Agrifoods International Cooperative Ltd.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- application for relief from the requirement to be recognized as a clearing agency; National Instruments 21-101 Marketplace Operation, 23-101 Trading Rules, 24-102 Clearing Agency Requirements -- relief to allow the Filer to operate a platform that facilitates the buying and selling of shares of a cooperative organized under the Canada Cooperatives Act -- relief granted subject to certain conditions set out in the decision -- relief granted based on the particular facts and circumstances of the application -- decision should not be viewed as precedent for other filers.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(1), 21.2(0.1), & 147.
National Instrument 21-101 Marketplace Operation, s. 15.1.
National Instrument 23-101 Trading Rules, s. 12.1.
National Instrument 24-102 Clearing Agency Requirements, s. 6.1.
February 26, 2024
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO, ALBERTA, SASKATCHEWAN, AND MANITOBA (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF AGRIFOODS INTERNATIONAL COOPERATIVE LTD. (the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions, as applicable (the Coordinated Review Decision Makers), has received an application from the Filer (the Coordinated Review Application) for a decision under the securities legislation of the Jurisdictions (collectively, the Legislation), exempting the Filer from the following:
(a) in Ontario, Manitoba, Saskatchewan, and Alberta:
(i) the Clearing Recognition Requirement (as defined in Appendix A) (the Clearing Recognition Relief); and
(ii) the requirements of National Instrument 24-102 Clearing Agency Requirements (NI 24-102); and
(b) in Ontario and Manitoba, the requirements of:
(i) National Instrument 21-101 Marketplace Operation (NI 21-101); and
(ii) National Instrument 23-101 Trading Rules (NI 23-101),
each as applicable to the operation of a private trading facility operated by the Filer (the Trading System), which facilitates the trading of Investment Shares (as defined in the Canada Cooperatives Act (the Federal Co-Op Act)) of the Filer (collectively, the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the decision is the decision of the principal regulator and evidences the decision of each Coordinated Review Decision Maker.
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a cooperative organized under the Federal Co-Op Act; the members of the Filer are dairy producers located in each of the Jurisdictions; the Filer offers its members the service of picking up milk from their farms and delivering the milk to dairies for processing; the ability of some members to use this service is limited by Provincial milk board regulations or policies.
2. The Filer is not a reporting issuer in any jurisdiction and has no intention of becoming a reporting issuer.
3. The Filer's capital structure consists of an unlimited number of Membership Shares (as defined in the Federal Co-Op Act) with a par value of $1.00 per Membership Share, and an unlimited number of Investment Shares without par value.
4. There are currently approximately 4,015 Membership Shares and 19,462,422 Investment Shares issued and outstanding.
5. The Filer currently has:
(a) approximately 806 members (the Members) who are actively involved in dairy farming;
(b) approximately 1,692 auxiliary members (the Auxiliary Members) who either:
(i) were previously, but are no longer, active in dairy farming, but have a continuing interest in the Filer in the form of Investment Shares; or
(ii) are shareholders of active or formerly active corporate Members or partners of or participants in active or formerly active unincorporated Members.
6. Under the Federal Co-Op Act and the Articles and By-laws of the Filer:
(a) only Members are able to hold Membership Shares;
(b) only Members, Auxiliary Members, and employees of the Filer (in accordance with the terms of an employee share ownership, stock option or similar plan for employees of the Filer (an Employee Plan)) are able to hold Investment Shares;
(c) membership is limited to active dairy producers licensed by the Provincial milk board in one of the Jurisdictions who are (i) capable of using the services of the Filer; (ii) use the Filer's services unless prevented from doing so by Provincial milk board regulations, orders, or policies; and (iii) are admitted to membership in the Filer; and
(d) auxiliary membership is limited to former Members who have ceased dairy farming but continue to hold Investment Shares, and shareholders, partners or other owners of Members and Auxiliary Members who are admitted to auxiliary membership in the Filer.
7. There are currently Members and Auxiliary Members resident in each of the Jurisdictions. Members in Ontario have been admitted since December 2017. Prior to that time, there were only Members resident in British Columbia, Alberta, and Saskatchewan. There is also one Auxiliary Member resident in Nova Scotia. Auxiliary Members all became so while resident in British Columbia, Alberta, or Saskatchewan, and those now resident in Manitoba, Ontario or Nova Scotia moved to those provinces subsequent to becoming Auxiliary Members.
8. Originally, Auxiliary Members were individuals, companies or organizations who were: (a) no longer active in dairy farming; and (b) owed member loans by the Filer that were converted to Investment Shares (the Original Auxiliary Members). The Original Auxiliary Members make up the majority of the Auxiliary Members. Now, shareholders of active or formerly active corporate Members or partners of or participants in active or formerly active unincorporated Members are allowed to apply to be Auxiliary Members for the purpose of holding Investment Shares as individuals rather than through their interest in corporate Members or unincorporated Members (the New Auxiliary Members). New Auxiliary Members must meet the Auxiliary Member criteria set out in the bylaws of the Filer and apply for admittance as an Auxiliary Member, which is subject to approval by the Board of the Filer.
9. The Articles of the Filer provide that its Investment Shares may be issued and transferred only to:
(a) Members or Auxiliary Members;
(b) the executor or administrator of the estate of a Member or Auxiliary Member, provided that the executor or administrator may only hold and sell the Investment Shares owned by the deceased person at the time of his or her death and any additional Investment Shares issued to the deceased's estate as a result of the mandatory investment of patronage returns to the deceased or the deceased's estate for the purchase of Investment Shares, but the executor or administrator may not otherwise acquire additional Investment Shares; and
(c) employees of the Filer, pursuant to and in accordance with the terms of, an Employee Plan, (collectively, Participants)
and in addition, no person or shareholder group can hold more than five percent of the issued and outstanding Investment Shares. Previously issued Investment Shares can be transferred only to a person who has been a Member or Auxiliary Member for at least 12 months before the date of transfer.
10. Many Participants reside in remote geographical locations. Therefore, in order to facilitate trading of Investment Shares among the Participants, the board of directors of the Filer established a system and procedure by which parties entitled to hold Investment Shares may buy and sell such shares.
11. The Trading System is governed by a specific set of rules (the Trading Rules) established by the Filer and distributed to its Members and Auxiliary Members.
12. The Trading Rules provide a method by which:
(a) interested sellers may give notice to the Filer of their desire to sell Investment Shares;
(b) interested buyers may give notice to the Filer of their desire to buy Investment Shares; and
(c) such interested buyers and sellers are "matched" together in order to complete such sales.
13. The Filer holds any funds received in connection with the trading of Investment Shares in a segregated trust account for the benefit of the relevant Participants. The fact that such funds are held in trust is disclosed on the website, in the Trading Rules and on any other materials relating to the Trading System that are prepared by the Filer.
14. The Filer maintains records of all trades conducted and will use an independent third party to conduct an audit of the share transfer register at least once per year. Records of all trades are kept for a minimum of seven years.
15. The Filer charges a flat fee to Participants for the purchase and sale of Investment Shares under the Trading System. The amount of the fee is disclosed in the Trading Rules and partially offsets the costs to the Filer of operating the Trading System.
16. The Filer keeps the identity of the buyers and sellers confidential unless the buyers and sellers consent to the release of that information.
17. In order for any members to purchase or sell Investment Shares using the Trading System, pursuant to the Trading Rules, members are required to provide the Filer with a current address. As part of the settlement process under the Trading System, the Filer reviews the jurisdiction of residence of parties to each trade and is able to ensure only trades in the Jurisdictions are accepted.
18. The Filer was granted relief in British Columbia, Alberta, and Saskatchewan from the requirements of NI 21-101 and NI 23-101, in connection with the operation of its Trading System, pursuant to a decision granted under the Mutual Reliance Review System for Exemptive Relief Applications on February 28, 2006, which is still in effect, where the Alberta Securities Commission acted as principal regulator.
19. The Filer is separately seeking relief in British Columbia from the requirement to be recognized as a clearing agency under section 25 of the Securities Act (British Columbia) and the requirements of NI 24-102.
Decision
Each of the Coordinated Review Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Coordinated Review Decisions Makers to make the decision.
The decision of the Coordinated Review Decisions Makers under the Legislation is that the Requested Relief is granted provided that:
1. The Filer does not engage in any clearing agency or marketplace activity in respect of the Trading System that is not described in the Coordinated Review Application without obtaining prior approval of the Coordinated Review Decision Makers;
2. The Filer makes the Trading System available only to Participants;
3. New Auxiliary Members meet the Auxiliary Member criteria set out in the Filer's bylaws and apply for admittance as an Auxiliary Member, which is subject to approval by the Filer's board of directors;
4. The Filer maintains a website on which Participants may access the Filer's annual financial statements and other disclosure documents, the Trading Rules, current and historical trading information, contact information, appropriate cautions regarding compliance with applicable securities laws and the need to obtain independent professional advice;
5. The Filer's participation in the Trading System is purely administrative in nature and no director, officer, employee, or agent of the Filer will solicit Participants to use the Trading System or provide investment advice to Participants;
6. The Filer holds any funds received in connection with the trading of Investment Shares in a segregated account in trust for the benefit of the relevant Participants, and discloses such fact on its website, in the Trading Rules and on any other materials relating to the Trading System that are prepared by the Filer;
7. The Filer does not extend margin or offer credit to Participants in connection with the Trading System;
8. The Filer maintains records of all trades conducted and uses an independent third-party accountant to conduct an audit of the share transfer register at least once per year; and
9. The Filer retains records of all trades for a minimum of seven years, which will be kept in a readily accessible location for the first two years.
Application File #: 2023-0095
APPENDIX A
CLEARING RECOGNITION REQUIREMENT
In this Decision,
a) the "Clearing Recognition Requirement" means each of the following:
(i) the requirement to be recognized as a clearing agency in subsection 21.2(0.1) of the Securities Act (Ontario);
(ii) the requirement to be recognized as a clearing agency in section 31.7(1) of the Securities Act (Manitoba);
(iii) the requirement to be recognized as a clearing agency in section 21.2 of the Securities Act (Saskatchewan); and
(iv) the requirement to be recognized as a clearing agency in section 67 of the Securities Act (Alberta).