Securities Law & Instruments


Headnote

Application for a ruling pursuant to section 74 of the Securities Act granting relief from the dealer registration requirement in section 25 of the OSA to allow the Filer, an investment dealer and member of the Investment Industry Regulatory Organization of Canada (IIROC), to use employees of a Designated Foreign Affiliate of the Filer for After-Hours Trading in securities on the Bourse de Montréal Inc. – Relief granted, subject to terms and conditions.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).

Instruments Cited

Multilateral Instrument 11-102 Passport System, s. 4.7.

October 19, 2018

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
SOCIÉTÉ GÉNÉRALE CAPITAL CANADA INC.
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Designated Foreign Affiliate Employees (as defined below) of the Filer, when conducting Extended Hours Activities (as defined below) on the Bourse de Montréal Inc. (the MX), from the dealer registration requirement in the Legislation, subject to the terms and conditions set out below (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission is the principal regulator for this application; and

(b)           the Filer has provided notice that sub-section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer in each of the provinces of Canada other than Québec.

Interpretation

Terms defined in MI 11-102 or National Instrument 14-101 Definitions have the same meaning if used in this decision unless otherwise defined herein.

Representations

This decision is based upon the following facts represented by the Filer:

The Filer

1.             The Filer is a corporation formed under the laws of Canada. The head office of the Filer is located in Montréal, Québec.

2.             The Filer is registered as an investment dealer under the securities legislation of all the provinces of Canada; is registered as a futures commission merchant under the commodity futures legislation of Ontario and Manitoba; and is registered as a derivatives dealer under the derivatives legislation of Québec.

3.             The Filer is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and an approved participant of the MX.

4.             The Filer is not in default of securities, derivatives or commodity futures legislation in any jurisdiction of Canada.

5.             Société Générale International Limited (SGIL or the Designated Foreign Affiliate) is a private limited company incorporated in England and Wales. The head office of SGIL is located in London, England.

6.             The Filer and SGIL are each a direct wholly-owned subsidiary of Société Générale S.A. (Société Générale).

7.             Société Générale carries on business in the United Kingdom through its branch, known as Société Générale (London Branch) (SGLB).

8.             SGIL is a United Kingdom-based investment firm, which is authorised and regulated by the Financial Conduct Authority.

9.             SGIL holds memberships and/or has third-party clearing relationships with commodity and finan-cial futures exchanges and clearing associations, including the London Stock Exchange. It also carries positions reflecting trades executed on other exchanges through affiliates and/or third-party clearing brokers.

10.          Through a services agreement with SGLB, employees of SGLB are loaned to SGIL and render services to SGIL, in particular trading activities. The Filer wishes to make use of certain designated employees working under this arrangement (Designated Foreign Affiliate Employees) to handle trading requests on the MX from the Filer’s clients and the Filer on a proprietary basis during the MX’s extended trading hours from 2:00 a.m. ET to 6:00 a.m. ET each day on which the MX is open for trading (the Extended Hours Activities).

The MX Extended Trading Hours Amendments

11.          The MX, based in Montréal, Québec, operates an exchange for options, commodity futures contracts and commodity futures options, and offers access to trading in those to market participants in Canada.

12.          On July 9, 2018, the MX announced that the MX had approved amendments to its rules and procedures in order to accommodate the extension of the MX’s trading hours. As a result of these amendments, on October 9, 2018, trading of certain products on the MX commenced at 2:00 a.m. Eastern Time (ET) rather than 6:00 a.m. ET.

13.          As set out in MX Circular 111-18, in order to accommodate this earlier trading, the MX amended its rules to allow participants on the MX to have employees of affiliated corporations, including foreign affiliates, become an approved person of the MX participant and thus be able to handle trading requests originating from the MX participant’s clients or the MX participant on a proprietary basis.

Application of the dealer registration requirement to Designated Foreign Affiliate Employees

14.          The Filer is an MX approved participant and SGIL as well as SGLB are affiliated entities. The Filer wishes to make use of the Designated Foreign Affiliate Employees to conduct the Extended Hours Activities.

15.          The dealer registration requirement under the Legislation requires an individual to be registered to act as a dealing representative on behalf of a registered firm. The Exemption Sought is intended to provide the Filer with an exemption from (i) the requirement that the Filer use only registered dealing representatives to conduct the Extended Hours Activities; and (ii) the requirement that the Designated Foreign Affiliate Employees who will be conducting the Extended Hours Activities be registered as dealing representatives of the Filer.

16.          The Filer seeks an exemption from the dealer registration requirement because, in the absence of such exemption, each Designated Foreign Affiliate Employee who was to trade on behalf of the Filer would be required to become individually registered and licensed in Canada. The Filer believes this is duplicative since the Designated Foreign Affiliate Employees are certified under applicable United Kingdom law and supervised by the Filer’s Designated Supervisors (as defined below) and are otherwise subject to the conditions set forth below. The Filer believes the dealer registration requirement is unduly onerous in light of the limited trading activities the Designated Foreign Affiliate Employees will be conducting and only during the period from 2:00 a.m. ET to 6:00 a.m. ET.

17.          The Filer has also applied to, and obtained from, IIROC an exemption from the registered representative requirements that are found in IIROC Dealer Member Rules 18.2, 18.3 and 500.2 and the requirement to enter into an employee or agent relationship with the person conducting securities related business on its behalf that is found in IIROC Dealer Member Rule 39.3 (the IIROC Relief).

18.          The IIROC Relief obtained by the Filer is subject to certain conditions, including:

(a)           The Designated Foreign Affiliate Employees must be registered/licensed under the applicable laws of the United Kingdom in a category that permits trading the types of products which they will be trading on the MX.

(b)           The Designated Foreign Affiliate Employees will be permitted to accept and enter orders from clients of the Filer or orders from the Filer on a proprietary basis during the period from 2:00 a.m. ET to 6:00 a.m. ET, and will not be permitted to give advice.

(c)           The Filer retains all responsibilities for its client accounts.

(d)           The actions of the Designated Foreign Affiliate Employees will be supervised by specific designated supervisors of the Filer (the Designated Supervisors), each of whom is qualified to supervise trading in futures contracts, futures contract options and options.

19.          The Filer and the Designated Foreign Affiliate must jointly and severally undertake to ensure IIROC has, upon request, prompt access to the audit trail of all trades that relate to Extended Hours Activities and records relating thereto.

20.          The Exemption Sought would apply to Designated Foreign Affiliate Employees who are designated and recorded on a list maintained by the Designated Supervisors, which list must be provided to IIROC in writing and updated on at least an annual basis.

21.          The Filer and each Designated Foreign Affiliate Employee will enter into an agency agreement pursuant to which the Filer will assume all responsibility for the actions of the Designated Foreign Affiliate Employees and of SGIL that relate to the Filer’s clients regarding this trading on MX, and the Filer will acknowledge that it will be liable under IIROC rules for such actions.

22.          All MX trading rules will apply to orders entered by the Designated Foreign Affiliate Employees.

23.          Other than individual registration, all other existing Canadian regulatory requirements would continue to apply to this arrangement, including without limitation:

(a)           the Filer’s client accounts would continue to be carried on the books of the Filer;

(b)           all communications with the Filer’s clients will continue to be in the name of the Filer; and

(c)           the Filer’s client account monies, security and property will continue to be held by the Filer or its approved custodian.

24.          The Filer will establish and maintain written policies and procedures that address the performance and supervision requirements relating to MX extended trading hours.

25.          The Filer will disclose this extended trading hours arrangement to clients for its MX trading services and provide specific instructions concerning the placement of orders relating thereto.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted so long as:

(a)           the Designated Foreign Affiliate and the Designated Foreign Affiliate Employees are registered, licensed, certified or authorized under the applicable laws of the foreign jurisdiction in which the head office or principal place of business of the Designated Foreign Affiliate is located in a category that permits trading the type of products which the Designated Foreign Affiliate Employees will be trading on the MX;

(b)           the Designated Foreign Affiliate Employees are permitted to accept and enter orders from clients of the Filer or orders from the Filer on a proprietary basis during the period from 2:00 a.m. ET to 6:00 a.m. ET, and will not be permitted to give advice;

(c)           the Filer retains all responsibilities for its client accounts;

(d)           the actions of the Designated Foreign Affiliate Employees will be supervised by the Designated Supervisors, each of whom is qualified to supervise trading in futures contracts, futures contract options and options;

(e)           the Filer and the Designated Foreign Affiliate Employees enter into an agency agreement substantially as described in paragraph 21, and such agreement remains in effect; and

(f)            the Filer remains in compliance with the terms and conditions of the IIROC Relief.

“William Furlong”
Commissioner
Ontario Securities Commission

 “Lawrence Haber”
Commissioner
Ontario Securities Commission