Instinet Canada Cross Limited
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from the requirement to engage one or more qualified external auditors to conduct an independent systems review and prepare a report in accordance with established audit standards and best industry practices -- relief subject to systems reviews similar in scope to that which would have applied to an independent systems review -- National Instrument 21-101 Marketplace Operation.
Applicable Legislation
National Instrument 21-101 Marketplace Operation, ss. 12.2, 15.1.
September 12, 2024
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, MANITOBA, QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF INSTINET CANADA CROSS LIMITED (the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirements in the Legislation that the Filer, on a reasonably frequent basis and, in any event, at least annually, engage one or more qualified external auditors to conduct an independent systems review and prepare a report in accordance with established audit standards and best industry practices (collectively, an "ISR") for 2024 and 2025 inclusive (the Exemptive Relief Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
1. the Ontario Securities Commission ("Commission") is the principal regulator for this application, and
2. 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 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 corporation established under the laws of Canada and its principal business is to operate an alternative trading system ("ATS") as defined in National Instrument 21-101 Marketplace Operation;
2. The head office of the Filer is located in Toronto, Ontario;
3. The Filer is a member of the Canadian Investment Regulatory Organization and the Canadian Investor Protection Fund and is registered in each of the Jurisdictions in the category of investment dealer;
4. The Filer's system ("System") is an ATS and offers three order types -- VWAP Cross, Conditional Orders and Continuous Block Cross -- that do not affect the national best protected bid and best protected offer for the security traded;
5. The System is not connected to any other marketplace and cannot affect another marketplace or be affected by another marketplace;
6. For each of its systems that supports order entry, order routing, execution, trade reporting, trade comparison, data feeds, market surveillance and trade clearing, the Filer has developed and maintains:
• reasonable business continuity and disaster recovery plans;
• adequate internal controls over those systems; and
• adequate information technology general controls, including, without limitation, controls relating to information systems operations, information security, cyber resilience, change management, problem management, network support and system software support;
7. In accordance with prudent business practice, on a reasonably frequent basis and, in any event, at least annually, the Filer:
• makes reasonable current and future capacity estimates;
• conducts capacity stress tests to determine the processing capability of those systems to perform in an accurate, timely and efficient manner;
• tests its business continuity and disaster recovery plans; and
• reviews the vulnerability of the System and data centre operations to internal and external threats, including physical hazards and natural disasters;
8. The Filer's current trading and order entry volumes in the System represent less than 2 percent of peak design capacity of the System, and the Filer has not experienced any failure of the System;
9. The Filer's current trade volume is currently substantially less than 1 percent of total market activity on Canadian equities marketplaces;
10. The estimated cost to the Filer of an annual ISR by a qualified external auditor would represent a material impairment to the Filer's business on an annual basis;
11. The System is monitored 24 hours a day, 7 days a week to ensure that all components continue to operate and remain secure;
12. The Filer shall promptly notify the Commission of any failure to comply with the representations set out herein;
13. The cost of an ISR is prejudicial to the Filer and represents a disproportionate impact on the Filer's revenue; and
14. The Filer is not in default of securities legislation in any jurisdiction.
Decision
Each of the Decision Makers 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 Makers under the Legislation is that the Exemptive Relief Sought is granted provided that:
1. The Filer shall promptly notify the Commission of any material changes to the representations set out herein, including any material changes to the Filer's annual net income or to the market share or daily transaction volume of the System; and
2. The Filer shall, in each year from 2024 to 2025 inclusive, cause Instinet Incorporated to complete a review of the System and of its controls, similar in scope to that which would have applied had the Filer undergone an ISR and in a manner and form acceptable to the Commission, for ensuring that it continues to comply with the representations set out herein and prepare written reports of its reviews, which shall be filed with staff of the Commission by the earlier of (i) the 30th day after the report is provided to the Filer's board of directors or audit committee and (ii) the 60th day after the report's completion.