MarketAxess Canada Limited – s. 15.1 of NI 21-101 Marketplace Operation
Headnote
National Policy 11-203 Process for Exemptive Relief Application in Multiple Jurisdictions -- relief from section 6.3 of National Instrument 21-101 Marketplace Operation to permit MarketAxess Canada Limited to trade fixed income securities not listed in section 6.3 of NI 21-101 under certain terms and conditions.
Applicable Legislative Provisions
National Instrument 21-101 Marketplace Operation, ss. 6.3, 15.1.
National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions, s. 3.6(10).
Multilateral Instrument 11-102 Passport System, s. 4.4(c).
Securities Act, R.S.O. 1990, c. S.5, s. 144(1).
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MARKETAXESS CANADA LIMITED (THE APPLICANT)
DECISION (s. 15.1 of National Instrument 21-101 Marketplace Operation)
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Applicant for a decision under securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption pursuant to section 15.1 of National Instrument 21-101 -- Marketplace Operation (NI 21-101) from the restriction in section 6.3 of NI 21-101 relating to trading in Non-Canadian Fixed Income Securities, as defined below (Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) The Ontario Securities Commission is the principal regulator for the Applicant, and
(b) The Applicant 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 Quebec, British Columbia and Alberta.
The Applicant has also applied for an order pursuant to Section 144 of the Securities Act (Ontario) (the Act) to revoke, as of the date thereof, the 2016 Relief, as defined below (the Revocation).
Interpretation
Terms defined in National Instrument 14-101 Definitions and National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions (NP 11-203), NI 21-101 and the Act have the same meaning if used in this Decision, unless otherwise defined.
Representations
The Decision is based on the following facts represented by the Applicant:
1. The Applicant is a corporation formed under the laws of the Province of Nova Scotia and is an indirect wholly-owned subsidiary of MarketAxess Holdings Inc., a corporation formed under the laws of the State of Delaware, listed and publicly traded on NASDAQ.
2. The Applicant is an alternative trading system (ATS) under NI 21-101 that is registered as an investment dealer (or equivalent) in Ontario, Quebec, British Columbia and Alberta and is a member of the Investment Industry Regulatory Organization of Canada (IIROC).
3. The Applicant is an affiliate of MarketAxess Corporation. MarketAxess Corporation operates an ATS for the trading of fixed income securities in the United States, is registered as a broker-dealer under the United States Securities Exchange Act of 1934, relies in Ontario on the international dealer registration exemption in section 8.18 of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations, and is a member of the Financial Industry Regulatory Authority. The Applicant is also an affiliate of MarketAxess Europe Limited (together with MarketAxess Corporation, the Affiliate ATSs), which has received regulatory approval from the Financial Services Authority (FSA) in the United Kingdom to operate as a multilateral trading facility (MTF). The Applicant and the Affiliate ATSs are all wholly-owned subsidiaries of MarketAxess Holdings Inc.
4. The Applicant, as an ATS, facilitates the execution of orders on its Affiliate ATSs by its subscribers, as defined in NI 21-101 and described in its Form 21-101F2 Information Statement Alternative Trading System, as amended from time to time, (Subscribers), through the use of routing and execution agreements between the Applicant and its Affiliate ATSs.
5. The Applicant, as an ATS, currently offers access to its Subscribers based in Ontario, Quebec, British Columbia and Alberta to a fixed income system (the Fixed Income System) operated by its Affiliate ATSs that facilitate trading in the following Non-Canadian Fixed Income Securities:
i. High-grade and high-yield U.S. corporate bonds;
ii. U.S. Government sponsored agency bonds (e.g. Ginnie Mae, issued by the Government National Mortgage Association, Fannie Mae, issued by the Federal National Mortgage Association, and Freddie Mac, issued by the Federal Home Loan Mortgage Corporation);
iii. 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;
iv. European high-grade corporate bonds, which are defined as corporate bonds issued by entities domiciled in Europe;
v. Non-Canadian structured products, consisting of asset-backed securities, non-agency residential mortgage-backed securities and commercial mortgage-backed securities;
vi. Preferred stock of Non-Canadian issuers, which are shares of ownership in a corporation that have a higher claim on its assets and earnings than common stock, and that generally have a dividend that must be paid out before dividends to common shareholders;
6. The Applicant, as an ATS, wishes to offers access to its Subscribers based in Ontario, Quebec, British Columbia and Alberta to additional Non-Canadian Fixed Income Securities, such as:
vii. Municipal bonds issued by U.S. states, cities, counties and other governmental entities; and
viii. Leverage loans of Non-Canadian issuers.
7. Section 6.3 of NI 21-101 provides that an ATS can only execute trades in Corporate Debt Securities. The definition of Corporate Debt Securities only includes debt securities issued in Canada by companies or corporations that are not listed on a recognized exchange or on a recognized quotation and trade reporting system.
8. By order dated September 13, 2016 and cited as In the Matter of MarketAxess Canada Limited (2016) 39 OSCB 8276, the Applicant was granted relief (the 2016 Relief) from section 6.3 of NI 21-101 to be able to offer Non-Canadian Fixed Income Securities described in paragraph 5i to 5vi for trading to its Subscribers in Ontario, Quebec, British Columbia and Alberta.
9. The effect of the Exemption Sought and the Revocation will be to replace and extend the 2016 Relief in Ontario, Quebec, British Columbia and Alberta to grant the Exemption Sought, in each case with the effect as of and from the date thereof. The Revocation is required to ensure a clear and consistent public record.
10. Should the Applicant extend its registration in the future as to be permitted to offer access to the Fixed Income System in Canadian jurisdictions other than Ontario, Quebec, British Columbia and Alberta, the Applicant may seek to extend the Exemption Sought to such other jurisdictions on such terms and conditions as may be appropriate from time to time.
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 2016 Relief is revoked and the Exemption Sought is granted provided that the Fixed Income System is only made available to the Subscribers as described above.
Dated this 6th, day of March, 2017