R.J. O'Brien & Associates, LLC -- s. 38 of the CFA and s. 6.1 of Rule 91-502 Trades in Recognized Options

Headnote

Application to the Commission, pursuant to section 38 of the Commodity Futures Act (CFA), for a ruling that the Applicant be exempted from the dealer registration requirement in paragraph 22(1)(a) and the prohibition against trading on non-recognized exchanges in section 33 of the CFA. The Applicant will offer to certain of their clients in Ontario who meet the definition of "permitted client" in NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations the ability to trade in commodity futures contracts and commodity futures options that trade on exchanges located outside Canada through the Applicant.

Application to the Director for an exemption, pursuant to section 6.1 of OSC Rule 91-502 -- Trades in Recognized Options (Rule 91-502), exempting the Applicants and their Representatives from the proficiency requirements in section 3.1 of Rule 91-502 for trades in commodity futures options on exchanges located outside Canada.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22, 33, 38.

Rules Cited

Ontario Securities Commission Rule 91-502 Trades in Recognized Options, ss. 3.1, 6.1.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

(the Act)

AND

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the OSA)

AND

IN THE MATTER OF

R.J. O'BRIEN & ASSOCIATES, LLC

RULING & EXEMPTION

(Section 38 of the Act and Section 6.1 of Rule 91-502)

UPON the application (the Application) of R.J. O'Brien & Associates, LLC (the Applicant) to the Ontario Securities Commission (the Commission) for:

(a) a ruling of the Commission, pursuant to section 38 of the Act, that the Applicant be exempted from the dealer registration requirements in the Act (as defined below) and the trading restrictions in the Act (as defined below) in connection with trades (Futures Trades) in contracts (as defined below) on exchanges located outside Canada (Non-Canadian Exchanges) where the Applicant is acting as principal or agent in such trades to, from or on behalf of Permitted Clients (as defined below); and

(b) an exemption of the Director, pursuant to section 6.1 of OSC Rule 91-502 -- Trades in Recognized Options (Rule 91-502), exempting the Applicant and its salespersons, directors, officers and employees (the Representatives) from section 3.1 of Rule 91-502 in Connection with Futures Trades;

AND WHEREAS for the purposes of this ruling and exemption (the Decision):

(i) "CFTC" means the United States Commodity Futures Trading Commission;

"contract" means a commodity futures contract or a commodity futures option that trades on one or more organized exchanges located outside of Canada and cleared through one or more clearing corporations located outside of Canada;

"dealer registration requirements in the Act" means the provisions of section 22 of the Act that prohibit a person or company from trading in a contract unless the person or company satisfies the applicable provisions of section 22 of the Act;

"FINRA" means the Financial Industry Regulatory Authority in the United States;

"NFA" means the National Futures Association in the United States;

"Permitted Client" means a client in Ontario that is a "permitted client" as that term is defined in section 1.1. of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

"SEC" means the United States Securities and Exchange Commission;

"specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 -- Registration Information; and

"trading restrictions in the Act" means the provisions of section 33 of the Act that prohibit a person or company from trading in a contract unless the person or company satisfies the applicable provisions of section 33 of the Act; and

(ii) terms used in the Decision that are defined in the OSA, and not otherwise defined in the Decision or in the Act, shall have the same meaning as in the OSA, unless the context otherwise requires;

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

AND UPON the Applicant having represented to the Commission and the Director as follows:

1. The Applicant is a limited liability company organized under the laws of the state of Delaware. Its head office is located at 222 South Riverside Plaza, Suite 900, Chicago, Illinois, 60606.

2. The Applicant is a privately-held business wholly-owned by the O'Brien family of Chicago, Illinois. The Applicant was founded in 1914 and is based in Chicago, Illinois, with additional offices in New York, New York, Houston, Texas and Winnipeg, Manitoba.

3. The Applicant is a futures brokerage company and provides execution and clearing services in the United States. The Applicant services a network of introducing broker offices, as well as financial, industrial and agricultural institutions.

4. The Applicant is exempt from registration as a dealer under the OSA pursuant to the international dealer exemption in section 8.18 of NI 31-103.

5. The Applicant is a registered futures commission merchant with the CFTC and a member of the NFA.

6. The Applicant is also a member of the Chicago Mercantile Exchange Group, the IntercontinentalExchange, the NYSE Liffe, Dubai Mercantile Exchange, The Options Clearing Corporation, One Chicago, LCH.Clearnet Ltd., Eurex AG, the Clearing Corporation and the Chicago Climate Exchange.

7. Pursuant to its registrations and memberships, the Applicant is authorized to handle customer orders and receive and hold customer margin deposits, and otherwise act as a futures broker, in the United States. Rules of the CFTC and NFA require the Applicant to maintain adequate capital levels, make and keep specified types of records relating to customer accounts and transactions, and comply with other forms of customer protection rules including know-your-customer obligations, account opening, suitability, anti-money laundering checks, credit checks, delivery of confirmation statements, clearing deposits and initial and maintenance margins. These rules do not permit the Applicant to treat Permitted Clients materially differently from the Applicant's US customers with respect to transactions made on US exchanges. With respect to transactions made on US exchanges, in order to protect customers in the event of the insolvency or financial instability of the Applicant, the Applicant is required to ensure that customer securities and monies be separately accounted for, segregated at all times from the securities and monies of the Applicant and custodied exclusively with such banks, trust companies, clearing organizations or other licensed futures brokers and intermediaries as may be approved for such purposes under the U.S. Commodity Exchange Act and the rules promulgated by the CFTC thereunder (the "R.J. O'Brien Approved Depositories"). The Applicant is further required to obtain acknowledgements from any R.J. O'Brien Approved Depository holding customer funds or securities related to US-based transactions or accounts that such funds and securities are to be separately held on behalf of such customers, with no right of set-off against the Applicant's obligations or debts.

8. The Applicant proposes to offer certain of its Permitted Clients in Ontario the ability to trade in contracts through the Applicant.

9. The Applicant will not maintain an office, sales force or physical place of business in Ontario.

10. The Applicant will solicit business in Ontario only from persons who qualify as Permitted Clients.

11. Permitted Clients of the Applicant will only be offered the ability to effect Futures Trades on Non-Canadian Exchanges.

12. The contracts to be traded by Permitted Clients will include, but will not be limited to, contracts for equity index, interest rate, energy, agricultural and other commodity products.

13. Permitted Clients will be able to execute Futures Trades through the Applicant by contacting the Applicant's exchange floor staff or global execution desk. Permitted Clients may also be able to self execute Futures Trades electronically via an independent service vendor and/or other electronic trading routing.

14. The Applicant may execute a client's order on the relevant Non-Canadian Exchange in accordance with the rules and customary practices of the exchange, or engage another broker to assist in the execution of orders. The Applicant will remain responsible for the execution of each such trade.

15. The Applicant may perform both execution and clearing functions for Futures Trades or may direct that a trade executed by it be cleared through a carrying broker if the Applicant is not a member of the Non-Canadian Exchange on which the trade is executed. Alternatively, the Permitted Client will be able to direct that trades executed by the Applicant be cleared through clearing brokers not affiliated with the Applicant in any way (each a Non-R.J. O'Brien Clearing Broker).

16. If the Applicant performs only the execution of a Permitted Client's contract order and "gives-up" the transaction for clearance to a Non-R.J. O'Brien Clearing Broker, such clearing broker will also be required to comply with the rules of the exchanges of which it is a member and any relevant regulatory requirements, including requirements under the Act as applicable. Each such Non- R.J. O'Brien Clearing Broker will represent to the Applicant in a give-up agreement that it will perform its obligations in accordance with applicable laws, governmental, regulatory, self-regulatory, exchange and clearing house rules and the customs and usages of the exchange or clearing house on which the relevant Permitted Client's contract orders will be executed and cleared. The Applicant will not enter into a give-up agreement with any Non- R.J. O'Brien Clearing Broker located in the United States unless such clearing broker is registered with the CFTC and/or the SEC, as applicable.

17. As is customary for all Futures Trades, a clearing corporation appointed by the exchange or clearing division of the exchange is substituted as a universal counterparty on all trades in Futures Trades and Permitted Client orders are submitted to the exchange in the name of the Non- R.J. O'Brien Clearing Broker or the Applicant or, on exchanges where the Applicant is not a member, in the name of another carrying broker. The Permitted Client is responsible to the Applicant for payment of daily mark-to-market variation margin and/or proper margin to carry open positions and the Applicant, the carrying broker or the Non- R.J. O'Brien Clearing Broker is in turn responsible to the clearing corporation/division for payment.

18. Permitted Clients that direct the Applicant to give up transactions in Exchange-Traded Futures for clearance and settlement by Non- R.J. O'Brien Clearing Brokers will execute the give-up agreements described above.

19. Permitted Clients will pay commissions for trades to the Applicant or the Non- R.J. O'Brien Clearing Broker or such commissions may be shared with the Non- R.J. O'Brien Clearing Broker.

20. The trading restrictions in the Act apply unless, among other things, a contract is traded on a recognized or registered commodity futures exchange and the form of the contract is approved by the Director. To date, no foreign commodity futures exchanges have been recognized or registered under the Act.

21. If the Applicant is exempted from the dealer registration requirements in the Act, the Applicant will be precluded from relying upon the statutory exemptions from the trading restrictions in the Act that the Commission has granted to date.

22. Section 3.1 of the Rule states that any person who trades as agent in, or gives advice in respect of, a recognized option is required to successfully complete the Canadian Options Course (which has been replaced by the Derivatives Fundamentals Course and the Options Licensing Course).

23. All Representatives who trade options in the United States have passed the futures and options proficiency examination (i.e., the National Commodity Futures Examination (Series 3) administered by FINRA.

AND UPON the Commission and Director being satisfied that it would not be prejudicial to the public interest to grant the order requested;

IT IS ORDERED pursuant to section 38 of the Act that the Applicant be exempted from the dealer registration requirements set out in the Act and the trading restrictions in the Act in connection with Futures Trades where the Applicant is acting as principal or agent in such trades to, from or on behalf of Permitted Clients provided that:

(a) each client effecting Futures Trades is a Permitted Client and, if using a Non- R.J. O'Brien Clearing Broker, has represented and covenanted that the broker is or will be appropriately registered or exempt from registration under the Act;

(b) the Applicant only executes Futures Trades for Permitted Clients on exchanges located outside Canada; and

(c) at the time trading activity is engaged in, the Applicant:

(i) has its head office or principal place of business in the United States;

(ii) is registered as a futures commission merchant with the CFTC in good standing;

(iii) is a member in good standing with the NFA;

(iv) engages in the business of a futures commission merchant in contacts in the United States;

(d) the Applicant has provided to the Permitted Client the following disclosure in writing:

(i) a statement that the Applicant is not registered in Ontario to trade in contracts as principal or agent;

(ii) a statement that the Applicant's head office or principal place of business is located in Chicago, Illinois, United States of America;

(iii) a statement that all or substantially all of the Applicant's assets may be situated outside of Canada;

(iv) a statement that there may be difficulty enforcing legal rights against the Applicant because of the above; and

(v) the name and address of the Applicant's agent for service of process in Ontario;

(e) the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix "A";

(f) the Applicant notifies the Commission of any regulatory action after the date of this order in respect of the Applicant, or any predecessors, or specified affiliates of the Applicant, by completing and filing Appendix "B" within 10 days of the commencement of such action;

(g) by December 1 of each year, the Applicant notifies the Commission of its continued reliance on the exemption from registration granted pursuant to the Order; and

(h) this Order shall expire five years after the date hereof.

November 22, 2011

IT IS THE DECISION of the Director, pursuant to section 6.1 of Rule 91-502, that section 3.1 of Rule 91-502 does not apply to the Applicant and its Representatives in respect of Futures Trades, provided that:

(a) the Applicant and its Representatives maintain their respective registrations with the CFTC and NFA which permit them to trade commodity futures options in the United States; and

(b) this Decision shall expire five years after the date hereof.

November 24, 2011

APPENDIX A

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED

FROM REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO

1. Name of person or company ("International Firm"):

2. If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

3. Jurisdiction of incorporation of the International Firm:

4. Head office address of the International Firm:

5. The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

Name:

E-mail address:

Phone:

Fax:

6. The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"):

[ ] Section 8.18 [international dealer]

[ ] Section 8.26 [international adviser]

[ ] Other [specify]:

7. Name of agent for service of process (the "Agent for Service"):

8. Address for service of process on the Agent for Service:

9. The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

10. The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.

11. Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

a. a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated; and

b. an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service.

12. This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

Acceptance

The undersigned accepts the appointment as Agent for Service of ____________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

This form is to be submitted to the following address:

Appendix B

Notice of Regulatory Action

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?

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:

If yes, provide the following information for each action:

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

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:

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