Brute ECN, L.L.C. - s. 211
Headnote
Applicant for registration as international dealer exempted from requirement in subsection 208(2) that it carry on thebusiness of underwriter in a country other than Canada, provided the Applicant does not act as underwriter in Ontarioand agrees to terms and conditions addressing the Applicant's activities as an alternative trading system ("ATS").
IN THE MATTER OF
THE SECURITIES ACT, (the "Act")
R.S.O. 1990, CHAPTER S.5
AND
IN THE MATTER OF
THE BRUT ECN, L.L.C.
ORDER
(Section 211 of the Regulation)
UPON the application (the "Application") of The BRUT ECN, L.L.C. (the "Applicant") dated December 21, 2000,as amended, to the Ontario Securities Commission (the "Commission") in connection with its application for registrationas an international dealer under the Act, for an order (the "Order") pursuant to section 211 of the Regulations madeunder the Act (the "Regulation") exempting the Applicant from the requirement in subsection 208(2) of the Regulationthat it carry on the business of an underwriter in a country other than Canada;
AND UPON considering the Application and the recommendation of the staff of the Commission;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is a limited liability company organized under the laws of the State of Delaware with itsregistered office in the City of New York.
2. The Applicant is a registered broker-dealer under the United States Securities Exchange Act of 1934, and isalso registered as an "alternative trading system" pursuant to Regulation ATS in the United States.
3. The Applicant is a member in good standing of the National Association of Securities Dealers in the UnitedStates and a participant in the Securities Investor Protection Corporation.
4. The Applicant carries on the business of a "dealer" (as defined in subsection 1(1) of the Act) in the UnitedStates.
5. The Applicant does not carry on the business of an underwriter (as defined in subsection 1(1) of the Act) inthe United States.
6. The Applicant operates an electronic communications network ("ECN") that allows broker-dealer andinstitutional subscribers to trade U.S. equity securities. Subscribers connect to the ECN through a variety ofinterfaces, including proprietary and marketed front-end systems.
7. An application was submitted by the Applicant for registration as an International Dealer on December 21,2000.
8. In the absence of the relief requested in this Application, the Applicant would not meet the requirements of theRegulations for registration as an International Dealer as it does not carry on the business of an underwriterin a country other than Canada.
9. The Applicant does not intend to act as an underwriter in Ontario and undertakes not to act as an underwriterin Ontario, despite the fact that section 100(3) of the Regulations provides that an International Dealer isdeemed to have been granted registration as an underwriter for the purposes of a distribution which it ispermitted to make.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 211 of the Regulation that the Applicant is not subject to the requirementin subsection 208(2) of the Regulation that an applicant for registration as an international dealer must carry on thebusiness of an underwriter in a country other than Canada, provided that:
(1) notwithstanding subsection 100(3) of the Regulations, the Applicant shall not act as an underwriterin Ontario; and
(2) the Applicant agrees to the terms and conditions of registration as set forth in Appendix "A".
"March 16, 2001"
"J.A. Geller" "Robert W. Davis"
APPENDIX "A"
The BRUT ECN, L.L.C. (the "Registrant")
Terms and Conditions of International Dealer Registration
Part A: Trading Restrictions
In this Part A:
"Canadian issuer" means an issuer incorporated, formed or created under the laws of Canada or any province orterritory of Canada.
"foreign security" means a security issued by an issuer that is not a Canadian issuer.
The Registrant shall be permitted to execute orders on behalf of customers resident in Ontario but only in foreignsecurities that are not listed and posted on the Toronto Stock Exchange, The Montreal Exchange or the CanadianVenture Exchange ("CDNX").
Part B: Information to be Supplied by the Registrant on a Confidential Basis
The Registrant agrees to:
(a) advise the Ontario Securities Commission (the "Commission") of any substantial or material changesto its electronic trading system and business including, but not limited to, substantial or materialchanges in the criteria used to screen potential customers, changes in the algorithm regardingmatching orders and complying with trading rules (but without prejudice to the Registrant's discretionto exercise its business judgement in accepting and evaluating customers), and whether securitieslisted only on any of The Toronto Stock Exchange, The Montreal Exchange or CDNX are proposedto be traded through the Registrant's electronic trading system;
(b) furnish, upon the request of the Commission, access on a confidential basis to filings and/or copiesof filings effected by the Registrant with the Securities and Exchange Commission of the UnitedStates ("SEC"); the most recent No-Action Letter dated January 12, 2001, its Form BD, its FocusReport and notify the Commission if it discontinues the filing of any of these documents;
(c) furnish on a quarterly basis a report identifying Ontario resident customers by code and listing stockstraded on behalf of Ontario resident customers so that compliance with the trading restrictions setforth in Part A can be monitored. (Ontario resident customers may be identified on such quarterlyreports by identification codes only);
(d) make available on a quarterly basis a list of foreign securities and securities of Canadian issuerstraded through the Registrant's electronic trading system which cannot be traded on behalf of theRegistrant's customers resident in Ontario by virtue of the trading restrictions set forth in Part A;
(e) furnish promptly upon a request of the Commission any of the following information:
(i) a complete list of names and addresses of Ontario-resident customers on the system andtheir identification codes ("Ids");
(ii) a complete list of customer IDs for Ontario resident customers whose access to certainsecurities traded through the Registrant's electronic trading system has been blocked by amechanism (the "Blocking Mechanism") implemented by virtue of the trading restrictions setforth in Part A;
(iii) a list of identification acronyms used for Ontario resident customers with Canadianaddresses;
(iv) an exception report showing Ontario addresses with IDs out of range or with the BlockingMechanism switched off;
(v) a complete description of the controls over and procedures for identifying Ontario residentcustomers on the system and implementing the Blocking Mechanism to prevent tradingthrough the Registrant's terminals in both interlisted and Canadian non-interlisted securitiesincluding specifically, who initially activates the switch, who has access to or the ability tochange the setting, and how changes are authorized and logged;
(vi) records of all trades by Ontario-resident customers including a description of the securitiestraded;
(vii) identification from the trading records of those trades made directly through a terminal ofthe Registrant and those trades which were made by other means;
(viii) the process and criteria used by the Registrant to screen potential customers, theidentification of parties that have not been accepted as customers and documentation ofprocedures and reasons for accepting or rejecting a specific customer application;
(ix) information regarding the system's algorithm for matching orders and compliance withtrading rules; and
(x) confirmation of trades and settlement process including procedures for dealing with failedtrades.
(f) maintain books and records necessary to record properly the Registrant's business transactions andfinancial affairs and make these available upon request to staff of the Commission for any validregulatory purpose.
(g) report all information to the Securities and Exchange Commission which shall include all transactionsinvolving Ontario resident customer investors and which can be segregated from other informationand made available on that basis.
Part C: Expiration of Terms and Conditions
The Terms and Conditions set forth in Parts A and B shall cease to apply to the registrant upon the expiry of the sixtyday period following the date that Proposed National Instrument 21-101 Marketplace Operation becomes effective.