The Applicant will offer to certain of its clients in Ontario (Designated Institutions) the ability to trade in futures contracts that trade on exchanges located outside Canada through the Applicant. The Designated Institutions are the same as "designated institutions" as that term is defined in section 204(1) of Ont. Reg. 1015 General Regulation made under the Securities Act (Ontario) (OSA).
Relief granted to permit the Applicant to execute trades in exchange-traded futures for its own account as well as those placed by its Designated Institutions in Ontario on a basis that it is exempt from registration, except that the Applicant is, and will continue to be, registered as an international dealer under the OSA.
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., s. 38.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, c. C.20
IN THE MATTER OF
CITIGROUP GLOBAL MARKETS INC.
(Section 38 of the Act)
UPON the application (the Application) of the Citigroup Global Markets Inc. (the Applicant) to the Ontario Securities Commission (the Commission), in connection with trades (Futures Trades) in commodity futures contracts and options on commodity futures contracts (collectively, Futures Contracts) that trade on certain exchanges located outside Canada (Exchange-Traded Futures) for its own account and by certain of its clients who are "designated institutions" as such term is defined under subsection 204(1) of Ont. Reg. 1015 General Regulation made under the Securities Act (Ontario) (the OSA) (Designated Institutions), for an order pursuant to section 38 of the Act;
AND UPON the Applicant having represented to the Commission as follows:
1. The Applicant is a corporation incorporated under the laws of the State of New York. Its head office is located at 388 Greenwich Street, New York, New York, 10013.
2. The Applicant is a wholly owned subsidiary of Citigroup Financial Products Inc., which in turn is indirectly wholly owned by Citigroup Inc. The Applicant is affiliated with the following entities that are registered with the Commission:
(a) Citigroup Global Markets Canada Inc., which is registered under the OSA as an investment dealer;
(b) PFSL Investments Canada Ltd., which is registered under the OSA as a mutual fund dealer; and
(c) Citibank Canada Investment Funds Limited, which is registered under the OSA as an investment counsel and portfolio manager, mutual fund dealer and limited market dealer.
3. The Applicant is registered as a securities broker-dealer with the U.S. Securities and Exchange Commission (U.S. SEC), a member of the Financial Industry Regulatory Authority (FINRA), and a member of the National Association of Securities Dealers, Inc. (U.S. NASD).
4. The Applicant is registered as a Futures Commission Merchant with the U.S. Commodity Futures Trading Commission (U.S. CFTC), and is a member of the National Futures Association (U.S. NFA). Pursuant to these registrations, the Applicant is authorized to handle customer orders and receive and hold customer margin deposits, and otherwise act as a futures broker, in the U.S. Rules of the CFTC and 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.
5. The Applicant is a member of major securities exchanges, including the American Stock Exchange, the Chicago Stock Exchange, the New York Stock Exchange, and the Philadelphia Stock Exchange. The Applicant is a Foreign Approved Participant of the Montreal Exchange and a Registered Futures Commission Merchant of ICE Futures Canada, Inc. The Applicant is also a member of the CME Group (including the Chicago Board of Trade), ICE Futures U.S., Inc., the New York Mercantile Exchange (including COMEX) 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.
6. The Applicant is registered as an international dealer and international adviser in Ontario.
7. The Applicant proposes to (a) trade in Exchange-Traded Futures for its own account, (b) offer Designated Institutions in Ontario the ability to trade in Exchange-Traded Futures through the Applicant, and (c) conduct Exchange-Traded Futures execution and clearing services for Designated Institutions resident in Ontario.
8. The Applicant will solicit business only from persons in Ontario who qualify as Designated Institutions.
9. The Applicant will only offer the ability to these Designated Institutions to trade Exchange-Traded Futures trading on exchanges located outside Canada (the "Recognized Exchanges").
10. The Applicant may execute a client's order on the relevant Recognized 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.
11. The Applicant may perform both execution and clearing functions for Futures Trades or may direct that a trade executed by it be cleared through a clearing broker if the Applicant is not a member of the Recognized Exchange on which the trade is executed. Alternatively, the client will be able to direct that trades executed by the Applicant be cleared through clearing brokers not affiliated with the Applicant in any way (each a "Non-CGMI Clearing Broker").
12. If the Applicant performs only the execution of a client's Futures Contract order and "gives-up" the transaction for clearance to a Non-CGMI Clearing Broker, such clearing broker will also be required to comply with the rules of the exchanges of which it is a member and any relevant regulatory requirements, including requirements under the Act as applicable. Each such Non-CGMI Clearing Broker will represent to the Applicant in a 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 client's Futures Contract orders will be executed and cleared. The Applicant will not enter into a give-up agreement with any Non-CGMI Clearing Broker located in the United States unless such clearing broker is registered with the U.S. CFTC and/or U.S. SEC, as applicable.
13. Clients that direct the Applicant to give up transactions in Exchange-Traded Futures for clearance and settlement by Non-CGMI Clearing Brokers will execute the give-up agreements.
14. Clients will pay commissions for trades to the Applicant or the Non-CGMI Clearing Broker or such commissions may be shared with the Non-CGMI Clearing Broker.
AND UPON considering the Application and the recommendation of the Staff of the Commission;
AND UPON the Commission being satisfied that it would not be prejudicial to the public interest to grant the order requested;
IT IS ORDERED pursuant to section 38 of the Act that the Applicant be exempted from the dealer registration requirements set out in the Act in connection with Exchange-Traded Futures for its own account and by certain of its clients who fall within the category of "designated institutions" as such term is defined under subsection 204(1) of Ont. Reg. 1015 -- General Regulation made under the Securities Act (Ontario), provided that:
(a) at the time trading activity is engaged in:
(i) the Applicant is registered with the U.S. SEC as a securities broker-dealer and with the U.S. CFTC as futures commission merchant and is a member of FINRA and the U.S. NFA in good standing; and
(ii) the Applicant is registered as an international dealer under the OSA; and
(b) each client in Ontario effecting Futures Trades is a Designated Institution and, if using a non-CGMI Clearing Broker, has represented and covenanted that the broker is or will be appropriately registered or exempt from registration under the Legislation;
(c) the Applicant only executes Futures Trades for Ontario clients on exchanges located outside Canada, unless such Futures Trades are routed through an agent that is a dealer registered in Ontario under the Act; and
(d) each client in Ontario effecting Futures Trades receives disclosure upon entering into the agreement by which it establishes an account with the Applicant that includes:
(i) a statement that there may be difficulty in enforcing any legal rights against the Applicant or any of its directors, officers or employees because they are resident outside of Canada and all or substantially all of their assets are situated outside of Canada; and
(ii) a statement that the Applicant is not registered under Ontario commodity futures legislation and, accordingly, the protection available to clients of a dealer registered under such commodity futures legislation will not be available to clients of the Applicant.
October 3, 2008