Securities Law & Instruments

Headnote

Filers exempted from section 13.12 [restriction on lending to clients] of National Instrument 31-103 Registration Requirements and Exemptions -- Each of the two filers is registered under the Act as an "exempt market dealer" -- One filer is a registered broker-dealer with the SEC and a member of FINRA, while the other filer is regulated in the UK by the FSA through permissions granted by the FSA -- Terms and conditions on the exemptions require that: (i) the head office or principal place of business of the filer be in, depending upon the filer, either the USA or UK; (ii) in the case of the USA filer, it be registered under the securities legislation of the USA, in a category of registration that permits it to carry on the activities in the USA that registration as an investment dealer would permit it to carry on in Ontario, (iii) in the case of the UK filer, it be regulated under the securities legislation of the UK through permissions granted by the FSA that permit it to carry on the activities in the UK that registration as an investment dealer would permit to carry on in Ontario, (iv) by virtue of the regulation of the USA filer under the securities legislation of the USA, and the regulation of the UK filer under the securities legislation of UK, the USA filer and the UK filer are subject to requirements in respect of lending money, extending credit or providing margin to clients that result in substantially similar regulatory protections to those provided for under the capital and margin requirements of IIROC, that would be applicable if the filer if it were registered under the Act as an investment dealer and were a member of IIROC.

Statute Cited

Securities Act, R.S.O. 1990, c. S.5, as am.

Instruments Cited

National Instrument 14-101 Definitions.

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.12, 15.1.

Decision Cited

In the Matter of AXA Rosenberg Investment Management LLC, Bloomberg Tradebook (Bermuda) Ltd., Bloomberg Tradebook LLC, BNY Mellon Capital Markets LLC, Credit Suisse Securities (Europe) Limited, Credit Suisse Securities (USA) LLC, Goldman Sachs Execution & Clearing, L.P., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and Morgan Stanley Smith Barney LLC., (2009) 32 OSCB 8030

September 28, 2010

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

NATIONAL INSTRUMENT 31-103

REGISTRATION REQUIREMENTS AND EXEMPTIONS

(NI 31-103 )

AND

IN THE MATTER OF

GOLDMAN, SACHS & CO. AND

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

(collectively, the Filers and each, a Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement contained in section 13.12 of NI 31-103 that a registrant must not lend money, extend credit or provide margin to a client (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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in those provinces and territories in which the Filers are currently or intend to be registered as exempt market dealer.

Interpretation

Unless otherwise defined in this decision or the context otherwise requires, terms used in this decision that are defined in NI 31-103 have the same meaning, and other terms used in this decision that are defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning.

Representations

This decision is based on the following facts represented by the Filers:

1. Goldman, Sachs & Co. (GSCO) is a limited partnership formed under the laws of the State of New York. The head office of GSCO is located in New York, New York, United States of America. GSCO is an indirect, wholly-owned subsidiary of The Goldman Sachs Group, Inc. (GS Group). GSCO is registered as a broker-dealer and investment adviser with the U.S. Securities and Exchange Commission (the SEC) and is a member of the Financial Industry Regulatory Authority (FINRA). GSCO is a member of all major U.S. stock exchanges and U.S. commodity futures exchanges.

2. GSCO is registered under the Legislation as a dealer, in the category of "exempt market dealer". GSCO is registered, or has applied for registration, as an exempt market dealer and portfolio manager in each of the other provinces of Canada and the Yukon Territory. In addition, GSCO acts as a dealer in reliance on section 8.18 [international dealer] of NI 31-103 in each of the provinces of Canada and the Yukon Territory; and GSCO acts as an adviser in reliance on section 8.26 [international adviser] of NI 31-103 in each of the provinces of Canada and the Yukon Territory.

3. Goldman Sachs Execution & Clearing, L.P. (GSEC) is a limited partnership formed under the laws of the State of New York. The head office of GSEC is located in Jersey City, New Jersey, United States of America. GSEC is an indirect, wholly owned subsidiary of GS Group. GSEC is registered as a broker-dealer with the SEC and is a member of FINRA. GSEC is a member of all major U.S. stock exchanges and U.S. commodity futures exchanges.

4. GSEC is registered under the Legislation as a dealer, in the category of "exempt market dealer". GSEC is registered, or has applied for registration, as an exempt market dealer in each of the other provinces and the Yukon Territory. In addition, GSEC acts as a dealer in reliance on section 8.18 [international dealer] of NI 31-103 in each of the provinces of Canada and the Yukon Territory.

5. The Filers are part of a global financial services firm that provides investment, financing and related services to individuals and institutions. Services provided to clients by the Filers include securities brokerage, clearance and settlement services and related financing and record keeping services. Additionally, GSCO acts as a dealer and provides underwriting, investment banking, corporate advisory, investment advisory and other related services traditionally provided by a full service broker dealer.

6. Each of the Filers routinely lends money, extends credit and provides margin to many of its clients around the world, including in Canada, in connection with, and as an integral part of, its brokerage services. These services are provided in order to facilitate, among other things, the purchase and short-selling of securities by clients.

7. Each of the Filers is subject to regulations of the Board of Governors of the U.S. Federal Reserve System (the Board), the SEC, FINRA and the New York Stock Exchange (the NYSE) regarding the lending of money, extension of credit and provision of margin to clients (the U.S. Margin Regulations) that are designed to provide protections that are substantially similar to the protections provided by the regulations regarding the lending of money, extension of credit and provision of margin to which dealer members of the Investment Industry Regulatory Organization of Canada (IIROC) are subject, and each of the Filers is in compliance in all material respects with all applicable U.S. Margin Regulations. In particular, each of the Filers is subject to the margin requirements imposed by the Board, including Regulations T, U and X, under applicable SEC rules and under NYSE Rule 431.

Section 13.12 of NI 31-103

8. By virtue of its registration under the Legislation as an exempt market dealer, each of the Filers is subject to the prohibition on lending money, extending credit or providing margin to a client in section 13.12 of NI 31-103.

9. In certain comments received on NI 31-103, after it was published for comment, it was suggested that the prohibitions in section 13.12 should not apply to exempt market dealers that are members of foreign self-regulatory organizations, or subject to regulatory requirements in a foreign jurisdiction, where the dealer is subject to margin regimes similar to that imposed by IIROC. The Canadian Securities Administrators responded to these comments by suggesting that these circumstances could be considered on a case-by-case basis, through exemption applications, and that an exemption should be made available to registrants who have "adequate measures in place to address the risks involved and other related regulatory concerns".

10. Each of the Filers was granted a temporary one-year exemption from section 13.12 of NI 31-103 in a decision of the principal regulator dated September 28, 2009, In the Matter of AXA Rosenberg Investment Management LLC, Bloomberg Tradebook (Bermuda) Ltd., Bloomberg Tradebook LLC, BNY Mellon Capital Markets LLC, Credit Suisse Securities (Europe) Limited, Credit Suisse Securities (USA) LLC, Goldman Sachs Execution & Clearing, L.P., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and Morgan Stanley Smith Barney LLC. This temporary exemption addresses an immediate transition difficulty for each of the Filers which arose on September 28, 2009 with the coming into force of NI 31-103. As indicated in that decision, the temporary exemption was intended to facilitate the case-by case assessment of exemption applications referred to in paragraph 9.

Decision

The principal regulator is satisfied that this 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 head office or principal place of business of the Filer is in the United States;

(b) the Filer is licensed or registered under the securities legislation of the United States in a category of licensing or registration that permits it to carry on the activities in the United States that registration as an investment dealer would permit it to carry on in the Jurisdiction; and

(c) by virtue of the registration referred to in paragraph (b), including required membership in one or more self-regulatory organizations, the Filer is subject to requirements in respect of its lending money, extending credit or providing margin to clients (including clients that are located in Canada) that result in substantially similar regulatory protections to those provided for under the capital and margin requirements of IIROC that would be applicable to the Filer if it were registered under the Legislation as an investment dealer and were a member of IIROC.

"Erez Blumberger"
Deputy Director, Registrant Regulation
Ontario Securities Commission