Page 17 - CCCA Magazine Summer 2015

{ Feature }

rePutational risk with which the company must comply. It’s a lengthy document
The most important of which is reputational risk. “We are start- that set out the rules under which Aequitas must operate. When
ing a stock exchange. Stock exchanges have reputations that Aequitas was going through the approval process, more than
drive a lot of our business,” she says. So protecting the Aequitas 60 parties responded to its proposal, indicating the high inter-
brand as it embarks on its listing foray is critical. est the exchange has drawn in Canada. As an exchange, it must
Petlock refers to the now-defunct Vancouver Stock Exchange oversee companies that seek a listing, adding another layer of
(VSE) as an example of how an exchange can be branded. The regulatory risk.
VSE, founded in 1906, was home to small caps, natural resource
stocks and a number of stock promoters. A study in 1994 by oPerational risk
the VSE and Securities Regulation Commission noted that the Of course, operational and fnancial risk is a major component
VSE’s successes were “overshadowed by the continuing occur- of an exchange. “If your trading systems fail, there’s huge risk,”
rence of shams, swindles and market manipulations.” Petlock Petlock notes. So she is heavily involved in contract negotiations
describes how when she attended conferences of the Interna- with suppliers and outsource providers to ensure contracts are
tional Organization of Securities Commissions as a regulator clear, everyone knows their obligations, and the indemnities
and mentioned she was from Canada, she was constantly re- and liabilities are spelled out. She says it’s about “making sure
minded of the VSE and “those Cowboys of the Wild West,” even that everything we do in a large or small way is appropriate and
though the VSE had vanished years ago. executed fawlessly.”
“Exchanges live and die by their reputation,” she says. “One There is also risk in the business strategy. Competing with a
bad thing creates a huge perception issue for an exchange. It feeds major player that controls most of the market is no easy task. “I
through everything. You have to be seen as a trusted partner.” don’t know that all general counsel get involved in strategy,” she
There is also a lot riding on the success once they start listing says, but it’s important to do so. “Part of it is really strategic. We
companies: “If we fail after we have issuers, we have stranded have to continually assess our environment.”
issuers.” Liquidity for listed companies evaporates overnight. Petlock says her key to success lies in making sure she is on
“Regulators are very concerned about that. That’s why exchang- top of the issues and has a seat at the executive table. “Part of
es have fnancial viability terms and conditions. ” it is making sure that the executives understand what meetings
Aequitas has hefty fnancial backers including RBC Domin- you need to be in and what info you have to have in order to do
ion Securities Inc., CI Investments Inc., IGM Financial Inc., your job properly and advise. If you don’t see the whole piece of
pension funds PSP and OMERS, technology trading frm ITG what your organization is doing, it’s very hard as general coun-
Canada Corp., and telecommunications giant BCE Inc. sel to execute on risk.”
Another area of risk she has had to manage involves “smart- However, she realizes there is only so much the legal team
sourcing.” Aequitas is a lean organization that built its business can do and risk in the capital markets cannot be entirely elimi-
using partners and suppliers. At the time of the interview, Pet- nated—just managed. “No matter how intensely you look at
lock had recently gone through a round of “in-boarding,” where something you cannot audit for fraud and you cannot guaran-
a lot of contracts were processed. “Our main focus was to make tee that somebody is never going to have a problem. You have to
sure that whatever we do, we are managing our risks. Exchanges continuously look at your standards.” ❚
have to be really, really cautious about how they deal with third
parties, what kind of risks you assume in your business and
what kind of risks do you assume through your contracts and Jim Middlemiss is a writer based in London, Ontario.
your strategy.”
Unlike its competitor the TMX, Aequitas is not a public
company, nor does it own a clearing agency, which reduces risk:
“There are a lot of moving parts we don’t have.” Nonetheless,
she expects it to be challenging. “We have a very small staff to
do a very large job.”

regulatory risk
Unlike most organizations, Aequitas faces unusual regulatory
risks because it is both regulated and a regulator. In order to get
approved as an exchange, the OSC issued a recognition order

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