Bloomberg Tradebook Canada Company – s. 15.1 of NI 21-101
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from the requirement to engage a qualified party to conduct an independent systems review and prepare a report in accordance with established audit standards -- relief subject to control self-assessments of systems and controls at least annually and similar in scope to that which would have applied to an independent systems review -- National Instrument 21-101 Marketplace Operation.
Applicable Legislative Provisions
National Instrument 21-101 Marketplace Operation, ss. 12.2 and 15.1.
July 8, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA, NOVA SCOTIA, ONTARIO AND QUÉBEC (the Jurisdictions) 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 securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption pursuant to section 15.1 of National Instrument 21-101 Marketplace Operation (NI 21-101) from s. 12.2 of NI 21-101 which requires that the Filer annually engage a qualified party to conduct an independent systems review and prepare a report in accordance with established audit standards (collectively, an ISR) for the years 2021, 2022 and 2023 (the Exemptive Relief Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
(a) the Ontario Securities Commission (the 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 other Decision Maker.
Interpretation
Terms defined in National Instrument 14-101 Definitions and in NI 21-101 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 Nova Scotia unlimited liability company incorporated on February 15, 2001 and is a subsidiary of Bloomberg L.P., a Delaware U.S. limited partnership;
2. The head office of the Filer is located in Toronto, Ontario;
3. The Filer is currently approved as an alternative trading system (ATS) in the Jurisdictions, is registered as an investment dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Québec, Saskatchewan and Yukon, and also a member of the Investment Industry Regulatory Organization of Canada;
4. The Filer's principal business is to operate an ATS as defined in NI 21-101;
5. The Commission is the Filer's principal regulator pursuant to subsection 3.6(3)(b) of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions because the Filer's head office is located in Ontario;
6. Through its ATS authorization, the Filer provides clients located in the Jurisdictions with access to the multilateral trading facilities operated by its affiliated entities, Bloomberg Trading Facility Limited (BTFL) and Bloomberg Trading Facility B.V. (BTF BV), to execute trades in Canadian Debt Securities{1}, and the organised market operated by its affiliated entity, Bloomberg Tradebook Singapore Pte Ltd. (BTSPL), to negotiate trades in Canadian Debt Securities, Foreign Debt Securities{2}, IRS{3}, CDS{4} and FX{5} (each a System and collectively referred to as the Systems). Each of BTFL, BTF BV and BTSPL is subject to robust regulation in its respective home jurisdiction;
7. Any of the Systems that support order entry, order execution, order routing, trade reporting, trade comparison, trade clearing, data feeds and market surveillance, as applicable, maintains (over which the Filer has oversight):
• reasonable business continuity and disaster recovery plans;
• an adequate system of internal control over those systems; and
• adequate information technology general controls, including, without limitation, controls relating to information systems operations, information security, change management, problem management, network support, and system software support;
8. Each of the Systems maintains adequate information security controls that relate to the security threats posed to any of the Systems;
9. In accordance with prudent business practice, on a reasonably frequent basis, and, in any event, at least annually, the Systems:
• make reasonable current and future capacity estimates;
• conduct capacity stress tests to determine the ability of those systems to process transactions in an accurate, timely, and efficient manner;
• test their business continuity and disaster recovery plans; and
• review the vulnerability of the Systems and data centre operations to internal and external threats, including physical hazards and natural disasters;
10. The current transactions volumes are less than 30-40 percent of peak capacity of the Systems and the Systems have not experienced any material malfunctions;
11. The Filer maintains effective control frameworks allowing it to respond to significant strategic, operational, regulatory, and financial risks, and has established an internal risk management framework which includes identifying, assessing, measuring, mitigating, and reporting to its board of directors (the Internal Risk Management Framework);
12. The Filer's Internal Risk Management Framework meets the regulatory objectives of the ISR;
13. The estimated cost of an annual independent systems review by a qualified third party would represent a material impairment to the Filer's business on an annual basis;
14. The Systems are monitored 24 hours a day, seven days a week to ensure that the Systems continue to operate and remain secure;
15. The Filer shall promptly notify the Commission of any failure to comply with the representations set out herein;
16. The cost of an ISR is prejudicial to the Filer and represents a disproportionate impact on the Filer's revenue; and
17. The Filer is not in default of the Legislation.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemptive Relief Sought is granted provided that:
1. The Filer shall promptly notify the Commission of any material changes to the representations set out herein, including any material changes to the Filer's annual net income or to the market share or daily transaction volume of the Systems; and
2. The Filer shall, for the years 2021, 2022 and 2023, complete control self-assessments of the Systems, at least annually and similar in scope to that which would have applied if the Filer underwent an ISR and for ensuring it continues to comply with the representations set out herein, and shall prepare written reports of its control self-assessments which shall be filed with staff of the Commission no later than (i) 30 days after the report is provided to the Filer's board of directors or audit committee or (ii) the 60th day after the report's completion.
{1} "Canadian Debt Securities" are any unlisted debt securities, as that term is defined in NI 21-101, and any debt securities denominated in Canadian dollars.
{2} "Foreign Debt Securities" are any debt securities (as defined in NI 31-103) that are foreign securities (as defined in NI 31-103) or debt securities that are denominated in a currency other than the Canadian dollar, including: (a) debt securities issued by the U.S. government (including agencies or instrumentalities thereof); (b) debt securities issued by a foreign government; (c) debt securities issued by corporate or other non-governmental issuers (U.S. and foreign); and (d) asset-backed securities (including mortgage backed securities), denominated in either U.S. or foreign currencies.
{3} "IRS" are interest rate swaps, as defined in section 1a(47) of the U.S. Commodity Exchange Act ("CEA").
{4} "CDS" are credit default swaps, as defined in section 1a(47) of the CEA, and single-name security (credit default) swaps.
{5} "FX" are: (a) foreign exchange swaps, as defined in section 1a(47) of the CEA (but without regard to any exclusions from the definition); (b) precious metals swaps; (c) foreign exchange spot; (d) deposits; and (e) trade finance.