Canada’s securities regulators are releasing a request for proposal for the development of an electronic audit system.

The electronic audit initiative, known as the Transaction Reporting and Electronic Audit Trail System (TREATS), is a project of the Canadian Securities Administrators along with Market Regulation Services Inc., the Bourse de Montréal Inc., the Investment Dealers Association of Canada, and the Mutual Fund Dealers Association. It aims to investigate, design and implement an electronic solution to facilitate compliance with Canadian securities audit trail requirements.

This RFP is intended to solicit firm proposals from suppliers to address the business and technical requirements for the TREATS solution, to help the regulators decide whether to proceed with the project, and if so, to select a supplier. The decision to proceed with building the facility and the steps going forward will depend upon the responses to the RFP and the results of the cost benefit analysis conducted by the regulators.

The RFP is being issued to a shortlist of potential vendors this month, and the vendors will have approximately eight weeks to respond. The regulators will then make a decision regarding the TREATS project by July, so that any necessary rule amendments can be made before the December deadline for implementation of the audit trail requirements. The regulators may decide not to proceed with developing the facility, they note.

Assuming they do decide to go ahead, pilot testing of TREATS is scheduled for April 2007, with target implementation slated for June 2007.

In December 2005, the regulators determined that it would be appropriate to defer the inclusion of mutual funds from the scope of the TREATS initiative to a future date. As a result, the MFDA will not be participating directly in the RFP process. However, it will continue to participate in the ongoing work in this area.

The objective of the TREATS project is to enable the dealers and marketplaces to construct and regulators to receive part or all of an electronic audit trail of order and trade transaction data which will enhance the monitoring capabilities of the dealers and regulators and facilitate dealer compliance with regulatory requirements. The regulators hope to facilitate this objective by developing an efficient, common, secure and reliable electronic communication and tracking facility for requesting and receiving transaction data for: listed securities including equities, debt and options; over-the-counter equity securities; over-the-counter debt securities including government bonds, corporate bonds and debentures; and exchange traded derivatives relating to equities, indices and fixed income securities.