Securities Law & Instruments

(the Act)
(Section 147 of the Act)

UPON the Ontario Securities Commission (the Commission) having received an application (the Application) from CLS Bank International (the Applicant) for a decision pursuant to section 147 of the Act exempting the Applicant and CLS Services Ltd. ("CLS Services") from the clearing agency recognition requirement of subsection 21.2(0.1) of the Act (the Requested Relief);

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 chartered as an Edge corporation under the laws of the United States and, as such, it is a banking institution that is authorized to conduct international banking operations.

2. The Applicant and CLS Services are wholly-owned subsidiaries of CLS UK Intermediate Holdings Ltd. (CLS Intermediate Holdings).

3. Each of CLS Services and CLS Intermediate Holdings is incorporated under the laws of England and Wales and is located in London, England. CLS Intermediate Holdings also maintains a representative office in Tokyo, Japan.

4. CLS Intermediate Holdings is a wholly-owned subsidiary of CLS Group Holdings AG, a Swiss company that is the ultimate holding company of the CLS Group.

5. The Applicant was established in 1999 to develop a system to settle payment instructions relating to underlying foreign exchange transactions to reduce the settlement risk inherent in then existing settlement mechanisms. It began live operations in September 2002 using its automated CLS system.

6. The Applicant currently settles payment instructions relating to underlying transactions (Transactions) that involve seventeen different currencies (Eligible Currencies) comprising the Australian dollar; the Canadian dollar; the Danish krone; the euro; the Hong Kong dollar; the Israeli shekel; the Japanese yen; the Mexican peso; the New Zealand dollar; the Norwegian krone; the Singapore dollar; the South African rand; the South Korean won; the Swedish krona; the Swiss franc; the UK pound sterling; and the US dollar and it also intends to settle payment instructions relating to Transactions involving other currencies subject to receipt of all necessary approvals.

7. The CLS system is a continuous linked settlement system for settling payments in relation to Transactions that is intended to eliminate settlement risk attributable to the existence of time zones.

8. The Applicant operates the CLS system pursuant to the CLS Bank International Rules (the Rules). The Rules are governed by English law.

9. CLS Services provides CLS system operations and support, vendor support, information technology, security services and other support services to, and under the direction of, the Applicant pursuant to a Master Services Agreement between the Applicant and CLS Services.

10. The Applicant permits participation in the CLS system by two different types of members. Members who maintain an account with the Applicant (an Account) are referred to as Settlement Members and members who do not maintain an Account are referred to as User Members. Each User Member must be sponsored by a Settlement Member. Both Settlement Members and User Members (in either case, a Member) are required, as a condition of membership, to execute an agreement with the Applicant that is governed by New York law.

11. An applicant for approval as a Settlement Member must meet stringent membership requirements that are set forth in the Rules and that include, among other things, an established operating capability, acceptable regulatory oversight, minimum capital and capital ratio requirements and minimum credit ratings.

12. Each Member participates in the CLS system by submitting payment instructions in relation to a Transaction to the CLS system in accordance with a submission process that identifies the Member to the Applicant through the use of an identification code. Each payment instruction identifies, among other things, the parties to the Transaction and the Member that is expected to submit a corresponding payment instruction in relation to the same Transaction. Each payment instruction is processed by the CLS system and, if determined to be eligible for settlement, is settled across the books and records of the Applicant by the simultaneous entry of debits and credits to the Accounts of the relevant Settlement Members identified in the payment instructions.

13. The Account that the Applicant maintains for each Settlement Member is a single, multi-currency account in respect of each Eligible Currency. The Account is used for the settlement of all payment instructions that are submitted by either the Settlement Member or a User Member that has been sponsored by the Settlement Member.

14. Within its Account a Settlement Member may be permitted to have negative balances in some Eligible Currencies if there are offsetting positive balances in the other Eligible Currencies such that the overall Account balance of the Settlement Member (the Account Balance) is positive. The Account Balance is calculated as the sum of the positive and negative balances for each Eligible Currency in the Account (each, a Currency Balance) after each Currency Balance has been converted to the base currency of U.S. dollars.

15. The Applicant maintains an account with the central monetary authority of each country that issues an Eligible Currency (each, a Central Bank). In Canada, the Applicant maintains its account with Bank of Canada. As part of the funding process for Accounts, the applicant credits the relevant Currency Balance within a Settlement Member's Account whenever the Applicant receives a pay-in of the relevant currency in the Applicant's relevant Central Bank account. The Applicant also disburses funds from its Central Bank accounts and debits the relevant Settlement Member's Account accordingly.

16. Settlement of payment instructions occurs when the Applicant simultaneously debits and credits the Accounts of the relevant Settlement Members in accordance with the payment instructions that were submitted by the Settlement Members and/or the User Members sponsored by them. Each payment instruction is settled individually on a gross basis and is not netted against other payment instructions.

17. The Applicant does not guarantee settlement nor does it become a counterparty to any of the Transactions to which payment instructions are related. Settlement will not occur if payment instructions are not eligible for settlement because, for example, an Account would not have a positive Account Balance post settlement. All settled payment instructions are final and binding on each of the Members. Generally speaking, unsettled payment instructions are rejected at the end of the relevant settlement date.

18. Members currently have their head or home offices in Australia, Belgium, Canada, Denmark, England, France, Germany, Hong Kong, Israel, Italy, Japan, Luxembourg, Netherlands, Norway, Scotland, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland and the United States. In the future, it is likely that CLS Bank will have Members with their head or home offices in other jurisdictions provided CLS Bank's requirements are met including receipt of all necessary approvals.

19. Settlement Members located in Canada comprise four banks located in Ontario that are listed in Schedule 1 to the Bank Act (Canada).

20. As an Edge corporation, the Applicant is supervised and regulated by the Board of Governors of the U.S. Federal Reserve System and the Federal Reserve Bank of New York (collectively, the U.S. Federal Reserve).

21. The U.S. Federal Reserve and the Central Banks have established a cooperative oversight arrangement that is governed by, and conducted in accordance with, the Protocol for the Cooperative Oversight Arrangement of CLS (the Protocol). The Protocol is premised upon the principles for international cooperative oversight that are contained in the "Central Bank Oversight of Payment and Settlement Systems" report of the Committee on Payment and Settlement Systems of the Group of Ten countries. The Protocol provides a mechanism for the mutual assistance of the participating Central Banks to facilitate the fulfilment of their individual responsibilities in pursuit of their shared public policy objectives for the safety and efficiency of payment and settlement systems and their focus on the stability of the financial system.

22. Bank of Canada is a participating Central Bank under the Protocol. It also has a domestic responsibility for the supervision of CLS Bank as a result of its designation of the CLS system as a clearing and settlement system that could be operated in a manner that could pose systemic risk pursuant to section 4(1) of the Payment Clearing and Settlement Act (Canada) ("PCSA"). CLS Bank and/or the CLS system have been the subject of similar designations in each of the European Union, Australia, Hong Kong, Israel, New Zealand, Singapore, South Africa and South Korea.

23. Bank of Canada and the other Central Banks also receive extensive information regarding the CLS system through their participation on the CLS Oversight Committee established by the Protocol.

24. Prior to 2007, the settlement services offered by the Applicant were limited to the settlement of payment instructions in relation to underlying foreign exchange (FX) Transactions.

25. During 2007, the Applicant extended its settlement services to include the settlement of payment instructions in relation to underlying non-deliverable forward foreign exchange Transactions and the settlement of payment instructions in relation to underlying over-the-counter (OTC) derivative Transactions (Derivative Instructions) resulting in one-way payments across the books of CLS Bank. Settlement services in relation to Derivative Instructions are currently limited to underlying OTC credit derivative transactions but they could eventually include other types of underlying derivative transactions, such as interest rate swaps, equity derivatives and commodity derivatives subject to receipt of all necessary approvals. CLS Bank's settlement services may also be extended to include the settlement of FX option premium payment instructions.

26. The extension of CLS Bank's settlement services to the settlement of Derivative Instructions followed its selection as the central settlement provider for a Trade Information Warehouse (the Warehouse) that has been established by DTCC Deriv/SERV LLC (DTCC), a wholly-owned subsidiary of Depository Trust & Clearing Corporation.

27. The Warehouse was designed by DTCC in response to concerns expressed by certain regulatory authorities, including the U.S. Federal Reserve and the UK Financial Services Authority, regarding insufficient documentation in respect of OTC credit derivative transactions. The Warehouse is intended to provide a comprehensive, centralized trade database with the most up-to-date record of each OTC credit derivative transaction, as well as a central processing capability to standardize and automate "downstream" processing of payments and other post-confirmation processes.

28. As the central settlement provider for the Warehouse, the Applicant settles Derivative Instructions received from The Warehouse Trust Company, LLC (Warehouse Trust) in relation to underlying OTC derivative transactions that are maintained in the Warehouse (Warehouse Derivatives) in a manner that is similar to the manner in which it settles payment instructions in relation to underlying FX Transactions, although settlement only results in a one-way payment. Members submit instructions in relation to Warehouse Derivatives (Warehouse Derivative Instructions) directly to the CLS system through Warehouse Trust. Each Warehouse Derivative Instruction specifies the payment amount in an Eligible Currency that is due under one or more Warehouse Derivatives. Warehouse Trust is a limited purpose trust company that is wholly-owned by DTCC and regulated by the Board of Governors of the U.S. Federal Reserve System and the New York State Banking Department.

29. Only those institutions that are Members are eligible to participate in the settlement services that are provided by the Applicant in respect of Warehouse Derivative Instructions utilizing Warehouse Trust as agent for the transmission of the Warehouse Derivative Instructions. The underlying Warehouse Derivatives may, however, be proprietary to the Member or they may be third party customer transactions.

30. Although CLS Bank is currently settling Derivative Instructions submitted by Members through Warehouse Trust in relation to OTC credit derivatives involving nine Eligible Currencies, in the future DTCC may request CLS Bank to settle Derivative Instructions in relation to other types of OTC derivative transactions involving any Eligible Currencies or OTC credit derivatives involving other Eligible Currencies. CLS Bank would have to seek and obtain regulatory approval before agreeing to settle any payments related to such expanded activities.

31. OTC derivative transactions underlying Derivative Instructions, including Warehouse Derivatives, are considered derivatives and can include transactions in relation to securities for purpose of the Act and the Applicant may therefore be considered to be carrying on the business of a clearing agency in Ontario for purposes of the Act.

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

IT IS THE DECISION of the Commission pursuant to section 147 of the Act that the Requested Relief is hereby granted provided that:

1. the Applicant and the CLS system continue to be supervised and regulated by the U.S. Federal Reserve and Bank of Canada;

2. the Applicant does not engage in any clearing agency activity that is not described in the Application without obtaining the prior approval of the Commission;

3. the Applicant will provide such information as may be requested from time to time by, and otherwise cooperate with, the Commission and its staff subject to any applicable privacy or other laws governing the sharing of information and the protection of personal information.

DATED at Toronto on March 1, 2011

"Margot C. Howard"
"Vern Krishna"