Northern Securities Inc today announced that it has applied to the Ontario Superior Court of Justice for a declaration against Market Regulation Services Inc. (RS) and The Toronto Stock Exchange Inc. that the provisions of Universal Market Integrity Rule 7.1 and the accompanying Policy 7.1 are void for vagueness and uncertainty.

Northern is also seeking an injunction restraining RS from conducting enforcement proceedings against Northern.

RS alleges that Northern failed to meet internal trading supervision obligations found in UMIR 7.1 “Trading Supervision Obligations”.

In a statement released today, Northern said “UMIR 7.1 and related policy requirements are vague as conclusively evidenced by RS’s own admission in its Market Policy Notice dated July 29, 2005 entitled ‘Strategic Review of UMIR – Progress Report’ where RS wrote that it ‘also believes that there is considerable scope to better clarify and communicate its expectations for trading supervision and compliance in Part 7 of UMIR.’ ”

RS alleged that Northern Securities failed to make implementation of an effective internal trading supervision and compliance system a priority for most of the period from January 2003 to August 2005. RS conducted a Trade Desk Review of Northern Securities in August 2005 and has stated it found some improvement in the Northern Securities testing procedures and other compliance and supervision issues since the 2004 Trade Desk Review. However, RS alleged that many of the same issues relating to alleged inadequate internal policies and procedures, testing methodologies and documentation of such testing remained as findings in the 2005 Trade Desk Review.

Northern says it has previously raised with RS its concerns about the certainty of the specific requirements of UMIR particularly in the context of the internal supervision systems of boutique investment dealers.

Northern says RS itself acknowledged these concerns in its own Strategic Review Progress Report dated July 29, 2005 (the “RS Report”) where RS concluded: “there is considerable scope to better clarify and communicate its expectations for trading supervision and compliance in Part 7 of UMIR.”

Northern Securities says it has not seen appropriate flexibility on the part of RS to permit the customization of internal supervision systems for different sizes and types of boutique firms. The firm says “it has experienced with RS a large dealer ‘one size fits all’ approach to internal supervision and compliance which the firm believes is not appropriate and is contrary to UMIR.”

The firm says it has improved its compliance platform by hiring of Brian Driscoll as chief compliance officer as well hiring Fasken Martineau DuMoulin LLP to conduct a comprehensive review of the firm’s compliance system.

Northern says it believes the issues raised by RS concern technical matters such as the internal documentation of in-house trading and review procedures rather than material or egregious matters involving fraudulent, unfair, dishonest or unethical trading or business practices.