Securities Law & Instruments

Headnote

Application to the Commission, pursuant to section 80 of the Commodity Futures Act (CFA), for a ruling that the Applicants be exempted from the adviser registration requirement in paragraph 22(1)(b) -- US firm with head office in Ontario and individuals resident in Ontario provide advice exclusively in Foreign Contracts and exclusively to clients who are United States residents -- exempted firms and their advising individuals must maintain appropriate registration or licensing in the U.S. -- exempted firms and their advising individuals must provide the Commission with notice of any regulatory action -- supervisory memorandum of understanding between the Ontario Securities Commission and the Applicants' principal regulator.

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22 and 80.

OSC Rule 31-505 Conditions of Registration, s. 2.1.

IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the CFA)

AND

IN THE MATTER OF
PRESTON CAPITAL LLC AND PRESTON CAPITAL MANAGEMENT LLC

ORDER
(Section 80 of the CFA)

UPON the application (the Application) of Preston Capital LLC and Preston Capital Management LLC (together the Applicants) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA that the Applicants and any individuals engaging in, or holding themselves out as engaging in, the business of advising others on the Applicants' behalf (the Representatives) be exempt, for a period of five years, from the adviser registration requirements in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Applicants having represented to the Commission that:

1. Preston Capital LLC is a limited liability company formed pursuant to the laws of Illinois. The head office of Preston Capital LLC is located in Chicago, Illinois.

2. Preston Capital Management LLC is a limited liability company formed pursuant to the laws of Florida, USA. The head office of Preston Capital Management LLC is located in Port Elgin, Ontario where the principal of the Applicants resides.

3. Preston Capital LLC has an office in Chicago, Illinois where certain operational components of Preston Capital LLC including corporate management, marketing, information technology and risk management occurs.

4. Preston Capital LLC is registered with the United States Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is an approved member of the United States National Futures Association (NFA).

5. Preston Capital Management LLC is registered with the CFTC as a commodity pool operator and exempt commodity trading advisor and is an approved member of the NFA.

6. The Commission has a supervisory memorandum of understanding in place with the CFTC for mutual cooperation and information sharing.

7. The Applicants are not registered in any capacity under the CFA.

8. The Applicants and their Representatives provide advice ("Commodities Advice") to clients resident in the United States ("U.S. Clients") on commodity futures contracts and any commodity futures options (as those terms are defined in subsection 1(1) of the CFA) ("Contracts") that are primarily traded on one or more organized exchanges located outside of Canada and primarily cleared through one or more clearing corporations located outside of Canada (hereinafter referred to as "Foreign Contracts").

9. The Applicants and their Representatives will comply with all registration and other requirements of applicable United States laws in respect of advising U.S. Clients.

10. The Applicants and their Representatives shall not provide any Commodities Advice to residents of Canada.

11. The executing and clearance of the Foreign Contracts is done by a registered futures commission merchant located in the United States.

12. The Applicants do not have any affiliated companies registered with any securities regulatory authorities in Canada and therefore there is no potential for client confusion as to which entity provides the Commodities Advice.

13. Before advising a U.S. Client, the Applicants and their Representatives will notify the U.S. Client of the location of the Applicants' head office or principal place of business and that there may be difficulty enforcing legal rights against the Applicant because of this.

14. U.S. Clients will be advised at the time they enter into an investment management agreement or similar documentation with the Applicants, and periodically thereafter, that if they relocate to a Canadian jurisdiction, their accounts will have to be transferred to another adviser that is appropriately registered or relying on an exemption from registration in the Canadian jurisdiction.

15. The CFA requires that a person or company acting as an adviser in Ontario on Contracts be registered in Ontario as an adviser in the appropriate category under the CFA. Even though the business operations are primarily located in the United States and all clients of the Applicants are not resident in Ontario, the fact that one or more of its Representatives are resident in Ontario triggers the requirement to be registered as an adviser in the category of Commodity Trading Manager under the CFA.

16. The Applicants submit that it would not be prejudicial to the public interest for the Commission to grant the requested relief because:

(a) the Applicants will only advise U.S. Clients as to trading in Foreign Contracts;

(b) the U.S. Clients seek to access certain specialized portfolio management services provided by the Applicants, including advice as to trading in Foreign Contracts;

(c) the Applicants and each of its Representatives is appropriately registered to act as an adviser to the U.S. Clients under applicable laws of the United States.

17. The Applicants will become a "market participant" as defined under subsection 1(1) of the CFA as a consequence of this decision. As a market participant, amongst other requirements, each of the Applicants is required to comply with the record keeping and provision of information provisions in Part V of the CFA.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed,

IT IS ORDERED pursuant to section 80 of the CFA that the Applicants and their Representatives are exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA in respect of the provision of advice to U.S. Clients as to the trading of Foreign Contracts, provided that:

1. the Applicants provide advice to U.S. Clients only as to trading in Foreign Contracts;

2. the Applicants and each of their Representatives are appropriately registered under applicable laws of the United States to act as an adviser to the U.S. Clients;

3. the Applicants and each of their Representatives notifies the Commission of any regulatory action initiated with respect to the Applicants by completing and filing Appendix "A" or Appendix "B", as applicable, within 10 days of the commencement of such action; and

4. the Applicants and their Representatives comply with the requirements under OSC Rule 31-505 Conditions of Registration, as amended from time to time, namely, to deal fairly, honestly and in good faith with its, his, or her clients.

Dated this 10th of January, 2014

"AnneMarie Ryan"
"Edward P. Kerwin"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission

 

APPENDIX A

NOTICE OF REGULATORY ACTION -- FIRM

1. Has the firm, or any predecessors or specified affiliates{1} of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes _____

No _____

If yes, provide the following information for each settlement agreement:

- - - - - - - - - - - - - - - - - - - -

Name of entity

Regulator/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

- - - - - - - - - - - - - - - - - - - -

2. Has any financial services regulator ,securities or derivatives exchange, SRO or similar organization:

 

Yes

No

 

(a) Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

_____

_____

 

(b) Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

_____

_____

 

(c) Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

_____

_____

 

(d) Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

_____

_____

 

(e) Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

_____

_____

 

(f) Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

_____

_____

 

(g) Issued an order (other than en exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?

_____

_____

If yes, provide the following information for each action:

- - - - - - - - - - - - - - - - - - - -

Name of Entity

Type of Action

- - - - - - - - - - - - - - - - - - - -

Regulator/organization

 

Date of action (yyyy/mm/dd)

Reason for action

 

Jurisdiction

3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?

Yes _____

No _____

If yes, provide the following information for each investigation:

- - - - - - - - - - - - - - - - - - - -

Name of entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

- - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - -

Name of firm

Name of firm's authorized signing officer or partner

Title of firm's authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

- - - - - - - - - - - - - - - - - - - -

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

- - - - - - - - - - - - - - - - - - - -

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

- - - - - - - - - - - - - - - - - - - -

This form is to be submitted to the following address:

Ontario Securities Commission
Suite 1903, Box 55
20 Queen Street West
Toronto, ON M5H 3S8
Attention: Registration Supervisor, Portfolio Manager Team
Telephone: (416) 593-8164
email: amcbain@osc.gov.on.ca

{1} In this Appendix, the term "specified affiliate$quot; has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 -- Registration Information.

 

APPENDIX B

NOTICE OF REGULATORY ACTION -- INDIVIDUAL

Name of Individual

______________________________

Last name

First name

Second name (N/A [ ])

Third name (N/A [ ])

1. Securities and derivatives regulation

Are you now, or have you ever been subject to any disciplinary proceedings or any order resulting from disciplinary proceedings under any securities legislation or derivatives legislation or both in any province, territory, state or country?

Yes

[ ]

No

[ ]

If "Yes", complete the following:

For each order or disciplinary proceeding, state below (1) the name of the firm, (2) the securities or derivatives regulator that issued the order or is conducting or conducted the proceeding, (3) the date any notice of proceeding was issued, (4) the date any order or settlement was made, (5) a summary of any notice, order or settlement (including any sanctions imposed), (6) whether you are or were a partner, director, officer or major shareholder of the firm and named individually in the order or disciplinary proceeding, and (7) any other relevant details.

______________________________

2. SRO regulation

Are you now, or have you ever been, subject to any disciplinary proceedings conducted by any SRO or similar organization in any province, territory, state or country?

Yes

[ ]

No

[ ]

If "Yes", complete the following:

For each order or disciplinary proceeding, state below (1) the name of the firm, (2) the SRO that issued the order or that is, or was, conducting the proceeding, (3) the date any notice of proceeding was issued, (4) the date any order or settlement was made, (5) a summary of any notice, order or settlement (including any sanctions imposed), (6) whether you are or were a partner, director, officer or major shareholder of the firm and named individually in the order or disciplinary proceeding, and (7) any other information that you think is relevant or that the regulator or, in Québec, the securities regulatory authority may request.

______________________________

3. Non-securities regulation

Are you now, or have you ever been, a subject of any disciplinary actions conducted under any legislation relating to your professional activities unrelated to securities or derivatives in any province, territory, state or country?

Yes

[ ]

No

[ ]

If "Yes", complete the following:

For each order or disciplinary proceeding, indicate below (1) the party against whom the order was made or the proceeding taken (if insurance licensed, indicate the name of the insurance agency), (2) the regulatory authority that made the order or that is, or was, conducting the proceeding, or under what legislation the order was made or the proceeding is being, or was conducted, (3) the date any notice of proceeding was issued, (4) the date any order or settlement was made, (5) a summary of any notice, order or settlement (including any sanctions imposed), (6) whether you are or were a partner, director, officer or major shareholder of the firm and named individually in the order or disciplinary proceeding and (7) any other information that you think is relevant or that the regulatory authority may request.

______________________________

- - - - - - - - - - - - - - - - - - - -

Name of firm

Name of firm's authorized signing officer or partner

Title of firm's authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

- - - - - - - - - - - - - - - - - - - -

This form is to be submitted to the following address:

Ontario Securities Commission
Suite 1903, Box 55
20 Queen Street West
Toronto, ON M5H 3S8
Attention: Registration Supervisor, Portfolio Manager Team
Telephone: (416) 593-8164
email: amcbain@osc.gov.on.ca