Application to the Commission, pursuant to section 38 of the Commodity Futures Act (CFA), for a ruling that the Applicant be exempted from the dealer registration requirement in paragraph 22(1)(a) and the prohibition against trading on non-recognized exchanges in section 33 of the CFA. The Applicant will offer to certain of their clients in Ontario who meet the definition of "permitted client" in NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations the ability to trade in commodity futures contracts and commodity futures options that trade on exchanges located outside Canada through the Applicant.
Application to the Director for an exemption, pursuant to section 6.1 of OSC Rule 91-502 -- Trades in Recognized Options (Rule 91-502), exempting the Applicants and their Representatives from the proficiency requirements in section 3.1 of Rule 91-502 for trades in commodity futures options on exchanges located outside Canada.
Commodity Futures Act, R.S.O. 1990, c. C. 20, as am., ss. 22, 33 and 38.
Ontario Securities Commission Rule 91-502 Trades in Recognized Options, ss.3.1 and 6.1.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C. 20, AS AMENDED
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
IN THE MATTER OF
MACQUARIE FUTURES USA INC.
RULING & EXEMPTION
(Section 38 of the CFA and Section 6.1 of Rule 91-502)
UPON the application (the Application) of Macquarie Futures USA Inc. (the Applicant or MFUSA) to the Ontario Securities Commission (the Commission) for:
(a) a ruling of the Commission, pursuant to section 38 of the CFA, that the Applicant be exempted from the dealer registration requirements in the CFA (as defined below) and the trading restrictions in the CFA (as defined below) in connection with trades (Futures Trades) in contracts (as defined below) where the Applicant is acting as principal or agent in such trades to, from or on behalf of Permitted Clients (as defined below), or acting as agent on behalf of Permitted Clients; and
(b) an exemption of the Director, pursuant to section 6.1 of OSC Rule 91-502 -- Trades in Recognized Options (Rule 91-502), exempting the Applicant and its salespersons, directors, officers and employees (the Representatives) from section 3.1 of Rule 91-502 in connection with Futures Trades;
AND WHEREAS for the purposes of this ruling and exemption (the Decision):
(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 requirements in the CFA" means the provisions of section 22 of the CFA 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 CFA;
"FINRA" means the Financial Industry Regulatory Authority in the United States;
"NFA" means the National Futures Association in the United States;
"Permitted Client" means a client in Ontario that is a "permitted client" as that term is defined in section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
"SEC" means the United States Securities and Exchange Commission; and
"trading restrictions in the CFA" means the provisions of section 33 of the CFA that prohibit a person or company from trading in a contract unless the person or company satisfies the applicable provisions of section 33 of the CFA; and
(ii) terms used in the Decision that are defined in the OSA, and not otherwise defined in the Decision or in the CFA, shall have the same meaning as in the OSA, unless the context otherwise requires;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicant having represented to the Commission and the Director as follows:
1. The Applicant is a corporation incorporated under the laws of the State of Delaware. Its head office is located in New York, New York, United States of America.
2. The Applicant is a wholly-owned indirect subsidiary of Macquarie Group Limited ("Macquarie"). Macquarie is a bank holding company subject to the regulation and oversight of the Australian Prudential Regulatory Authority.
3. Macquarie owns, directly or indirectly, subsidiaries other than the Applicant in the United States and Canada which are registered, and/or relying on the international dealer registration exemption or the international advisor registration exemption, in Ontario and certain other Canadian jurisdictions, as more particularly described on the websites of the Canadian Securities Administrators and the Commission, respectively. Two such subsidiaries, being Macquarie Capital Markets Canada Ltd. and Macquarie Private Wealth Inc., are both members of the Investment Industry Regulatory Organization of Canada and registered under the CFA. Neither Macquarie nor any of its non-Canadian subsidiaries, including the Applicant, is registered in any capacity under the CFA.
4. The Applicant is a registered futures commission merchant with the CFTC, and is a member of the NFA.
5. The Applicant is also a clearing member of the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, Commodity Exchange, ICE Futures U.S. and the Green Exchange.
6. Pursuant to its registrations and memberships, the Applicant is authorized to handle customer orders and receive and hold customer margin deposits, and otherwise act as a futures broker, in the United States. 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 including know-your-customer obligations, account opening, suitability, anti-money laundering checks, credit checks, delivery of confirmation statements, clearing deposits and initial and maintenance margins. These rules do not permit the Applicant to treat Permitted Clients materially differently from the Applicant's US customers. In order to protect customers in the event of the insolvency or financial instability of the Applicant, the Applicant is required to ensure that customer securities and monies be separately accounted for, segregated at all times from the securities and monies of the Applicant and custodied exclusively with such banks, trust companies, clearing organizations or other licensed futures brokers and intermediaries as may be approved for such purposes under the U.S. Commodity Exchange Act and the rules promulgated by the CFTC thereunder (the "MFUSA Approved Depositories"). The Applicant is also required to obtain acknowledgements from any MFUSA Approved Depository holding customer funds or securities that such funds and securities are to be separately held on behalf of such customers, with no right of set-off against the Applicant's obligations or debts.
Activities in Ontario
7. The Applicant proposes to effect Futures Trades acting as principal to or from Permitted Clients or acting as agent on behalf of Permitted Clients; and will conduct execution and clearing services with respect to such Futures Trades.
8. The Applicant will not maintain an office, sales force or physical place of business in Ontario.
9. The Applicant will solicit business in Ontario only from persons who qualify as Permitted Clients.
10. The Applicant will not provide advice relating to Futures Trades to Permitted Clients and does not intend to act as an adviser to such Permitted Clients in respect of Futures Trades.
11. The Applicant will only offer Permitted Clients the ability to effect Futures Trades on exchanges based outside Canada (the "Non-Canadian Exchanges").
12. The contracts to be traded by Permitted Clients may include, but will not be limited to, contracts for equity index, interest rate, foreign exchange, energy, agricultural and other commodity products.
13. Permitted Clients will be able to execute Futures Trades through the Applicant by contacting the Applicant's exchange floor staff or global execution desk. Permitted Clients may also be able to self-execute Futures Trades electronically via an independent service vendor and/or other electronic trading routing.
14. The Applicant may execute a Permitted Client's order on the relevant Non-Canadian 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 order.
15. The Applicant may perform both execution and clearing functions for Futures Trades or may direct that a trade executed by the Applicant be cleared through a carrying broker if the Applicant is not a member of the Non-Canadian Exchange or clearing house on which the trade is executed and cleared. Alternatively, the Permitted 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-Macquarie Clearing Broker"). In addition, the Applicant may, from time to time, act as a clearing broker under give-up arrangements entered into with futures brokers that will execute Futures Trades for the Applicant's customers on a Non-Canadian Exchange.
16. If the Applicant performs only the execution of a Permitted Client's contract order and "gives-up" the transaction for clearance to a Non-Macquarie 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 the CFA as applicable. Each such Non-Macquarie Clearing Broker will represent to the Applicant in an industry-standard 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 Permitted Client's contract orders will be executed and cleared. The Applicant will not enter into a give-up agreement with any Non-Macquarie Clearing Broker located in the United States unless such clearing broker is registered with the CFTC and/or the SEC, as applicable.
17. As is customary for all Futures Trades, a clearing corporation appointed by the exchange or clearing division of the exchange is substituted as a universal counterparty on all Futures Trades and Permitted Client orders will be submitted to the exchange in the name of the Non-Macquarie Clearing Broker or the Applicant or, on exchanges where the Applicant is not a member, in the name of another carrying broker. The Permitted Client will be responsible to the Applicant for payment of initial margin in respect of all newly open positions, as well as daily mark-to-market variation margin and the Applicant, the carrying broker or the Non-Macquarie Clearing Broker will be, in turn, responsible to the clearing corporation/division for payment.
18. Permitted Clients that direct the Applicant to give up transactions in contracts for clearance and settlement by Non-Macquarie Clearing Brokers will execute the give-up agreements described above.
19. Permitted Clients will pay commissions for trades to the Applicant or the Non-Macquarie Clearing Broker or such commissions may be shared with the Non-Macquarie Clearing Broker.
20. The trading restrictions in the CFA apply unless, among other things, a contract is traded on a recognized or registered commodity futures exchange and the form of the contract is approved by the Director. To date, no foreign commodity futures exchanges have been recognized or registered under the CFA.
21. If the Applicant is exempted from the dealer registration requirements in the CFA, the Applicant will be precluded from relying upon the statutory exemptions from the trading restrictions in the CFA that the Commission has granted to date.
22. Section 3.1 of Rule 91-502 states that any person who trades as agent in, or gives advice in respect of, a recognized option is required to successfully complete the Canadian Options Course (which has been replaced by the Derivatives Fundamentals Course and the Options Licensing Course).
23. All Representatives who trade options in the United States have passed the futures and options proficiency examination (i.e., the National Commodity Futures Examination (Series 3) administered by FINRA.
AND UPON the Commission and Director 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 CFA, that the Applicant be exempted from the dealer registration requirements in the CFA and the trading restrictions in the CFA in connection with Futures Trades where the Applicant is acting as principal or agent in such trades to, from or on behalf of Permitted Clients provided that:
(a) each client effecting Futures Trades is a Permitted Client and, if using a Non-Macquarie Clearing Broker, has represented and covenanted that the broker is or will be appropriately registered or exempt from registration under applicable legislation;
(b) the Applicant only executes Futures Trades for Permitted Clients on exchanges based outside Canada; and
(c) at the time trading activity is engaged in, the Applicant:
(i) has its head office or principal place of business in the United States;
(ii) is registered as a futures commission merchant with the CFTC in good standing;
(iii) is a member in good standing with the NFA;
(iv) engages in the business of a futures commission merchant in contracts in the United States;
(d) has provided to the Permitted Client the following disclosure in writing:
(i) a statement that the Applicant is not registered in Ontario to trade in contracts as principal or agent;
(ii) a statement that the Applicant's head office or principal place of business is located in New York, New York, United States of America;
(iii) a statement that all or substantially all of the Applicant's assets may be situated outside of Canada;
(iv) a statement that there may be difficulty enforcing legal rights against the Applicant because of the above; and
(v) the name and address of the Applicant's agent for service of process in Ontario;
(e) the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix "A";
(f) by December 1 of each year, the Applicant notifies the Commission of its continued reliance on the exemption from registration granted pursuant to the Order; and
(g) this Order shall expire five years after the date hereof.
19th August, 2011
IT IS THE DECISION of the Director, pursuant to section 6.1 of Rule 91-502, that section 3.1 of Rule 91-502 does not apply to the Applicant and its Representatives in respect of Futures Trades, provided that:
(a) the Applicant and its Representatives maintain their respective registrations with the CFTC and NFA which permit them to trade commodity futures options in the United States; and
(b) this Decision shall expire five years after the date hereof.
August 19, 2011
SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE
INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION UNDER THE
COMMODITY FUTURES ACT, ONTARIO
1. Name of person or company ("International Firm"):
2. If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:
3. Jurisdiction of incorporation of the International Firm:
4. Head office address of the International Firm:
5. The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.
6. The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"):
[ ] Section 8.18 [international dealer]
[ ] Section 8.26 [international adviser]
[ ] Other [specify]:
7. Name of agent for service of process (the "Agent for Service"):
8. Address for service of process on the Agent for Service:
9. The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.
10. The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.
11. Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator
a. a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated; and
b. an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service.
12. This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.
The undersigned accepts the appointment as Agent for Service of ____________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.