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Bulletin #0389-P

Policy
MFDA Policy Development Process

Contact: Aamir
Mirza
BULLETIN #0389 – P
Senior Legal & Policy Counsel
July 28, 2009
Phone: 416-945-5128
E-mail: amirza@mfda.ca

MFDA Bulletin

Policy

For Distribution to Relevant Parties within your Firm

MFDA Policy Development Process

New policy initiatives commence through a number of different ways, including issues identified
through MFDA Compliance and Enforcement activities, comments and inquiries received from
Members and initiatives undertaken by the CSA or other regulators. Working groups may be
established and pre-consultation papers developed from time to time to assist in the policy
development process in its early stages. MFDA also solicits comments and feedback from the
membership at Member Regulation Forums, held semi-annually and attended by representatives
from various Member constituencies.

All material proposed regulatory instruments are referred to our Policy Advisory Committee
(“PAC”) for input and comment. The PAC is comprised of officers and senior staff from MFDA
Members and the Chairs of the MFDA Regional Councils. Currently there are 15 Members of
the PAC, representing approximately 10% of our Member firms. The PAC provides feedback in
a number of areas, including drafting recommendations, industry trends, operational practices
and implementation issues. The MFDA may also consult with other regulators and industry
associations in developing policy initiatives.

Depending on the issue, the policy instrument may also be brought to the MFDA Investor
Protection Corporation for review and comment. Policy instruments are then brought to the
Regulatory Issues Committee of the MFDA Board of Directors for review, discussion, and
approval where required. Any policy instrument requiring Board approval is then tabled at a
Board of Directors meeting.

All material amendments to Rules, By-laws, Policies and Forms require CSA approval and are
published for public comment. MFDA staff reviews all comments and summarizes and responds
to those comments. Comment letters, the summary of public comments and MFDA response to
the comments are published on the MFDA website. Where material revisions are made because
of the comments received, amendments are brought back to the PAC and the process begins
again.

Ultimately, in addition to formal CSA approval, Member approval is required for all MFDA
Rules, By-laws and Forms and amendments thereto. Member approval is sought at a formal
meeting of Members, typically the Annual General Meeting of Members.

Enhancements to MFDA Policy Development Process

The MFDA 2009-2011 Strategic Plan identifies certain operational goals that the MFDA intends
to pursue to improve performance of its core regulatory functions, including its policy
development process. Improving communication and consultation with stakeholders is one of the
MFDA’s principal objectives.

The MFDA has implemented additional measures that will enable a more proactive, effective
and transparent policy development process.

1.
Public Comment Periods

Historically, proposed MFDA By-law and Rule amendments issued for public comment have
been subject to a 30 to 60-day comment period. Stakeholders have commented that a longer
comment period would be beneficial as it would give Members and other stakeholders more time
to provide meaningful input with respect to proposals having greater industry impact or
regulatory significance. MFDA agrees that a longer comment period would be helpful and in this
regard MFDA will strive to ensure that the comment period for material proposals ranges
between 60 and 120 days.

2.
Pre-Consultation Process

The MFDA has in the past solicited the views of stakeholders on proposed initiatives that were in
the concept or early drafting stages and considered such input in the development of its
proposals. The scope of such consultations has varied, depending on the regulatory significance
or industry impact of the initiatives under consideration. Examples of proposals subject to pre-
consultation in the past include the Client Relationship Model, International Financial Reporting
Standards and the Principal Protected Notes initiatives. MFDA is committed to continue this
early consultation process in the future and will enhance it. Specifically, on material policy
initiatives, we will strive to advise stakeholders of the nature of the initiative, the regulatory
rationale for the initiative and any alternatives being considered. We will then solicit comment
on the initiative before staff finalizes the proposal. As a result, there will in effect be two
comment periods on such material initiatives, one before the proposal is finalized by staff, and
one after the proposal has been considered by the MFDA Board and published for public
comment by the CSA.

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3.
Members’ Only Website

The MFDA Strategic Plan contemplates enhancements to the MFDA’s website that would allow
for better communication to Members and increase transparency of the policy development
process. In this regard, the MFDA launched a Members’ Only site in May, 2009. The Members’
Only site contains a summary of meetings of the PAC, policy initiatives considered by the PAC,
and copies of all materials provided to the PAC for its consideration, including discussion papers
prepared by staff, which will include an analysis of the public interest rationale for the proposal.
Further, a summary of the discussion at PAC meetings will be posted on the Members’ Only site,
which will allow Members access to comments made by PAC members. Finally, we will post
updates to policy initiatives and a list of outstanding policy initiatives and their respective
deadlines to provide comment. These enhancements to the MFDA website will allow Members
to become better informed of the policy issues under consideration, the reason for the initiatives,
and the development status of each initiative.

The MFDA encourages stakeholders to provide additional suggestions for improvement to the
MFDA website, including the Members’ Only section.

DM# 180510v2

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