Application for an order that a multilateral trading facility authorized by the United Kingdom Financial Conduct Authority is exempt from the requirement to register as an exchange in Ontario on an interim basis – requested order granted.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5 as am., ss. 21, 147.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5,
AS AMENDED (THE ACT)
IN THE MATTER OF
CURRENEX MULTILATERAL TRADING FACILITY
(Section 147 of the Act)
WHEREAS State Street Global Markets International Limited (the “Applicant”) has filed an application on behalf of Currenex Multilateral Trading Facility (“Currenex MTF”) dated 18 April 2019 (Application) with the Ontario Securities Commission (Commission) requesting an interim order pursuant to section 147 of the Act exempting Currenex MTF from the requirement to be recognised as an exchange under subsection 21(1) of the Act (Exchange Relief);
AND WHEREAS Currenex MTF has represented to the Commission that:
1.1 Currenex MTF is operated by the Applicant, a member of the State Street Group.
1.2 Currenex MTF is an electronic trading platform operated as a multilateral trading facility (“Currenex MTF”) registered with the Financial Conduct Authority (“FCA”) in the United Kingdom. Currenex MTF offers request for quote (“RFQ”) trading in certain instruments related to foreign currencies (spot, deliverable and non-deliverable forwards and swaps) and related trade support services to its subscribers (“Members”). It is understood that, as of the date of the application, exchange relief is not required in respect of foreign currencies spot.
1.3 The Applicant is subject to regulatory supervision by the FCA and is required to comply with the FCA’s regulatory framework set out in the FCA Handbook, which includes, among other things, rules on (i) the conduct of business (including rules regarding client categorisation, communication with clients and other investor protections and client agreements), (ii) market conduct (including rules applicable to firms operating an MTF), and (iii) systems and controls (including rules on outsourcing, governance, record-keeping and conflicts of interest). The FCA requires the Applicant to comply at all times with a set of threshold conditions for authorisation, including requirements that the Applicant is “fit and proper” to be authorised and that it has appropriate resources for the activities it carries on. The Applicant is subject to prudential regulation, including minimum regulatory capital requirements, and is capitalised in excess of regulatory requirements. The Applicant is required to maintain a permanent and effective compliance function. The Applicant’s Compliance function, and specifically the Currenex MTF Chief Compliance Officer, is responsible for implementing and maintaining adequate policies and procedures designed to ensure that the Applicant (and all associated staff) comply with their obligations under the FCA rules. These policies and procedures are set forth in the State Street Global Markets Global Core Compliance Manual and associated internal policies and procedures;
1.4 An MTF is obliged under the FCA Handbook to have requirements governing the conduct of Members, to monitor compliance with those requirements and report to the FCA (a) significant breaches of Currenex MTF’s Rules, (b) disorderly trading conditions, and (c) conduct that may involve market abuse. The Applicant may also notify the FCA when a Member’s access is terminated, temporarily suspended or subject to condition(s). As required by the FCA Handbook, the Applicant has implemented a trade surveillance program. As part of the program, the Applicant conducts real-time market monitoring of trading activity on the Currenex MTF to identify disorderly trading and market abuse or anomalies. The market surveillance program is designed to maintain a fair and orderly market for Currenex MTF Members.
1.5 All Members, including Members in Ontario (“Ontario Members”) are required to ensure they meet the necessary eligibility criteria for use of Currenex MTF. Ontario Members must ensure they meet all applicable Ontario regulatory requirements with respect to trading on Currenex MTF. Ontario Members are required to sign an addendum containing Canada specific representations, warranties and covenants around their type of entity and status. Ontario Members are required to notify the Applicant immediately if they cease to meet the criteria of an Eligible Counterparty. Members must also supply any information requested by Currenex MTF or the Applicant to enable monitoring of responsibilities with respect to eligibility and operational criteria;
1.6 Because Currenex MTF regulates the conduct of its Members, it is considered by the Commission to be an exchange;
1.7 Because Currenex MTF has Members domiciled in Ontario, it would be considered by the Commission to be carrying on business as an exchange in Ontario and would be required to be recognised as such or exempted from recognition pursuant to section 21 of the Act;
1.8 Currenex MTF has no physical presence in Ontario and does not otherwise carry on business in Ontario except as described above; and
1.9 The Applicant intends to file a full application to the Commission for a subsequent order exempting it from the requirement to be recognised as an exchange pursuant to section 147 of the Act (Subsequent Order);
AND WHEREAS the products traded on Currenex MTF are not commodity futures contracts as defined in the Commodity Futures Act (Ontario) and Currenex MTF is not considered to be carrying on business as a commodity futures exchange in Ontario;
AND WHEREAS Currenex MTF has acknowledged to the Commission that the scope of the Exchange Relief and the terms and conditions imposed by the Commission set out in Schedule “A” to this order may change as a result of the Commission’s monitoring of developments in international and domestic capital markets or Currenex MTF’s activities, or as a result of any changes to the laws in Ontario affecting trading in derivatives or securities;
AND WHEREAS based on the Application, together with the representations made by and acknowledgements of Currenex MTF to the Commission, the Commission has determined that the granting of the Exchange Relief would not be prejudicial to the public interest;
IT IS HEREBY ORDERED by the Commission that, pursuant to section 147 of the Act, Currenex MTF is exempt on an interim basis from recognition as an exchange under subsection 21(1) of the Act,
1. This Order terminates on the earlier of (i) June 30, 2020 and (ii) the effective date of the Subsequent Order;
2. Currenex MTF complies with the terms and conditions contained in Schedule “A”; and
3. Currenex MTF shall file a full application to the Commission for the Subsequent Order by September 30, 2019.
DATED June 21, 2019
“Mary Anne De Monte-Whelan”
TERMS AND CONDITIONS
Regulation and Oversight of the Applicant
1. The Applicant will maintain its permission to operate as a multilateral trading facility (MTF) with the U.K. Financial Conduct Authority (FCA) and will continue to be subject to the regulatory oversight of the FCA.
2. The Applicant will continue to comply with the ongoing requirements applicable to it as the operator of an MTF authorised by the FCA.
3. The Applicant will promptly notify the Commission if its permission to operate an MTF has been revoked, suspended, or amended by the FCA, or the basis on which its permission to operate an MTF has been granted has significantly changed.
4. The Applicant must do everything within its control, which includes cooperating with the Commission as needed, to carry out its activities as an exchange exempted from recognition under subsection 21(1) of the Act in compliance with Ontario securities law.
5. The Applicant will not provide direct access to a Member domiciled in Ontario (each an Ontario Member) unless the Ontario Member is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements, and qualifies as an “eligible counterparty” (either “per se” or “elective”), as defined by the FCA in the FCA’s Conduct of Business Sourcebook, Chapter 3 “Client Categorisation”.
6. The Applicant may reasonably rely on a written representation from the Ontario Member that specifies either that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements.
7. For each Ontario Member provided direct access to Currenex MTF, the Applicant will require, as part of its application documentation or continued access to Currenex MTF, the Ontario Member to represent that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements.
8. The Applicant will require Ontario Members to notify the Applicant if their registration as applicable under Ontario securities laws has been revoked, suspended, or amended by the Commission or if they are no longer exempt from or become subject to those requirements and, following notice from the Ontario Member and subject to applicable laws, the Applicant will promptly restrict the Ontario Member’s access to Currenex MTF if the Ontario Member is no longer appropriately registered or exempt from those requirements.
9. The Applicant must make available to Ontario Members appropriate training for each person who has access to trade on the Applicant’s facilities.
Trading by Ontario Users
10. The Applicant will not provide access to an Ontario Member to trade in products other than swaps and security-based swaps, as defined in section 1a(47) of the United States Commodity Exchange Act, as amended, without prior Commission approval.
Submission to Jurisdiction and Agent for Service
11. With respect to a proceeding brought by the Commission arising out of, related to, concerning or in any other manner connected with the Commission’s regulation and oversight of the activities of the Applicant in Ontario, the Applicant will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Ontario and (ii) an administrative proceeding in Ontario.
12. The Applicant will file with the Commission a valid and binding appointment of an agent for service in Ontario upon whom the Commission may serve a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal, penal or other proceeding arising out of or relating to or, concerning the Commission’s regulation and oversight of the Applicant’s activities in Ontario.
13. The Applicant will provide to its Ontario Members disclosure that:
(a) rights and remedies against the Applicant may only be governed by the laws of the United Kingdom, rather than the laws of Ontario and may be required to be pursued in the United Kingdom rather than in Ontario; and
(b) the rules applicable to trading on Currenex MTF may be governed by the laws of the United Kingdom rather than the laws of Ontario.
Prompt Notice or Filing
14. The Applicant will promptly notify staff of the Commission of any of the following:
(a) any material change to its business or operations or the information provided in the Application, including, but not limited to:
(i) changes to the regulatory oversight by the FCA;
(ii) the corporate governance structure of the Applicant;
(iii) the access model, including eligibility criteria, for Ontario Members;
(iv) systems and technology; and
(v) the clearing and settlement arrangements for Currenex MTF;
(b) any condition or change in circumstances whereby the Applicant is unable or anticipates it will not be able to continue to meet the any of the relevant rules or regulations of the FCA, as set forth in the FCA Handbook;
(c) any known investigations of, or disciplinary action against the Applicant by the FCA or any other regulatory authority to which it is subject;
(d) any matter known to the Applicant that may materially affect its financial or operational viability, including, but not limited to, any significant system failure or interruption; and
(e) any default, insolvency, or bankruptcy of a Currenex MTF Member known to the Applicant or its representatives that may have a material, adverse impact upon Currenex MTF or any Ontario Member.
15. The Applicant will promptly provide staff of the Commission with the following information to the extent it is required to provide to or file such information with the FCA:
(a) details of any material legal proceeding instituted against the Applicant;
(b) notification that the Applicant has instituted a petition for a judgment of bankruptcy or insolvency or similar relief, or to wind up or liquidate the Applicant or has a proceeding for any such petition instituted against it; and
(c) the appointment of a receiver or the making of any voluntary arrangement with creditors.
16. The Applicant will maintain the following updated information and submit such information in a manner and form acceptable to the Commission on a quarterly basis (within 30 days of the end of each calendar quarter), and at any time promptly upon the request of staff of the Commission:
(a) a current list of all Ontario Members;
(b) a list of all Ontario Members against whom disciplinary action has been taken in the last quarter by Currenex MTF, or, to the best of Currenex MTF’s knowledge, by FCA with respect to such Ontario Users’ activities on Currenex MTF;
(c) a list of all investigations by Currenex MTF relating to Ontario Members;
(d) a list of all Ontario applicants for status as a participant who were denied such status or access to Currenex MTF during the quarter, together with the reasons for each such denial;
(e) a list of all products available for trading during the quarter, identifying any additions, deletions, or changes since the prior quarter;
(f) for each product,
(i) the total trading volume and value originating from Ontario Members, presented on a per Ontario User basis, and
(ii) the proportion of worldwide trading volume and value on Currenex MTF conducted by Ontario Members, presented in the aggregate for such Ontario Members; and
(g) a list outlining each incident of a material systems failure, malfunction or delay that occurred at any time during the quarter for any system relating to trading activity, including trading, routing or data, specifically identifying the date, duration and reason for the failure, malfunction or delay, and noting any corrective action taken.
17. The Applicant will file with the Commission any annual financial report or financial statements (audited or unaudited) of the Applicant provided to or filed with the FCA promptly after filing with the FCA.
18. The Applicant will provide such information as may be requested from time to time by, and otherwise cooperate with, the Commission or its staff, subject to any applicable privacy or other laws (including solicitor-client privilege) governing the sharing of information and the protection of personal information.