Proceedings

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IN THE MATTER OF
QUESTRADE WEALTH MANAGEMENT INC.

SETTLEMENT AGREEMENT BETWEEN STAFF OF THE ONTARIO SECURITIES COMMISSION AND QUESTRADE WEALTH MANAGEMENT INC.



FILE NO.: 2018-63

IN THE MATTER OF QUESTRADE WEALTH MANAGEMENT INC.

Robert P. Hutchison, Commissioner and Chair of the Panel
Deborah Leckman, Commissioner
Lawrence P. Haber, Commissioner

November 27, 2018

ORDER (Subsection 127(1) and Section 127.1 of the Securities Act, RSO 1990, c S.5)

WHEREAS on November 27, 2018, the Ontario Securities Commission (the Commission) held a hearing at the offices of the Commission, located at 20 Queen Street West, 17th Floor, Toronto, Ontario, to consider the Application made jointly by Questrade Wealth Management Inc. (the Respondent) and Staff of the Commission (Staff) for approval of a settlement agreement dated November 20, 2018 (the Settlement Agreement);

ON READING the Joint Application for a Settlement Hearing, including the Statement of Allegations dated November 22, 2018 and the Settlement Agreement, and on hearing the submissions of the representatives for the Respondent and Staff, and considering the undertaking of the Respondent dated November 20, 2018 attached as Annex I to this Order and the Consent of the parties to an Order in substantially this form;

IT IS ORDERED THAT:

1. the Settlement Agreement is approved, pursuant to subsection 127(1) of the Securities Act, RSO 1990, c S.5 (the Act);

2. the Respondent is reprimanded, pursuant to paragraph 6 of subsection 127(1) of the Act; and

3. the Respondent pay costs in the amount of $100,000, pursuant to section 127.1 of the Act.

"Robert P. Hutchison"
 
"Deborah Leckman"
 
"Lawrence P. Haber"

 

ANNEX I

IN THE MATTER OF QUESTRADE WEALTH MANAGEMENT INC.

UNDERTAKING TO THE ONTARIO SECURITIES COMMISSION

1. This Undertaking is given in connection with the settlement agreement dated November 20, 2018 (the "Settlement Agreement") between Questrade Wealth Management Inc. (the "Respondent") and Staff of the Commission ("Staff"). All terms shall have the same meanings in this Undertaking as in the Settlement Agreement.

2. The Respondent undertakes to the Commission to:

a. make a voluntary payment in the amount of $2,900,000 to be designated for allocation or use by the Commission in accordance with paragraph (i) or (ii) of subsection 3.4(2)(b) of the Act as follows:

i. by certified cheque, bank draft or wire transfer of $1,350,000 prior to the hearing before the Commission to approve this Settlement Agreement; and

ii. by making four quarterly payments of $387,500 on February 27, 2019, May 27, 2019, August 27, 2019, and November 27, 2019; and

b. deliver a certified cheque, bank draft or wire transfer of $100,000 prior to the hearing before the Commission to approve this Settlement Agreement in respect of the costs referred to in paragraph 56(c) of the Settlement Agreement.

QUESTRADE WEALTH MANAGEMENT INC.
By:
"Edward Kholodenko"
Edward Kholodenko
____________________
President & CEO

 

IN THE MATTER OF QUESTRADE WEALTH MANAGEMENT INC.

SETTLEMENT AGREEMENT BETWEEN STAFF OF THE ONTARIO SECURITIES COMMISSION AND QUESTRADE WEALTH MANAGEMENT INC.

PART I -- INTRODUCTION

1. It is essential to investor protection and market integrity that registered Portfolio Managers ("PMs") diligently identify and respond to conflicts of interest pursuant to their obligations under section 13.4 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. PMs must have in place proper procedures to anticipate and respond in advance to conflicts of interest that may arise. They must take reasonable steps to identify and respond to a conflict of interest before investing client money so as to ensure that they are acting in the best interest of their clients. PMs who are not able to demonstrate that they took appropriate steps to identify and respond to conflicts of interest will face regulatory consequences.

PART II -- OVERVIEW

2. On July 27, 2017 Questrade Wealth Management Inc. ("Questrade") and WisdomTree Asset Management Canada, Inc. ("WisdomTree") announced that they and their affiliates had entered into three strategic agreements.

(a) WisdomTree agreed to purchase eight exchange-traded funds ("ETFs") managed by Questrade (the "Transaction").

(b) As part of the Transaction WisdomTree's affiliate was to become a consultant for Questrade's Portfolio IQ ("PIQ"), a managed online investment service. At the time, Questrade acted as PM with discretionary authority to invest over $60 million entrusted to it by its PIQ clients. One Capital Management LLC ("OCM") acted as a registered sub-advisor to Questrade and provided investment advice for managing the PIQ portfolios.

(c) Finally, WisdomTree was announced as the premier provider of ETFs offered by Questrade's affiliate, which agreed to jointly market WisdomTree's ETFs to investors pursuant to a Joint Marketing Agreement.

3. The day after the announcement, Questrade purchased approximately $15 million in WisdomTree ETFs for the PIQ portfolios (the "July Trade"). In the context of the Transaction, this significant purchase of WisdomTree ETFs required Questrade to determine if a conflict of interest existed between Questrade and its clients.

4. During the negotiation of the Transaction, WisdomTree had advised that it wanted Questrade's agreement that WisdomTree ETFs would be purchased for the PIQ portfolios before it would finalize the Transaction. Questrade refused, telling WisdomTree that the WisdomTree ETFs would not be included in the PIQ portfolios unless OCM determined that such a purchase was, as described by Questrade, "in the best interest" of the PIQ clients.

5. Before the Transaction was finalized, OCM advised WisdomTree that it would recommend including significant amounts of WisdomTree ETFs for the PIQ portfolios. At the time of this recommendation, however, OCM's PM had not documented why it believed the WisdomTree ETFs were in the best interest of the PIQ clients. Questrade's senior management was advised of OCM's recommendation but did not obtain any supporting documentation about the suitability of the WisdomTree ETFs at this time.

6. The day that the Transaction was finalized, WisdomTree asked that the July Trade be carried out. The next day, OCM sent instructions asking Questrade to execute the July Trade before the end of the day. Aside from its senior management, none of Questrade's staff had any prior knowledge that OCM was planning to recommend such a significant trade.

7. As PM of the PIQ portfolios, Questrade was ultimately responsible for determining whether the July Trade was suitable and that it did not conflict with the interests of its PIQ clients. To that end, Questrade relied upon OCM's recommendation of the WisdomTree ETFs for the PIQ portfolio.

8. Given OCM's request to execute the trade quickly, Questrade's staff did not wait to receive any due diligence documents from OCM and relied only upon OCM's oral assurances. Questrade also failed to document why it determined no conflict of interest arose from the July Trade until approximately a month after the July Trade, contrary to its own policies.

9. In the context of the Transaction, Questrade's review of the July Trade failed to meet the high standard of conduct that is expected of a registrant in taking appropriate steps to ensure that the July Trade was suitable for its clients, and that it did not create a conflict of interest, which potentially put its PIQ clients at risk and was contrary to the public interest.

10. The parties shall jointly file a request that the Ontario Securities Commission (the "Commission") issue a Notice of Hearing (the "Notice of Hearing") to announce that it will hold a hearing to consider whether, pursuant to sections 127 and 127.1 of the Securities Act, RSO 1990, c S.5 (the "Act"), it is in the public interest for the Commission to make certain orders against Questrade in respect of the conduct described herein.

PART III -- JOINT SETTLEMENT RECOMMENDATION

11. Staff of the Commission ("Staff") recommend settlement of the proceeding commenced by the Notice of Hearing, (the "Proceeding") against Questrade according to the terms and conditions set out in Part VII of this settlement agreement (the "Settlement Agreement"). Staff and Questrade consent to the making of an order in the form attached as Schedule "A" ("the "Order") based on the facts set out below.

12. For the purposes of the Proceeding, and any other regulatory proceeding commenced by a securities regulatory authority, Questrade agrees with the facts as set out in Part IV and the conclusion in Part V of this Settlement Agreement.

PART IV -- AGREED FACTS

A. THE PARTIES

13. Questrade is an Ontario corporation with its head office in Toronto, Ontario. It is registered with the Commission as an Investment Fund Manager ("IFM"), an Exempt Market Dealer ("EMD") and a PM. As a PM, Questrade has discretionary trading authority over the accounts of its PIQ clients.

14. Questrade was the trustee, manager and PM of eight ETFs,{1} which were established under the laws of Ontario. Each of the Questrade ETFs was an exchange-traded mutual fund.

15. Before it sold the Questrade ETFs, Questrade's two primary lines of business were managing the Questrade ETFs and acting as the PM for PIQ.

16. Questrade, Inc. is an Ontario corporation with its head office in Toronto, Ontario. It is registered with the Commission as an Investment Dealer. Questrade, Inc. is a member of the Investment Industry Regulatory Organization of Canada.

17. Questrade and Questrade, Inc. are wholly owned subsidiaries of Questrade Financial Group Inc.

18. OCM is a corporation formed pursuant to the laws of Nevada, with its head office in Westlake Village, California. It is registered with the Commission as a PM in Ontario, subject to terms and conditions as a foreign advisor.

19. OCM has been engaged by Questrade to act as sub-advisor for the PIQ portfolios since PIQ's inception in 2014. OCM was also the sub-advisor to one of the Questrade ETFs that were the subject of the Transaction.

20. WisdomTree is an Ontario Corporation with its head office in Toronto, Ontario. WisdomTree is a wholly-owned subsidiary of WisdomTree Investments, Inc., a U.S. public company. WisdomTree is registered as an IFM and EMD in Ontario.

21. As a result of the Transaction, WisdomTree became the IFM for the Questrade ETFs as of December 6, 2017. Seven of the Questrade ETFs merged into existing ETFs managed by WisdomTree, and WisdomTree became the trustee and manager for one of the Questrade ETFs. Questrade is no longer the trustee or manager for any of the Questrade ETFs.

B. BACKGROUND

Management of PIQ

22. In late 2013, Questrade began its search for a sub-advisor to provide sub-advisory services for its new PIQ. Ultimately, Questrade engaged OCM, pursuant to a sub-advisory agreement dated October 3, 2014, having determined that OCM had the requisite expertise and performance history to manage and make investment decisions in the best interest of the PIQ clients.

23. Pursuant to the sub-advisory agreement, OCM provides day-to-day sub-advisory services to Questrade, which includes regularly monitoring and assessing the portfolios' constitution, the appropriateness of holdings within each respective portfolio, as well as determining any proposed changes to the model portfolio and communicating such changes to Questrade.

24. Questrade is ultimately responsible for determining whether trades are suitable for its investors in regard to the PIQ portfolios for which OCM provides sub-advisory services. Questrade is also ultimately responsible for identifying and responding to conflicts of interest related to the PIQ portfolios. OCM instructs Questrade on changes to be made to the PIQ portfolios. Questrade supervises OCM's portfolio management and investment decisions, and a Questrade PM evaluates all trades before they are executed.

The Negotiation and Agreements with WisdomTree

25. From November 2016 to July 2017, Questrade and WisdomTree negotiated the terms of the Transaction.

26. Questrade and WisdomTree agreed that prior to concluding the Transaction, WisdomTree would meet with OCM to discuss the potential purchase of WisdomTree ETFs in the PIQ portfolios. WisdomTree expected that, should the WisdomTree ETFs' methodology and/or performance merit inclusion, the WisdomTree ETFs would be included in the PIQ portfolios.

27. WisdomTree's representative advised that he needed OCM's confirmation about a purchase of WisdomTree ETFs before he could sign the Transaction agreements.

28. In May 2017, there was a call between OCM, Questrade and WisdomTree to discuss the Transaction. During that call, there was some discussion about including WisdomTree ETFs in the PIQ portfolios. OCM indicated to WisdomTree that they would "make it work" as long as including the WisdomTree ETFs was in the "best interests" of the PIQ clients.

29. In July 2017, following discussions between OCM and WisdomTree about the WisdomTree ETFs, OCM advised WisdomTree that it intended to hold 94% of PIQ's fixed income assets and 70-75% of its equity assets in WisdomTree ETFs. WisdomTree's fixed income exchange traded funds had been launched only one month earlier. OCM's PM did not produce any written analysis explaining why it asserted each of the WisdomTree ETFs was in the best interest of the PIQ clients.

30. By July 19, 2017, Questrade's senior management was advised that OCM would recommend significant investments in WisdomTree ETFs. However, Questrade's ordinary compliance process was not followed as Questrade's senior management did not obtain any analysis prior to the July Trade as to why the recommended WisdomTree ETFs were suitable, and the PM was not advised of OCM's intention to make these significant changes to the PIQ portfolios until July 27, 2017

31. Three agreements were ultimately concluded on July 26, 2017 and announced in press releases the following day:

(a) a Purchase and Sale Agreement whereby WisdomTree agreed to acquire the rights to act as a trustee and manager of the eight Questrade ETFs for approximately $2.4 million;

(b) a Consulting Agreement pursuant to which a WisdomTree affiliate would provide educational and related information to OCM and Questrade would facilitate quarterly meetings between the WisdomTree affiliate and OCM;

(c) a Joint Marketing Agreement pursuant to which WisdomTree and Questrade Inc. would jointly market WisdomTree ETFs to investors.

32. Under the provisions of the Joint Marketing Agreement, Questrade, Inc. was to be reimbursed for a portion of certain joint marketing expenses. The amount of these reimbursements was conditional on, among other things, the amount of WisdomTree ETFs held by Questrade, Inc. clients or PIQ clients. As well, Questrade, Inc. agreed to repay these reimbursements if certain growth targets for holdings of WisdomTree ETFs were not met (the "Reimbursement Provisions"). Questrade Inc. has not received any reimbursements pursuant to the Joint Marketing Agreement.

The July Trade: PIQ Portfolios' Investments in WisdomTree ETFs

33. On Tuesday, July 25, 2017, two days before the press releases were issued, the parties had agreed upon the final form of the Transaction agreements.

34. On the same day, WisdomTree emailed Questrade's management and asked Questrade to start the July Trade on July 26, 2017 or July 27, 2017. The email advised that OCM and WisdomTree's teams were both on standby to help execute the trades.

35. Aside from its senior management, none of Questrade's staff had any prior knowledge that OCM was planning to recommend the trade.

36. Questrade agreed to get the trade started the next day, and to this end, an internal email was sent confirming that the Transaction agreements were finalized and asking Questrade's in-house counsel to prepare for the trades "tomorrow first thing." Questrade's PM was not copied on this internal email.

37. On Thursday, July 27 at 2:35 pm, OCM sent instructions for the July Trade to Questrade's PM, which it requested be executed by the end of the day. This involved selling iShares fixed income ETFs and replacing them with approximately $15 million in WisdomTree ETFs, which represented 23% of the PIQ portfolio. Given the size and nature of the trade, Questrade's PM emailed his supervisor about the trade immediately after receiving the request from OCM.

38. When Questrade's PM's supervisor did not respond, the Questrade PM notified Questrade's CCO, flagging the Transaction and noting that the management expense ratios for the new WisdomTree ETFs were higher and the spreads were wider than those of the iShares fixed income ETFs. The Questrade PM then arranged two calls with the OCM PM to get more information about the July Trade and to understand its rationale.

39. The Questrade PM reviewed the trade for suitability. He had another call with OCM's PM regarding the rationale for the trade.

40. Questrade had not received any due diligence documents from OCM by the time OCM gave instructions to make the July Trade. The Questrade PM requested due diligence documents supporting the trade.

41. OCM assured the Questrade PM over the phone that OCM had a research note prepared. Although the research note was requested, this document was not provided to Questrade until July 30, 2017, after the July Trade had been executed. At the time of the July Trade, Questrade did not have any written analysis as to why the trade was suitable.

42. On July 28, 2017, Questrade's CCO reviewed the proposed trade and OCM's stated rationale for it, and discussed it with Questrade's CEO and CFO. The CCO obtained OCM's confirmation that the recommendation was coming independently from OCM and that it would have been made regardless of the Transaction. Questrade relied on the experience and expertise of OCM and its explanation for the trade in reaching its conclusion that the July Trade was in the best interest of PIQ clients. Questrade concluded that OCM's rationale for the request was an appropriate basis for the trade.

43. Having concluded that the instruction for the July Trade had been made independently by OCM and that it was not influenced by the Transaction, Questrade's CCO determined that there was no conflict of interest. Questrade approved the July Trade but the reasons for the determination that there was no conflict of interest were not documented until August 22, 2017.

44. The July Trade was executed on the afternoon of July 28, 2017.

Withdrawal of Proposed August Trades

45. On August 3, 2017, OCM sent Questrade instructions for a PIQ trade replacing iShares equity ETFs with WisdomTree equity ETFs (the "Proposed August Trade"), which it asked to be executed by the end of the day. This trade would have resulted in a significant increase in WisdomTree ETFs in the PIQ portfolios, which would have represented 39% of the total PIQ portfolio. Prior to receiving this direction, Questrade's PM had no prior knowledge that the Proposed August Trade was being planned.

46. In light of the July Trade, Questrade's PM requested the rationale behind the Proposed August Trade. The request was escalated to Questrade's CCO, who reviewed the request and expressed concerns over the timing and size of the Proposed August Trade. Given how quickly OCM was recommending the change, and in light of the recent July Trade and the increased concentration in Wisdom Tree ETFs after the Transaction, the CCO had a concern that the Proposed August Trade could have the appearance of a conflict of interest. She discussed her concern with OCM, and based on those discussions, OCM withdrew the instructions for the Proposed August Trade.

47. The Proposed August Trade caused Questrade to review how it assessed the July Trade. On August 4, 2017, at the request of Questrade, OCM completed a compliance certification with respect to the July Trade, certifying it had acted in the best interests of clients and fulfilled its obligations of fair dealing.

48. On August 22, 2017, Questrade completed a post-trade review of the July Trade and provided a written opinion that the July Trade was "completed in the normal course of business achieving [Questrade's] obligation to act in the best interest of its clients".

Reimbursements under the JMA

49. On January 23, 2018 and April 10, 2018, Questrade, Inc. and WisdomTree held joint educational webinars pursuant to the JMA. Aside from these two webinars, no other educational or marketing initiatives have taken place pursuant to the JMA.

50. On or about March 31, 2018, Questrade, Inc. sent WisdomTree an invoice for reimbursement of its staff and overhead costs incurred for the first webinar for $1,629, inclusive of taxes. Under the Reimbursement Provisions, these reimbursements would have to be repaid if the specified growth targets for holdings of WisdomTree ETFs were not met. When Questrade, Inc. recognized that the costs invoiced were not permissible reimbursements under National Instrument 81-105 Mutual Fund Sales Practices ("NI 81-105"), Questrade, Inc. withdrew the invoice and did not pursue any reimbursement for those costs.

51. Questrade, Inc. has not received, and does not intend to receive, any reimbursement from WisdomTree for any payment that would be contrary to NI 81-105. Questrade, Inc. has provided an undertaking to Staff that it will not seek nor accept any reimbursement payments contemplated under the Joint Marketing Agreement that would be contrary to NI 81-105.

PART V -- CONDUCT CONTRARY TO THE PUBLIC INTEREST

52. Questrade acted contrary to the public interest by failing to take appropriate steps to determine whether a conflict of interest existed before investing client money. As a result, Questrade failed to meet the high standards of conduct expected of a registrant when identifying and responding to conflicts of interest, which potentially put its PIQ clients at risk that the July Trade was not in the best interests of the client.

53. In the context of Questrade's admitted conduct contrary to the public interest, the terms of settlement agreed to by the parties reflect the important specific and general deterrence objectives of the Commission.

PART VI -- FACTORS RELEVANT TO SANCTIONS

54. Questrade intends to request that the panel at the Settlement Hearing (as defined below) consider the following mitigating circumstances:

(a) Staff do not allege dishonest or wilful misconduct by Questrade or Questrade's senior management.

(b) In the course of Staff's investigation, Questrade has represented to Staff that no transaction fees incurred by Questrade arising from the July Trade were passed on to investors, and that publicly available market data shows that the relative market prices for the relevant iShares fixed income ETFs and WisdomTree ETFs are very similar.

(c) Questrade has engaged an independent consultant to conduct a suitability review for all clients in all affected PIQ portfolios. The independent consultant will review the appropriateness of WisdomTree ETFs for the model portfolios. The independent consultant will provide Staff with the conclusions of the review at the same time it provides its conclusions to Questrade.

(d) During Staff's investigation, Questrade provided prompt, detailed and candid cooperation to Staff.

(e) As a result of Staff's investigation, Questrade, on its own initiative, has taken steps to improve its system of compliance, including internal controls, relating to the identification, avoidance, management and mitigation of conflicts of interest. Specifically, Questrade has engaged in an extensive review and testing of its systems of controls and supervision. As a result of this review, Questrade has implemented enhanced procedures, controls and supervisory and monitoring systems (the "Enhanced Control and Supervision Procedures"). Questrade has provided a summary of the Enhanced Control and Supervision Procedures to Staff. The Enhanced Control and Supervision Procedures include substantive improvements to Questrade's Management Account Relationship Disclosure Policy, its Conflicts of Interest Policy and its Compliance Program. Questrade engaged an independent consultant to conduct final testing and review of the Enhanced Control and Supervision Procedures and has implemented further changes recommended by the independent consultant.

PART VII -- TERMS OF SETTLEMENT

55. Questrade agrees to the terms of settlement set out below.

(a) Questrade has given an undertaking (the "Undertaking") to the Commission in the form attached as Schedule "B" to this Settlement Agreement, which includes an undertaking by Questrade to:

i. make a voluntary payment in the amount of $2,900,000 to be designated for allocation or use by the Commission in accordance with paragraph (i) or (ii) of subsection 3.4(2)(b) of the Act as follows:

(A) by certified cheque, bank draft or wire transfer of $1,350,000 prior to the hearing before the Commission to approve this Settlement Agreement; and

(B) by making four quarterly payments of $387,500 on February 27, 2019, May 27, 2019, August 27, 2019, and November 27, 2019; and

ii. deliver a certified cheque, bank draft or wire transfer of $100,000 prior to the hearing before the Commission to approve this Settlement Agreement in respect of the costs referred to in paragraph 56(c) below.

56. Questrade consents to the Order, pursuant to which it is ordered that:

(a) this Settlement Agreement be approved;

(b) Questrade be reprimanded pursuant to paragraph 6 of subsection 127(1) of the Act; and

(c) Questrade pay costs in the amount of $100,000 pursuant to section 127.1 of the Act.

PART VIII -- FURTHER PROCEEDINGS

57. If the Commission approves this Settlement Agreement, Staff will not commence or continue any proceeding against Questrade under Ontario securities law in relation to the facts set out in Part IV of this Settlement Agreement, unless Questrade fails to comply with any term in this Settlement Agreement or the Undertaking, in which case Staff may bring proceedings under Ontario securities law against Questrade that may be based on, among other things, the facts set out in Part IV of this Settlement Agreement as well as the breach of the Settlement Agreement or the Undertaking.

58. Questrade acknowledges that, if the Commission approves this Settlement Agreement and Questrade fails to comply with any term in it or in the Undertaking, the Commission is entitled to bring any proceedings necessary to enforce compliance with the terms of the Settlement Agreement or the Undertaking.

59. Questrade waives any defences to a proceeding referenced in paragraphs 57 and 58 that are based on the limitation period in the Act, provided that no such proceeding shall be commenced later than six years from the date of the occurrence of the last failure to comply with this Settlement Agreement or the Undertaking.

PART IX -- PROCEDURE FOR APPROVAL OF SETTLEMENT

60. The parties will seek approval of this Settlement Agreement at a public hearing (the "Settlement Hearing") before the Commission, which shall be held on a date determined by the Secretary to the Commission in accordance with this Settlement Agreement and the Commission's Rules of Procedure, adopted October 31, 2017.

61. Questrade's Ultimate Designated Person will attend the Settlement Hearing on behalf of Questrade.

62. The parties confirm that this Settlement Agreement sets forth all of the agreed facts that will be submitted at the Settlement Hearing, unless the parties agree that additional facts should be submitted at the Settlement Hearing.

63. If the Commission approves this Settlement Agreement:

(a) Questrade irrevocably waives all rights to a full hearing, judicial review or appeal of this matter under the Act; and

(b) neither party will make any public statement that is inconsistent with this Settlement Agreement or with any additional agreed facts submitted at the Settlement Hearing.

Whether or not the Commission approves this Settlement Agreement, Questrade will not use, in any proceeding, this Settlement Agreement or the negotiation or process of approval of this Settlement Agreement as the basis for any attack on the Commission's jurisdiction, alleged bias, alleged unfairness, or any other remedies or challenges that may otherwise be available.

PART X -- DISCLOSURE OF SETTLEMENT AGREEMENT

64. If the Commission does not make the Order:

(a) this Settlement Agreement and all discussions and negotiations between Staff and Questrade before the Settlement Hearing will be without prejudice to Staff and Questrade; and

(b) Staff and Questrade will each be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing on the merits of the allegations contained in the Statement of Allegations in respect of the Proceeding. Any such proceedings, remedies and challenges will not be affected by this Settlement Agreement, or by any discussions or negotiations relating to this Settlement Agreement.

65. The parties will keep the terms of this Settlement Agreement confidential until the Settlement Hearing, unless they agree in writing not to do so or unless otherwise required by law.

PART XI -- EXECUTION OF SETTLEMENT AGREEMENT

66. This Settlement Agreement may be signed in one or more counterparts which together constitute a binding agreement.

67. A facsimile copy or other electronic copy of any signature will be as effective as an original signature.

DATED at Toronto, Ontario this 20th day of November, 2018.

QUESTRADE WEALTH MANAGEMENT INC.
By:
"Edward Kholodenko"
Edward Kholodenko
____________________
President & CEO

DATED at Toronto, Ontario this 20th day of November, 2018.

STAFF OF THE ONTARIO SECURITIES COMMISSION
By:
"Jeff Kehoe"
Jeff Kehoe
Director, Enforcement Branch

{1} Questrade Russell US Midcap Growth Index ETF Hedged to CAD, Questrade Russell US Midcap Value Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Technology Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Industrials Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Health Care Index ETF Hedged to CAD and Questrade Russell 1000 Equal Weight US Consumer Discretionary Index ETF Hedged to CAD, Questrade Fixed Income Core Plus ETF and Questrade Global Total Equity ETF

 

Schedule "A" -- DRAFT ORDER

FILE NO.: 2018-63

IN THE MATTER OF QUESTRADE WEALTH MANAGEMENT INC.

ORDER (Subsections 127(1) and 127.1 of the Securities Act, RSO 1990 c S.5)

WHEREAS on •, 2018 the Ontario Securities Commission (the Commission) held a hearing at the offices of the Commission, located at 20 Queen Street West, 17th Floor, Toronto, Ontario to consider the Application made jointly by Questrade Wealth Management Inc. (the Respondent) and Staff of the Commission (Staff) for approval of a settlement agreement dated •, 2018 (the Settlement Agreement);

AND WHEREAS pursuant to the Settlement Agreement, the Respondent has given an undertaking (the Undertaking) to the Commission dated [date], in the form attached as Schedule "A" to this Order, which includes an undertaking to:

1. make a voluntary payment, in the amount of $2,900,000 to be designated for allocation or use by the Commission in accordance with paragraph (i) or (ii) of subsection 3.4(2)(b) of the Securities Act, RSO 1990, c S.5 (the Act) as follows:

a. by certified cheque, bank draft or wire transfer of $1,350,000 prior to the hearing before the Commission to approve this Settlement Agreement; and

b. by making four quarterly payments of $387,500 on February 27, 2019, May 27, 2019, August 27, 2019, and November 27, 2019; and

2. deliver a certified cheque, bank draft or wire transfer of $100,000 prior to the hearing before the Commission to approve this Settlement Agreement in respect of costs referred to in paragraph 56(c) of the Settlement Agreement;

ON READING the Joint Application Record for a Settlement Hearing, including the Statement of Allegations dated ?, 2018 and the Settlement Agreement and the Undertaking, and on hearing the submissions of counsel for both parties;

IT IS ORDERED THAT:

1. the Settlement Agreement is approved pursuant to subsection 127(1) of the Securities Act, RSO 1990 c S.5, as amended (the Act).

2. the Respondent is reprimanded, pursuant to paragraph 6 of subsection 127(1) of the Act;

3. the Respondent pay costs in the amount of $100,000, pursuant to section 127.1 of the Act.

______________________________
[Commissioner]
 
______________________________
[Commissioner]
 
______________________________
[Commissioner]

 

Schedule "B" -- DRAFT UNDERTAKING TO THE COMMISSION

IN THE MATTER OF QUESTRADE WEALTH MANAGEMENT INC.

UNDERTAKING TO THE ONTARIO SECURITIES COMMISSION

1. This Undertaking is given in connection with the settlement agreement dated _______________ (the "Settlement Agreement") between Questrade Wealth Management Inc. (the "Respondent") and Staff of the Commission ("Staff"). All terms shall have the same meanings in this Undertaking as in the Settlement Agreement.

2. The Respondent undertakes to the Commission to:

a. make a voluntary payment in the amount of $2,900,000 to be designated for allocation or use by the Commission in accordance with paragraph (i) or (ii) of subsection 3.4(2)(b) of the Act as follows:

i. by certified cheque, bank draft or wire transfer of $1,350,000 prior to the hearing before the Commission to approve this Settlement Agreement; and

ii. by making four quarterly payments of $387,500 on February 27, 2019, May 27, 2019, August 27, 2019, and November 27, 2019; and

b. deliver a certified cheque, bank draft or wire transfer of $100,000 prior to the hearing before the Commission to approve this Settlement Agreement in respect of the costs referred to in paragraph 56(c) of the Settlement Agreement.

QUESTRADE WEALTH ANAGEMENT INC.
By:
"Edward Kholodenko"
Edward Kholodenko
President & CEO