Global Execution Limited
Headnote
Application under section 38 of the Commodity Futures Act (Ontario) (CFA) for a ruling that the Applicant be exempted from the dealer registration requirement in paragraph 22(1)(a) and the prohibition against trading on non-recognized exchanges in section 33 of the CFA, in connection with certain trades in foreign contracts where the Applicant is acting as principal or agent in such trades to, from or on behalf of an affiliate of the Applicant that is entering into such trades as principal and for its own account or through the affiliate's adviser registered under the CFA.
Applicable Legislative Provisions
Statutes Cited
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22, 33 and 38.
Securities Act, R.S.O. 1990, c. S.5, as am.
Instruments Cited
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.18.
Ontario Securities Commission Rule 91-502 Trades in Recognized Options, ss. 3.1 and 6.1.
Ontario Instrument 32-507 (Commodity Futures Act) Exemptions for International Dealers, Advisers and Sub-Advisers (Interim Class Order).
Ontario Instrument 91-505 Exemptions from the Options Proficiency Requirement for International Dealers, Advisers and Sub-Advisers (Interim Class Order), s. 13.
July 11, 2022
IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, c. C.20, AS AMENDED (the CFA) AND IN THE MATTER OF GLOBAL EXECUTION LIMITED
RULING (Section 38 of the CFA)
UPON the application (the Application) of Global Execution Limited (the Applicant) to the Ontario Securities Commission (the Commission) for a ruling of the Commission, pursuant to section 38 of the CFA, that:
(a) the Applicant is not subject to the dealer registration requirements in the CFA (as defined below) or the trading restrictions in the CFA (as defined below) in connection with trades in foreign contracts (as defined below) where the Applicant is acting as principal or agent in such trades to, from or on behalf of a GEL Affiliate (as defined below) that is entering into such trades as principal and for its own account, or an Ontario Adviser (as defined below) entering into such trades as agent for a GEL Affiliate; and
(b) a GEL Affiliate or its Ontario Adviser is not subject to the dealer registration requirements in the CFA or the trading restrictions in the CFA in connection with trades in foreign contracts where the Applicant acts in respect of such trades on behalf of a GEL Affiliate that is entering into such trades as principal and for its own account, or an Ontario Adviser entering into such trades as agent for a GEL Affiliate;
AND WHEREAS for the purposes of this ruling (the Decision),
(i) the following terms have the following meanings:
"dealer registration requirements in the CFA" means the provisions of section 22 of the CFA that prohibit a person or company from trading in foreign contracts unless the person or company satisfies the applicable provisions of section 22 of the CFA;
"foreign contract" means a commodity futures contract or a commodity futures option that trades on one or more organized exchanges located outside of Canada and that is cleared through one or more clearing corporations located outside of Canada;
"Existing GEL Affiliate" means a pooled investment fund that is
a) domiciled in the Cayman Islands;
b) a Permitted Client;
c) an "affiliate" of the Applicant as that term is defined in the Securities Act (Ontario); and
d) all of the beneficial owners of such pooled investment fund are (i) direct or indirect owners of the Applicant or its affiliates, or (ii) employees, partners or officers of the Applicant or its affiliates;
"GEL Affiliate" means the Existing GEL Affiliate or any other pooled investment entity that exists or may be formed in the future and that is
a) domiciled in a foreign jurisdiction;
b) a Permitted Client;
c) an affiliate of the Applicant; and
d) all of the beneficial owners of such pooled investment entity are (i) direct or indirect owners of the Applicant or its affiliates, or (ii) employees, partners or officers of the Applicant or its affiliates;
"NI 31-103" means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
"Non-Canadian Exchange" means a commodity futures exchange that is located outside of Canada;
"Ontario Adviser" means a portfolio manager registered pursuant to the Securities Act (Ontario) (OSA) and commodity trading manager registered pursuant to the CFA that is acting as adviser to a GEL Affiliate;
"Permitted Client" means a client in Ontario that is a "permitted client" as that term is defined in section 1.1 of NI 31-103;
"trading restrictions in the CFA" means the provisions of section 33 of the CFA that prohibit a person or company from trading in foreign contracts unless the person or company satisfies the applicable provisions of section 33 of the CFA; and
(ii) terms used in the Decision that are defined in the OSA, and not otherwise defined in the Decision or in the CFA, shall have the same meaning as in the OSA, unless the context otherwise requires;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicant having represented to the Commission as follows:
1. The Applicant is a corporation formed under the laws of Jersey. The Applicant's head offices are located at Ground Floor, Harbour Reach, La Rue de Carteret, St Helier, Jersey, Channel Islands JE2 4HR.
2. The Applicant is a wholly-owned subsidiary of BCM Holdings Limited (BCMHL), a limited liability company established in Guernsey, Channel Islands, with registration number 51348 and registered office Martello Court, Admiral Park, St Peter Port Guernsey GY1 3HB and an indirectly wholly-owned subsidiary of BlueCrest Capital Management LP (BCMLP), a limited partnership established in Guernsey, Channel Islands.
3. The Applicant is an affiliate of BlueCrest Capital Management (UK) LLP (BCMUK), an authorised investment firm regulated by the Financial Conduct Authority since March 2010. BCMUK provides investment management services to BCMLP-sponsored investment funds, including the execution of orders via the Applicant. BCMUK is a subsidiary of BCMHL and an indirect subsidiary of BCMLP.
4. The Applicant provides futures commission merchant (FCM) services, including commodity brokerage and execution services, to affiliates of the Applicant.
5. The Applicant is (a) not in default of securities legislation in any jurisdiction of Canada or under the CFA, and (b) in compliance in all material respects with Jersey securities, derivatives and commodity futures laws.
6. The Applicant is not registered in any capacity in any jurisdiction of Canada and cannot rely on the international dealer exemption set out in section 8.18 of NI 31-103 (IDE). The Applicant is not registered under the securities legislation of the foreign jurisdiction in which its head office or principal place of business is located in a category of registration that would permit it to carry on the activities in that jurisdiction that registration as a dealer would permit it to carry on in Ontario.
7. The Applicant operates under an exemption from registration under the securities legislation of the jurisdiction in which its head office is located (the Financial Services (Investment Business (Restricted Investment Business -- Exemption)) (Jersey) Order 2001), which in turn permits the Applicant to carry on certain activities in that jurisdiction, including brokerage and execution activities, that registration as a "futures commission merchant" under the CFA would permit it to carry on in Ontario, on the basis that it provides such services exclusively to GEL Affiliates as principal to all transactions executed by the Applicant (whether directly or via an Ontario Adviser as agent for GEL Affiliates). The Applicant was formerly licensed in Jersey, Channel Islands, to provide brokerage and execution services to third party clients under Article 9 of the Financial Services (Jersey) Law 1998. The Applicant voluntarily surrendered such registration when it amended its business to only providing brokerage and execution activities to certain GEL Affiliates.
8. None of the investors of the GEL Affiliates are located in Ontario.
9. The Applicant is a member of certain Non-Canadian futures and options exchanges, including the Eurex Exchange and the Intercontinental Exchange (including ICE Futures Europe) in the European Union (E.U.) and holds sponsored access to the Chicago Mercantile Exchange and Chicago Board of Trade via its FCM clearing organization.
10. Pursuant to its exemption from registration and memberships, the Applicant is authorized to handle customer orders and otherwise act as a futures execution broker, in Jersey, Channel Islands with respect to GEL Affiliates.
11. As a member of E.U. and United Kingdom (U.K.) derivatives exchanges, the Applicant is subject to a broad range of regulatory obligations imposed on it by exchanges and their participants under U.K., German and E.U. legislation, including the E.U. 'Markets in Financial Instruments' regulations known as 'MiFID'. These obligations are imposed via the exchanges' rulebooks and user agreements and include detailed provisions on trading and risk controls, client order handling, margin maintenance, trade reconciliation and record-keeping, as well as extensive protections on market abuse and system resilience. In addition, the Applicant maintains appropriate capital levels for its business and adheres to a comprehensive group compliance framework governing its business operations. The Applicant also enters into business terms with each of its GEL Affiliate clients on an arm's length basis, containing market standard forms of customer protections that are representative of the terms that the Applicant would enter into with unaffiliated clients based on market practice at the time the parties enter into the business terms. The Applicant provides this protection with respect to transactions made on applicable Non-Canadian Exchanges, and would provide an equivalent level of protection to transactions involving a GEL Affiliate and/or its Ontario Adviser going forward.
12. The Applicant proposes to offer the Existing GEL Affiliate and other GEL Affiliates the ability to trade in foreign contracts through the Applicant, either directly or through a third-party adviser that is an Ontario Adviser. Currently, GWN Capital Management Ltd. (GWN) acts as adviser to the Existing GEL Affiliate. GWN is currently registered as a portfolio manager pursuant to the OSA and a commodity trading manager pursuant to the CFA.
13. The Applicant will not maintain an office, sales force or physical place of business in Ontario.
14. The Applicant will solicit trades in foreign contracts in Ontario only from persons who qualify as a GEL Affiliate or its Ontario Adviser entering into such trades as agent of a GEL Affiliate.
15. A GEL Affiliate and/or its Ontario Adviser will only be offered the ability to effect trades in foreign contracts on Non-Canadian Exchanges.
16. The foreign contracts to be traded by a GEL Affiliate via its Ontario Adviser may include, but will not be limited to, a foreign contract for equity index, interest rate, energy, agricultural and other commodity products.
17. The Applicant will facilitate the execution of trades in foreign contracts by allowing a GEL Affiliate and/or its Ontario Adviser to enter orders either through the Applicant's own execution desk or independently through an electronic order routing system.
18. The Applicant will execute GEL Affiliates' orders on the relevant Non-Canadian Exchange in accordance with the rules and customary practices of the exchange.
19. Trades in foreign contracts executed by the Applicant may be cleared through a carrying broker of the Non-Canadian Exchange on which the trade is executed. The GEL Affiliate and/or its Ontario Adviser will be able to direct that trades executed by the Applicant be cleared through clearing brokers not affiliated with the Applicant in any way (each a Non-GEL Clearing Broker).
20. If the Applicant performs only the execution of a GEL Affiliate's and/or its Ontario Adviser's foreign contract order and "gives-up" the transaction for clearance to a Non-GEL Clearing Broker, such clearing broker will also be required to comply with the rules of the exchanges of which it is a member and any relevant regulatory requirements, including requirements under the CFA as applicable. Each such Non-GEL Clearing Broker will represent to the Applicant, in an industry standard give-up agreement, that it will perform its obligations in accordance with applicable laws, governmental, regulatory, self-regulatory, exchange and clearing house rules and the customs and usages of the exchange or clearing house on which the GEL Affiliate's and/or its Ontario Adviser's foreign contract order will be executed and cleared. The Applicant will not enter into a give-up agreement with any Non-GEL Clearing Broker located in the United States unless such clearing broker is registered with the United States Commodity Futures Trading Commission.
21. As is customary for all trades in foreign contracts, a clearing corporation clearing trades for an exchange or clearing division of the exchange is substituted as a universal counterparty on all trades in respect of a foreign contract and orders from a GEL Affiliate and/or its Ontario Adviser are submitted to the exchange in the name of the Non-GEL Clearing Broker or the Applicant or, on exchanges where the Applicant is not a member, in the name of another carrying broker. The GEL Affiliate is responsible for payment of daily mark-to-market variation margin and/or proper margin to carry open positions and the Applicant, the carrying broker or the Non-GEL Clearing Broker is in turn responsible to the clearing corporation/division for payment.
22. A GEL Affiliate and/or its Ontario Adviser that directs the Applicant to give up transactions in foreign contracts for clearance and settlement by Non-GEL Clearing Brokers will execute the give-up agreements described above.
23. GEL Affiliates will pay applicable commissions for trades to the Applicant and the Non-GEL Clearing Broker.
24. Absent this Decision, the dealer registration requirements in the CFA apply unless, among other things, a trade in a foreign contract is the result of an order placed with a dealer who does not carry on business in Ontario and does not involve any solicitation by or on behalf of the dealer. The Applicant will execute trades in foreign contracts with regularity for GEL Affiliates directly or through an Ontario Adviser and solicit trades in foreign contracts in Ontario from persons who qualify as a GEL Affiliate or its Ontario Adviser entering into such trades as an agent of a GEL Affiliate. Therefore, the Applicant will be considered by the Commission to be carrying on business in Ontario and soliciting trades.
25. Absent this Decision, the trading restrictions in the CFA apply unless, among other things, a foreign contract is traded on a recognized or registered commodity futures exchange and the form of the contract is approved by the Director. To date, no Non-Canadian Exchanges have been recognized or registered under the CFA.
26. If the Applicant were registered under the CFA as a "futures commission merchant", it could rely upon certain exemptions from the trading restrictions in the CFA to effect trades in respect of a foreign contract to be entered into on certain Non-Canadian Exchanges.
27. On December 1, 2020, the Commission published Proposed OSC Rule 32-506 (Commodity Futures Act) Exemptions for International Dealers, Advisers and Sub-Advisers (Proposed OSC Rule 32-506) and a proposed amendment to OSC Rule 91-502 Trades in Recognized Options (OSC Rule 91-502), intended to codify relief that is routinely granted by the Commission under both the CFA and OSC Rule 91-502 to international dealers, international advisers and international sub-advisers.
28. The Commission signed two interim class orders, which took effect on April 15, 2021, intended to provide interim relief until such time as the Commission has had an opportunity to finalize and, subject to Ministerial approval, implement Proposed OSC Rule 32-506 and the proposed amendments to OSC Rule 91-502: Ontario Instrument 32-507 (Commodity Futures Act) Exemptions for International Dealers, Advisers and Sub-Advisers (Interim Class Order) (CFA Interim Order) and Ontario Instrument 91-505 Exemptions from the Options Proficiency Requirement for International Dealers, Advisers and Sub-Advisers (Interim Class Order) (Options Interim Order).
29. The Applicant cannot rely on the exemptions set out in the CFA Interim Order as (i) the Applicant does not satisfy the requirement in such orders to be "registered, licensed or otherwise authorized under the securities, commodity futures or derivatives legislation of the specified foreign jurisdiction in which its head office or principal place of business is located in a category of registration, licensing or authorization that permits it to carry on the activities in that jurisdiction that registration as a dealer would permit it to carry on in Ontario" and (ii) Jersey, Channel Islands, is not captured under the term "specified foreign jurisdiction" defined in the CFA Interim Order. But for these requirements, the Applicant would be able to rely on the CFA Interim Order.
30. Section 3.1 of OSC Rule 91-502 states that any person who trades as agent in, or gives advice in respect of, a recognized option as defined in section 1.1 of OSC Rule 91-502 is required to successfully complete the Canadian Options Course (which has been replaced by the Derivatives Fundamentals Course and the Options Licensing Course).
31. If the Applicant is exempt from the dealer registration requirements in the CFA under the terms and conditions of this Decision, the Applicant may rely on section 13 of the Options Interim Order or such other rule that may replace it, as applicable, pursuant to which section 3.1 of OSC Rule 91-502 would not apply to the Applicant and its salespersons, directors, officers and employees (collectively, the Representatives) in respect of trades in foreign contracts, provided that the Applicant and its Representatives continue to operate under an exemption from registration under the securities legislation of the jurisdiction in which its head office or principal place of business is located, which in turn permits the Applicant to carry on certain activities, including brokerage and execution activities, in that jurisdiction that registration as a "futures commission merchant" under the CFA and dealer registration under the OSA would permit it to carry on in Ontario, on the basis that it provides such services exclusively to GEL Affiliates as principal to all transactions executed by the Applicant (whether directly or via an Ontario Adviser as agent for GEL Affiliates);
32. All Representatives who would execute trades in foreign contracts for GEL Affiliates have passed applicable futures and options proficiency examinations and/or examinations required by applicable exchanges.
AND UPON the Commission and Director being satisfied that it would not be prejudicial to the public interest to grant the order requested;
IT IS RULED pursuant to section 38 of the CFA that the Applicant is not subject to the dealer registration requirements in the CFA or the trading restrictions in the CFA in connection with trades in foreign contracts where the Applicant is acting as principal or agent in such trades to, from or on behalf of a GEL Affiliate and/or its Ontario Adviser provided that:
(a) each GEL Affiliate effecting trades in foreign contracts is a Permitted Client;
(b) none of the investors of a GEL Affiliate are located in Ontario;
(c) any Non-GEL Clearing Broker has represented and covenanted to the Applicant and the GEL Affiliates that it is appropriately registered or exempt from registration under the CFA;
(d) the Applicant only executes trades in foreign contracts pursuant to this Decision for GEL Affiliates;
(e) at the time trading activity is engaged in, the Applicant:
(i) has its head office or principal place of business in Jersey, Channel Islands and does not have an office or place of business in Ontario;
(ii) engages in the business of a firm authorized to trade in foreign contracts in Jersey, Channel Islands;
(iii) operates under an exemption from registration under the securities legislation of the jurisdiction in which its head office is located, which in turn permits the Applicant to carry on certain activities, including brokerage and execution activities, in that jurisdiction that registration as a "futures commission merchant" under the CFA and dealer registration under the OSA would permit it to carry on in Ontario, on the basis that it provides such services exclusively to a GEL Affiliate directly or via an Ontario Adviser as agent for a GEL Affiliate;
(f) the Applicant has provided to the GEL Affiliate the following disclosure in writing:
(i) a statement that the Applicant is not registered in Ontario to trade in foreign contracts as principal or agent;
(ii) a statement that the Applicant's head office or principal place of business is located in Jersey, Channel Islands;
(iii) a statement that all or substantially all of the Applicant's assets may be situated outside of Canada;
(iv) a statement that there may be difficulty enforcing legal rights against the Applicant because of the above; and
(v) the name and address of the Applicant's agent for service of process in Ontario;
(g) the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix "A";
(h) the Applicant pays a participation fee based on its specified Ontario revenues for its previous financial year in compliance with the requirements of Part 3 and section 6.4 of OSC Rule 13-502 Fees as if the Applicant relied on the "international dealer exemption" under section 8.18 of NI 31-103;
(i) by December 1st of each year, the Applicant notifies the Commission of its continued reliance on the exemption from the dealer registration requirement granted pursuant to this Decision by filing Form 13-502F4 Capital Markets Participation Fee Calculation; and
(j) this Decision will terminate on the earliest of:
(i) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA; and
(ii) five years after the date of this Decision.
AND IT IS FURTHER RULED, pursuant to section 38 of the CFA, that a GEL Affiliate and/or its Ontario Adviser is not subject to the dealer registration requirements in the CFA or the trading restrictions in the CFA in connection with trades in foreign contracts on Non-Canadian Exchanges where the Applicant acts in connection with trades in foreign contracts on behalf of the GEL Affiliate and/or its Ontario Adviser pursuant to the above ruling.
APPENDIX A
SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE
INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO
1. Name of person or company ("International Firm"):
2. If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:
3. Jurisdiction of incorporation of the International Firm:
4. Head office address of the International Firm:
5. The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.
Name:
E-mail address:
Phone:
Fax:
6. The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"):
[ ] Section 8.18 [international dealer]
[ ] Section 8.26 [international adviser]
[ ] Other [specify]:
7. Name of agent for service of process (the "Agent for Service"):
8. Address for service of process on the Agent for Service:
9. The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.
10. The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.
11. Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator
a. a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;
b. an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service; and
c. a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.
12. This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.
Dated: _______________
____________________
(Signature of the International Firm or authorized signatory)
____________________
(Name of signatory)
____________________
(Title of signatory)
Acceptance
The undersigned accepts the appointment as Agent for Service of _______________[Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.
Dated: _______________
____________________
(Signature of the Agent for Service or authorized signatory)
____________________
(Name of signatory)
____________________
(Title of signatory)
This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission's Electronic Filing Portal: https://www.osc.ca/filings