Bloomberg Tradebook Canada Company
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Investment dealer and recognized ATS provider with operations across multiple foreign jurisdictions and separate lines of business exempted from the requirement to register an individual as its chief compliance officer (CCO) and instead permitted to designate two individuals as CCO, one for each operating line of business.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.3 and 15.1.
July 5, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BLOOMBERG TRADEBOOK CANADA COMPANY (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the requirement in section 11.3 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit the Filer to designate two individuals as chief compliance officer (CCO), with the result that there will be a separate CCO in respect of each of the two distinct lines of business and compliance oversight as carried on by the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in MI 11-102, National Instrument 14-101 Definitions and NI 31-103 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:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Nova Scotia with its head office located in Toronto, Ontario.
2. The Filer is a subsidiary of Bloomberg L.P., a Delaware U.S. limited partnership.
3. The Filer currently operates an alternative trading system (ATS) in Alberta, Nova Scotia, Ontario, Québec and Saskatchewan, which provides access to electronic trading systems operated by its affiliates. The Filer is registered as an investment dealer in each province and territory of Canada and is a member of IIROC. The Filer is also licensed as a U.S. broker dealer with the U.S. Securities and Exchange Commission and is a member of the U.S. Financial Industry Regulatory Authority.
4. The Filer is not in default of securities legislation in any jurisdiction of Canada.
5. The Filer's Canadian participants are participants that (1) are located in a Jurisdiction, including participants with their headquarters or legal address in a Jurisdiction (as indicated by a participant's Legal Entity Identifier ("LEI")) and all traders conducting transactions on such participant's behalf, regardless of the traders' physical location (inclusive of non-Jurisdiction branches of Jurisdiction legal entities), as well as any trader physically located in a Jurisdiction who conducts transactions on behalf of any other entity, and (2) qualify as "institutional clients" as defined in Rule 1201(2) of the Investment Industry Regulatory Organization of Canada Rules.
The Business Lines
6. The Filer operates two distinct business lines which serve Canadian participants (each, a Line):
(a) one Line, the ATS business line, services Canadian participants of Bloomberg's United Kingdom and Dutch multilateral trading facilities, as well as its Singapore organised market (the ATS Business Line).
(b) the other Line, the investment dealer business line, services Canadian participants of Bloomberg's U.S. trade negotiation system (the Investment Dealer Business Line).
7. The Filer wishes to designate an individual who is registered in the category of CCO under the securities legislation of the Jurisdictions as CCO of the ATS Business Line and a different individual who is registered in the category of CCO under the securities legislation of the Jurisdictions as CCO of the Investment Dealer Business Line.
8. Each of the ATS Business Line and Investment Dealer Business Line has a separate and distinct business supervisory and operational structure. The ATS Business Line is distinct from the Investment Dealer Business Line since it provides Canadian participants access to the U.K. and Dutch multilateral trading facilities and the Singapore organised market. The ATS Business Line is subject to ATS requirements such as an Independent Systems Review, operation of a fair and orderly market and updates to Form 21-101F2Information Statement Alternative Trading System. The Filer must also supervise and interact with different persons and systems since the operators of such facilities and market and the U.S. trade negotiation system are not the same. Finally, since the Filer is also a U.S. broker-dealer, it is required to comply with extensive U.S. securities regulatory requirements. Currently, the Filer's CCO primarily supports both Lines since the CCO is appropriately licensed in both Canada and the United States. If the Exemption Sought is granted, each of the ATS Business Line and Investment Dealer Business Line will have a specific CCO designated to each Line.
The CCO Requirement
9. Under section 11.3 of NI 31-103, a registered firm is required to designate an individual to be the CCO (the CCO Requirement).
10. In accordance with the Canadian Securities Administrators (CSA) Staff Notice 31-358 -- Guidance on Registration Requirements for Chief Compliance Officers and Request for Comments, the CSA may allow registered firms to implement their CCO responsibilities in a manner that better aligns with their operational needs and business models, and acknowledge that larger firms may benefit from implementing a multiple CCO model where they have distinct business lines or registration categories.
Reasons For Exemption Sought
11. Given the overall size, diversity and increasing complexity of the Filer's Lines, it is difficult (i) for one individual to effectively carry out all the responsibilities of the CCO for each Line, and (ii) for one CCO to effectively identify and stay abreast of the different issues and risks applicable to clients and the capital markets stemming from the different Lines.
12. Given the overall large scope and the specialized and diversified business operations of each Line, the Filer believes that having a separate CCO for each Line will allow it to more effectively manage its compliance program by enabling it to focus resources on the specific requirements of each Line.
13. If the Exemption Sought is granted,
(a) the CCO of the ATS Business Line will oversee compliance systems that are reasonably designed to ensure that the ATS Business Line, and each person acting on its behalf, complies with securities legislation. To this end, the CCO of the ATS Business Line will establish and maintain appropriate policies and procedures for the ATS Business Line, and will oversee a supervisory structure that monitors and evaluates compliance in respect of all registrable activities carried out by the ATS Business Line, including but not limited to compliance with ATS reporting obligations for Bloomberg's U.K. multilateral trading facility, Bloomberg's Dutch multilateral trading facility and Bloomberg's Singapore organised market; and
(b) the CCO of the Investment Dealer Business Line will oversee compliance systems that are reasonably designed to ensure that the Investment Dealer Business Line, and each person acting on its behalf, complies with securities legislation. To this end, the CCO of the Investment Dealer Business Line will establish and maintain appropriate policies and procedures for the Investment Dealer Business Line, and will oversee a supervisory structure that monitors and evaluates compliance in respect of all registrable activities carried out by the Investment Dealer Business Line. This will include overseeing compliance with the requirements governing trading practices relating to the provision of access to the Filer's U.S. electronic trade negotiation system.
14. Given the Filer's unique structure, implementing a multiple CCO model will enable the Filer to meet its regulatory requirements in both the United States and Canada and will allow for the specific expertise of each of its CCOs to be utilized, which will facilitate an overall reduction in compliance risk to the Filer.
15. If the Exemption Sought is granted, each CCO will have direct access to the Filer's ultimate designated person (UDP); will have independent and direct access to the board of directors at such times as each CCO considers necessary or advisable in view of their responsibilities, and regularly through ongoing quarterly meetings; will provide annual reports to the board of directors of the Filer; and will comply in all other respects with applicable securities legislation requirements, including the requirements set out in NI 31-103.
16. With the granting of the Exemption Sought, the Filer would continue its operations with enhanced compliance effectiveness, since one individual would no longer continue to divide their time between the compliance oversight of the ATS Business Line and Investment Dealer Business Line. Not granting the Exemption Sought would prevent the CCO from responding more quickly to address any compliance issues, providing a higher level of senior participation on the Filer's compliance projects and initiatives, and undertaking more detailed reviews of the Filer's compliance monitoring programs to assist in reducing the risks of non-compliance.
17 In section 5.2 of Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations, the CSA states that:
Firms must designate one CCO. However, in large firms, the scale and kind of activities carried out by different operating divisions may warrant the designation of more than one CCO. We will consider applications, on a case-by-case basis, for different individuals to act as the CCO of a firm's operating divisions.
18. Allowing the Filer to designate and have registered a CCO for each Line is consistent with the policy objectives the CCO Requirement is intended to achieve because the ATS Business Line and Investment Dealer Business Line are independent operations that are distinct from one another in kind and complexity, and conducted globally on a large scale.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) each CCO fulfils the functions described in section 5.2 [responsibilities of the chief compliance officer] of NI 31-103, or any successor provision thereto, in respect of the Line for which the individual is the designated CCO; and
(b) each CCO has direct access to the UDP and direct access to the board of directors of the Filer.