Royal Bank of Canada – s. 38 of the CFA and s. 6.1 of Rule 91-502
Headnote
Application for a ruling pursuant to section 38 of the Commodity Futures Act granting relief from the dealer registration requirement set out in section 22 of the CFA and the trading restrictions in section 33 of the CFA in connection with certain trades in Exchange-Traded Futures on Non-Canadian Exchanges where the Applicant is acting as principal or agent in such trades to, from or on behalf of a Canadian affiliate -- relief subject to sunset clause.
Application to the Director for an exemption, pursuant to section 6.1 of OSC Rule 91-502 Trades in Recognized Options (Rule 91-502), exempting the Applicant and its Representatives from the proficiency requirements in section 3.1 of Rule 91-502 for trades in commodity futures options on exchanges located outside Canada.
Statutes Cited
Commodity Futures Act, R.S.O. 1990, c. C.20 as am., ss. 22 and 38.
Rules Cited
OSC Rule 91-502 Trades in Recognized Options, ss. 3.1 and 6.1.
IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, c. C.20, AS AMENDED (the CFA) AND IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the OSA) AND IN THE MATTER OF ONTARIO SECURITIES COMMISSION RULE 91-502 TRADES IN RECOGNIZED OPTIONS (Rule 91-502) AND IN THE MATTER OF ROYAL BANK OF CANADA
RULING & EXEMPTION (Section 38 of the CFA and Section 6.1 of Rule 91-502)
UPON the application (the Application) of Royal Bank of Canada (the Applicant) to the Ontario Securities Commission (the Commission) for:
(a) a ruling of the Commission, pursuant to section 38 of the CFA, that 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 Exchange-Traded Futures (as defined below) on exchanges located outside of Canada (Non-Canadian Exchanges) where the Applicant is acting as principal or agent in such trades to, from or on behalf of RBCDS (as defined below) and where RBCDS is entering into such trade as principal and for its own account only;
(b) a ruling of the Commission, pursuant to section 38 of the CFA, that RBCDS is not subject to the trading restrictions in the CFA in connection with trades in Exchange-Traded Futures on Non-Canadian Exchanges, where the Applicant acts in respect of the trades in Exchange-Traded Futures on behalf of RBCDS pursuant to the above ruling; and
(c) a decision of the Director, pursuant to section 6.1 of Rule 91-502, exempting the Applicant and its salespersons, directors, officers and employees (the Representatives) from section 3.1 of Rule 91-502 in connection with trades in Exchange-Traded Futures (collectively, the Requested Relief);
AND WHEREAS for the purposes of this ruling and exemption (collectively, the Decision):
(i) "CFTC" means the U.S. Commodity Futures Trading Commission;
"dealer registration requirements in the CFA" means the provisions of section 22 of the CFA that prohibit a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable provisions of section 22 of the CFA;
"Exchange-Traded Futures" 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;
"FCA" means the Financial Conduct Authority in the U.K.;
"NFA" means the National Futures Association in the U.S.;
"PRA" means the Prudential Regulation Authority in the U.K.;
"RBCDS" means RBC Dominion Securities Inc.;
"RBCEL" means RBC Europe Limited;
"SEC" means the U.S. Securities and Exchange Commission;
"specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information;
"trading restrictions in the CFA" means the provisions of section 33 of the CFA that prohibit a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable provisions of section 33 of the CFA;
"U.K." means the United Kingdom;
"U.S." means the United States of America; and
(ii) terms used in this 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 and the Director as follows:
1. The Applicant is a Schedule I bank under the Bank Act (Canada). The principal executive offices of the Applicant are located at Royal Bank Plaza, 200 Bay Street, Toronto, Ontario, M5J 2W7. The Applicant's head office is located at 1 Place Ville Marie, Montreal, Québec, H3B 4R8.
2. The Applicant is not registered in any capacity under the CFA or the OSA and relies on the exemption from registration for financial institutions under section 35.1 of the OSA. However, there is no corresponding exemption from registration for financial institutions in the CFA.
3. The Applicant is authorized by the FCA to carry on a range of regulated activities within the U.K. and is subject to regulation by the FCA and PRA. The Applicant is currently licensed in the U.K. to deal with eligible counterparties and professional clients with respect to its permitted activities. The Applicant is currently authorized to carry on certain regulated activities in the U.K. in relation to certain specified investments, including the following: (a) advising on investments (except on pension transfers and pension opt outs) in relation to futures, options and over-the-counter derivatives; (b) advising on P2P agreements; (c) arranging (bringing about) deals in investments in relation to futures, options and over-the-counter derivatives; (d) arranging safeguarding and administration of assets in relation to futures, options and over-the-counter derivatives; (e) dealing in investments in relation to futures, options and over-the-counter derivatives as agent and principal; (f) making arrangements with a view to transactions in investments in relation to futures, options and over-the-counter derivatives; and (g) safeguarding and administration of assets (without arranging) in relation to futures, options and over-the-counter derivatives. As is the case with all firms authorized in the U.K., the Applicant's current U.K. regulatory status remains subject to variation and the possible imposition of regulatory limitations or requirements and is described as at the date of the Application.
4. The Applicant is an approved member of the NFA (NFA ID: 0361733) and is provisionally registered as a swap dealer with the CFTC.
5. The Applicant is not in default of securities legislation in any jurisdiction in Canada or under the CFA, subject to the matter to which this Decision relates. The Applicant is in compliance in all material respects with U.K. and U.S. securities and commodity futures laws, as applicable.
6. RBCDS, an affiliate of the Applicant, is registered as a dealer in the category of investment dealer in each of the provinces and territories of Canada, and in the category of futures commission merchant in Ontario and derivatives dealer in Quebec. RBCDS is also a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC) and has its head office in Ontario. RBCDS is an indirect wholly-owned subsidiary of the Applicant.
7. The Applicant is a "market participant" as defined under subsection 1(1) of the CFA. As a market participant, among other requirements, the Applicant is required to comply with the record keeping and provision of information provisions under section 14 of the CFA, which include the requirement to keep such books, records and other documents: (a) as are necessary for the proper recording of business transactions and financial affairs, and the transactions executed on behalf of others, (b) as may otherwise be required under Ontario commodity futures law, and (c) as may reasonably be required to demonstrate compliance with Ontario commodity futures laws, and to deliver such records to the Commission if required.
8. Section 22 of the CFA prohibits a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable provisions in section 22 of the CFA.
9. Pursuant to its authorizations and approvals, the Applicant is authorized to act as a swaps dealer in the U.S. and to trade in securities and Exchange-Traded Futures in the U.K. Rules of the CFTC, NFA, FCA and PRA require the Applicant to maintain adequate capital levels, make and keep specified types of records relating to customer accounts and transactions, and comply with other forms of customer protection rules, including rules respecting: know-your-customer obligations, account-opening requirements, anti-money laundering checks, credit checks, delivery of confirmation statements, clearing deposits and initial and maintenance margins. These rules require the Applicant to treat RBCDS materially the same as the Applicant's U.K. and U.S. customers with respect to transactions made on exchanges in the U.K. In order to protect customers in the event of insolvency or financial instability of the Applicant, the Applicant is required to ensure that customer securities and monies be separately accounted for and segregated from the securities and monies of the Applicant. The Applicant is subject to the FCA's Client Asset Rules, which impose a general duty to segregate client assets and require the Applicant to place client money exclusively with counterparties selected and approved in compliance with the criteria set out in the FCA's Client Asset Rules.
10. RBCDS is a regulated entity in Canada and an affiliate of the Applicant and thus does not require the protections of the CFA.
11. The Applicant's Exchange-Traded Futures trading and clearing operations are currently conducted by its affiliate, RBCEL, a company incorporated under the laws of England and Wales with its head office located in London in the U.K. RBCEL is an indirect wholly-owned subsidiary of the Applicant. The primary purpose of requesting that the Applicant be permitted to trade Exchange-Traded Futures with RBCDS is because the Applicant intends to reorganize its Exchange-Traded Futures trading and clearing operations by moving those operations from RBCEL to its London-based foreign bank branch, Royal Bank of Canada, London Branch (RBC London Branch).
12. The Applicant will not maintain an office, sales force or physical place of business in Ontario with respect to the Exchange Traded Futures trading and clearing operations of RBC London Branch.
13. The Exchange-Traded Futures to be traded by RBCDS will include, but will not be limited to, Exchange-Traded Futures for equity index and single name stocks, interest rate, foreign exchange, bond, energy, agricultural and other commodity products.
14. The trading restrictions in the CFA apply unless, among other things, an Exchange-Traded Future 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.
15. If the Applicant was 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 Exchange-Traded Futures to be entered into on certain Non-Canadian Exchanges.
16. Section 3.1 of Rule 91-502 provides that no person shall trade as agent in, or give advice in respect of, a recognized option, as defined in section 1.1 of Rule 91-502, unless he or she has successfully completed the Canadian Options Course (which has been replaced by the Derivatives Fundamentals Course and the Options Licensing Course).
17. All Representatives of the Applicant who trade futures and options in the U.K. need to have attained and maintain a level of skills, knowledge and expertise to discharge their responsibilities in accordance with the FCA's Training and Competence Handbook.
18. Representatives who trade futures and options will have passed examinations in U.K. Financial Regulation and Securities and/or Derivatives administered by the Chartered Institute for Securities & Investment (CISI) under its Capital Markets Programme.
19. Under the U.K. Senior Managers & Certification Regime, these Representatives who trade futures and options will be classified by the Applicant as certified individuals. Although these Representatives will not be subject to direct approval by the FCA or the PRA, the Applicant must take reasonable care to ensure that a Representative does not perform a certification function without having first been certified as fit and proper to do so. This certification must be renewed on an annual basis.
AND UPON the Commission and Director being satisfied that it would not be prejudicial to the public interest to grant the exemptions requested;
IT IS RULED, pursuant to section 38 of the CFA, that the Applicant is not subject to the dealer registration requirements set out in the CFA or the trading restrictions in the CFA in connection with trades in Exchange-Traded Futures where the Applicant is acting as principal or agent in such trades to, from or on behalf of RBCDS provided that:
(a) at the time trading activity is engaged, the Applicant:
(i) maintains RBC London Branch's principal place of business in the U.K.;
(ii) is authorised and regulated by the FCA;
(iii) is approved by the NFA as a member firm; and
(iv) engages in the business of an authorized firm in Exchange-Traded Futures in the U.K.;
(b) 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" hereto;
(c) the Applicant notifies the Commission of any regulatory action after the date of this Decision in respect of the Applicant, or any predecessors or specified affiliates of the Applicant, by completing and filing with the Commission Appendix "B" hereto within ten days of the commencement of such action; provided that the Applicant may also satisfy this condition by filing with the Commission within ten days of the date of this Decision a notice making reference to and incorporating by reference the disclosure made relating to the Applicant pursuant to U.S. federal securities laws, and any updates to such disclosure that may be made from time to time, and by providing a copy, in a manner reasonably acceptable to the Director, of any Form BD "Regulatory Action Disclosure Reporting Page" relating to the Applicant;
(d) if the Applicant does not rely on the international dealer exemption (IDE) in section 8.18 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, by December 31st of each year, 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 IDE;
(e) the Applicant only executes and clears trades in Exchange-Traded Futures pursuant to this Decision for RBCDS;
(f) 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
(g) this Decision will terminate on the earliest of:
(i) the expiry of any such transition period as may be provided by law, after the effective date of the repeal of the CFA;
(ii) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the dealer registration requirements in the CFA or the trading restrictions in the CFA; and
(iii) five years after the date of this Decision.
AND IT IS FURTHER RULED, pursuant to section 38 of the CFA, that RBCDS is not subject to the trading restrictions in the CFA in connection with trades in Exchange-Traded Futures on Non-Canadian Exchanges where the Applicant acts in connection with trades in Exchange-Traded Futures on behalf of RBCDS pursuant to the above ruling.
Date: December 1, 2020
"Garnet Fenn"
Commissioner
Ontario Securities Commission
"Cathy Singer"
Commissioner
Ontario Securities Commission
IT IS THE DECISION of the Director, pursuant to section 6.1 of Rule 91-502, that section 3.1 of Rule 91-502 does not apply to the Applicant or its Representatives in respect of trades in Exchange-Traded Futures, provided that:
(a) the Applicant and its Representatives maintain their respective authorizations and approvals with the FCA and the NFA which permit them to trade commodity futures options in the U.K., and remain subject to regulation by the FCA; and
(b) 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
(ii) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the dealer registration requirements in the CFA or the trading restrictions in the CFA; and
(iii) five years after the date of this Decision.
Date: November 27, 2020
"Felicia Tedesco"
Director
Ontario Securities Commission
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.gov.on.ca/filings
APPENDIX "B"
NOTICE OF REGULATORY ACTION{1}
1. Has the firm, or any predecessors or specified affiliates{2} of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?
|
Yes _____ |
No _____ |
If yes, provide the following information for each settlement agreement:
- - - - - - - - - - - - - - - - - - - -
Name of entity
Regulator/organization
Date of settlement (yyyy/mm/dd)
Details of settlement
Jurisdiction
- - - - - - - - - - - - - - - - - - - -
2. Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:
Yes
No
(a) Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?
_____
_____
(b) Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?
_____
_____
(c) Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(d) Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(e) Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?
_____
_____
(f) Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(g) Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?
_____
_____
If yes, provide the following information for each action:
Name of Entity
Type of Action
Regulator/organization
Date of action (yyyy/mm/dd)
Reason for action
Jurisdiction
3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?
|
Yes _____ |
No _____ |
If yes, provide the following information for each investigation:
- - - - - - - - - - - - - - - - - - - -
Name of entity
Reason or purpose of investigation
Regulator/organization
Date investigation commenced (yyyy/mm/dd)
Jurisdiction
- - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - -
Name of firm
Name of firm's authorized signing officer or partner
Title of firm's authorized signing officer or partner
Signature
Date (yyyy/mm/dd)
- - - - - - - - - - - - - - - - - - - -
Witness
The witness must be a lawyer, notary public or commissioner of oaths.
- - - - - - - - - - - - - - - - - - - -
Name of witness
Title of witness
Signature
Date (yyyy/mm/dd)
- - - - - - - - - - - - - - - - - - - -
This form is to be submitted through the Ontario Securities Commission's Electronic Filing Portal:
https://www.osc.gov.on.ca/filings
{1} Terms defined for the purposes of Form 33-506F6 Firm Registration to Ontario Securities Commission Rule 33-506 (Commodity Futures Act) Registration Information have the same meaning if used in this Appendix except that any reference to "firm" means the person or company relying on relief from the requirement to register as an adviser or dealer under the Commodity Futures Act (Ontario).
{2} In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information.