Application for relief under s. 15.1 of National Instrument 21-101 Marketplace Operation, s. 12.1 of National Instrument 23-101 Trading Rules, and s. 10 of National Instrument 23-103 Electronic Trading and Direct Access to Marketplaces -- relief from the application of all provisions of the Marketplace Rules that apply to a person or company carrying on business as an alternative trading system in the Jurisdictions -- relief granted subject to terms and conditions.
Applicable Legislative Provisions
National Instrument 21-101 Marketplace Operation, s. 15.1.
National Instrument 23-101 Trading Rules, s. 12.1.
National Instrument 23-103 Electronic Trading and Direct Access to Marketplaces, s. 10.
April 28, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO, QUEBEC AND NOVA SCOTIA (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DEALERWEB INC.
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application (the Application) from Dealerweb Inc. (Dealerweb) for an exemption under the securities legislation of the Jurisdictions (the Legislation) and under section 15.1 of National Instrument 21-101 -- Marketplace Operation (NI 21-101), section 12.1 of National Instrument 23-101 -- Trading Rules (NI 23-101), and section 10 of National Instrument 23-103 -- Electronic Trading and Direct Access to Marketplaces (NI 23-103 and, together with NI 21-101 and NI 23-101, the Marketplace Rules) exempting Dealerweb from the application of all provisions of the Marketplace Rules that apply to a person or company carrying on business as an alternative trading system (ATS) in the Jurisdictions (the Requested Relief).
Under National Policy 11-203 (for a coordinated review application):
(a) the Ontario Securities Commission is the principal regulator for this Application; and
(b) the decision is the decision of the principal regulator and evidences the decision of each other of the Decision Makers.
Terms defined in National Instrument 14-101 -- Definitions have the same meaning if used in this decision, unless otherwise defined.
The Decision is based on the following facts represented by Dealerweb:
1. Dealerweb is a corporation existing under the laws of New York in the United States (US), with its head office located in New York, New York, US.
2. Dealerweb is a wholly-owned subsidiary of Tradeweb Markets LLC (Tradeweb). Tradeweb operates a global network of electronic marketplaces which offer institutional, wholesale and retail market participants access to trading in government bonds, mortgage securities, municipal bonds, credit and derivatives across a range of platforms. Tradeweb is wholly-owned by Tradeweb Markets Inc., a public company that is majority owned by Refinitiv Holdings Ltd., a company that is currently indirectly wholly-owned by London Stock Exchange Group plc.
3. Dealerweb facilitates trading in on-the-run US treasuries, off-the-run US treasuries, US treasury bills, US treasury floating rate notes and overnight and term repurchase transactions (collectively the Treasury Products) through its web-based interface (the Platform). The Platform facilitates trades in the Treasury Products through a central limit order book (for on-the-run US treasuries, off-the-run US treasuries (in a hybrid manner), US treasury bills, repurchase transactions and US treasury floating rate notes), a direct streaming mechanism (for on-the-run US treasuries) and sweep trading sessions (for off-the-run US treasuries, US treasury bills and US treasury floating rate notes). Repurchase transactions can be for specific collateral, general collateral, and general collateral financing, which consist of US treasury bills, US treasury notes, US treasury bonds, agency bonds, US treasury floating rate notes, agency mortgage backed securities and adjustable rate mortgages. Treasury Products are traded electronically with the exception of trades on the central limit order book for off-the-run US treasuries which are provided to a voice broker and then executed on the Platform. Dealerweb also maintains a voice trading desk which facilitates trades in off-the-run US treasuries, US treasury bills, US treasury floating rate notes and US treasury inflation-protected securities as well as a voice trading desk which facilitates trades in repurchase transactions.
4. It is expected that certain institutional investors in the Jurisdictions wish to become clients of Dealerweb in order to access the liquidity provided by the Platform.
5. The prospective clients in the Jurisdictions (the Canadian Participants) will be comprised only of institutional investors that qualify as permitted clients as that term is defined in section 1.1 of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
6. Dealerweb will confirm that each prospective Canadian Participant that seeks to participate on the Platform is an institutional investor that qualifies as a permitted client as such term is defined in section 1.1 of NI 31-103, by obtaining a representation from the Canadian Participant for access to the Platform in their onboarding documentation. The documentation will specify that this representation is deemed to be repeated by the Canadian Participant each time it enters an order for a trade on the Platform.
7. Dealerweb relies on the "international dealer exemption" under section 8.18 of NI 31-103 in the Jurisdictions for any trading in securities with permitted clients located in the Jurisdictions. Dealerweb is not registered in any capacity under the securities legislation of the Jurisdictions.
8. Dealerweb is regulated and operating in the US as an ATS registered with the US Securities and Exchange Commission (SEC) (SEC#: 8-38103) as a broker-dealer pursuant to Rule 301(b) of the Regulation ATS under 1934 Securities Exchange Act and is a member of the Financial Industry Regulatory Authority (FINRA) (CRD#: 19662), the US equivalent of the Investment Industry Regulatory Organization of Canada. Dealerweb is a member of the Municipal Securities Rulemaking Board (MSRB) and the National Futures Association. Dealerweb is also an introducing broker pursuant to the Commodity Exchange Act and is regulated as an introducing broker by the Commodity Futures Trading Commission and the National Futures Association. As such, Dealerweb is subject to a comprehensive regulatory regime in the US.
9. Dealerweb is not in default of securities legislation in its home jurisdiction nor in any of the Jurisdictions except as set out in representation 10 below.
10. Between October 5, 2016 and December 13, 2021, without being registered as an ATS or receiving exemptive relief, Dealerweb permitted one Quebec participant to access the Platform. Dealerweb became aware of this access on November 18, 2021 and, after prompt internal investigation and review, brought it to the attention of the Ontario Securities Commission and the Autorité des marchés financiers on December 7 and 8, 2021, respectively. Dealerweb removed this access on December 13, 2021 and is taking steps to ensure compliance with the securities legislation in Quebec.
11. Dealerweb does not have any offices or maintain other physical installations in the Jurisdictions or any other Canadian province or territory.
12. Dealerweb seeks to provide institutional investors in the Jurisdictions with direct, electronic, hybrid and voice access to trading in only the Treasury Products and is therefore considered to be an ATS in the Jurisdictions, as defined in applicable securities legislation.
13. As an ATS, Dealerweb is prohibited from carrying on business in the Jurisdictions unless it complies with or is exempted from the Marketplace Rules.
14. In order to obtain direct access to the Platform, a Canadian Participant must agree to abide by the Dealerweb terms and conditions contained in Dealerweb's Participation Agreement.
15. Dealerweb will also require Canadian Participants to sign a Participant Agreement agreeing to the terms and conditions of the use of the Platform, including clear and transparent access criteria and requirements for all market participants on the Platform to maintain the integrity of the Platform. Dealerweb applies these criteria to all Platform participants in an impartial manner.
16. In addition to complying with the Participant Agreement and all applicable laws pertaining to the use of the Platform, prospective clients must also satisfy Dealerweb's credit, know-your-client and anti-money laundering verifications, suitability analyses and other account supervision procedures prior to being granted access to the Platform and on an ongoing basis in accordance with securities laws applicable in the Jurisdictions and Dealerweb's requirements.
17. Dealerweb will only permit trading in the Treasury Products that are permitted to be traded in the United States under applicable securities laws and regulations.
18. All trades on the Platform are for securities which are Trade Reporting and Compliance Engine (TRACE) eligible. Dealerweb displays orders of the Treasury Products and provides accurate and timely information regarding orders. Additionally, Dealerweb automatically reports all transactions to TRACE in a timely manner (within fifteen (15) minutes) via FIX or at month end as require under FINRA Rule 6723, and would report transactions of Canadian Participants in the same manner as it reports US-based participant trades. Trade information is consistent with FINRA TRACE reporting standards. Dealerweb's reporting does not absolve any participants of their own regulatory reporting requirements. Dealerweb is a FINRA TRACE reporting firm and as such these transactions are reported to TRACE and MSRB on an anonymized basis, identifying only that it was a "customer" that traded with Dealerweb. Dealerweb's market participant identifier is DLWB.
Dealerweb acknowledges that the Decision Makers will monitor developments in international and domestic capital markets and Dealerweb's activities on an ongoing basis to determine whether it is appropriate for the Decision Makers to continue to grant the Requested Relief and, if so, whether it is appropriate for the Requested Relief to continue to be granted subject to the terms and conditions set out in Schedule A to this decision.
Dealerweb has acknowledged to the Decision Makers that the scope of the Requested Relief and the terms and conditions imposed by the Decision Makers set out in Schedule A to this decision may change as a result of the Decision Makers monitoring of developments in international and domestic capital markets or Dealerweb's activities, or as a result of any changes to the laws in the Jurisdictions affecting trading in derivatives, commodity futures contracts, commodity futures options or securities.
The Decision Maker 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 Maker under the Legislation is that the Requested Relief is granted provided that Dealerweb complies with the terms and conditions attached hereto as Schedule A.
DATED this 28th day of April, 2022
TERMS AND CONDITIONS
Regulation and Oversight
1. Dealerweb will continue to be subject to the regulatory oversight of the regulator in its home jurisdiction;
2. Dealerweb will either be registered in an appropriate category or rely on an exemption from registration under Canadian securities laws;
3. Dealerweb will promptly notify the Decision Makers if its status in its home jurisdiction has been revoked, suspended, or amended, or the basis on which its status has significantly changed;
4. Dealerweb will not provide direct access to a Canadian Participant unless the Canadian Participant is a permitted client as that term is defined in National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations;
5. Dealerweb will require Canadian Participants to provide prompt notification to Dealerweb if they no longer qualify as permitted clients;
6. Dealerweb must make available to Canadian Participants appropriate training for each person who has access to trade on the Platform;
Trading by Canadian Participants
7. Trading on the Platform by Canadian Participants must be cleared and settled through a direct clearing member of the Fixed Income Clearing Corporation (FICC) or on Fedwire, the Federal Reserve Bank securities settlement network, through such clearing member of FICC or recognized "Depository Institution" such as SG Americas;
8. Dealerweb will permit Canadian Participants to only trade the fixed income securities, including the collateral for Repos, listed in representation number three of this Decision;
9. Dealerweb will permit Canadian Participants to only trade those securities which are permitted to be traded in the United States under applicable securities laws and regulations;
10. Dealerweb will automatically report all transactions of Canadian Participants to TRACE in a timely manner (within fifteen (15) minutes via FIX). This trade information is consistent with FINRA TRACE reporting standards;
11. Dealerweb will promptly notify staff of the Decision Makers of any of the following:
a. any material change to its business or operations or the information provided in its application for exemptive relief, including, but not limited to:
i. changes to its regulatory oversight;
ii. the access model, including eligibility criteria, for Canadian Participants;
iii. systems and technology; and
iv. its clearing and settlement arrangements;
b. any material change in its regulations or the laws, rules, and regulations in the home jurisdiction relevant to the products traded;
c. any known investigations of, or regulatory action against, Dealerweb by the regulator in its home jurisdiction or any other regulatory authority to which it is subject;
d. any matter known to Dealerweb that may affect its financial or operational viability, including, but not limited to, any significant system failure or interruption; and
e. any default, insolvency, or bankruptcy of any participant known to Dealerweb or its representatives that may have a material, adverse impact upon Dealerweb or any Canadian Participant;
12. Dealerweb will maintain the following updated information and submit such information in a manner and form acceptable to staff of the Decision Makers on a bi-annual basis (within 30 days of the end of each six-month period), and at any time promptly upon the request of staff of the Decision Makers:
a. a current list of all Canadian Participants, organized on a per province basis, specifically identifying for each Canadian Participant the basis upon which it represented to Dealerweb that it could be provided with direct access;
b. a list of all Canadian applicants for status as a Canadian Participant on a per province basis who were denied such status or access or who had such status or access revoked during the period:
i. for those applicants for status as Canadian Participants who had their access to such status denied, an explanation as to why their access was denied;
ii. for those Canadian Participants who had their status revoked, an explanation as to why their status was revoked;
c. for each product:
i. the total trading volume and value originating from Canadian Participants, presented on a per province basis, and
ii. the proportion of worldwide trading volume and value on the Platform conducted by Canadian Participants, presented in the aggregate for such Canadian Participants on a per province basis; and
d. a list of any system outages that occurred for any system impacting Canadian Participants' trading activity on the Platform which were reported to the regulator in Dealerweb's home jurisdiction;
13. Dealerweb will provide to its Canadian Participants disclosure that states that:
a. rights and remedies against it may only be governed by the laws of the home jurisdiction, rather than the laws of Canada, and may be required to be pursued in the home jurisdiction rather than in Canada;
b. the rules applicable to trading on Dealerweb may be governed by the laws of the home jurisdiction, rather than the laws of Canada; and
c. Dealerweb is regulated by the regulator in the home jurisdiction, rather than the Decision Makers;
Submission to Jurisdiction and Appointment of Agent for Service
14. With respect to a proceeding brought by the Decision Makers or staff of the Decision Makers arising out of, related to, concerning, or in any other manner connected with the Decision Makers' regulation and oversight of the activities of Dealerweb in Canada, Dealerweb will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Canada, and (ii) an administrative proceeding in Canada;
15. Dealerweb will submit to the Decision Makers a valid and binding appointment of an agent for service in Canada upon which the Decision Makers may serve a notice, pleading, subpoena, summons, or other process in any action, investigation, or administrative, criminal, quasi-criminal, penal, or other proceeding arising out of or relating to or concerning the Decision Makers' regulation and oversight of Dealerweb's activities in Canada;
16. Dealerweb must, and must cause its affiliated entities, if any, to promptly provide to the Decision Makers, on request, any and all data, information, and analyses in the custody or control of Dealerweb or any of its affiliated entities, without limitations, redactions, restrictions or conditions, including, without limiting the generality of the foregoing:
a. data, information, and analyses relating to all of its or their businesses; and
b. data, information, and analyses of third parties in its or their custody or control; and
17. Dealerweb must share information and otherwise cooperate with other recognized or exempt exchanges, recognized self-regulatory organizations, recognized or exempt clearing agencies, investor protection funds, and other appropriate regulatory bodies.