Citadel Securities LLC
Headnote
U.S. registered broker dealer exempted from dealer registration requirements of paragraph 25(1) of the Act for proprietary trades in foreign securities by cross-registered individuals who are located in Canada -- trades in Canadian securities will take place through an IIROC-registered investment dealer -- relief is subject to sunset clause -- relief granted is similar to OSC Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario and with the parallel orders issued by other members of the Canadian Securities Administrators.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).
February 12, 2016
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF CITADEL SECURITIES LLC (the Filer)
DECISION
Background
The regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer for a decision, pursuant to subsection 74(1) of the Securities Act (Ontario) (the Act), for relief from dealer registration under subsection 25(1) of the Act in respect of trades in securities on a proprietary basis for or on behalf of the Filer as principal by the Cross Registered Representatives (as defined below) who are working from offices located in the Jurisdiction (U.S. Trading Activities) (the Exemption Sought).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
For the purposes of this decision, the following terms and phrases have the following meanings:
The term "Cross Registered Representatives" shall mean agents of the Filer who are registered under applicable securities laws of the United States in categories or otherwise in a manner that permits such agents to engage in the applicable U.S. Trading Activities for or on behalf of the Filer, and who are also registered to trade for or on behalf of CES Securities Canada ULC (Citadel Canada) under applicable securities laws in Canada as registered individuals of Citadel Canada.
The term "Canadian securities" shall mean securities that are listed on an exchange in Canada.
The phrase "trades in securities on a proprietary basis" shall mean trades in securities that are recorded on the Filer's books and records as principal, that are held in the Filer's name, and that are not held in nominee form for any of the Filer's clients.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a limited liability company formed pursuant to the laws of Delaware with a head office located in Chicago, Illinois.
2. The Filer is registered as a full-service broker-dealer under the U.S. Securities Exchange Act of 1934, as amended, is registered with the U.S. Securities & Exchange Commission (SEC) and applicable U.S. state regulators, and is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation. The Filer is not registered in any capacity under securities laws in any province or territory of Canada.
3. Citadel Canada is an affiliate of the Filer, is registered as a dealer under the Act in the category of investment dealer, and is a dealer member of Investment Industry Regulatory Organization of Canada (IIROC).
4. The Filer focuses its activities on providing liquidity and trades in securities on a proprietary basis.
5. In addition to trading in securities on a proprietary basis, the Filer is also involved in cross-border jitney activities of executing orders to buy and sell securities listed on U.S. exchanges that are placed with IIROC dealer members by Canadian investors. The Filer does not execute orders to buy and sell securities on Canadian exchanges that are placed with IIROC dealer members by Canadian investors. The Filer does not and will not conduct cross-border jitney activities for Citadel Canada with respect to trades in securities placed with IIROC dealer members by Canadian investors. The Filer currently relies on section 8.5 [Trades through or to a registered dealer] of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations for its cross-border jitney activities.
6. The Ontario Securities Commission (OSC) has a supervisory memorandum of understanding (MOU) in place with the SEC and FINRA for mutual cooperation and information sharing. The MOU would include oversight of the Filer.
7. The Filer and the Cross Registered Representatives are currently in compliance with all registration and other requirements of applicable securities laws of the United States. The Filer and the Cross Registered Representatives will continue to comply with all registration and other requirements of applicable securities laws of the United States. The Filer and the Cross Registered Representatives are not in default of securities laws of any province or territory of Canada.
8. The Filer currently trades in Canadian securities on a proprietary basis through an investment dealer that is an IIROC dealer member.
9. The Filer plans to transfer this trading activity to Citadel Canada who will trade in Canadian securities on a proprietary basis. An IIROC dealer member, other than Citadel Canada, will continue to clear and settle the trades through a prime brokerage account and a clearing agreement.
10. Citadel Canada plans to hire a sufficient number of Cross Registered Representatives to carry out the activities of Citadel Canada. The Cross Registered Representatives will be employed by Citadel Canada in offices located in Ontario, Canada.
11. The work performed by the Cross Registered Representatives for Citadel Canada will not require a full-time commitment. As the Cross Registered Representatives' employment with Citadel Canada will not be a full-time commitment, the Cross Registered Representatives will trade in Canadian securities for Citadel Canada as principal and in foreign securities for the Filer as principal. All trades made by the Cross Registered Representatives on behalf of Citadel Canada will be trades in securities that are recorded on the Citadel Canada's books and records as principal, that are held in Citadel Canada's name, and that are not held in nominee form for any of Citadel Canada's clients and all trades made by the Cross Registered Representatives on behalf of the Filer will solely be trades in securities on a proprietary basis. The Cross Registered Representatives will not be involved in the cross-border jitney activities described in paragraph 5 above.
12. Citadel Canada has its head office in Toronto, Canada. The Filer operates out of the same premises as Citadel Canada, but has no other offices in Canada.
13. Each Cross Registered Representative is registered under applicable securities laws of the United States in categories or otherwise in a manner that permits such agents to engage in the U.S. Trading Activities for or on behalf of the Filer and to engage in the U.S. Trading Activities while located in Toronto, Canada. Each Cross Registered Representative is also registered to trade for or on behalf of Citadel Canada under applicable securities laws in Canada. Each Cross Registered Representative is employed by Citadel Canada in offices located in Toronto, Ontario.
14. Each of the Cross Registered Representatives will act in the Jurisdiction on behalf of the Filer in respect of trades in securities on a proprietary basis for or on behalf of the Filer as principal.
15. The Filer is subject to the full oversight and compliance requirements of FINRA and the SEC.
16. Neither the Filer nor any individual acting for or on its behalf will trade in securities for or on behalf of persons or companies who are resident or located in Canada, other than as described in paragraph 5. As the Cross Registered Representatives will trade in Canadian securities for Citadel Canada as principal and in foreign securities for the Filer as principal, the Cross Registered Representatives will not be soliciting or contacting persons or companies that are resident or located in Canada and will not be trading securities with, for or on behalf of persons or companies in Canada, other than Citadel Canada.
17. Where the Cross Registered Representatives trade in securities on a proprietary basis for or on behalf of the Filer as principal, they will comply with all applicable United States securities laws in respect of those trades.
18. The Filer will file with the OSC such reports as to any or all of its trading activities in Canada as the OSC may require from time to time. The Filer will maintain such books, records and other documents as are necessary for the proper recording of its business transactions and financial affairs, and the transactions it executes on behalf of others.
19. The Filer submits that it would not be prejudicial to the public interest for the OSC to grant the Exemption Sought because:
a. Pursuant to this Ruling, the Cross Registered Representatives will only trade in securities on a proprietary basis for or on behalf of the Filer as principal; and
b. The Filer and each of its Cross Registered Representatives are appropriately registered to trade securities for or on behalf of the Filer under applicable securities laws of the United States.
20. The Filer will become a "market participant" as defined under subsection 1(1) of the Act as a consequence of the Exemption Sought being granted by the OSC.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Act for the Decision Maker to make the decision.
The decision of the Decision Maker under the Act is that the Exemption Sought is granted, provided:
a. the trading in securities by Citadel Canada will not require a full-time commitment of the Cross Registered Representatives,
b. the number of Cross Registered Representatives does not exceed 10 people,
c. the only physical presence or offices that the Filer has are the same premises as Citadel Canada, and no other offices in Canada.
d. the Filer and each of the Cross Registered Representatives are in compliance with all applicable licensing and registration requirements under applicable securities laws of the United States,
e. the Filer and the Cross Registered Representatives are permitted to engage in U.S. Trading Activities for or on behalf of the Filer as principal under applicable securities laws of the United States,
f. the Filer is subject to full FINRA and SEC oversight and compliance,
g. the Filer does not solicit, trade or advise in securities with, for or on behalf of persons or companies who are resident or located in Canada, other than the cross-border jitney activities as described in paragraph 5,
h. the Filer does not and will not conduct cross-border jitney for Citadel Canada with respect to trades in securities placed with IIROC dealer members by Canadian investors, as described in paragraph 5.
i. each Cross Registered Representative will only act in the Jurisdiction on behalf of the Filer in respect of trades in securities on a proprietary basis for or on behalf of the Filer as principal, and
j. the Filer files with the OSC all information and records about its trading activities from time to time as required by the OSC.
This Decision shall expire three years after the date hereof.
This Decision may be amended by the OSC from time to time upon prior written notice to the Filer.