Macquarie Capital Markets Canada Ltd. -- s. 80 of the CFA

Order

Application for an order pursuant to section 80 of the Commodity Futures Act granting relief from sections 42, 43, 44 and 45 which contain requirements to deliver confirmations and statements to customers in the context of "give-up" transactions.

Statutes Cited

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

October 3, 2012

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

(the CFA)

AND

IN THE MATTER OF

MACQUARIE CAPITAL MARKETS CANADA LTD.

(the Filer)

ORDER

(Section 80 of the CFA)

UPON the application by the Filer to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA granting relief from sections 42, 43, 44 and 45 of the CFA which contain the requirements to deliver certain confirmations and statements of trade to customers (the Delivery Requirements) in respect of trades in commodity futures contracts and commodity futures options in the context of trade "give-ups";

AND WHEREAS the Filer has represented the following to the Commission:

1. The Filer is a corporation amalgamated under the laws of Ontario. The head office of the Filer is located in Toronto, Ontario.

2. The Filer 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 (APRA).

3. The Filer is a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC); registered as an investment dealer in British Columbia, Alberta, Saskatchewan, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon, an investment dealer and a futures commission merchant in Ontario and Manitoba, and an investment dealer and derivatives dealer in Québec; a participating organization or member of the TSX, TSX Venture Exchange and Montreal Exchange and certain electronic markets; and a member of the Canadian Derivatives Clearing Corporation.

4. The Filer intends to launch a new business in Canada (the Subject Business) which will trade in commodity futures contracts and commodity futures options (collectively, Futures Contracts) and in options on equities or indexes (collectively, Securities) that are listed or traded on one or more marketplaces, and in the context of such launch is seeking the relief described below. The Filer has been informed by Macquarie that, pursuant to the rules of the APRA, the Filer will be required to transfer the Subject Business after its launch within a prescribed period (expected to be approximately 18 months) to another existing or new wholly-owned indirect subsidiary of Macquarie (the APRA Transfer Requirement).

5. The Filer intends to act as an executing broker in Give-Up Transactions (as defined below) involving Futures Contracts and Securities. As well, the Filer intends, at some point, to act as a clearing broker for "institutional customers" as defined in IIROC Dealer Member Rule 1.1 (Institutional Customers).

6. The Filer will provide trading services only to Institutional Customers.

7. A Give-Up Transaction is a purchase or sale of Futures Contracts or Securities by an Institutional Customer that has an existing relationship as a client with a clearing broker, but wishes to use the trade execution services of one or more other executing brokers for the purpose of executing such purchases or sales (Subject Transactions) on one or more markets, whether domestic or global. Under these circumstances the executing broker executes the Subject Transactions as directed by the Institutional Customer and "gives up" such trades to the clearing broker for clearing, settlement and custody. The service provided by the executing broker will be limited to trade execution only.

8. The clearing broker remains subject to the applicable Trade Confirmation Requirement and Statement of Account Requirement in respect of its Institutional Customers in Give-Up Transactions. The clearing broker will maintain an account for the Institutional Customer that is administered in accordance with the terms and conditions of the account documentation of the clearing broker that has been signed by the Institutional Customer. For a Give-Up Transaction, the Institutional Customer will not sign account documentation with the executing broker, nor will the executing broker receive monies, securities, margin or collateral from the Institutional Customer. The Institutional Customer, however, will enter into an agreement with the executing broker and the clearing broker that governs their "give-up" relationship (a Give-Up Agreement).

9. Although the Filer is responsible for its own record-keeping, bookkeeping, custody and other administrative functions (Account Services) in respect of its own Institutional Customers, it does not provide Account Services for execution-only Institutional Customers. Such Account Services remain the responsibility of those Institutional Customers' clearing broker.

10. The Filer does, however, record in its own books and records and accounting system all Give-up Transactions that it executes, which generally comprise those Securities and Futures Contract positions held by it that are not allocated to any of its own accounts. The Filer communicates these unallocated positions to the relevant clearing brokers who either accept or reject the positions so allocated on behalf of their clients based on existing Give-Up Agreements. If a clearing broker rejects a proposed allocation, the Filer contacts the person who executed the trade to obtain clarifying instructions and then allocates the position in accordance with the instructions so received.

11. The Filer prepares a monthly or transaction-by-transaction invoice detailing all Give-up Transactions (including the amount of any commission to the Filer for execution thereof) that the Filer conducted during the month for each Institutional Customer under a Give-up Agreement. The Filer delivers such invoice to the clearing broker who then reconciles the Give-up Transactions with its own records.

12. The clearing broker will have the primary relationship with the Institutional Customers and is contractually responsible for trade and risk monitoring as well as reporting trade confirmations and sending out monthly statements.

13. The Filer is, to the best of its knowledge, in compliance with all IIROC requirements relating to the maintenance of records of executed transactions. The Filer is not in default of securities, futures or derivatives legislation in any jurisdiction.

14. 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 the trade.

15. 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.

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

17. 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.

18. Application of the Delivery Requirements to the Filer when it provides only trade execution services in respect of Give-Up Transactions would

a. be duplicative and confusing because delivery of the required trade confirmations and the statements of account to execution-only Institutional Customers would capture only some, not all, of the information that would be contained in the trade confirmations and statements of account delivered to the same Customers by their clearing brokers; and

b. not be required to establish an audit trail or to facilitate reconciliation of Give-Up Transactions as between the Filer and a clearing broker.

19. The Filer has further requested that the exemptive relief be granted in favour of any Canadian subsidiary (within the meaning of NI 31-103) of Macquarie (a Complying Affiliate) which:

a. acquires the Subject Business from the Filer in compliance with the APRA Transfer Requirement, and operates the Subject Business in a manner consistent with the representations of the Filer made herein;

b. is, at the time of operating the Subject Business, a member of IIROC, in compliance with all IIROC requirements;

c. together with the Filer, as applicable, has filed a notice with the securities regulatory authority or regulator in each of the jurisdictions and with IIROC (i) setting out the identity of the Complying Affiliate, (ii) confirming that the transfer of the Subject Business has occurred, and (iii) confirming that the facts set out in paragraphs 5 to 12 under "Representations" of the Order continue to apply to the business of the Complying Affiliate; and

d. undertakes to comply with the conditions of the exemptive relief granted.

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

THIS ORDER of the Commission is that the Filer and any Complying Affiliate are exempt from the requirements of sections 42, 43, 44 and 45 of the CFA for the purposes of acting as executing broker for Give-Up Transactions provided that

1. the Filer, or the Complying Affiliate, as applicable, provides trade execution services in respect of Give-Up Transactions only for Institutional Customers;

2. the Filer, or the Complying Affiliate, as applicable, enters into a Give-Up Agreement with the clearing broker and the Institutional Customer;

3. the clearing broker has agreed to provide each Institutional Customer with written trade confirmations and statements of account that include information for any Subject Transactions; and

4. in the case of the exemption granted to a Complying Affiliate, the Filer and the Complying Affiliate have filed the notice and undertaking referred to in paragraph 19.

DATE: October 3, 2012

"Margot C. Howard"
Commissioner
Ontario Securities Commission
 
"Christopher Portner"
Commissioner
Ontario Securities Commission