Stonecap Securities Inc. and SCS (USA) Inc. -- s. 74(1)
Headnote
Trades by U.S. registered broker dealer, an affiliate of Ontario registered investment dealer whose shared head office is located in Ontario, exempted from requirements of paragraph 25(1) of the Act, for trades made to clients that are resident in the U.S.A., where the trade is made by the U.S. dealer (in its own right, or on behalf of clients that are resident in the U.S.) through individuals that are dealing representatives of both the U.S. dealer and the Ontario registrant -- Individuals must be appropriately registered to make the trade on behalf of the Ontario registrant if instead the Ontario registrant were making the trade to an Ontario resident.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).
IN THE MATTER OF
THE SECURITIES ACT (Ontario),
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)
AND
IN THE MATTER OF
STONECAP SECURITIES INC. (Stonecap)
AND SCS (USA) INC. (SCS US)
ORDER
(Subsection 74(1) of the Act)
UPON the application of Stonecap and SCS US to the Ontario Securities Commission (the Commission) for an order, pursuant to subsection 74(1) of the Act, that SCS US and the individuals who are dealing representatives or the equivalent of SCS US and who are also registered under the Act to trade on behalf of Stonecap as dealing representatives of Stonecap (the Dual Representatives), shall not be subject to subsection 25(1) of the Act where SCS US and the Dual Representatives act on behalf of SCS US in respect of certain trades in Ontario with, or on behalf of, clients that are resident in the United States (U.S. Clients);
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON representation to the Commission that:
1. Stonecap is incorporated under the laws of Ontario.
2. The head office of Stonecap is located in Toronto, Ontario.
3. Stonecap is registered under the Act as a dealer in the category of investment dealer and is a member of the Investment Industry Regulatory Organization of Canada.
4. Stonecap is not registered under applicable U.S. securities laws to carry on the business of a registered broker dealer in the United States.
5. Stonecap does not trade in securities with or on behalf of U.S. Clients.
6. SCS US is a wholly-owned subsidiary of Stonecap.
7. SCS US, incorporated pursuant to the laws of the State of Delaware, is not registered under the Act.
8. SCS US shares the same head office as Stonecap in Toronto, Ontario.
9. SCS US is registered as a broker-dealer with the Securities and Exchange Commission of the U.S.A. to carry on the business of a broker-dealer in the U.S.A pursuant to the U.S. Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority.
10. SCS US was established as a vehicle to perform certain activities, being the provision of research, the solicitation of orders and acting as a sales agent, in Canadian securities with or on behalf of U.S. Clients, the majority of whom will be institutional investors. Without the discretionary relief provided for in this Order, SCS US and the Dual Representatives acting on its behalf would be, when trading with or on behalf of U.S. Clients, trading in securities in Ontario without being appropriately registered under the Act.
11. Stonecap expects that the amount of revenue derived from US Clients will only represent approximately 10% of the revenue generated by Canadian clients.
12. SCS US will not trade in securities with or on behalf of persons or entities who are resident in Canada.
13. Although Dual Representatives will primarily act on behalf of Stonecap, they may also act in Ontario on behalf of SCS US in respect of trades with or on behalf of U.S. Clients.
14. When acting on behalf of SCS US, the Dual Representatives will not be serving Canadian clients.
15. Where SCS US performs trades with or on behalf of U.S. Clients, SCS US and any Dual Representative who acts on behalf of SCS US in respect of such trade are subject to and will comply with all registration and other requirements of applicable securities legislation in the U.S.A.
16. SCS US will file with the Commission such reports as to its trading activities as the Commission may from time to time require.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS RULED, pursuant to subsection 74(1) of the Act, that trades in securities to U.S. Clients, that are made by SCS US, for itself or on behalf of U.S. Clients, and on behalf of SCS US by Dual Representatives, shall not be subject to subsection 25(1) of the Act, provided that, at the time of the trade:
(A) Stonecap is registered under the Act as a dealer in a category that would permit Stonecap to make the trade, in compliance with subsection 25(1) of the Act, if the trade were instead being made by Stonecap;
(B) the registration under the Act of the Dual Representative as a dealing representative of Stonecap would permit the Dual Representative to act on behalf of Stonecap in respect of the trade, in compliance with subsection 25(1) of the Act, if the trade were instead being made by the Dual Representative on behalf of Stonecap; and
(C) SCS US and each of the Dual Representatives is in compliance with any applicable dealer licensing or registration requirements under applicable securities legislation of the United States.
DATED at Toronto this 18th day of February, 2011.