Bloomberg Trading Facility Limited and Bloomberg Trading Facility B.V.
Headnote
Application for revocation under s. 144 of Securities Act and for interim exemptions from recognition as exchanges under s. 21(1) of Act pursuant to section 147 of Act -- interim relief granted to BTFL and BV -- subject to terms and conditions.
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
CHAPTER S. 5, AS AMENDED (THE ACT)
AND
IN THE MATTER OF
BLOOMBERG TRADING FACILITY LIMITED (BTFL)
AND
IN THE MATTER OF
BLOOMBERG TRADING FACILITY B.V. (BV)
ORDER
(Sections 144 and 147 of the Act)
WHEREAS BTFL is authorized by the U.K. Financial Conduct Authority, a financial regulatory body in the United Kingdom, to act as the operator of a multilateral trading facility (MTF), specifically BMTF;
AND WHEREAS BV is authorized by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) as an investment firm with permission to operate an MTF, specifically BTFE;
AND WHEREAS BTFL and BV (together, the Applicants) have participants located in Ontario;
AND WHEREAS an MTF that allows access by Ontario participants is considered by the Ontario Securities Commission (Commission) to be carrying on business as an exchange in Ontario;
AND WHEREAS on December 22, 2017, the Commission issued an interim order under section 147 of the Act exempting BTFL on an interim basis from the requirement in subsection 21(1) of the Act to be recognized as an exchange (Interim Order);
AND WHEREAS on December 14, 2018, the Commission issued an order varying the termination date of the Interim Order (First Variation Order);
AND WHEREAS on June 27, 2019, the Commission issued a second order varying the termination date of the Interim Order (Second Variation Order);
AND WHEREAS on December 13, 2019, the Commission issued a third order varying the termination date of the Interim Order (Third Variation Order);
AND WHEREAS the Interim Order, as varied by the First Variation Order, the Second Variation Order, and the Third Variation Order will terminate on the earlier of (i) December 31, 2020 and (ii) the effective date of a subsequent order exempting BTFL from the requirement to be recognized as an exchange under section 21(1) of the Act, unless further extended by order of the Commission;
AND WHEREAS the Interim Order and all subsequent variations contained a condition that BTFL not provide access to Ontario participants to trading in products other than swaps, as defined in section 1a(47) of the United States Commodity Exchange Act, as amended, without prior Commission approval;
AND WHEREAS pursuant to the terms of a settlement agreement approved by the Commission on December 18, 2020 (the Settlement Agreement), BTFL admitted that it breached Ontario securities laws by, among other things failing to prevent, or otherwise permitting, trading in fixed income securities by Ontario participants in contravention of the terms of the Interim Order and subsequent variations of the Interim Order;
AND WHEREAS pursuant to the terms of the Settlement Agreement, BV admitted it breached Ontario securities laws by, among other things, failing to prevent, or otherwise permitting, trading by Ontario participants without being recognized as an exchange by the Commission or obtaining an exemption from the requirement to be recognized;
AND WHEREAS pursuant to the terms of the Settlement Agreement, the Applicants have been ordered to:
1. Each conduct an internal review of their compliance practices and procedures relating to ensuring compliance with Ontario securities laws, and institute any necessary changes in accordance with the process set forth in Schedule "A" to the Settlement Order, pursuant to paragraph 4 of subsection 127(1) of the Act;
2. Disgorge to the Commission amounts obtained as a result of non-compliance with Ontario securities law in the amount of $663,305.20, pursuant to paragraph 10 of subsection 127(1) of the Act;
3. Pay an administrative penalty in the amount of $2,506,011.80, pursuant to paragraph 9 of subsection 127(1) of the Act; and
4. Bring themselves into compliance with Ontario securities law by submitting an application with the Commission, pursuant to sections 144 and 147 of the Act, requesting that the Interim Order be revoked and restated to exempt BTFL and BV on an interim basis from the requirement in subsection 21(1) of the Act to be recognized as an exchange and to allow for the trading of swaps and fixed income securities, provided that applications for Subsequent Decisions (as defined below) for each of the Applicants are filed by January 31, 2021;
AND WHEREAS the MTFs operated by the Applicants are important sources of liquidity to Ontario participants for derivatives and fixed income securities;
AND WHEREAS requiring the MTFs operated by the Applicants to cease operating prior to the issuance of Subsequent Decisions could potentially burden Ontario participants and disrupt the capital markets;
AND WHEREAS the Applicants have submitted applications dated December 14, 2020 pursuant to sections 144 and 147 of the Act (the Applications) requesting that the Interim Order be revoked and restated to exempt BTFL and BV on an interim basis from the requirement in subsection 21(1) of the Act to be recognized as an exchange and to allow for the trading of swaps and fixed income securities (the Restated Order);
AND WHEREAS the products traded on the Applicants' MTFs, BMTF and BTFE, are not commodity futures contracts as defined in the Commodity Futures Act (Ontario) and the Applicants are not considered to be carrying on business as commodity futures exchanges in Ontario;
AND WHEREAS each of the Applicants is required under the Settlement Agreement to file a full application for subsequent decisions to allow for the trading of swaps and fixed income securities by January 31, 2021 (the Subsequent Decisions);
AND WHEREAS as part of the application or filings for the Subsequent Decisions, the Applicants must include a request for the registration and authorization of a Canadian affiliate as an alternative trading system, as that term is defined in National Instrument 21-101 Marketplace Operation;
AND WHEREAS pursuant to the Settlement Agreement, the Applications, and the representations made by the Applicants to the Commission, the Commission has determined that the granting of the Restated Order would not be prejudicial to the public interest;
IT IS HEREBY ORDERED by the Commission that
1. Pursuant to section 144 of the Act, the Interim Order is hereby revoked.
2. Pursuant to section 147 of the Act, BTFL is exempt from recognition as an exchange under subsection 21(1) of the Act to operate BMTF, provided that
(a) BTFL complies with the terms and conditions contained in Schedule "A"; and
(b) BTFL files an application for a Subsequent Decision by January 31, 2021.
3. Pursuant to section 147 of the Act, BV is exempt from recognition as an exchange under subsection 21(1) of the Act to operate BTFE, provided that
(a) BV complies with the terms and conditions contained in Schedule "A"; and
(b) BV files an application for a Subsequent Decision by January 31, 2021.
4. For each of BTFL or BV, this Order shall terminate on the earlier of (i) June 30, 2021 and (ii) the effective date of the Subsequent Decisions in respect of BTFL or BV, as the case may be.
DATED December 18, 2020
"Frances Kordyback"
"Cecilia Williams"
SCHEDULE "A"
TERMS AND CONDITIONS
Regulation and Oversight of the Applicants
1. The Applicants will maintain their registration, in the case of BTFL, as a multilateral trading facility (MTF) with the U.K. Financial Conduct Authority (the FCA), and, in the case of BV, as an investment firm with permission to operate an MTF with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) (the AFM).
2. BTFL will continue to be subject to the regulatory oversight of the FCA.
3. BV will continue to be subject to the regulatory oversight of the AFM.
4. The Applicants will continue to comply with the ongoing requirements applicable to them as MTFs registered with the FCA and AFM.
5. The Applicants will promptly notify the Commission if their registration as MTFs has been revoked, suspended, or amended by the FCA or AFM, as applicable, or the basis on which their registration as MTFs has been granted has significantly changed.
6. The Applicants must do everything within their control, which includes cooperating with the Commission as needed, to carry out their activities as exchanges exempted from recognition under subsection 21(1) of the Act in compliance with Ontario securities law.
Access
7. The Applicants will not provide direct access to a participant in Ontario (Ontario User) unless the Ontario User is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements.
8. For each Ontario User provided direct access to its MTF, each Applicant will require, as part of its application documentation or continued access to the MTF, the Ontario User to represent that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements.
9. The Applicants may reasonably rely on a written representation from the Ontario User that specifies either that it is appropriately registered as applicable under Ontario securities laws or is exempt from or not subject to those requirements, provided the Applicant notifies such Ontario User that this representation is deemed to be repeated each time it enters an order, request for quote or response to a request for quote or otherwise uses the Applicants' MTFs.
10. The Applicants will require Ontario Users to notify the Applicants 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 User and subject to applicable laws, the Applicants will promptly restrict the Ontario User's access to the Applicants if the Ontario User is no longer appropriately registered or exempt from those requirements.
11. The Applicants must make available to Ontario Users appropriate training for each person who has access to trade on the Applicants' facilities.
Trading by Ontario Users
12. The Applicants will not provide access to an Ontario User to trading in any products other than swaps, as defined in section 1a(47) of the United States Commodity Exchange Act as amended (but without regard to any exclusions from the definition), or fixed income securities without prior Commission approval.
Submission to Jurisdiction and Agent for Service
13. 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 Applicants in Ontario, the Applicants will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Ontario and (ii) an administrative proceeding in Ontario.
14. The Applicants will maintain 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, related to, concerning or in any other manner connected with the Commission's regulation and oversight of the Applicants' activities in Ontario.
Disclosure
15. The Applicants will provide to its Ontario Users disclosure that:
a. rights and remedies against the Applicants may only be governed by the laws of the United States (U.S.), as applicable, rather than the laws of Ontario and may be required to be pursued in the U.S., as applicable, rather than in Ontario; and
b. the rules applicable to trading on the Applicants may be governed by the laws of the U.S., United Kingdom, or the Netherlands, rather than the laws of Ontario.
Prompt Reporting
16. The Applicants will notify staff of the Commission promptly of:
a. any material change to their businesses or operations or the information provided in the Application, including, but not limited to material changes:
i. to the regulatory oversight by the FCA and AFM, as applicable;
ii. the corporate governance structure of the Applicants;
iii. the access model, including eligibility criteria, for Ontario Users;
iv. systems and technology; and
v. the clearing and settlement arrangements for the Applicants;
b. any condition or change in circumstances whereby the Applicants are unable or anticipates they will not be able to continue to meet any of the relevant rules and regulations of the FCA or AFM, as applicable;
c. any known investigations of, or any disciplinary action against the Applicants by the FCA, AFM, or any other regulatory authority to which they are subject;
d. any matter known to the Applicants that may materially and adversely affect their financial or operational viability, including, but not limited to, any declaration of an emergency pursuant to the Applicants' rules;
e. any default, insolvency, or bankruptcy of a participant of the Applicants known to the Applicants or its representatives that may have a material, adverse impact upon the Applicants; and
f. any material systems outage, malfunction or delay.
17. The Applicants 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 or AFM:
a. details of any material legal proceeding instituted against the Applicants;
b. notification that the Applicants have instituted a petition for a judgment of bankruptcy or insolvency or similar relief, or to wind up or liquidate the Applicants or has a proceeding for any such petition instituted against them; and
c. the appointment of a receiver or the making of any voluntary arrangement with creditors.
Quarterly Reporting
18. The Applicants 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 Users and whether the Ontario User is registered under Ontario securities laws or is exempt from or not subject to registration, and, to the extent known by the Applicants, other persons or companies located in Ontario trading on the Applicants' MTFs as customers of participants (Other Ontario Participants);
b. the legal entity identifier assigned to each Ontario User, and, to the extent known by the Applicants, to Other Ontario Participants in accordance with the standards set by the Global Legal Entity Identifier System;
c. a list of all Ontario Users whom the Applicants have referred to the FCA or AFM, as applicable, or, to the best of the Applicants' knowledge, whom have been disciplined by the FCA or AFM, as applicable, with respect to such Ontario Users' activities on the Applicants' MTFs and the aggregate number of all participants referred to the FCA and/or the AFM, as applicable in the last quarter by the Applicants;
d. a list of all active investigations during the quarter by the Applicants relating to Ontario Users and the aggregate number of active investigations during the quarter relating to all participants undertaken by the Applicants;
e. a list of all Ontario applicants for status as a participant who were denied such status or access to the Applicants during the quarter, together with the reasons for each such denial;
f. a list of all additions, deletions, or changes to the products available for trading since the prior quarter;
g. for each product,
i. the total trading volume and value originating from Ontario Users, and, to the extent known by the Applicants, from Other Ontario Participants, presented on a per Ontario User or per Other Ontario Participant basis; and
ii. the proportion of worldwide trading volume and value on the Applicants conducted by Ontario Users, and, to the extent known by the Applicants, by Other Ontario Participants, presented in the aggregate for such Ontario Users and Other Ontario Participants;
provided in the required format; and
h. a list outlining each material incident of a security breach, systems failure, malfunction, or delay (including cyber security breaches, systems failures, malfunctions or delays reported under section 15(g) of this Schedule) 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, to the extent known or ascertainable by the Applicants, for the failure, malfunction or delay, and noting any corrective action taken.
Information Sharing
19. The Applicants 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.