Investment advice by a U.S. registered investment adviser exempted from the requirements of paragraph 25(3) of the Act, subject to certain conditions, for investment advice provided to persons or entities who are resident in the United States with respect to securities of U.S. issuers -- Supervisory memorandum of understanding between the Ontario Securities Commission and the Filer's principal regulator.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).
December 20, 2013
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
IN THE MATTER OF
GLOBAL AUTOTRADING INC.
(Subsection 74(1) of the Act)
The Ontario Securities Commission (the Commission) has received an application from the Filer for a ruling under subsection 74(1) of the Act for an exemption from the adviser registration requirement in section 25(3) of the Act for:
(a) the Filer; and
(b) Jimmy Talbot, who is engaging in, or holding himself out as engaging in the business of advising others when acting on behalf of the Filer (the Filer's Adviser),
in respect of advice to persons or companies that are not resident in Canada (the Exemption Sought).
Representations of the Filer
1. The Filer is incorporated under the laws of Ontario.
2. The Filer's principal office is located in Toronto, Ontario.
3. The Filer is registered as an investment adviser with the United States Securities and Exchange Commission (SEC) under the United States Securities Exchange Act of 1934 and is not in default thereof or the regulations promulgated thereunder.
4. The Filer was initially established to provide its services to clients who are not resident in Canada.
5. The Filer provides a monthly fee based trading service that leverages technology to automate trades that clients would typically execute themselves through a self-directed account.
6. On account opening, a client signs the Filer's services agreement (the Agreement) and fills out a client questionnaire.
7. A client subscribes to newsletters listed on the Filer's website or that are otherwise technologically compatible with the Filer's services. The newsletters provide advice and recommendations with respect to securities of U.S. issuers.
8. A client then accesses the Filer's website portal and provides a list of their subscriptions and instructions that allocate a certain amount of their previously created brokerage account assets to particular recommendations provided in each of the subscribed newsletters. Brokerage accounts are held by third party brokerages that are unaffiliated with the Filer or the Filer's Adviser.
9. When a newsletter publishes a general recommendation to all its subscribers, the Filer will employ software and personnel to match that recommendation with each applicable client of the Filer based on their previously provided parameters.
10. Upon a match, the Filer will create an order that is provided to the applicable client's broker.
11. The Filer provides its services to facilitate the trading of stocks and options but the Filer does not provide its services with respect to trading futures or currencies.
12. The Filer does not independently verify or comment on the recommendations being made by the newsletters that are made available through the Filer's services.
13. The Filer and the Filer's Adviser do not receive any compensation from any entity that publishes the newsletters listed on the Filer's website. Furthermore, the Filer and the Filer's Adviser do not promote one newsletter listed on the Filer's website over other newsletters listed on the Filer's website. The Filer and the Filer's Adviser do not prepare their own newsletters and all newsletters listed on the Filer's website are from third-party entities that are unaffiliated with the Filer or the Filer's Adviser.
14. The Filer informs its clients in the Agreement that it does not review each newsletter's experience, credentials or performance, and does not rate, rank or endorse any newsletters. The Filer's intention is that its services act as a tool to facilitate self-directed trades.
15. The Filer requires a limited power of attorney in order for the Filer to provide orders to brokers on a client's behalf. The Filer requires this power of attorney as the Filer's value is predicated on being able to create and submit orders to a client's broker without a need to contact and confirm the order with a client.
16. The Filer provides its services to residents in the United States of America (U.S.).
17. The Filer does not currently have any clients who are resident in Canada. Furthermore, the Filer and the Filer's Adviser will only provide its services, including acting as an adviser to persons or companies, to clients who are not resident in Canada. The Filer will only accept new clients who are resident in the U.S. If the Filer wishes to accept new clients who are not resident in the U.S.; the Filer must obtain the appropriate registrations or rely on an exemption from registration under Ontario securities law.
18. The Filer and the Filer's Adviser have and will continue to confirm the residency of all clients who open an account with the Filer to ensure that no clients are resident in Canada. The Filer also confirms the residency of each client on an annual basis.
19. The Filer has retained US counsel to advise on its ongoing compliance obligations pursuant to its registration category under U.S. law.
20. The Filer and the Filer's Adviser will comply with all registration and other requirements of applicable U.S. securities laws in respect of providing services to clients who are resident in the U.S.
21. There is a supervisory memorandum of understanding concerning regulatory cooperation related to the supervision of regulated entities between the Commission, Autorité des marchés financiers du Québec, and the SEC which came into effect in Ontario on August 11, 2010.
22. The Filer will become a "market participant" as defined under subsection 1(1) of the Act as a consequence of this decision. As a market participant, amongst other requirements, the Filer is required to comply with the record keeping and provision of information provisions in Part VII of the Act.
23. The Filer's clients will be advised at the time they enter into an Agreement or similar documentation with the Filer, and periodically thereafter, that if they relocate to a Canadian jurisdiction, their accounts will have to be transferred to another firm that is appropriately registered or relying on an exemption from registration in the Canadian jurisdiction.
24. Without the Exemption Sought, the Filer would be required to register as an Adviser and be subject to compliance obligations under Canadian securities laws. Such obligations would likely be duplicative of the local securities law requirements in the U.S. Ensuring compliance with two securities regulatory regimes would place an unnecessary burden on the Filer with little likelihood of increasing the level of investor protection already provided by the U.S. securities laws. Furthermore, the Exemption Sought will not likely jeopardize the confidence investors have in the Canadian capital markets as compliance with the securities law obligations in the U.S. ensures a standard of oversight that residents of the U.S. are accustomed to and expect.
The Commission being satisfied that it would not be prejudicial to the public interest for it to grant the Exemption Sought, the Commission rules that the Exemption Sought is granted provided that:
(a) neither the Filer, nor any individual acting on its behalf, will act as an adviser to persons or companies resident in Ontario unless they are appropriately registered, or relying on an exemption from registration, under Ontario securities law;
(b) in acting as an adviser to clients in the U.S., the Filer acts only through the Filer's Adviser;
(c) the Filer and the Filer's Adviser are currently in compliance and will continue to comply with all registration and other requirements of applicable U.S. securities laws in respect of providing services to clients who are resident in the U.S.;
(d) the Filer and the Filer's Adviser will notify the Commission of any regulatory action initiated with respect to the Filer or the Filer's Adviser by completing and filing a notice of the regulatory action within 10 days of the Filer or the Filer's Adviser receiving notification of the commencement of such action;
(e) the Filer and the Filer's Adviser complies with the requirements under Ontario Securities Commission Rule 31-505 Conditions of Registration, as amended from time to time;
(f) On December 31, 2013, the Filer complies with the filing and fee requirements applicable to an unregistered capital market participant under Ontario Securities Commission Rule 13-502 Fees; and
(g) the Exemption Sought shall terminate on the date that is one year after the date of this decision.