CMC Markets UK plc and CMC Markets Asia Pacific Pty Ltd. - s. 74(1)
Headnote
Subsection 74(1) of the Securities Act (Ontario) -- Relief granted, subject to certain conditions, from the registration requirements of paragraph 25(1)(a) of the Act in connection with the execution of trades, in limited circumstances, through existing call centres of non-Canadian registered entities (the Applicants) who are affiliates of an Ontario registrant.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1)(a), 74(1).
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
CHAPTER S.5, AS AMENDED (the Act)
AND
IN THE MATTER OF
CMC MARKETS UK PLC
AND
CMC MARKETS ASIA PACIFIC PTY LTD.
ORDER
(Subsection 74(1) of the Act)
UPON the application (the Application) of CMC Markets UK plc (CMC UK) and CMC Markets Asia Pacific Pty Ltd. (CMC Australia, and together with CMC UK, the Applicants), to the Ontario Securities Commission (the Commission) for an order, pursuant to subsection 74(1) of the Act, that each of the Applicants and their respective representatives be exempt from the dealer registration requirement of paragraph 25(1)(a) of the Act in respect of the Proposed Trading Activities (as defined below);
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicants and CMC Markets Canada Inc. (CMC Canada) having represented to the Commission that:
1. CMC UK is a company incorporated in England and Wales and its head office is located in London, United Kingdom.
2. CMC UK is a regulated financial services firm in the United Kingdom and is authorized by the United Kingdom Financial Services Authority (the FSA) to deal in investments as agent and principal and is registered as a dealer in the category of international dealer with the Commission.
3. CMC Australia is a company incorporated in New South Wales, Australia and its head office is located in Sydney, Australia.
4. CMC Australia is registered as a dealer and an adviser with the Australian Securities and Investment Commission (ASIC) and is registered as a dealer in the category of international dealer with the Commission.
5. CMC Canada is a company incorporated under the federal laws of Canada and its head office is located in Toronto, Ontario.
6. CMC Canada is registered as a dealer in the category of investment dealer with the Commission and is a member of the Investment Industry Regulatory Organization of Canada (IIROC).
7. The Applicants and CMC Canada are affiliates of each other and are all ultimately owned by CMC Markets plc (CMC Markets plc and its related group of companies are collectively referred to as CMC Markets).
8. CMC Markets is an established execution-only online trading company offering contracts for difference (CFDs) on a wide range of underlying financial instruments to a global client base using specialized online technology solutions. CMC Markets offers CFDs to retail, corporate and institutional clients in approximately 70 countries.
9. CMC Canada is, and will remain, the exclusive distributor of CFDs issued by CMC Markets in Canada.
10. In order to trade in CFDs, investors are provided access to CMC Markets' proprietary trading platform called Marketmaker® (MarketMaker).
11. CMC Canada provides its clients resident in Canada with the ability to conduct trades in CFDs online through MarketMaker (Online Trades), which is available 24 hours a day, 7 days a week, and by way of telephone (Phone Trades) utilizing the services of representatives of CMC Canada (the Canada Representatives). The vast majority of trades conducted by clients of CMC Canada are Online Trades.
12. Pursuant to Rule 3200 of IIROC's Dealer Member Rules, CMC Canada provides "order-execution services" only. This means that CMC Canada's activities are limited to the acceptance and execution of orders from clients for trades that CMC Canada has not recommended. CMC Canada does not provide any investment advice or conduct any analysis as to the appropriateness or suitability of specific trades for clients.
13. The Canada Representatives currently does, and will continue to do the following:
(a) complete all account opening documents;
(b) conduct know your client reviews; and
(c) conduct client support related activities
with respect to CMC Canada's clients resident in Ontario (Ontario Clients) in compliance with Ontario securities laws.
14. All the Canada Representatives are registered with the Commission as salespersons and as Investment Representatives (Retail) and Investment Futures Contract Representatives (Options) with IIROC.
15. As part of its business continuity and contingency planning efforts, CMC Canada proposes to permit Ontario Clients to conduct, in certain limited circumstances (as described below), Phone Trades with CMC UK, certain registered representatives of CMC UK (the UK Representatives), CMC Australia and certain registered representatives of CMC Australia (the Australia Representatives, and together with the UK Representatives, the Overseas Representatives) (the Proposed Trading Activities).
16. The Proposed Trading Activities would be conducted by the Applicants and the Overseas Representatives only in limited circumstances, such as where:
(a) a client may require assistance due to a technical problem that they are having with their own computer and require assistance that results in a trade;
(b) a client may not have access to their computer (ie. may be travelling) and want to take advantage of a movement in the market; or
(c) MarketMaker may be offline.
In any event, the trades resulting from the Proposed Trading Activities shall amount to less than five (5) percent of all trades (including both Online Trades and Phone Trades) transacted by Ontario Clients with CMC Canada on a monthly basis.
17. For greater clarity, the Proposed Trading Activities would not include the opening of any new client accounts, closing existing accounts, transferring monies, conducting any suitability or know-your-client or other similar types of compliance functions.
18. All Phone Trades conducted by the Applicants and the Overseas Representatives will be recorded and booked on the books and records of CMC Canada. None of the trades will be attributed to the Applicants. A daily report will be made available to CMC Canada from the Applicants detailing any Phone Trades conducted by the Overseas Representatives on behalf of any Ontario Clients.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest:
IT IS ORDERED, pursuant to subsection 74(1) of the Act, that each of the Applicants and the Overseas Representatives are exempt from the dealer registration requirement of paragraph 25(1)(a) of the Act in respect of providing the Proposed Trading Activities to Ontario Clients, provided that:
(a) the Proposed Trading Activities be limited to only the execution of Phone Trades carried out on behalf of Ontario Clients that are existing clients of CMC Canada and who have completed the account opening process in compliance with Ontario securities laws;
(b) the trades resulting from the Proposed Trading Activities amount to less than five (5) percent of all trades (including both Online Trades and Phone Trades) transacted by Ontario Clients with CMC Canada on a monthly basis;
(c) that CMC UK and the UK Representatives remain appropriately registered with the FSA to conduct execution only trades;
(d) that CMC Australia and the Australia Representatives remain appropriately registered with ASIC to conduct execution only trades;
(e) CMC Canada remains registered as a dealer in the category of investment dealer with the OSC and as a member of IIROC; and
(f) prior to opening a trading account with CMC Canada, all Ontario Clients shall receive disclosure that includes:
i. a statement that there may be difficulty in enforcing any legal rights against the Applicants (including the Overseas Representative acting on behalf of the Applicants), because the Applicants are resident outside of Canada and all or substantially all of its assets are located outside of Canada; and
ii. a statement that the Applicants, are not registered under the Act as a dealer for the purposes of the Proposed Trading Activities with Ontario Clients and any investor protections that might otherwise be available to clients of a registered dealer under the Act, may not be available to Ontario Clients who engage in the Proposed Trading Activities.
July 8, 2008