GLMX Technologies, LLC
Headnote
Application for relief under s. 15.1 of National Instrument 21-101 Marketplace Operation, s. 12.1 of National Instrument 23-101 Trading Rules, and s. 10 of National Instrument 23-103 Electronic Trading and Direct Access to Marketplaces -- relief from the application of all provisions of the Marketplace Rules that apply to a person or company carrying on business as an alternative trading system in the Jurisdictions -- relief granted subject to terms and conditions.
October 6, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, NOVA SCOTIA, ONTARIO AND QUEBEC (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GLMX TECHNOLOGIES, LLC (the Filer)
DECISION (Section 15.1 of NI 21-101 and section 12.1 of NI 23-101 and section 10 of NI 23-103)
Background
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the Filer be:
(a) exempt pursuant to subsection 15.1 of National Instrument 21-101 Marketplace Operation (NI 21-101) from NI 21-101 in whole;
(b) exempt pursuant to subsection 12.1 of National Instrument 23-101 Trading Rules (NI 23-101) from NI 23-101 in whole;
(c) exempt pursuant to subsection 10(1) of National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103) from NI 23-103 in whole
(the relief mentioned in paragraphs (a) to (c) being collectively referred to herein as the Exemptive Relief Sought).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.
Exemptive Relief Sought).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.
Interpretation
Terms defined in National Instrument 14-101 Definitions and Multilateral Instrument 11-102 Passport System 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 which is sometimes referred to herein as "GLMX":
1. The Filer is a private limited liability company incorporated under the laws of Delaware whose registered and head office is at 330 Seventh Avenue, Floor 17, New York, New York, United States of America.
2. The Filer is an (in)direct wholly owned subsidiary of Global Liquid Markets, LLC (GLM). GLM is a holding company for various GLMX entities. GLM has three subsidiaries: GLMX, LLC, the Filer and GLMX Europe Limited. GLMX, LLC licenses an electronic trading platform (Platform) to GLMX and GLMX operates and maintains it. The Platform facilitates the negotiation of securities financing transactions including repurchase and reverse purchase transactions and securities lending arrangements, sale/buy back agreements and margin lending (collectively, SFTs) between institutional counterparties that have pre-existing contractual relationships with each other.
3. The Filer was formed in June 2017. It is registered as an alternative trading system (ATS) and a broker-dealer registered with the Securities and Exchange Commission (SEC) pursuant to section 15 of the Securities Exchange Act of 1934, as amended, (Exchange Act). The Filer is also a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation. The Filer operates one ATS that is registered with the SEC.
4. The Filer is subject to a comprehensive regulatory regime in the US. The Filer operates as an ATS and a broker-dealer registered with the SEC. The Filer is regulated by the SEC and FINRA as a broker-dealer and an ATS. The SEC and FINRA fulfil their regulatory responsibilities within the framework established by the Exchange Act and FINRA member rules.
5. SFTs are transactions where securities are used to borrow cash, or vice versa. The principal participants in these markets are broker-dealers acting as intermediaries and their diverse institutional clients. In these transactions, securities are exchanged for collateral which can be in the form of cash or different securities. Transactions are driven by a need to lend/borrow specific securities or to lend/borrow cash.
6. Cash lenders use SFTs as a way to securely invest cash. Typical cash lenders include money market funds, central banks, bank investment portfolio and others. Securities lenders enter into SFTs to finance their securities positions or obtain leverage. Typical cash borrowers/securities lenders are hedge funds, mortgage REITs, pension funds, asset managers, insurance companies and sovereign wealth funds.
7. The securities exchanged in SFTs negotiated on the Platform are as follows: major sovereign debt including US Treasuries, UK Government Debts, Euro Government Debt, Japan, Singapore, Australia and New Zealand, debt issued by agency; sub-sovereign and supranational institutions including U.S. agency debentures (FNMA, Freddie, FHLC), provincials, International Finance Corporation (IFC), World Bank, Länder, US Municipal Debt; Mortgage-Backed Securities including Agency Mortgage-Backed Securities Pools, Agency Collateralized Mortgage Obligations (CMOs), CMO Private Label (Investment-Grade And Non-Investment-Grade), Crown; non-Canadian issued corporate debt including Investment Grade, Non-investment grade, asset-backed securities; and re-securitizations including consumer (credit cards, auto loans), collateralized debt obligations, collateralized loan obligations, covered bonds; loans including bank loans, whole loans; money market instruments including term deposits, certificates of deposit, commercial paper; and non-Canadian issued equities including common, preferred, convertible and ETF.
8. In addition, GLMX currently offers and intends in the future to offer SFTs on its platform using Canadian Government Securities, defined as all debt instruments denominated in Canadian dollars and issued domestically by the Government of Canada or provincial governments or municipalities, as an incidental part of its business which will constitute less than 10% measured by total GLMX volume for the last 12 months.
9. The Filer does not have any offices or maintain other physical installations in Alberta, British Columbia, Nova Scotia, Ontario, Québec or any other Canadian province or territory.
10. Prior to getting access to the Platform, a subscriber (customer) must sign an agreement (Subscription Online Services Agreement) with GLMX that covers, among other things, obligations of the subscriber, and termination events.
11. The subscriber identifies to GLMX by name each employee or contractor of subscriber that is authorized to use the Platform. These "named users" are the only individuals within the subscriber licensed to access and use the service (Online Service).
12. GLMX will provide the subscriber access to the online service through a web based interface that can only be accessed when GLMX white lists subscriber's IP addresses. GLMX will provide each named user a unique username and password to enable such named user to access the Online Service.
13. Once a trade is mutually agreed and completed by the counterparties, the GLMX platform will send trade details to the parties of the transaction via a pre-approved method (e.g. email). Subscribers, independently and in advance, notify GLMX that they are properly documented with and able to trade with specific counterparties prior to engaging in transactions with that counterparty. GLMX is not a party to the SFT transaction and is not involved in the direct execution or clearing and settlement.
14. GLMX proposes to offer direct access to its Platform to prospective subscribers in the Jurisdictions (Canadian Subscribers) to facilitate trades. Access to the Platform will be limited to Canadian Subscribers who meet GLMX's eligibility criteria. Subscribers generally fall into the following categories: large multi-national bank; insurance company; US registered investment company; derivatives dealer; and/or any other person (whether a corporation, partnership, trust or otherwise) with total assets of at least $50 million which can include pension funds and hedge funds.
15. Before being provided direct access to the Platform, GLMX will confirm that each Canadian Subscriber is a "permitted client" as that term is defined in National Instrument 31 103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31 103). Retail customers will not be provided with access to the Platform.
16. Once a Canadian Subscriber demonstrates that it satisfies the eligibility criteria, the Canadian Subscriber must execute a Subscription Online Services Agreement in which the prospective Canadian Subscriber agrees to use the online service and the related user documentation only in the ordinary course of its own business for its own internal use and be and remain at all times a "permitted client" as defined in NI 31-103.
17. Under the Subscription Online Services Agreement, a Canadian Subscriber and its affiliates constitute a "Subscriber Group" and the Subscriber Group will authorize named users (Named Users) who are the only persons authorized to use the online service. The Subscriber Group's right to use the Online Service is conditioned upon Subscriber Group obtaining and maintaining all government, legal and regulatory approvals, consents, authorizations, registrations, permits and licenses required for the conduct of its activities and its use of the Online Services and using the Online Service only in compliance with applicable law.
18. GLMX has determined that it may be subject to dealer registration under applicable Canadian securities legislation and so it proposes to rely on the "international dealer exemption" under section 8.18 of NI 31-103 in the Jurisdictions and, subject to observing the revenue/volume ceiling just mentioned, on the specified debt exemption under section 8.21 of NI 31-103.
19. The Filer will ensure that all applicants who become Canadian Subscribers satisfy the Filer's eligibility criteria, including, among other things, that each Canadian Subscriber is a "permitted client" as that term is defined in NI 31-103.
20. The Filer is not in default of securities legislation in any Jurisdiction.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemptive Relief Sought is granted provided that the Filer complies with the terms and conditions attached hereto as Schedule A.
SCHEDULE A
Terms and Conditions
Regulation and Oversight of the Marketplace
1. The Filer will continue to be subject to the regulatory oversight of the regulator in its home jurisdiction;
2. The Filer will either be registered in an appropriate category or rely on an exemption from registration under Canadian securities laws;
3. The Filer will promptly notify the Decision Makers if its status in its home jurisdiction has been revoked, suspended, or amended, or the basis on which its status has significantly changed;
Access
4. The Filer will not provide direct access to a Canadian Subscriber unless the Canadian Subscriber is a "permitted client" as that term is defined in NI 31-103;
5. The Filer will require Canadian Subscribers to provide prompt notification to the Filer if they no longer qualify as "permitted clients";
6. The Filer must make available to Canadian Subscribers appropriate training for each person who has access to trade on the Platform;
Trading by Canadian Subscribers
7. The Filer will only offer SFTs to Canadian Subscribers and in that context use only the collateral listed in accordance with representation numbers 7 and 8 of this Decision;
8. Trades on the Platform by Canadian Subscribers will be cleared and settled through clearing arrangements used outside the Platform by subscribers;
9. The Filer will only permit Canadian Subscribers to trade those securities which are permitted to be traded in the United States under applicable securities laws and regulations;
Reporting
10. The Filer will promptly notify staff of the Decision Makers of any of the following:
(a) any material change to its business or operations or the information provided in the Application, including, but not limited to:
(i) changes to its regulatory oversight;
(ii) the access model, including eligibility criteria, for Canadian Subscribers;
(iii) systems and technology; and
(iv) its clearing and settlement arrangements;
(b) any change in its regulations or the laws, rules, and regulations in the home jurisdiction relevant to the products traded;
(c) any known investigations of, or regulatory action against, the Filer by the regulator in the home jurisdiction or any other regulatory authority to which it is subject;
(d) any matter known to the Filer that may affect its financial or operational viability, including, but not limited to, any significant system failure or interruption; and
(e) any default, insolvency, or bankruptcy of any subscriber known to the Filer or its representatives that may have a material, adverse impact upon the Platform, the Filer or any Canadian Subscriber;
11. The Filer will maintain the following updated information and submit such information in a manner and form acceptable to staff of the Decision Makers on a semi-annual basis (within 30 days of the end of each six-month period), and at any time promptly upon the request of staff of the Decision Makers:
(a) a current list of all Canadian Subscribers on a per provincial basis, specifically identifying for each Canadian Subscriber the basis upon which it represented to the Filer that it could be provided with direct access;
(b) a list of all Canadian applicants for status as a Canadian Subscriber on a per provincial basis who were denied such status or access or who had such status or access revoked during the period;
(i) for those Canadian applicants for status as a Canadian Subscriber that were denied access, an explanation as to why access was denied;
(ii) for those Canadian Subscribers who had their status revoked, an explanation as to why their status was revoked;
(c) for each product:
(i) the total trading volume and value originating from Canadian Subscribers, presented on a per provincial Canadian Subscriber basis;
(ii) the proportion of worldwide trading volume and value on the Platform conducted by Canadian Subscribers, presented in the aggregate per province for such Canadian Subscribers;
(iii) the trading volume and value of Canadian Government Securities (as defined in representation 8 of this Decision) used in SFTs and proportion of trading volume in Canadian Government Securities relative to the total volume traded on GLMX for the six month period, calculated in a manner acceptable to the Decision Makers; and
(d) a list of any system outages that occurred for any system impacting Canadian Subscribers' trading activity on the Platform which were reported to the regulator in the home jurisdiction;
Disclosure
12. The Filer will provide to its Canadian Subscribers disclosure that states that:
(a) rights and remedies against it may only be governed by the laws of the home jurisdiction, rather than the laws of Canada, and may be required to be pursued in the home jurisdiction rather than in Canada;
(b) the rules applicable to trading on the Platform may be governed by the laws of the home jurisdiction, rather than the laws of Canada; and
(c) the Filer is regulated by the regulator in the home jurisdiction, rather than the Decision Makers;
Submission to Jurisdiction and Agent for Service
13. With respect to a proceeding brought by the Decision Makers, staff of the Decision Makers or another applicable securities regulatory authority in Canada arising out of, related to, concerning or in any other manner connected with such regulatory authority's regulation and oversight of the activities of the Filer in Canada, the Filer will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Canada, and (ii) an administrative proceeding in Canada;
14. The Filer will file with the Decision Makers a valid and binding appointment of McCarthy Tetrault LLP, or any subsequent agent, as the agent for service in Canada upon which the Decision Makers or other applicable regulatory authority in Canada 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 or relating to or concerning the regulation and oversight of the Platform or the Filer's activities in Canada; and
Information Sharing
15. The Filer must, and must cause its affiliated entities, if any, to promptly provide to the Decision Makers, on request, any and all data, information, and analyses in the custody or control of the Filer or any of its affiliated entities, without limitations, redactions, restrictions or conditions, including, without limiting the generality of the foregoing:
(a) data, information, and analyses relating to all of its or their businesses; and
(b) data, information, and analyses of third parties in its or their custody or control; and
16. The Filer must share information and otherwise cooperate with other recognized or exempt exchanges, recognized self-regulatory organizations, investor protection funds and other appropriate legal and regulatory bodies.