National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from section 6.3 of National Instrument 21-101 Marketplace Operation (NI 21-101) to permit Liquidnet Canada, Inc. to trade fixed income securities other than those listed in section 6.3 of NI 21-101.
National Instrument 21-101 Marketplace Operation, s. 6.3.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF LIQUIDNET CANADA, INC. (THE APPLICANT)
DECISION (s. 15.1 of NI 21-101)
The principal regulator in the Jurisdiction has received an application (the Application) from the Applicant for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption pursuant to section 15.1 of National Instrument 21-101 Marketplace Operation (NI 21-101) from the restriction in section 6.3 of NI 21-101 relating to trading in Non-Canadian Fixed Income Securities (defined 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 the Applicant; and,
(b) the Applicant has 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, Manitoba, British Columbia, Saskatchewan, New Brunswick and Quebec.
Terms defined in National Instrument 14-101 Definitions and National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions (NP 11-203), NI 21-101 and the Securities Act (Ontario) have the same meaning if used in this decision, unless otherwise defined.
The Decision is based on the following facts represented by the Applicant:
1. The Applicant is a federal corporation formed under the laws of Canada and is a wholly-owned subsidiary of Liquidnet Holdings, Inc., a corporation formed under the laws of the State of Delaware.
2. The Applicant is an alternative trading system (ATS) under NI 21-101 that is registered as an investment dealer (or equivalent) with the Ontario Securities Commission (OSC), the Autorité des Marchés Financiers of Quebec and the British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick Securities Commissions. The Applicant is also a member of, and regulated by, the Investment Industry Regulatory Organization of Canada (IIROC).
3. The Applicant is an affiliate of Liquidnet, Inc., registered as a broker-dealer under the United States Securities Exchange Act of 1934, a member of the Financial Industry Regulatory Authority and approved by the Securities and Exchange Commission in the United States to operate an ATS for the trading of fixed income securities. The Applicant is also an affiliate of Liquidnet Europe Limited (together with Liquidnet, Inc., the Affiliate ATSs), approved by the Financial Conduct Authority in the United Kingdom to operate a multilateral trading facility, the equivalent of an ATS, for the trading of fixed income securities. The Affiliate ATSs are wholly-owned by Liquidnet Holdings, Inc.
4. The Applicant, as an ATS, facilitates the execution of orders on its Affiliate ATSs by its subscribers, as defined in NI 21-101 and described in its Form 21-101F2 Initial Operation Report Alternative Trading System (Subscribers), through the use of routing and execution agreements between the Applicant and its Affiliate ATSs.
5. The Applicant, as an ATS, intends to offer to its Subscribers access to a fixed income system (the Fixed Income System), operated by its Affiliate ATSs, that facilitates trading in the following securities:
(a) US and European high-yield corporate fixed income securities;
(b) US and European investment grade corporate fixed income securities;
(c) European convertible fixed income securities; and,
(d) Emerging markets corporate fixed income securities
(together, Non-Canadian Fixed Income Securities).
6. Clearing and settlement of trades through the Fixed Income System in Non-Canadian Fixed Income Securities is handled through third party clearing and settlement service providers using customary procedures.
7. Section 6.3 of NI 21-101 provides that an ATS can only execute trades in Corporate Debt Securities. The definition of Corporate Debt Security only includes debt securities issued in Canada by companies or corporations that are not listed on a recognized exchange or quoted on a recognized quotation and trade reporting system. The Applicant has requested an exemption from section 6.3 of NI 21-101 to be able to offer Non-Canadian Fixed Income Securities to its Subscribers in Ontario, Alberta, New Brunswick, Quebec, British Columbia, Saskatchewan, and Manitoba.
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 provided that the Fixed Income System is only made available to the Subscribers, and as described above.
Dated this 28 day of July, 2015