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BNP Paribas Securities India PVT. LTD. – s. 38 of the CFA and s. 6.1 of OSC Rule 91-502 Trades in Recognized Options
Headnote
Application to the Commission pursuant to 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. As an introducing broker, the Applicant will offer the ability to trade in commodity futures contracts and commodity futures options that trade on exchanges located outside of Canada and that are cleared through clearing corporations located outside of Canada, including block trades, to certain of its clients in Ontario who meet the definition of "permitted client" in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Application to the Director for an exemption, pursuant to section 6.1 of OSC Rule 91-502 Trades in Recognized Options (OSC Rule 91-502) exempting the Applicant and its Representatives from the proficiency requirements in section 3.1 of OSC Rule 91-502 for trades in commodity futures options on exchanges located outside of Canada.
Applicable Legislative Provisions
Acts Cited
Commodity Futures Act, R.S.O. 1990, c.C20, as am., ss. 22, 33 and 38.
Securities Act, R.S.O. 1990, c. S.5, as am.
Instrument Cited
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.18.
Rule Cited
Ontario Securities Commission Rule 91-502 Trades in Recognized Options, ss. 3.1 and 6.1.
March 10, 2020
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 BNP PARIBAS SECURITIES INDIA PVT. LTD.
RULING & EXEMPTION (Section 38 of the CFA and Section 6.1 of Rule 91-502)
UPON the application (the Application) of BNP Paribas Securities India Pvt. Ltd. (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 Canada (Non-Canadian Exchanges) where the Applicant is acting as agent in such trades to, from or on behalf of Permitted Clients (as defined below);
(b) a ruling of the Commission, pursuant to section 38 of the CFA, that a Permitted Client is not subject to the dealer registration requirements in the CFA or the trading restrictions in the CFA in connection with Exchange-- Traded Futures on Non-Canadian Exchanges, where the Applicant acts in respect of the trades in Exchange-Traded Futures on behalf of the Permitted Client 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 Exchange-Traded Futures.
AND WHEREAS for the purposes of this ruling and exemption (collectively, the Decision):
(i)
BSE means BSE Ltd. (formerly Bombay Stock Exchange Ltd.);
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;
IOSCO means International Organization of Securities Commissions;
NI 31-103 means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
NSE means National Stock Exchange of India Ltd.;
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;
SEBI means Securities and Exchange Board of India;
specified affiliate has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information; and
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;
(ii) terms used in this Decision that are defined in the OSA, and not otherwise defined in this 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 incorporated in India under the Indian Companies Act 1956. Its principal place of business is in Mumbai, India and it has no branches.
2. The Applicant is licensed with SEBI, a member of the IOSCO, as a stockbroker for dealing in listed securities on the NSE and BSE.
3. The Applicant is engaged in the business of a trading member in the cash equities segments of NSE and BSE and as a trading-cum-clearing member in the equity derivatives and the currency derivatives segments of NSE.
4. The Applicant acts as an agency stockbroker in listed cash equities, equity derivatives and currency derivatives for institutional clients (including Foreign Portfolio Investors, banks, local mutual funds, pension funds and insurance companies), who are generally resident in countries other than Canada, such as Australia, Cayman Islands, France, India, Ireland, the United States, Mauritius and Singapore.
5. The Applicant is an affiliate of BNP Paribas (Canada) Valeurs Mobilières Inc./BNP Paribas (Canada) Securities Inc. (BNP Paribas Securities Canada) and is an indirect wholly-owned subsidiary of BNP Paribas. BNP Paribas Securities Canada is registered under the OSA as a dealer in the category of investment dealer and is a dealer member of the Investment Industry Regulatory Organization of Canada. BNP Paribas Securities Canada is not registered as a dealer under the CFA and does not act as a broker for trades in Exchange-Traded Futures.
6. The Applicant relies on the international dealer exemption under NI 31-103 in Ontario for any trading in securities with Permitted Clients located in Ontario. The Applicant is not registered in any capacity under the OSA or the CFA.
7. The Applicant is not in default of any securities or any commodities futures legislation in any jurisdiction of Canada. The Applicant is in compliance with the applicable securities laws in India.
8. Pursuant to its registrations, the Applicant is authorized to act as a stockbroker in the listed equities and equity derivatives segments of NSE and BSE and in the currency derivatives segment of NSE. The SEBI regulations and the rules, by-laws and regulations of NSE and BSE and their clearing corporations require the Applicant to maintain adequate capital levels, make and keep specified types of records relating to client accounts and transactions, including confirmations and statements, and comply with other forms of customer protection rules, including rules respecting: know-your-client obligations, client identification, account-opening requirements, suitability requirements, anti-money laundering checks and dealing and handling customer orders obligations including managing conflicts of interest. These rules require the Applicant to treat Permitted Clients consistently with the Applicant's customers with respect to transactions made on exchanges in India. In respect of Exchange-Traded Futures, the Applicant provides direct execution services and will give up the trades to the respective clearing member of the Permitted Clients (Third Party Clearing Member) for settlement. In some cases, the Applicant may be the clearing member of NSE Clearing Limited, the NSE's clearing corporation, as the Applicant is licensed as a trading-cum-clearing member and is permitted to act in such capacity if requested by the Permitted Client.
9. The Applicant wishes to offer Permitted Clients the ability to trade in Exchange-Traded Futures through the Applicant. The Applicant shall execute and clear orders for trades in Exchange-Traded Futures on behalf of Permitted Clients in the same manner that it executes and clears orders on behalf of its clients in India. The Applicant shall follow the same know-your-client, suitability and order handling procedures that it follows in respect of its clients in India. Permitted Clients will be afforded the benefits of compliance by the Applicant with applicable statutory and other requirements of the regulators, self-regulatory organizations and exchanges located in India. Permitted Clients in Ontario will have the same contractual rights against the Applicant as clients of the Applicant in India.
10. The Applicant shall not maintain an office, sales force or physical place of business in Ontario.
11. The Applicant shall execute and clear orders for trades in Exchange-Traded Futures in Ontario only from persons who qualify as Permitted Clients.
12. The Applicant shall only offer Permitted Clients of the Applicant the ability to effect trades in Exchange-Traded Futures on Non-Canadian Exchanges, on which the Applicant is licensed to carry out stockbroking activities.
13. The Exchange-Traded Futures to be traded by Permitted Clients shall include, but will not be limited to, Exchange-Traded Futures whose value is determined in reference to equities, currencies or interest rates.
14. India is an interdealer market and any Permitted Client will be a direct client of the Applicant. Permitted Clients of the Applicant will be able to execute orders in Exchange-Traded Futures by directly contacting the Applicant's client order handling desk. The Applicant shall execute a Permitted Client's order on the relevant Non-Canadian Exchange in accordance with the rules and customary practices of the exchange. The Applicant will remain responsible for all trade executions when the Applicant is listed as the executing broker of record on the relevant Non-Canadian Exchange.
15. The Applicant, as an execution broker, shall execute a customer's order on the relevant Exchange in accordance with the rules, by laws and regulations of the relevant exchange and shall be responsible for all trade executions. The Applicant may also be the clearing member of the relevant clearing corporation, acting as the Permitted Client's clearer. Permitted Clients may also be able to "give-up" the transaction for clearing to a Third Party Clearing Member. If the Applicant performs only the execution of a Permitted Client's Exchange-Traded Futures order, then such Third Party Clearing Member shall solely be responsible to comply with the relevant requirements of the exchanges / clearing corporations of which it is a member. The Applicant will not enter into a give-up agreement with any Third Party Clearing Member located in India unless such Third Party Clearing Member is registered with the BSE or NSE.
16. As is customary for all trades of Exchange-Traded Futures, a clearing corporation appointed by the relevant exchange is substituted as a universal counterparty on all trades in Exchange-Traded Futures and Permitted Client orders that are submitted to the exchange by the recognized exchange member. The Permitted Client of the Applicant is responsible to the Applicant and, when applicable, the Third Party Clearing Member for payment of daily mark-to-market variation margin and/or proper margin to carry open positions and the Applicant, and when applicable, the Third Party Clearing Member is, in turn, responsible to the clearing corporation for payment. In some cases the Applicant may be the clearing member.
17. Permitted Clients will pay commissions/brokerage/clearing fees for trades executed and / or cleared by the Applicant as per the rates agreed upon mutually from time to time between the Applicant and the Permitted Client.
18. The trading restrictions in Section 33 of 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.
19. Absent this Decision, 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.
20. 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 of Exchange-Traded Futures to be entered into on certain Non-Canadian Exchanges.
21. Section 3.1 of 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 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).
22. All Representatives of the Applicant who trade futures or options in India have passed the NISM-Series VIII -- Equity Derivatives Certification Examination and / or the NISM -- Series I : Currency Derivatives Certification Examination, being the relevant futures and options proficiency examination administered by the National Institute of Securities Markets ("NISM") in India.
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 and the trading restrictions in the CFA in connection with trades in Exchange-Traded Futures where the Applicant is acting as agent in such trades to, from or on behalf of Permitted Clients provided that:
(a) each client effecting Exchange-Traded Futures is a Permitted Client;
(b) any Third Party Clearing Member has represented and covenanted to the Applicant that it is appropriately registered or exempt from registration under the CFA;
(c) the Applicant only executes and clears Exchange-Traded Futures for Permitted Clients on Non-Canadian Exchanges;
(d) at the time trading activity is engaged in, the Applicant:
(i) has its head office or principal place of business in India;
(ii) is licensed with SEBI, an IOSCO member, as a stockbroker for dealing in Indian listed securities on the NSE and BSE; and
(iii) engages in the business of a stockbroker in Exchange-Traded Futures in India;
(e) the Applicant has provided to the Permitted Client the following disclosure in writing:
(i) a statement that the Applicant is not registered in Ontario to trade in Exchange-Traded Futures as principal or agent;
(ii) a statement that the Applicant's head office or principal place of business is located in Mumbai, India;
(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;
(f) 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;
(g) the Applicant notifies the Commission of any regulatory action initiated 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 any such action provided that this condition shall not be required to be satisfied for so long as BNP Paribas Securities Canada remains an investment dealer in good standing under Ontario Securities laws;
(h) if the Applicant does not rely on the international dealer exemption in section 8.18 of NI 31-103 (the IDE), 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;
(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;
(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
(ii) five years after the date of this Decision.
AND IT IS FURTHER RULED, pursuant to section 38 of the CFA, that a Permitted Client is not subject to the dealer registration requirements in the CFA or the trading restrictions in the CFA in connection with Exchange-Traded Futures on Non-Canadian Exchanges where the Applicant acts in connection with Exchange-Traded Futures on behalf of the Permitted Clients pursuant to the above ruling.
Date: March 10, 2020
"Grant Vingoe"
Vice-Chair or Commissioner
Ontario Securities Commission
"Tim Moseley"
Vice-Chair or 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 and its Representatives in respect of Exchange-Traded Futures, provided that:
(a) the Applicant and its Representatives maintain their respective registrations with the SEBI, NSE and BSE which permit them to trade and clear commodity futures options in India; 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: March 10, 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
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
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. Has the firm, or any predecessors or specified affiliates{1} 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, 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
{1} 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.