formal code of
          they have adopted a code of ethics for                                                                          business ethics or business conduct for
          senior financial officers, and if not,                                                                          the listed corporation that governs the
          why not; NASDAQ & NYSE                                                                                          behaviour of directors, officers and
          requires disclosure of any waivers                                                                              employees. The board of directors should
          granted from the code of ethics).                                                                               monitor compliance with the code and
                                                                                                                          waivers from compliance with the code
                                                                                                                          for directors and officers. Disclosure of
                                                                                                                          any waivers to directors or officers is
                                                                                                                          required.


Director Education and Evaluation

42.       Corporate governance guidelines                NYSE s.      •   TSX AG s. 473(6): Every corporation, as     •   The language of the current amended                     ●                    ●
          should address continuing education            9&               an integral element of the process for          guideline should be enlarged to include
          for all directors (NYSE also requires          NASDAQ           appointing new directors, should provide        “continuing” education, rather than only
          orientation).                                  proposal         an orientation and education program for        requiring an educational program for new
                                                                          new recruits to the board.                      directors.

43.       The             nominating/corporate           NYSE s.      •   TSX AG s. 473(5): Every board of            •   Already addressed as a guideline.             ●                              ●
          governance       committee,      the           4, 5, 7, &       directors should implement a process to



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             U.S. Proposal                               Source                Status in Canada                                   Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                   Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                        Note       line    Req’t

      compensation committee, and the                9                be carried out by the nominating             •   Scope of the existing TSX guideline is
      audit committee will be subject to                              committee or other appropriate committee         broader than NYSE’s proposals.
      annual performance evaluations. The                             for assessing the effectiveness of the
      board of directors must conduct a                               board as a whole, the committees of the
      self-evaluation at least annually.                              board and the contributions of individual
                                                                      directors.


Disclosure Requirements

44.   All issuers must disclose to the public        SO s. 409    •   OSA s. 75: Companies are required to         •   Already      addressed   by    securities     ●                                       ●         ●
      on a “rapid and current basis” any                              disclose any material changes forthwith          legislation and TSX requirements.
      additional information concerning                               through the issuance of a news release,
      material changes in the financial                               and as soon as practical (within 10 days)
      condition or operations of the                                  through the filing of a report of such
      company, in plain English, as is                                material change.
      necessary or useful for the protection
      of investors and in the public interest                     •   TSX s. 408: A listed company is required
      (the NASDAQ proposal clarifies that                             to disclose material information forthwith
      a material misrepresentation or                                 upon the information becoming known to
      omission by an issuer to NASDAQ                                 management, or in the case of information
      may form the basis for delisting).                              previously known, forthwith upon it
                                                                      becoming apparent that the information is
                                                                      material.

                                                                  •   Material information includes material
                                                                      facts and material changes.

45.   In     all   publicly     disseminated         SO s. 401    •   OSA Reg. s. 2(1) requires the financial      •   If any additional changes are required,                                                         ●
      information       (including      press        NYSE             statements permitted or required by the          they should properly be addressed in
      releases), companies must reconcile            ROI s. 3         OSA or the Regulations to be prepared in         changes to securities legislation.
      all pro-forma financial information to                          accordance with GAAP.
      GAAP;       furthermore,     pro-forma
      financial information must not be                           •   OSA s. 122 makes it an offence to make a
      misleading.                                                     materially misleading or untrue statement




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             U.S. Proposal                            Source                   Status in Canada                                      Commentary                          No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                       Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                            Note       line    Req’t

      misleading.                                                    in any document required to be filed or
                                                                     furnished under Ontario securities law.

                                                                 •   CSA Staff Notice 52-303 states that
                                                                     selective editing of financial information
                                                                     may be misleading if it results in the
                                                                     omission of material information.
                                                                     Regulatory action may be taken if issuers
                                                                     disclose information in a manner
                                                                     considered misleading and potentially
                                                                     harmful to the public interest. For issuers
                                                                     who publish non-GAAP earnings
                                                                     measures, the Staff expects issuers to
                                                                     reconcile those non-GAAP earnings
                                                                     measures      with     GAAP       financial
                                                                     statements.

46.   Each annual and quarterly financial            SO s. 401   •   The Accounting Standards Board                  •   To the extent that such disclosure is           ●                                       ●
      report required to be filed with the                           proposed         Accounting       Guideline,        material information, the obligation to
      SEC shall disclose all material off-                           Consolidation of Special Purpose                    disclose is addressed by existing TSX
      balance-sheet            transactions,                         Entities, provides that, where there is a           requirements.
      arrangements, obligations (including                           nominal owner and another entity that is
      contingent obligations), and other                             the primary beneficiary of an SPE's             •   Although the TSX is supportive of this                    ●                                                ●
      relationships of the issuer with                               activities, the primary beneficiary controls        type of initiative, this should properly be
      unconsolidated entities or other                               the SPE and should consolidate the entity           considered by accounting standards
      persons, that may have a material                              on its balance sheet. The assets, liabilities       regulators.
      current or future effect on the                                and the results of the activities of the SPE
      company’s financial condition.                                 would, therefore, be included in the
                                                                     consolidated financial statements of the
                                                                     primary beneficiary of the SPE. This is a
                                                                     change from the current practice whereby
                                                                     most SPEs are not consolidated, or are
                                                                     “off balance sheet”.




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             U.S. Proposal                            Source                    Status in Canada                                 Commentary                         No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                  Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                       Note       line    Req’t

47.   Companies must include “internal               SO s. 404    •   No equivalent                               •   The TSX is supportive of this initiative,                                                       ●        ●
      control reports” in their annual                                                                                but any change would have to be made to
      reports, which state the responsibility                                                                         securities legislation.
      of management for establishing and
      maintaining an adequate internal                                                                            •   This should be considered by the new
      control structure and financial                                                                                 Canadian Public Accountability Board
      reporting procedures. The report                                                                                and the CICA.
      must also contain an assessment of
      those controls.      The company’s                                                                          •   The CSA may wish to wait until the SEC
      auditor must attest to and report on                                                                            issues rules under this section of the
      management’s assessment.                                                                                        Sarbanes-Oxley Act.


Foreign Companies

48.   Foreign private issuers must disclose          NYSE s.      TSX AG s. 472:                                  •   There are a limited number of foreign         ●
      any significant ways in which their            11       &                                                       issuers listed on the TSX.
      corporate governance practices differ          NASDAQ       •   Every listed corporation, which was
      from those followed by domestic                proposal         incorporated in Canada or a province in     •   Applying TSX rules extraterritorially
      companies.                                                      Canada, shall make full and complete            does not appear to be necessary at this
                                                                      disclosure of its system of corporate           time.
                                                                      governance on an annual basis.

                                                                  •   Every listed issuer which is not a
                                                                      corporation shall also make full and
                                                                      complete disclosure of its system of
                                                                      governance on an annual basis.

49.   Foreign issuers must file with the             NASDAQ       •   All listed issuers are required to file     •   Appropriately addressed by the TSX            ●                                       ●         ●
      SEC and NASDAQ all interim                     proposal         annual and quarterly reports with the TSX       Company Manual and securities
      reports filed in their home country, as                         under paragraphs 436, 437 and 443 of the        legislation.
      well as a semi-annual report                                    TSX Company Manual.
      (including a statement of operations
      and an interim balance sheet prepared                       •   OSA Reg. s. 6:
      in accordance with the requirements                             (1)Every reporting issuer shall file



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             U.S. Proposal                            Source                   Status in Canada                                     Commentary                           No     Proposed    TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                                       Change    Change    Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                                            Note       line    Req’t

      of the home country marketplace).                              (a) a copy of all material sent to its
                                                                     security holders; and
                                                                     (b) all information not already filed with
                                                                     the OSC that it files with a stock
                                                                     exchange, government agency or
                                                                     government of another jurisdiction, under
                                                                     the rules of the stock exchange or under
                                                                     the securities or corporate laws of that
                                                                     jurisdiction, on the basis that the
                                                                     information is material to investors
                                                                     although not specifically required by
                                                                     statute, regulation or stock exchange rule.


Offences

50.   It is an offence for any company, or           SO s. 806   •   OSC Staff Notice 15-702, Credit for            •   The TSX is supportive of this initiative,                                                          ●
      any officer or agent of that company,                          Cooperation: If market participants act in         but any change should properly be
      to take retaliatory employment action                          a responsible manner during the course of          addressed by securities legislation.
      against an employee for providing                              an OSC investigation and have self-
      information to supervisors or the U.S.                         policed, self-reported, and self-corrected
      government regarding conduct that                              the matters under investigation, the Staff
      the employee reasonably believes                               may agree that it may be in the public
      violates U.S. securities or antifraud                          interest to reduce the sanctions against (or
      laws.                                                          in some cases not take any action against)
                                                                     the market participants.

51.   It is an offence to knowingly or               SO s. 802   •   CBCA s. 20(2.1)/OBCA s. 140(2): A              •   Existing corporate law addresses this                                                              ●
      willingly destroy audit records for a                          corporation    must    retain     adequate         issue. The CSA should consider whether
      period of 5 years from the end of the                          accounting records for a period of 6 six           to address this issue with respect to public
      fiscal period in which the audit or                            years from the end of last fiscal period to        issuers which are not governed by similar
      review was concluded.                                          which they relate.                                 Canadian corporate legislation.

52.   It is an offence to knowingly execute          SO s. 807   •   The Five Year Review Committee Draft           •   The TSX is supportive of the initiative,                                                           ●
      or attempt to execute a scheme to                              Report on the OSA recommends that the              but any change should properly be
      defraud any person in connection                               OSA be amended to expressly prohibit               addressed by securities legislation.



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       U.S. Proposal                           Source             Status in Canada                                    Commentary                         No      Proposed     TSX        TSX      TSX      CSA/OS   Other
                                                                                                                                                       Change     Change     Practice   Guide-   Listing   C Rule   Bodies
                                                                                                                                                                              Note       line    Req’t

with, or obtain by means of false or                     OSA be amended to expressly prohibit             addressed by securities legislation.
fraudulent pretences, representations                    market manipulation and fraudulent
or promises, any money or property                       activity (Rec. 80).
in connection with securities of
certain reporting issuers.



               Note: NYSE rules will apply to all NYSE listed companies, and Nasdaq is eliminating the exceptions for the audit committee requirements for Small Business issuers.




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