Securities Law & Instruments

Headnote

Application for an order, pursuant to pursuant to (i) section 80 of the Commodity Futures Act (CFA) granting relief from sections 42, 43, 44 and 45 of the CFA and (ii) section 147 of the Securities Act (OSA) granting relief from section 36 of the OSA, which contain the requirement to deliver certain confirmations and statements of trade to customers in respect of trades in commodity futures contracts and commodity futures options as well as equity options in the context of trade "give-ups".

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 36, 147.

Commodity Futures Act, R.S.O. 1990, C.20, ss. 42, 43, 44, 45, 80.

September 11, 2009

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

R.R.O. 1990, REGULATION 90 --

COMMODITY FUTURES ACT REGULATION,

AS AMENDED (the CFA REGULATION)

AND

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5, AS AMENDED

(the OSA)

IN THE MATTER OF

MF GLOBAL CANADA CO.

(the Applicant)

 

DECISION

UPON the application (the Application) by MF Global Canada Co. (the Applicant) to the Ontario Securities Commission (the Commission) for a decision pursuant to (i) section 80 of the CFA granting relief from sections 42, 43, 44 and 45 of the CFA and (ii) section 147 of the OSA granting relief from section 36 of the OSA, which contain the requirement to deliver certain confirmations and statements of trade to customers in respect of trades in commodity futures contracts and commodity futures options as well as equity options in the context of trade "give-ups".

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant is a corporation formed under the laws of Nova Scotia.

2. The head office of the Applicant is located in Toronto, Ontario.

3. The Applicant is a member of the Investment Industry Regulatory Organization of Canada (IIROC). The Applicant is also registered as an investment dealer under the OSA and is registered under the CFA to trade commodity futures contracts and commodity futures options. The Applicant is also a Participating Organization of the Toronto Stock Exchange and TSX-Venture, an Approved Participant of the Montreal Exchange and a Clearing Member and Direct Market Participant of ICE Futures Canada Inc.

4. The Application relates to the Applicant's "give-up" business on certain US and Canadian exchanges that trade commodity futures and equity options (the Applicable Exchanges) where the Applicant acts as the executing broker primarily for institutional clients.

5. In a typical give-up situation, a customer has an existing relationship with its clearing broker, and has signed account documentation with such clearing broker, but desires to utilize one or several other executing brokers for purposes of executing on one or more markets, whether domestic or global. In such an instance, the executing broker will execute trades as directed by the customer and "give-up" such trades to the clearing broker via various futures exchange mechanisms that allow for and govern this procedure, as more fully explained below. The customer does not sign account documentation with the executing broker, nor does the executing broker receive monies, securities, margin or collateral from the customer. The customer is a customer of and on the books of the clearing broker and the executing broker is merely providing a limited execution transaction service. The executing broker is responsible for complying with the terms of the give-up agreement executed among the client, clearing broker and executing broker. IIROC also requires compliance with IIROC Rule 200.

6. Each give-up trade executed by Applicant is captured in the Applicant's books and records and accounting system. A daily control performed by Applicant's back-office identifies equity options, commodity futures contracts and commodity futures options positions held by the Applicant and not allocated to any of its customers' accounts. Each such position is investigated and is either i) sent to the clearing broker as a trade that was executed under a give-up agreement, or ii) upon receipt of new instructions allocated to a customer's account. For each customer a monthly invoice detailing all give-up trades for a given month is sent to the clearing broker or in some cases, to the customer directly. After reconciliation with the clearing broker's own records, the clearing broker pays the invoice sent by Applicant. Consequently, upon payment of any invoice sent by Applicant to the clearing broker, the Applicant considers the invoice as evidence of trade reconciliation between its internal accounting and the client.

7. The Applicant is in compliance with IIROC requirements relating to the maintenance of records of executed transactions under IIROC Rule 200 to the extent possible based on the information received by the Applicant from the Applicable Exchanges.

8. Section 42 of the CFA requires that a registered dealer that has acted as an agent in connection with a trade in a commodity futures contract promptly send customers a written confirmation of trade.

9. Section 43 of the CFA requires that a registered dealer that has acted as an agent in connection with a liquidating trade in a commodity futures contract promptly send customers a written statement of purchase and sale.

10. Section 44 of the CFA requires that registered dealers send customers a written monthly statement.

11. Section 45 of the CFA requires that a registered dealer that has acted as an agent in connection with a trade in a commodity futures option send customers a written confirmation of a trade.

12. Section 36 of the OSA requires that a registered dealer that has acted as principal or agent in connection with any trade in a security promptly send customers a written confirmation of the trade.

13. The Applicant is seeking a decision from the Commission pursuant to section 80 of the CFA that it be exempt from the sections 42, 43, 44 and 45 of the CFA and pursuant to section 147 of the OSA granting relief from section 36 of the OSA with respect to give-up arrangements because the imposition of those requirements is unnecessary, duplicative and not industry practice globally in the futures market.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

THE DECISION of the Commission is that the Applicant is exempt from the requirements of sections 42, 43, 44 and 45 of the CFA and section 36 of the OSA for the purposes of the Applicant acting as executing broker for give-up transactions where the clearing broker provides customers a written confirmation of the trades, provided that the Applicant enters into a give-up agreement with the clearing broker and the customer.

"James E.A. Turner"
Commissioner
Ontario Securities Commission
 
"Mary G. Condon"
Commissioner
Ontario Securities Commission