National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for a decision to amend a previous decision to extend a sunset provision and to vary a condition in the previous decision -- application filed by an investment dealer/Investment Industry Regulatory Organization of Canada (IIROC) member and affiliated exempt market dealer (EMD) that is registered as a broker-dealer with the U.S. Securities and Exchange Commission (the SEC) -- previous decision granted relief, subject to a sunset provision, from the restrictions contained in paragraph 4.1(1)(b) of NI 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations (NI 31-103) to permit up to twenty (20) registered dealing representatives of the EMD to be registered with the investment dealer and act as dealing representatives (the Dual Registration) -- previous decision varied to extend the sunset provision to the earlier of the date on which amendments to NI 31-103 come into force limiting brokerage activities in which EMDs or restricted dealers may engage or December 31, 2015 -- previous decision amended to clarify that registered individuals of investment dealer may also deal with "retail clients", provided that they act solely in the capacity of registered individuals of the investment dealer when dealing with retail clients -- registered individuals who are also representatives of the EMD, and therefore require the Dual Registration relief, will continue to only be able to rely on this relief when dealing with institutional customers.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
July 10, 2014
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 CREDIT SUISSE SECURITIES (CANADA), INC. (CSSC) AND CREDIT SUISSE SECURITIES (USA) LLC (CSSU and, together with CSSC, the Filers)
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to vary the previous decision of the principal regulator made under section 15.1 of NI 31-103 entitled Re Credit Suisse Securities (Canada) Inc. and Credit Suisse Securities (USA) LLC dated September 12, 2012 (the Previous Decision) in accordance with the Requested Amendment Relief (as described below).
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,
(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 Alberta, New Brunswick, Newfoundland And Labrador, Nova Scotia, Prince Edward Island, Québec, Saskatchewan, the Northwest Territories, Nunavut Territory, and the Yukon Territory (with Ontario, the Jurisdictions).
Defined terms contained in National Instrument 14-101 Definitions or the Previous Decision have the same meaning in this decision unless they are otherwise defined in this decision (the Decision).
The decision is based on the following facts represented by the Filers:
1. CSSC is a corporation formed under the laws of Ontario, and its head office is located at 1 First Canadian Place, Suite 2900, Toronto, Ontario, M5X 1C9.
2. CSSC is registered as an investment dealer in each of the Jurisdictions and is a member of the Investment Industry Regulatory Organization of Canada (IIROC). It is also a futures commission merchant in Ontario and a derivatives dealer in Quebec. CSSC is a participating organization or member of the Toronto Stock Exchange, TSX Venture Exchange and Montreal Exchange and other electronic markets. CSSC is a member of the Canadian Derivatives Clearing Corporation.
3. CSSC has restricted its investment dealer registration to only institutional customers as defined under IIROC Rule 1 (institutional customers). However, as explained below, CSSC is in the process of expanding its dealer and adviser businesses to clients that are "retail customers" as defined under IIROC Rule 1 (retail customers).
4. CSSC does not conduct business activities outside of Canada, is not a member of any foreign marketplaces, is not a participant in any foreign clearing or depository organizations, and does not have the ability to settle trades in foreign securities that are not listed on a Canadian marketplace.
5. CSSU is a limited liability corporation incorporated under the laws of the State of Delaware, and its head office is located at 11 Madison Avenue, New York, NY 10010.
6. CSSU is registered as a broker-dealer and investment adviser with the United States Securities and Exchange Commission, and is a member of the Financial Industry Regulatory Authority. CSSU is a member of major securities exchanges, including the NASDAQ OMX, the Chicago Stock Exchange, NYSE Euronext, and the Philadelphia Stock Exchange.
7. CSSU is registered as a Futures Commission Merchant with the U.S. Commodity Futures Trading Commission, and is a member of the National Futures Association.
8. CSSU is a Foreign Approved Participant of the Montreal Exchange and a Trading Participant of ICE Futures Canada, Inc. CSSU is also a member of the CME Group (including the Chicago Board of Trade), ICE Futures U.S., Inc., and other principal U.S. commodity exchanges, and trades through affiliated or unaffiliated member firms on all other exchanges, including exchanges in Canada, France, Italy, Japan, Singapore, Spain, Taiwan, Mexico, Korea and the United Kingdom.
9. CSSU is currently registered as an exempt market dealer (EMD) in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Newfoundland & Labrador, New Brunswick, Nova Scotia and Prince Edward Island.
10. CSSU also relies on the international dealer exemption under section 8.18 of NI 31-103 and the international adviser exemption under section 8.26 of NI 31-103 in Alberta, Saskatchewan, Ontario, Québec, Newfoundland & Labrador, New Brunswick, Nova Scotia and Prince Edward Island.
11. CSSU provides a variety of capital raising, investment banking, market making, brokerage, and advisory services, including fixed income and equity sales and research, commodities trading, foreign exchange trading, emerging markets activities, securities lending, investment banking and derivatives dealing for governments, corporate and financial institutions. CSSU also conducts proprietary trading activities.
12. CSSU relies on CSSC to access, and trade on, Canadian marketplaces.
13. The Filers are indirect wholly owned subsidiaries of Credit Suisse Group AG, a Swiss corporation. The Filers are affiliates and each provides different trading services.
14. The Filers are subject to the restrictions and requirements in Part 13 of NI 31-103 regarding conflict of interest matters.
15. The Filers are not, to the best of their knowledge, in default of any requirement of securities legislation in any of the Jurisdictions.
16. On September 12, 2012, the Filers obtained exemptive relief, namely the Previous Decision, from the restrictions under paragraph 4.1(1)(b) of NI 31-103 to permit CSSU's current and future registered dealing representatives to be registered with CSSC and to act as dealing and/or advising representatives of CSSC (the Dual Registration).
17. The Previous Decision provided relief from the restrictions on Dual Registration subject to the following conditions:
(a) the Dual Registration is granted for so long as all Canadian clients of CSSC are "institutional customers" within the meaning of IIROC Rule 2700;
(b) the Dual Registration relief shall immediately expire upon the earlier of:
(i) the effective date that amendments to NI 31-103 are made, if any, which limit the activities an EMD can conduct so that CSSU would be required to register as an investment dealer and become a member of IIROC as contemplated in CSA Staff Notice 31-331 Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category; and
(ii) two (2) years from the date of this decision.
18. CSSC is in the process of expanding its dealer and adviser businesses to clients that are retail customers.
19. The Filers now wish to amend the Previous Decision to state that CSSC will be dealing with both retail customers and institutional customers provided that registered individuals of CSSC who are also registered individuals of CSSU, and therefore rely on the Previous Decision for relief from the restrictions contained in Part 4 of NI 31-103, will only deal with institutional customers in the context of the Dual Registration when acting in the capacity of a registered individual of CSSU. To the extent any of the registered individuals of CSSC deal with clients who are retail customers, they will be acting solely in the capacity of a registered individual of CSSC. Registered individuals of CSSC who are also registered individuals of CSSU will only open accounts for institutional customers in the context of the Dual Registration.
20. In December 2013, the Canadian Securities Administrators (the CSA) published for comment proposed amendments to NI 31-103 that are intended, among other things, to address perceived concerns relating to foreign broker-dealers engaging in brokerage activities in Canada through the exempt market dealer (EMD) category, as described in CSA Staff Notice 31-327 Broker-Dealer Registration in the Exempt Market Dealer Category. In view of the fact that the proposed amendments to NI 31-103 have not yet been published in final form, and may not come into force until late 2014 or early 2015, the Filers have requested a short extension of the sunset provision to the earlier of
(a) the date on which amendments to NI 31-103 come into force limiting the brokerage activities in which EMDs or restricted dealers may engage; and
(b) December 31, 2015.
21. Accordingly, the Filers have requested that the "Decision" section of the Previous Decision be deleted and replaced by the following new paragraphs (the Requested Amendment Relief):
(a) the Dual Registration is granted for so long as all Canadian clients of CSSC are institutional customers; provided that, on and after the date of IIROC approval of the retail customer business of CSSC, CSSC may also open accounts for retail customers so long as registered individuals of CSSC who are also representatives of CSSU will only open accounts for or otherwise deal with institutional customers in the context of the Dual Registration;
(b) the Dual Registration relief shall immediately expire upon the earlier of:
(i) the date on which amendments to NI 31-103 come into force limiting the brokerage activities in which EMDs or restricted dealers may engage; and
(ii) December 31, 2015.
22. This decision is based on the same representations made by the Filer in the Previous Decision and which remain true and complete.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the Director to make the decision.
It is the decision of the principal regulator that the Requested Amendment Relief is granted.