Mutual Reliance Review System for Exemptive Relief Applications -- Revocation of exemption granted pursuant to section 15.1 of National Instrument 21-101 Marketplace Operation and section 12.1 of National Instrument 23-101 Trading Rules.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO AND QUEBEC
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
WAVE SECURITIES CANADA INC.
IN THE MATTER OF
WAVE SECURITIES, L.L.C.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the Provinces of Ontario and Quebec (the "Jurisdictions") has received an application from Wave Securities Canada Inc. ("Wave Canada") (formerly Archipelago Canada Inc.) for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") revoking a decision granted by the Decision Makers of the Jurisdictions on October 7, 2002 (the "October 2002 Decision") under section 15.1 of National Instrument 21-101 Marketplace Operation ("NI 21-101") and section 12.1 of National Instrument 23-101 Trading Rules ("NI 23-101") (together, the "ATS Rules");
AND WHEREAS Archipelago L.L.C. was registered in Ontario as an international dealer on July 19, 2000;
AND WHEREAS the Decision Makers of Ontario and British Columbia issued an order dated November 29, 2001 that exempted Archipelago L.L.C. from the requirements of the ATS Rules in Ontario and British Columbia until April 1, 2002 (the "November 2001 Decision");
AND WHEREAS in the November 2001 Decision, Archipelago L.L.C. represented that it owned and operated an alternative trading system ("ATS") known as the Archipelago ECN, and that it provided access to the Archipelago ECN to subscribers in Ontario and British Columbia;
AND WHEREAS by seeking the exemption from the ATS Rules granted in the November 2001 Decision, Archipelago L.L.C. represented that it was a marketplace and an ATS as defined in NI 21-101;
AND WHEREAS Archipelago L.L.C. changed its name to Wave Securities, L.L.C. ("Wave") effective March 21, 2002 and continued, in the absence of the wholly-owned Canadian subsidiary, to provide access to the ATS in Ontario as an international dealer and in British Columbia;
AND WHEREAS the Decision Makers issued an order dated April 10, 2002 that exempted Archipelago L.L.C. from the requirements of the ATS Rules in Ontario and British Columbia until July 1, 2002 (the "April 2002 Decision");
AND WHEREAS, in the April 2002 Decision, Archipelago L.L.C. represented its proposal to establish a wholly-owned subsidiary under the laws of Canada which would obtain registration as a dealer and become a member of the Investment Dealers Association ("IDA");
AND WHEREAS Wave Canada was incorporated, as a wholly-owned subsidiary of Archipelago Holdings L.L.C., on March 27, 2002 and filed an application to become a Member of the IDA on June 27, 2002;
AND WHEREAS Wave notified the Decision Maker in Ontario on July 16, 2002 of its change in name to Wave from Archipelago L.L.C.;
AND WHEREAS the Decision Makers issued an order dated July 25, 2002 exempting Wave from the requirements of the ATS Rules in Ontario, British Columbia and Quebec until September 30, 2002 (the "July 2002 Decision") provided that Wave cause Wave Canada to proceed expeditiously with:
(a) its applications for registration as a dealer or the equivalent in Ontario, British Columbia, and Quebec,
(b) its application for membership in the Investment Dealers Association (the "IDA"), and
(c) its filing of Form 21-101F2 no later than August 12, 2002;
AND WHEREAS in the July 2002 Decision, Wave represented that as soon as Wave Canada obtained registration as a dealer or equivalent in the Jurisdictions and membership in the IDA, Wave would cease operation as an ATS in the Jurisdictions;
AND WHEREAS in the July 2002 Decision, Wave represented that it provided access to its ATS to subscribers in Ontario and British Columbia, and that it had been providing access to one subscriber in Quebec but had suspended access to the ATS by the subscriber in Quebec until Wave obtained an exemption from the ATS Rules in Quebec;
AND WHEREAS in the July 2002 Decision, as a result of its discovery that access had been granted to a subscriber in Quebec, Wave represented that Wave Canada would not open an account for any person or company that did not have an existing account as of July 18, 2002;
AND WHEREAS Wave, as a result of the acquisition of REDIBook ECN, LLC ("RediBook ECN") completed March 18, 2002, combined the Archipelago ECN with the RediBook ECN into a single ATS, operating as the Archipelago ECN and operated by Archipelago Securities, L.L.C. in place of Wave;
AND WHEREAS Wave Canada obtained registration as an investment dealer in Ontario and became an IDA member on September 30, 2002;
AND WHEREAS the Decision Makers issued an order dated October 7, 2002 (the "October 2002 Decision") that provided Wave Canada with
(a) an exemption from subsection 9.2(1) of NI 21-101 (except in Quebec where it was not then in force) to relieve Wave Canada from the market integration requirements provided that present and future subscribers in Canada other than in Quebec have confirmed to Wave Canada that they have direct access to quotes on the Toronto Stock Exchange ("TSX"),
(b) an exemption from sections 8.1 and 8.3 of NI 23-101 with respect to foreign exchange-traded securities and exchange-traded securities inter-listed on Nasdaq provided that execution occurs on a marketplace subject to regulatory oversight by the Securities and Exchange Commission ("SEC") or the NASD-Regulation ("NASD-R"), and
(c) an exemption from section 8.4 of NI 23-101 with respect to foreign exchange-traded securities and exchange-traded securities inter-listed on Nasdaq provided that Wave Canada obtains an acknowledgement by its subscribers that orders executed on or routed by the ATS will not be regulated by a regulation services provider but by the regulatory body in the jurisdiction in which they are executed or to which they are routed;
AND WHEREAS the October 2002 Decision resulted in confusion as to what was meant by a subscriber with "direct access to quotes" on the TSX and a decision document (the "Proposed Clarification Decision") was proposed to clarify that "direct access to quotes" means a subscriber that is, and will at all times be, a participating organization of TSX and TSX Venture Exchange that can execute orders directly on the TSX and TSX Venture Exchange;
AND WHEREAS prior to the completion of the Proposed Clarification Decision, section 9.2 of NI 21-101 was repealed and Wave Canada filed a Form 21-101F4 Cessation of Operations for Alternative Trading System, in Ontario, British Columbia and Quebec, but intends to continue to carry on business as an investment dealer in accordance with applicable laws but not as a marketplace as defined in NI 21-101;
AND WHEREAS the Decision Makers are of the view that the October 2002 Decision should be revoked;
AND WHEREAS Wave Canada changed its name from Archipelago Canada Inc. on January 14, 2004 and notified the Decision Makers of the change of name on or about January 21, 2004;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the October 2002 Decision will be effective in British Columbia unless or until the decision maker revokes it;
AND WHEREAS Wave Canada and Wave have represented to the Decision Makers as follows:
1. Wave Canada is a private corporation formed under the laws of New Brunswick. It is registered as an investment dealer in British Columbia, Ontario, and Quebec, and is a member of the IDA. Wave Canada is a wholly owned subsidiary of Archipelago Holdings L.L.C., a limited liability company organized under the laws of the State of Delaware.
2. Wave Canada is an affiliate of Wave. Wave is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers in the United States ("NASD"). Wave is also registered as an international dealer in Ontario.
3. The Archipelago ECN routed orders to Nasdaq and all other registered ATSs in the United States trading Nasdaq stocks directly or through SelectNet and SuperSoes, in accordance with section 3 of Regulation ATS under the Securities Exchange Act of 1934
4. Wave Canada provided its clients with access to the Archipelago ECN. This access constituted operating a marketplace and ATS under NI 21-101. Wave Canada filed a Form 21-101F2 in Ontario, British Columbia and Quebec in 2002.5. In March 2000, Archipelago Holdings signed an agreement with the Pacific Exchange, Inc. which would move listed and NASDAQ securities from the Archipelago ECN to the Archipelago Exchange ("ArcaEx"). ArcaEx was approved as an exchange by the Securities and Exchange Commission on October 25, 2001.
5. Wave operated the Archipelago ECN in the United States until August 2002; after which, Archipelago Securities, L.L.C., an affiliate of Wave, operated the Archipelago ECN and Wave continued the business of a registered broker-dealer.
6. Beginning on March 22, 2002 through to April 11, 2003, listed and NASDAQ securities were migrated from the Archipelago ECN to ArcaEx. The Archipelago ECN ceased its operations following the completion of this migration.
7. As a result of this migration, Wave Canada has reconsidered how it wishes to operate in Canada. Wave Canada filed its Form 21-101F4 Cessation of Operations for Alternative Trading Systems on or about December 30, 2003. Accordingly, neither Wave Canada nor Wave will operate as a marketplace and ATS in Canada.
8. Wave Canada's current order processes involve: Wave Canada's customers are set up within the technology infrastructure of Wave under the name Wave Canada. Upon execution of an order received by Wave Canada, trade details will be sent by Wave to its clearing agent ("Clearing Agent") in the name of Wave Canada using only numeric domains. The Clearing Agent will electronically send a trade confirmation to the custodian of the institutional investor client under the primary name of Wave Canada. The Clearing Agent will also send a copy of the trade confirmation to the institutional investor client in the name of Wave Canada. The Clearing Agent will then clear and settle the trade in conjunction with the appropriate custodian banks in the United States.
9. Wave Canada and Wave will maintain a written agreement detailing the designation of Wave sales and support personnel as Wave Canada personnel. Wave personnel not so designated will have no contact with clients of Wave Canada.
10. Wave Canada will continue to be an IDA member and be registered as an investment dealer and Wave will continue registration as an international dealer in Ontario.
AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers is that the October 2002 Decision is hereby revoked.
February 23, 2004.
"Randee B. Pavalow"