Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to adviser headquartered in Ontario that is registered as a commodity trading advisor with the Commodity Futures Trading Commission of the United States of America -- Adviser only provides advice to clients resident in the United States -- Relief subject to certain terms and conditions -- Relief mirrors exemption available in section 3 of Ontario Securities Commission Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario made under the Securities Act (Ontario) -- Relief subject to sunset clause.

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 1(1), 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).

Ontario Securities Commission Rule 31-505 Conditions of Registration, s. 2.1.

Ontario Securities Commission Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario, s. 3.

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA) AND IN THE MATTER OF BLUEWATER TECHNOLOGIES INC.

ORDER (Section 80 of the CFA)

UPON the application (the Application) of Bluewater Technologies Inc. (the Applicant) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA that the Applicant and any individuals engaging in, or holding themselves out as engaging in, the business of advising others on the Applicant's behalf (the Representatives) be exempt, for a specified period of time, from the adviser registration requirements in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;

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

AND UPON the Applicant having represented to the Commission that:

1. The Applicant is a corporation incorporated pursuant to the laws of Ontario. The head office of the Applicant is located in Toronto, Ontario.

2. The Applicant is registered with the United States Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and as an approved member of the United States National Futures Association (NFA). The Commission has a memorandum of understanding in place with the CFTC for mutual cooperation and information sharing.

3. The Applicant is not registered as an adviser under the CFA.

4. The Applicant and its Representative provide advice (Commodities Advice) to clients resident in the United States (U.S. Clients) on commodity futures contracts and any commodity futures options (as those terms are defined in subsection 1(1) of the CFA) (CFA Contracts) that are primarily traded as one or more organized exchanges located outside of Canada and primarily cleared through one or more clearing corporations located outside of Canada (Foreign Contracts).

5. The Applicant and its Representatives will comply with all registration and other requirements of applicable United States laws in respect of advising U.S. Clients.

6. The Applicant and its Representatives shall not provide any Commodities Advice to residents of Canada.

7. The executing and clearance of the Foreign Contracts is done by a registered futures commission merchant located in the United States.

8. The Applicant does not have any affiliated companies registered with any securities regulatory authorities in Canada and therefore there is no potential for client confusion as to which entity provides the Commodities Advice.

9. Before advising U.S. Clients, the Applicant and its Representative will notify U.S. Clients of the location of the Applicant's head office or principal place of business and that there may be difficulty enforcing legal rights against the Applicant because of this.

10. U.S. Clients will be advised at the time they enter into an investment management agreement or similar documentation with the Applicant, and periodically thereafter, that if they relocate to a Canadian jurisdiction, their accounts will have to be transferred to another adviser that is appropriately registered or relying on an exemption from registration in the Canadian jurisdiction.

11. The CFA requires that a person or company acting as an adviser in Ontario on CFA Contracts be registered in Ontario as an adviser in the appropriate category under the CFA. Even though the business operations are primarily located in the United States and all clients of the Applicant are not resident in Ontario, the fact that the Applicant is incorporated in Ontario and one or more of its Representatives are resident in Ontario triggers the requirement to be registered as an adviser in the category of Commodity Trading Manager under the CFA.

12. The Applicant submits that it would not be prejudicial to the public interest for the Commission to grant the requested relief because:

(a) the Applicant will only advise U.S. Clients as to trading in Foreign Contracts;

(b) the U.S. Clients seek to access certain specialized portfolio management services provided by the Applicant, including advice as to trading in Foreign Contracts;

(c) the Applicant and its Representative is appropriately registered, to act as an adviser to the U.S. Clients under applicable laws of the United States.

13. The Applicant will become a "market participant" as defined under subsection 1(1) of the CFA as a consequence of this decision. As a market participant, amongst other requirements, the Applicant is required to comply with the record keeping and provision of information provisions in Part V of the CFA.

14. The Applicant is not in default of any requirement of securities, commodity futures or derivatives legislation of any jurisdiction in Canada.

15. The Applicant is in material compliance with U.S. securities, commodity futures, and derivatives laws.

16. Bluewater and each of its Representatives confirm that there are currently no regulatory actions of the type contemplated by Appendix "A" and Appendix "B".

17. The Applicant will comply with reporting and other requirements relating to terrorist financing and United Nations sanctions, as described in Canadian Securities Administrators Staff Notice 31-317 (Revised) Reporting Obligations Related to Terrorist Financing.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested;

IT IS ORDERED pursuant to section 80 of the CFA that the Applicant and its Representative are exempt from the adviser registration requirements of paragraph 22(1)(b) of the CFA in respect of the provision of advice to U.S. Clients as to the trading of Foreign Contracts, provided that:

(a) under U.S. federal commodity futures and derivatives laws, the Applicant and its Representatives are permitted to act as an adviser to U.S. Clients in respect of Foreign Contracts;

(b) the Applicant is not registered as an adviser under the CFA;

(c) the Applicant and its Representatives will provide advice as to trading in Foreign Contracts to U.S. Clients only;

(d) the Commission has a supervisory memorandum of understanding in place with the CFTC for mutual cooperation and information sharing;

(e) before advising U.S. Clients, the Applicant and its Representative will notify U.S. Clients of the location of the Applicant's head office or principal place of business and that there may be difficulty enforcing legal rights against the Applicant because of this;

(f) at the time U.S. Clients enter into an investment management agreement or similar documentation with the Applicant, and periodically thereafter, the Applicant and its Representatives will advise U.S. Clients that if they relocate to a Canadian jurisdiction, their accounts will have to be transferred to another adviser that is appropriately registered or relying on an exemption from registration in the Canadian jurisdiction;

(g) the Applicant and each of its Representatives notifies the Commission of any regulatory action initiated with respect to the Applicant by completing and filing Appendix "A" or Appendix "B", as applicable, within 10 days of the commencement of such action;

(h) the Applicant and its Representatives comply with the requirements under Ontario Securities Commission Rule 31-505 Conditions of Registration, as amended from time to time, namely, to deal fairly, honestly and in good faith with its, his, or her clients; and

(i) the Applicant has completed and filed with the Commission the information report set out in Appendix "C" and notifies the Commission of any changes to the content of such report within 10 days of the change.

IT IS FURTHER ORDERED that this Order will terminate on the earliest of:

(a) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;

(b) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the Securities Act (Ontario)) that affects the ability of the Applicant or its Representatives to act as an adviser in respect of the Commodities Advice; and

(c) five years after the date of this Order.

DATED at Toronto, Ontario, this 23rd day of June, 2017.

"Janet Leiper"
Commissioner
Ontario Securities Commission
 
"William Furlong"
Commissioner
Ontario Securities Commission

 

APPENDIX A

NOTICE OF REGULATORY ACTION -- FIRM

1. Settlement agreements

Has the firm, or any predecessors or specified affiliates{1} 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/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

- - - - - - - - - - - - - - - - - - - -

2. Disciplinary history

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 an 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

 

Jurisdiction

3. Ongoing investigations

Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliates 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

- - - - - - - - - - - - - - - - - - - -

Authorized signing officer or partner

- - - - - - - - - - - - - - - - - - - -

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 through the Ontario Securities Commission's Electronic Filing Portal:

https://www.osc.gov.on.ca/filings

{1} In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information.

 

APPENDIX B

NOTICE OF REGULATORY ACTION -- INDIVIDUAL

Name of Individual

_______________

_______________

_______________

_______________

 

Last name

First name

Second name (N/A [ ])

Third name (N/A [ ])

1. Securities and derivatives regulation

Are you now, or have you ever been subject to any disciplinary proceedings or any order resulting from disciplinary proceedings under any securities legislation or derivatives legislation or both in any province, territory, state or country?

Yes _____ No _____

If "Yes", complete the following:

For each order or disciplinary proceeding, state below (1) the name of the firm, (2) the securities or derivatives regulator that issued the order or is conducting or conducted the proceeding, (3) the date any notice of proceeding was issued, (4) the date any order or settlement was made, (5) a summary of any notice, order or settlement (including any sanctions imposed), (6) whether you are or were a partner, director, officer or major shareholder of the firm and named individually in the order or disciplinary proceeding, and (7) any other relevant details.

______________________________

2. SRO regulation

Are you now, or have you ever been, subject to any disciplinary proceedings conducted by any self-regulatory organization (SRO) or similar organization in any province, territory, state or country?

Yes _____ No _____

If "Yes", complete the following:

For each order or disciplinary proceeding, state below (1) the name of the firm, (2) the SRO that issued the order or that is, or was, conducting the proceeding, (3) the date any notice of proceeding was issued, (4) the date any order or settlement was made, (5) a summary of any notice, order or settlement (including any sanctions imposed), (6) whether you are or were a partner, director, officer or major shareholder of the firm and named individually in the order or disciplinary proceeding, and (7) any other information that you think is relevant or that the regulator or, in Québec, the securities regulatory authority may request.

______________________________

3. Non-securities regulation

Are you now, or have you ever been, a subject of any disciplinary actions conducted under any legislation relating to your professional activities unrelated to securities or derivatives in any province, territory, state or country?

Yes _____ No _____

If "Yes", complete the following:

For each order or disciplinary proceeding, indicate below (1) the party against whom the order was made or the proceeding taken (if insurance licensed, indicate the name of the insurance agency), (2) the regulatory authority that made the order or that is, or was, conducting the proceeding, or under what legislation the order was made or the proceeding is being, or was conducted, (3) the date any notice of proceeding was issued, (4) the date any order or settlement was made, (5) a summary of any notice, order or settlement (including any sanctions imposed), (6) whether you are or were a partner, director, officer or major shareholder of the firm and named individually in the order or disciplinary proceeding and (7) any other information that you think is relevant or that the regulatory authority may request.

______________________________

Authorized signing officer or partner

- - - - - - - - - - - - - - - - - - - -

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)

- - - - - - - - - - - - - - - - - - - -

This form is to be submitted through the Ontario Securities Commission's Electronic Filing Portal:

https://www.osc.gov.on.ca/filings

 

APPENDIX C

INFORMATION REPORT FOR FIRM REGISTERED IN THE U.S. THAT IS SERVICING U.S. CLIENTS FROM ONTARIO

Complete the applicable sections.

Indicate if you intend to rely on any of the following:

An exemption order under the Commodity Futures Act (Ontario) that is similar to the following exemption in OSC Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers Servicing U.S. Clients from Ontario:

[ ] Part 2 [dealer registration exemption]

[ ] Part 3 [adviser registration exemption]

Indicate the jurisdiction(s) in which the firm has representatives who trade to, with, or on behalf of U.S. clients or who are acting as advisers to U.S. clients.

AB

BC

MB

NB

NL

NS

NT

NU

ON

PE

QC

SK

YT

 

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

______________________________

[Name of firm relying upon the exemption order(s) noted above]

______________________________

[Address]

______________________________

[Telephone number]

______________________________

[NRD number, if applicable]

______________________________

[Name of registered firm(s) in a jurisdiction of Canada with which the firm relying upon the exemption order(s) noted above is affiliated, has a business arrangement, or shares employees or offices]

______________________________

[NRD number of each above noted firm]

______________________________

[Name of individual responsible for ensuring conditions of the exemption order(s) are met]

______________________________

[Telephone number for responsible individual]

______________________________

[E-mail address for responsible individual]

______________________________

[Names of representatives who, in Ontario, trade to, with, or on behalf of U.S. clients or who are acting in Ontario advisers to U.S. clients. Use separate sheet if necessary]

______________________________

[Date]

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission's Electronic Filing Portal:

https://www.osc.gov.on.ca/filings