EquiLend Canada Corp.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from requirements for securities permitted to be traded on an ATS and from pre-trade and post-trade information transparency requirements -- Relief needed to accommodate the full range of securities lending transactions on the Filer's trading platform and to reflect the lack of pre-trade and post-trade transparency in the securities lending market -- National Instrument 21-101 Marketplace Operation.

Applicable Legislative Provisions

National Instrument 21-101 Marketplace Operation, ss. 6.3, 7.2, 7.4, 8.1(3), 8.2(3), and 15.1.

December 19, 2019

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF EQUILEND CANADA CORP. (THE FILER)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the Filer be:

(a) exempt from section 6.3 of National Instrument 21-101 Marketplace Operation (NI 21-101) so that users of the Filer's platform (Platform) can borrow and lend debt securities described in Schedule 1 (as Schedule 1 may be amended from time to time through an amendment to Form 21-101F2);

(b) exempt from sections 7.2 and 7.4 of NI 21-101 to relieve the Filer from the transparency requirements in respect of trades in exchange-traded securities and foreign exchange-traded securities executed on the Platform resulting from securities lending transactions; and

(c) exempt from subsections 8.1(3) and 8.2(3) of NI 21-101 to relieve the Filer from the transparency requirements in respect of trades in corporate debt securities and government debt securities executed on the Platform resulting from securities lending transactions (collectively, the Exemption Sought).

Under the Process for Exemptive Relief in Multiple Jurisdictions (for a passport application):

(a) The Ontario Securities Commission (OSC) is the principal regulator for this application, and

(b) The Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in the province of Quebec.

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.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a Nova Scotia limited company organized on April 17, 2008 and is a wholly-owned subsidiary of EquiLend Holdings LLC (EquiLend Holdings);

2. The Filer is registered as an investment dealer in Ontario and Quebec and is also a member of the Investment Industry Regulatory Organization of Canada (Ontario District) (IIROC) for the purposes of operating as an alternative trading system (ATS) in Ontario and Quebec;

3. Through subsidiaries of EquiLend Holdings, including the Filer (the Subsidiaries), the Platform is operated in the U.S., the U.K., Ireland, the European Union, Hong Kong, Australia and Canada;

4. The Platform facilitates securities lending and borrowing transactions in equities and fixed income securities by providing secure access and connectivity between potential borrowers and lenders through a private network or the internet;

5. The Filer will offer access to the Platform for the purpose of securities lending and borrowing transactions in equities and fixed income securities to Authorized Users (as defined in Schedule 2), in the Provinces of Ontario and Quebec that have represented to the Filer through the Filer's user agreement (User Agreement) or by way of a separate formal representation that their conduct of securities lending is subject to a level of regulation and oversight (under applicable securities, banking or other appropriate law) that imposes upon the participant a combination of requirements such as audits, public disclosure of financial information, capital rules, collateral requirements, record keeping requirements or other similar safeguards (Participants);

6. The Filer will be the sole party furnishing access to the Platform in Ontario and Quebec to Participants;

7. Participants, through the Filer, will be able to engage in securities borrowing and lending transactions with non-Participants who have been granted access to the Platform through Subsidiaries on substantially similar terms as the Participants;

8. Securities traded over the Platform include "foreign exchange traded securities" and "exchange-traded securities" (Permitted Equity Securities) within the meaning of NI 21-101 and those debt securities described in Schedule 1;

9. Section 6.3 of NI 21-101 provides that an ATS can only execute trades in exchange-traded securities, corporate debt securities, government debt securities, or foreign exchange-traded securities, as defined in section 1.1 of NI 21-101;

10. The relief from Section 6.3 is needed to accommodate the full range of securities lending and borrowing activity in international securities that can occur currently under the Platform and the relief from sections 7.2, 7.4, 8.1 and 8.2 is required to be consistent with the limited transparency that exists in and is required in the securities lending environments in both Canada and internationally;

11. Sections 7.2 and 7.4 of NI 21-101 impose post-trade transparency requirements for exchange-traded securities and foreign exchange-traded securities. Subsections 8.1(3) and 8.2(3) of NI 21-101 impose post-trade transparency requirements for government debt securities and corporate debt securities;

12. Pre-trade transparency requirements are not applicable to EquiLend pursuant to sections 7.1 and 8.1 of NI 21-101 because orders capable of acceptance in foreign exchange-traded securities and exchange-traded securities and debt securities will not be displayed on the Platform;

13. By order cited as In the Matter of Equilend Canada Inc. (2014), 37 OSCB, the Filer had been granted in Ontario relief substantially similar to the Exemption Sought (the 2014 Order). The 2014 Order will expire not later than December 31, 2019. The effect of the Exemption Sought will be to replace and extend the 2014 Order with effect as of and from January 1, 2020.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision. The decision of the principal regulator under the Legislation is that the Exemption Sought is granted effective January 1, 2020 provided that:

1. The Filer provides access to the Platform in Canada only to Participants;

2. the Platform only executes trades with respect to Permitted Equity Securities and the securities listed in Schedule 1 (as Schedule 1 may be amended from time to time through an amendment to Form 21-101F2); and

3. The Filer is exempt from the requirements in sections 7.2 and 7.4 and subsections 8.1(3) and 8.2(3) of NI 21-101 until the earlier of December 31, 2024, or the implementation by the Commission of a rule, policy, or notice relating to the transparency of securities lending transactions.

"Susan Greenglass"
Director, Market Regulation
Ontario Securities Commission

SCHEDULE 1

The following non-Canadian debt securities are offered through the Platform:

(a) high-grade and high-yield U.S. corporate bonds;

(b) U.S. Government-sponsored agency bonds;

(c) U.S. Government debt securities (e.g., Treasury Bonds, Treasury Notes, etc.);

(d) emerging market bonds, which are defined as U.S. dollar or Euro-denominated bonds issued by sovereign entities or corporations domiciled in a developing country, including both high grade and non-investment grade debt;

(e) European high-grade and high-yield corporate bonds, which are defined as corporate bonds issued by entities domiciled in Europe; and

(f) non-U.S. sovereign government bonds (e.g., UK gilts or German bundesbonds).

SCHEDULE 2

In this Decision Document, "Authorized Users" means:

(a) a bank listed in Schedule I or II of the Bank Act (Canada), or an authorized foreign bank listed in Schedule III of that Act;

(b) the Business Development Bank incorporated under the Business Development Bank Act (Canada);

(c) a loan corporation, trust company, trust corporation, savings company or loan and investment society registered under the Trust and Loan Companies Act (Canada) or under comparable legislation in any province or territory of Canada;

(d) a co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case, located in Canada;

(e) a company licensed to do business as an insurance company in a province or territory of Canada;

(f) a subsidiary of any company referred to in paragraph (a), (b), (c), (d) or (e), where the company owns all of the voting shares of the subsidiary;

(g) a financial services cooperative within the meaning of the Act respecting Financial Services Cooperatives (Quebec);

(h) the Caisse centrale Desjardins du Québec established under the Act respecting the Mouvement des Caisses Desjardins (Quebec) and the Caisse de dépôt et placement du Québec;

(i) a person or company registered under the securities legislation of the applicable province or territory of Canada as an adviser or dealer, other than a limited market dealer;

(j) the government of Canada or of any jurisdiction, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government;

(k) any Canadian municipality or any Canadian provincial or territorial capital city;

(l) any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any instrumentality or agency thereof;

(m) a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority;

(n) a registered charity under the Income Tax Act (Canada);

(o) a company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least C$5,000,000 as reflected in its most recently prepared financial statements;

(p) a person or company, other than an individual, that is recognized or designated by a Canadian securities regulatory authority as an "accredited investor" or by the Autorité des marchés financiers as a "sophisticated purchaser";

(q) a mutual fund or non-redeemable investment fund that, in the applicable province of Canada, distributes its securities only to persons or companies that are accredited investors;

(r) a mutual fund or non-redeemable investment fund that, in the applicable province of Canada, distributes its securities under a prospectus for which a receipt has been granted;

(s) an account that is fully managed by a registered portfolio manager or an entity listed in paragraphs (a), (c), (d) or (e);

(t) an entity organized outside of Canada that is analogous to any of the entities referred to in paragraphs (a) through (f) and paragraph (m) in form and function; and

(u) a person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are Institutional Investors; provided that:

i. two or more persons who are the joint registered holders of one or more securities of the issuer shall be counted as one beneficial owner of those securities; and

ii. a corporation, partnership, trust or other entity shall be counted as one beneficial owner of securities of the issuer unless the entity has been created or is being used primarily for the purpose of acquiring or holding securities of the issuer, in which event each beneficial owner of an equity interest in the entity or each beneficiary of the entity, as the case may be, shall be counted as a separate beneficial owner of those securities of the issuer.