Securities Law & Instruments

Headnote

The Applicant will offer to certain of its clients in Ontario (Institutional Clients) the ability to trade in futures contracts that trade on exchanges located outside Canada through the Applicant. The Institutional Clients 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 Institutional Clients 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.

Statutes Cited

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

(the Act)

AND

IN THE MATTER OF

CREDIT SUISSE SECURITIES (USA) LLC

 

ORDER

(Section 38 of the Act)

UPON the application (the Application) of Credit Suisse Securities (USA) LLC (the Applicant) to the Ontario Securities Commission (the Commission), for an order of the Commission, pursuant to section 38 of the Act (the Order), that the Applicant be exempted from the dealer registration requirements in the Act in connection with trades (Futures Trades) in contracts (as defined below) for its own account and by certain of its clients who are institutional clients (as defined below);

AND WHEREAS for the purposes of the Order:

(i) the following terms shall have the following meanings:

"CFTC" means the United States Commodity Futures Trading Commission;

"contract" means a commodity futures contract or a commodity futures option that trades on one or more organized exchanges located outside of Canada and cleared through one or more clearing corporations located outside of Canada;

"dealer registration requirement in the Act" means the provisions of section 22 of the Act that prohibit a person or company from trading in a contract unless the person or company satisfies the applicable provisions of section 22 of the Act;

"institutional client" means a client that falls within the category of investors listed in Appendix I to the Order;

"FINRA" means the Financial Industry Regulatory Authority in the United States;

"NFA" means the National Futures Association in the United States;

"OSA" means the Securities Act (Ontario);

"SEC" means the United States Securities and Exchange Commission; and

(ii) terms used in the Order that are defined in the OSA, and not otherwise defined in the Order or in the Act, shall have the same meaning as in the OSA, unless the context otherwise requires; and

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

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 11 Madison Avenue, New York, NY 10010.

2. The Applicant is a wholly owned subsidiary of Credit Suisse (USA), Inc.

3. The Applicant is registered as a securities broker-dealer with the SEC, and is a member of FINRA. The Applicant is a member of major securities exchanges, including the American Stock Exchange, the Boston Stock Exchange, the Chicago Stock Exchange, the New York Stock Exchange, and the Philadelphia Stock Exchange.

4. The Applicant is registered as a Futures Commission Merchant with the CFTC, and is a member of the 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 the 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 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, international adviser and limited market dealer in Ontario.

7. The Applicant proposes to (a) trade in contracts for its own account, (b) offer institutional clients in Ontario the ability to trade in contracts through the Applicant, and (c) conduct execution and clearing services with respect to contracts for institutional clients resident in Ontario.

8. The Applicant will solicit business only from persons in Ontario who qualify as institutional clients.

9. The Applicant will only offer institutional clients the ability to trade contracts that trade on exchanges located outside Canada (the Recognized Exchanges), unless such Futures Trades in contracts are routed through an agent that is a dealer registered in Ontario under the Act.

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 in contracts 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 or clearing house on which the trade is executed and cleared. Alternatively, the client will be able to direct that trades executed by the Applicant be cleared through clearing brokers not affiliated with the Applicant (each, a Non-CSSU Clearing Broker).

12. If the Applicant performs only the execution of a client's contract order and "gives-up" the transaction for clearance to a Non-CSSU Clearing Broker, such clearing broker will also be required to comply with the rules of the exchanges and clearing houses of which it is a member and any relevant regulatory requirements, including requirements under any applicable legislation. Each such Non-CSSU 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-CSSU Clearing Broker located in the United States unless such clearing broker is registered with the CFTC and/or the SEC, as applicable.

13. Clients that direct the Applicant to give up transactions in contracts for clearance and settlement by Non-CSSU Clearing Brokers will execute the give-up agreements.

14. Clients will pay commissions for trades to the Applicant or the Non-CSSU Clearing Broker or such commissions may be shared with the Non-CSSU Clearing Broker.

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 in the Act in connection with Futures Trades in contracts for its own account and by certain of its clients who are institutional clients, provided that:

(a) at the relevant time that trading activity are engaged in:

(i) the Applicant is registered with the SEC as a securities broker-dealer and with the CFTC as futures commission merchant and is a member of FINRA and the NFA in good standing; and

(ii) the Applicant is registered under the OSA as a dealer in the categories of international dealer and limited market dealer;

(b) each client in Ontario effecting Futures Trades in contracts is an institutional client and, if using a Non-CSSU Clearing Broker, has represented and covenanted that the broker is or will be appropriately registered or exempt from registration under applicable legislation;

(c) the Applicant only executes Futures Trades in contracts for Ontario clients on exchanges located outside Canada, unless such Futures Trades in contracts are routed through an agent that is a dealer registered in Ontario under the Act; and

(d) each client in Ontario effecting Futures Trades in contracts 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.

December 19, 2008

"Lawerence E. Ritchie"
Commissioner
Ontario Securities Commission
 
"James E.A. Turner"
Commissioner
Ontario Securities Commission

 

Appendix I

INSTITUTIONAL CLIENTS

In this Order, "Institutional Client" means:

a) a financial intermediary;

b) the Federal Business Development Bank;

c) a subsidiary of any company referred to in clause (a) or (b), where the company beneficially owns all of the voting securities of the subsidiary;

d) the Government of Canada or any province or territory of Canada;

e) any municipal corporation or public board or commission in Canada;

f) a mutual fund, other than a private mutual fund, having net assets of at least $5,000,000;

g) a trusteed pension plan or fund sponsored by an employer for the benefit of its employees and having net assets of at least $5,000,000;

h) a registered dealer;

i) a company or person, other than an individual, that is an accredited investor as defined in section 1.1 of National Instrument 45-106 Prospectus and Registration Exemptions; and

j) a person or company deemed to be a "designated institution" under subsection 204(2) of Ont. Reg. 1015 -- General Regulation made under the Securities Act (Ontario).