Securities Law & Instruments


Headnote

U.S. registered broker-dealer and U.K. based affiliate exempted from dealer registration under paragraph 25(1) of the Act in respect of certain trades in debt securities with permitted clients, as defined under NI 31-103, where the debt securities are i) debt securities of Canadian issuers and are denominated in a currency other than the Canadian dollar; or ii) debt securities of any issuer, including a Canadian issuer, and were originally offered primarily in a foreign jurisdiction outside Canada and a prospectus was not filed with a Canadian securities regulatory authority for the distribution – relief is subject to sunset clause – relief as contemplated by CSA Staff Notice 31-346 Guidance as to the Scope of the International Dealer Exemption in relation to Foreign-Currency Fixed Income Offerings by Canadian Issuers

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).

Instruments Cited

Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.18.

May 15, 2017

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
GOLDMAN, SACHS & CO.
AND
GOLDMAN SACHS INTERNATIONAL
(the Filers)

DECISION


Background

The principal regulator in the Jurisdiction has received an application (the Application) from Goldman, Sachs & Co. (GS&Co) and Goldman Sachs International (GSI and, together with GS&Co, the Filers) for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filers from the dealer registration requirement under the Legislation in respect of trades in debt securities, other than during the distribution of such securities, with permitted clients, as defined under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), where the debt securities are

(a)           debt securities of Canadian issuers and are denominated in a currency other than the Canadian dollar; or

(b)           debt securities of any issuer, including a Canadian issuer and were originally offered primarily in a foreign jurisdiction outside Canada and a prospectus was not filed with a Canadian securities regulatory authority for the distribution (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission (OSC) is the principal regulator for this Application, and

(b)           the Filers have provided notice that sub-section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces of Canada (the Passport Jurisdictions and together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

1.             GS&Co is a limited partnership formed under the laws of the State of New York. Its head office is located at 200 West St, New York, NY 10282, U.S. It is an indirect, wholly owned subsidiary of The Goldman Sachs Group, Inc. (GS Group), a New York corporation.

2.             GSI is a private unlimited company incorporated under the laws of England and Wales with its head office is located at Peterborough Court, 133 Fleet Street, London EC4A 2BB, United Kingdom. GSI is an indirect, wholly owned subsidiary of GS Group.

3.             GS&Co is registered as a broker-dealer with the U.S. Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization.

4.             GS&Co is a member of a number of major U.S. securities exchanges, including the New York Stock Exchange and NASDAQ.

5.             GSI is authorized by the U.K. Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and PRA.

6.             GSI is a member of the London Stock Exchange and other European securities exchanges.

7.             GS&Co’s registration in the US subjects the Filer to requirements over regulatory capital, lending of money, extension of credit and provision of margin, financial reporting, and segregation and custody of assets which provide protections that are substantially similar to the protections provided by the rules to which dealer-members of the Investment Industry Regulatory Organization of Canada (IIROC) are subject.

8.             The Filers provide 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 sales, emerging markets activities, securities lending and derivatives dealing for governments, corporate and financial institutions.

9.             Goldman Sachs Canada Inc. (GSCI) is an affiliate of the Filers. GSCI is registered as an investment dealer in each of the provinces of Canada, as a derivatives dealer in Quebec, and is a dealer member of IIROC.

10.          The Filers are currently relying on the “international dealer exemption” under section 8.18 of NI 31-103 (the international dealer exemption) in each of the Jurisdictions.

11.          GS&Co and GSI are in compliance in all material respects with U.S. and UK securities laws, respectively. The Filers are not in default of Canadian securities laws.

12.          The Filers wish to trade in debt securities of Canadian issuers with permitted clients other than during such securities’ distribution.

13.          Paragraph 8.18(2)(b) of NI 31-103 provides that, subject to subsections 8.18(3) and 8.18(4), the dealer registration requirement does not apply in respect of a trade in a debt security with a permitted client during the security’s distribution, if the debt security is offered primarily in a foreign jurisdiction and a prospectus has not been filed with a Canadian securities regulatory authority for the distribution. Paragraph 8.18(2)(c) of NI 31-103 provides that, subject to subsections 8.18(3) and 8.18(4), the dealer registration requirement does not apply in respect of a trade in a debt security that is a foreign security with a permitted client, other than during the security’s distribution.

14.          The permitted activities under subsection 8.18(2) of NI 31-103 do not include a trade in a debt security of a Canadian issuer with a permitted client, other than during the security’s distribution in the limited circumstances described above.

15.          On September 1, 2016, the Staff of the Canadian Securities Administrators (CSA Staff) published CSA Staff Notice 31-346 Guidance as to the Scope of the International Dealer Exemption in relation to Foreign-Currency Fixed Income Offerings by Canadian Issuers (the Staff Notice).

16.          CSA Staff stated in the Staff Notice that they did not believe there was a policy reason to limit the exemption in subsection 8.18(2) of NI 31-103 to trades that occur during the initial period of the securities’ distribution or to conclude that an international dealer should be permitted to sell a debt security to a Canadian institutional investor but not be permitted to act for the institutional investor in connection with the resale of the security. CSA Staff further stated that they were prepared to recommend exemptive relief to permit international dealers to deal with institutional investors to facilitate resales of debt securities, subject to conditions the CSA consider appropriate.

17.          Accordingly, the Filers are seeking exemptive relief as contemplated by the Staff Notice to permit the Filers to deal with Canadian permitted clients in connection with resales of debt securities that may be distributed to the permitted clients in reliance on the international dealer exemption in section 8.18 of NI 31-103.

18.          It may be difficult at the time of a resale of a debt security to determine whether the debt security was originally offered as part of an offering that was made primarily in a foreign jurisdiction or whether a prospectus was filed in Canada in connection with such offering. However, the Filers believe, based on their experience with foreign currency denominated fixed income offerings by Canadian issuers (Canadian foreign currency fixed income offerings), that such offerings are generally made primarily outside of Canada. Accordingly, the Filers believe that the denomination of an offering of debt securities in a foreign currency will be a reasonable proxy for determining whether the offering was originally made primarily outside of Canada.

19.          Similarly, the Filers believe, based on their experience with Canadian foreign currency fixed income offerings that, to the extent that debt securities that are the subject of such offerings are listed on a stock exchange, they will typically not be listed on a stock exchange situated in Canada. To the extent that foreign-currency-denominated debt securities of a Canadian issuer are listed on a stock exchange situated in Canada, investors will be required to trade such debt securities through an IIROC registered dealer.

20.          Each of the Filers is a “market participant” as defined under subsection 1(1) of the OSA. As market participants, among other requirements, the Filers are required to comply with the record keeping and provision of information provisions under section 19 of the OSA, which include the requirement to keep such books, records and other documents (a) as are necessary for the proper recording of business transactions and financial affairs, and the transactions executed on behalf of others, (b) as may otherwise be required under Ontario securities law, and (c) as may reasonably be required to demonstrate compliance with Ontario securities laws, and to deliver such records to the OSC if required.

Decision

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 Filers comply with the terms and conditions described in section 8.18 of NI 31-103 as if the Filers had made the trades in reliance on an exemption contained in section 8.18.

It is further the decision of the principal regulator that the Exemption Sought shall expire on the date that is the earlier of:

(a)           the date on which amendments to the international dealer exemption in section 8.18 of NI 31-103 come into force that address the ability of international dealers to trade debt securities of Canadian issuers; and

(b)           five years after the date of this decision.

DATED this 15th day of May, 2017.

“Grant Vingoe”
Vice Chair of the Commission

“Monica Kowal”
Vice Chair of the Commission