Securities Law & Instruments

Headnote

Application to the Commission pursuant to section 38 of the Commodity Futures Act (Ontario) (CFA) for a ruling that the Applicants be exempted from the dealer registration requirement in paragraph 22(1)(a) and the prohibition against trading on non-recognized exchanges in section 33 of the CFA. Applicants will offer the ability to trade in commodity futures contracts and commodity futures options that trade on exchanges located outside Canada to certain of its clients in Ontario who meet the definition of "permitted client" in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Application to the Director for an exemption, pursuant to section 6.1 of OSC Rule 91-502 Trades in Recognized Options (Rule 91-502), exempting the Applicants and their Representatives from the proficiency requirements in section 3.1 of Rule 91-502 for trades in commodity futures options on exchanges located outside Canada.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22, 33, 38.

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

Rules Cited

Ontario Securities Commission Rule 91-502 Trades in Recognized Options, ss. 3.1, 6.1.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.18.

December 18, 2012

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, c. C. 20, AS AMENDED

(the Act)

AND

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S. 25, AS AMENDED

(the OSA)

AND

IN THE MATTER OF

STATE STREET GLOBAL MARKETS, LLC

RULING & EXEMPTION

(Section 38 of the Act and Section 6.1 of Rule 91-502)

UPON the application (the Application) of State Street Global Markets, LLC (the Applicant) to the Ontario Securities Commission (the Commission) for:

(a) a ruling of the Commission, pursuant to section 38 of the Act, that the Applicant be exempted from the dealer registration requirements in the Act and the trading restrictions in the Act in connection with trades (Futures Trades) in contracts (as defined below) on exchanges located outside of Canada (Non-Canadian Exchanges) where the Applicant is acting as principal or agent in such trades to, from or on behalf of Permitted Clients (as defined below);

(b) a ruling of the Commission, pursuant to section 38 of the Act, that a Permitted Client is not subject to the dealer registration requirement or the trade restrictions in the Act in respect of Future Trades on Non-Canadian Exchanges, where the Applicant acts in respect of Future Trades on behalf of the Permitted Client pursuant to the above ruling; and

(c) a decision of the Director, pursuant to section 6.1 of OSC Rule 91-502 -- Trades in Recognized Options (Rule 91-502), exempting the Applicant and its salespersons, directors, officers and employees (the Representatives) from section 3.1 of Rule 91-502 in connection with Futures Trades.

AND WHEREAS for the purposes of this ruling and exemption (the Decision):

"CFTC" means the United States Commodity Futures Trading Commission;

"contract" means a commodity futures contract or a commodity futures option that trades on one or more organized exchanges located outside of Canada and cleared through one or more clearing corporations located outside of Canada;

"dealer registration requirements in the Act" means the provisions of section 22 of the Act that prohibit a person or company from trading in a contract unless the person or company satisfies the applicable provisions of section 22 of the Act;

"FINRA" means the Financial Industry Regulatory Authority in the United States;

"NFA" means the National Futures Association in the United States;

"Permitted Client" means a client in Ontario that is a "permitted client" as that term is defined in section 1.1. of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

"SEC" means the United States Securities and Exchange Commission;

"specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information;

"SSGMC" means State Street Global Markets Canada Inc.; and

"trading restrictions in the Act" means the provisions of section 33 of the Act that prohibit a person or company from trading in a contract unless the person or company satisfies the applicable provisions of section 33 of the Act; and

terms used in the Decision that are defined in the OSA, and not otherwise defined in the Decision or in the Act, shall have the same meaning as in the OSA, unless the context otherwise requires;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Applicant having represented to the Commission and the Director as follows:

1. The Applicant is a Delaware limited liability company having its registered office at One Lincoln Street, Boston, MA 02111, United States of America.

2. The Applicant is not a reporting issuer in any of the provinces of Canada.

3. The Applicant is part of the global execution and clearing business of State Street Corporation. The Applicant is a wholly-owned subsidiary of State Street Corporation. State Street Corporation is a leading provider of financial products and services to institutional investors worldwide. The Applicant is State Street Corporation's registered futures commission merchant with the CFTC and provides clearing services to institutional investors in the United States.

4. The Applicant is a broker-dealer registered with the SEC, a member of FINRA, the New York Stock Exchange, the NASDAQ Stock Market, a futures commission merchant registered with the CFTC and a member of the NFA, Chicago Mercantile Exchange and Chicago Board of Trade. Pursuant to its registrations and memberships, the Applicant is authorized to handle customer orders and receive and hold customer margin deposits, and otherwise act as a futures broker, in the United States. Rules of the CFTC and the NFA require the Applicant to maintain adequate capital levels, make and keep specified types of records relating to customer accounts and transactions, and comply with other forms of customer protection rules including know-your-customer obligations, account opening, suitability, anti-money laundering checks, credit checks, delivery of confirmation statements, clearing deposits and initial and maintenance margins. These rules do not permit the Applicant to treat Permitted Clients materially differently from the Applicant's US customers. In order to protect customers in the event of the insolvency or financial instability of the Applicant, the Applicant is required to ensure that customer securities and monies be separately accounted for, segregated at all times from the securities and monies of the Applicant and custodied exclusively with such banks, trust companies, clearing organizations or other licensed futures brokers and intermediaries as may be approved for such purposes under the U.S. Commodity Exchange Act and the rules promulgated by the CFTC thereunder (the State Street Approved Depositories). The Applicant is also required to obtain acknowledgements from any State Street Approved Depository holding customer funds or securities that such funds and securities are to be separately held on behalf of such customers, with no right of set-off against the Applicant's obligations or debts.

5. The Applicant will shortly file the documents necessary to enable it to rely on the international dealer exemption in section 8.18 of NI 31-103.

6. Like the Applicant, SSGMC is a direct wholly owned subsidiary of State Street Corporation. SSGMC is registered under the OSA as a dealer in the category of investment dealer and is a dealer member of the Investment Industry Regulatory Organization of Canada. SSGMC is not registered as a dealer under the Act and does not act as a broker for Futures Trades.

7. The Applicant proposes to effect Futures Trades as principal or agent in such trades to, from or on behalf of Permitted Clients; and will conduct execution and clearing services with respect to such Futures Trades.

8. The Applicant will not maintain an office, sales force or physical place of business in Ontario.

9. The Applicant will solicit business in Ontario only from persons who qualify as Permitted Clients.

10. Permitted Clients of the Applicant will only be offered the ability to effect Futures Trades on Non-Canadian Exchanges.

11. The contracts to be traded by Permitted Clients will include, but will not be limited to, contracts for equity index, interest rate, energy, currency, bond, agricultural and other commodity products.

12. Permitted Clients in Ontario will be able to execute Futures Trades through the Applicant by contacting the Applicant's global execution desk. Permitted Clients in Ontario may also be able to self-execute Futures Trades electronically via an independent service vendor, a third party broker and/or other electronic trading routing.

13. The Applicant may execute a client's order on the relevant Non-Canadian Exchange in accordance with the rules and customary practices of the exchange, or engage another broker to assist in the execution of orders. The Applicant will remain responsible for the execution of each such trade.

14. The Applicant may perform both execution and clearing functions for Futures Trades or may direct that a Futures Trade executed by the Applicant be cleared through a carrying broker if the Applicant is not a member of the Non-Canadian Exchange or clearing house on which the trade is executed and cleared. Alternatively, the Permitted Client will be able to direct that Futures Trades executed by the Applicant be cleared through third party clearing brokers (each, a Third Party Clearing Broker). In addition, the Applicant may, from time to time, act as a clearing broker under give-up arrangements entered into with third party futures brokers that will execute Futures Trades for the Applicant's client on a Non-Canadian Exchange.

15. If the Applicant performs only the execution of a Permitted Client's contract order and "gives-up" the transaction for clearance to a Third Party Clearing Broker, such broker will also be required to comply with the rules of the exchanges and clearing houses of which it is a member and any relevant regulatory requirements, including requirements under any applicable legislation. Each such Third Party Clearing Broker will represent to the Applicant in an industry standard give-up agreement that it will perform its obligations in accordance with applicable laws, governmental, regulatory, self-regulatory, exchange and clearing house rules and the customs and usages of the exchange or clearing house on which the relevant Permitted Client's contract orders will be executed and cleared. The Applicant will not enter into a give-up agreement with any Third Party Clearing Broker located in the United States unless such broker is registered with the CFTC and/or SEC, as applicable.

16. As is customary for all Futures Trades, a clearing corporation appointed by the exchange or clearing division of the exchange is substituted as a universal counterparty on all Futures Trades and Permitted Client orders are submitted to the exchange in the name of the Third Party Clearing Broker or the Applicant or, on exchanges where the Applicant is not a member, in the name of another carrying broker. Where the Applicant is serving as the Permitted Client's clearing broker, the Permitted Client is responsible to the Applicant for payment of daily mark-to-market variation margin/or proper margin to carry open positions and the Applicant, the carrying broker or the Third Party Clearing Broker is, in turn, responsible to the clearing corporation/division for payment.

17. Permitted Clients that direct the Applicant to give-up transactions in contracts for clearance and settlement by Third Party Clearing Brokers will execute give-up agreements substantially as described above.

18. Permitted Clients will pay commissions for trades to the Applicant or the Third Party Clearing Broker or such commissions may be shared by the Applicant with the Third Party Clearing Broker.

19. The trading restrictions in the Act apply unless, among other things, a contract is traded on a recognized or registered commodity futures exchange and the form of the contract is approved by the Director. To date, no foreign commodity futures exchanges have been recognized or registered under the Act.

20. If the Applicant is exempted from the dealer registration requirements in the Act, the Applicant will be precluded from relying upon the statutory exemptions from the trading restrictions in the Act that the Commission has granted to date.

21. With respect to Ontario residents, the Applicant will offer the ability to trade in contracts exclusively to Permitted Clients.

22. In addition to the sophistication of the Permitted Clients, the Applicant is sophisticated and experienced in this type of trading, and regulated rigorously by securities regulators, self-regulatory organizations and exchanges located in the United States (U.S. Securities Regulators).

23. The Applicant will execute and clear Futures Trades on behalf of clients in Ontario in the same manner that it executes and clears trades on behalf of their U.S. clients. The Applicant will follow the same know-your-customer and client classification procedures that it follows in respect of its U.S. clients, as applicable. Clients will be afforded the benefits of compliance by the Applicant with the statutory and other requirements of the U.S. Securities Regulators.

24. Clients of the Applicant in Ontario will have the same contractual rights against the Applicant as U.S. clients of the Applicant.

25. Section 3.1 of Rule 91-502 states that any person who trades as agent in or gives advice in respect of, a recognized option is required to successfully complete the Canadian Options Course (which has been replaced by the Derivatives Fundamentals Course and the Options Licensing Course).

26. All Representatives who trade in options in the United States have passed the futures and options proficiency examination (i.e., the National Commodity Futures Examination (Series 3)) administered by FINRA.

AND UPON the Commission and Director being satisfied that it would not be prejudicial to the public interest to grant the order requested;

IT IS RULED pursuant to section 38 of the Act that the Applicant be exempted from the dealer registration requirements and the trading restrictions set out in the Act in connection with Futures Trades where Applicant is acting as agent in such trades on behalf of Permitted Clients, provided that:

(a) each client effecting Futures Trades is a Permitted Client and, if using a Third Party Clearing Broker, has executed an industry standard give up agreement, as described above, with respect to such Third Party Clearing Broker;

(b) the Applicant only execute and clear Futures Trades for Permitted Clients on exchanges located outside Canada;

(c) at the time trading activity is engaged, the Applicant:

(i) has its head office or principal place of business in the United States;

(ii) is registered as a futures commission merchant with the CFTC in good standing;

(iii) is a member in good standing with the NFA; and

(iv) engages in the business of a futures commission merchant in contracts in the United States;

(d) the Applicant has provided to the Permitted Client the following disclosure in writing:

(i) a statement that the Applicant is not registered in Ontario to trade in contracts as principal or agent;

(ii) a statement that the Applicant's head office or principal place of business is located in Boston, Massachusetts;

(iii) a statement that all or substantially all of the Applicant's assets may be situated outside of Canada;

(iv) a statement that there may be difficulty enforcing any legal rights against the Applicant because of the above; and

(v) the name and address of the Applicant's agent for service of process in Ontario;

(e) the applicable Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix "A";

(f) the Applicant notifies the Commission of any regulatory action after the date of this order in respect of the Applicant, or any predecessors or specified affiliates of the Applicant, by completing and filing Appendix "B" hereto with the Commission within 10 days of the commencement of such action; provided that this condition shall not be required to be satisfied for so long as SSGMC remains an investment dealer in good standing under Ontario securities law;

(g) by December 1 of each year, the Applicant notifies the Commission of its continued reliance on the exemption from registration granted pursuant to this Order; and

(h) this Order shall expire five years after the date hereof.

AND IT IS FURTHER RULED, pursuant to section 38 of the Act, that a Permitted Client is not subject to the dealer registration requirement in the Act or the trading restrictions in the Act in respect of Future Trades on Non-Canadian Exchanges, where the Applicant acts in respect of the Future Trades on behalf of the Permitted Client pursuant to the above ruling.

December 18, 2012

"Edward P. Kerwin"
Commissioner
Ontario Securities Commission
 
"Paulette Kennedy"
Commissioner
Ontario Securities Commission

IT IS THE DECISION of the Director, pursuant to section 6.1 of Rule 91-502, that section 3.1 of Rule 91-502 does not apply to the Applicant and its Representatives in respect of Futures Trades, provided that they maintain their respective registrations with the CFTC and NFA which permit the Applicant and its Representatives to trade commodity futures options in the United States and this Decision shall expire five years after the date hereof.

December 19, 2012

"Marrianne Bridge"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission

 

APPENDIX A

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

INTERNATIONAL DEALER OR INTERNATIONAL ADVISER

EXEMPTED FROM REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO

1. Name of person or company ("International Firm"):

2. If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

3. Jurisdiction of incorporation of the International Firm:

4. Head office address of the International Firm:

5. The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

Name:

E-mail address:

Phone:

Fax:

6. The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"):

[ ] Section 8.18 [international dealer]

[ ] Section 8.26 [international adviser]

[ ] Other [specify]:

7. Name of agent for service of process (the "Agent for Service"):

8. Address for service of process on the Agent for Service:

9. The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

10. The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.

11. Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

a. a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated; and

b. an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service.

12. This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

Dated:_________________________________

________________________________________

(Signature of the International Firm or authorized signatory)

________________________________________

(Name of signatory)

________________________________________

(Title of signatory)

Acceptance

The undersigned accepts the appointment as Agent for Service of ________________________________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

Dated:_________________________________

________________________________________

(Signature of the Agent for Service or authorized signatory)

________________________________________

(Name of signatory)

________________________________________

(Title of signatory)

 

Appendix B

Notice of Regulatory Action

1. Has the firm, or any predecessors or specified affiliates of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes ____

No ____

If yes, provide the following information for each settlement agreement:

Name of entity

Regulator/organizationDate of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

2. Has any financial services regulator ,securities or derivatives exchange, SRO or similar organization:

 

 

Yes

No

 

(a)

Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

____

____

 

(b)

Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

____

____

 

(c)

Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

____

____

 

(d)

Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

____

____

 

(e)

Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

____

____

 

(f)

Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

____

____

 

(g)

Issued an order (other than en exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?

____

____

If yes, provide the following information for each action:

Name of Entity

Type of Action

Regulator/organization

Date of action (yyyy/mm/dd)

Reason for action

3. Is the firm aware of any ongoing investigation of which the firm or any of its designated affiliate is the subject?

Yes ____ No ____

If yes, provide the following information for each investigation:

Name of entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

*****

Name of firm

Name of firm's authorized signing officer or partner

Title of firm's authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

This form is to be submitted to the following address:

Ontario Securities Commission
Suite 1903, Box 55
20 Queen Street West
Toronto, ON M5H 3S8
Attention: Senior Registration Supervisor, Dealer Team
Telephone: (416) 593-8263
email: amcbain@osc.gov.on.ca