Execution Access, LLC
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.
July 22, 2021
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 EXECUTION ACCESS, LLC
DECISION (Section 15.1 of NI 21-101 and section 12.1 of NI 23-101 and section 10 of NI 23-103)
WHEREAS the securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application (the Application) from Execution Access, LLC (Execution Access) requesting an order 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 NI 23-103 -- Electronic Trading and Direct Access to Marketplaces (NI 23-103) (together, the Marketplace Rules) exempting Execution Access 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);
AND WHEREAS 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.
AND WHEREAS Execution Access has represented to the Decision Makers that:
1. Execution Access is a corporation existing under the laws of Delaware in the United States (US) with its head office located at 1177 Avenue of the Americas, New York, NY 10036.
2. Execution Access was an indirect wholly-owned subsidiary of Nasdaq Inc. (Nasdaq) up to the closing (the Closing) of the Sale Agreement (as defined below). Nasdaq operates a global network of electronic marketplaces which offer institutional, wholesale and retail market subscribers (Subscribers) access to trading in government bonds, mortgage securities, municipal bonds, credit and derivatives across a range of platforms.
3. Prior to the Closing, Execution Access facilitated trading in on-the-run US treasuries (Treasuries) through its Nasdaq Fixed Income (NFI) business (the Platform) and continues to do so for Canadian Subscribers.
4. Since 2013, Execution Access has, indirectly, provided certain Canadian entities operating in Ontario with access to the Platform. Such Canadian entities are able to trade all Treasuries which are available on the Platform.
5. The Ontario Securities Commission (the OSC) allowed Execution Access to continue to operate the Platform in Canada as a facility authorized under the exchange recognition order granted to Nasdaq CXC Limited (Nasdaq Canada).
6. In addition to the supplemental client agreements, an intercompany agreement was entered into between Nasdaq Canada and Execution Access in respect of the routing arrangement. Orders transmitted by a client located in Canada for Treasuries are routed to and executed by the Platform in accordance with the terms of the intercompany agreement.
7. On February 2, 2021, Nasdaq entered into a Purchase and Sale Agreement (the Sale Agreement) with Tradeweb Markets LLC (Tradeweb). Pursuant to the Agreement, Tradeweb agreed to purchase the NFI business, including the outstanding shares of Execution Access. The transaction closed on June 25, 2021. Until the Requested Relief is granted pursuant to this Order, Nasdaq Canada will play the role of "client-facing entity" for the NFI business and the intercompany agreement with Execution Access will be kept in place.
8. Since the Closing, NFI is called "Dealerweb Fixed Income". Except as set out in the Application, Tradeweb expects to operate the NFI business and the Platform in the same manner as described in this Order.
9. The existing and prospective clients in the Jurisdictions (the Canadian Subscribers) are comprised only of institutional investors that qualify as permitted clients as that term is defined in in Section 1.1 of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
10. Execution Access will confirm that each existing and prospective Canadian Subscriber participating 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 Subscriber for access to the Platform in their onboarding documentation. The onboarding documentation will specify that this representation is deemed to be repeated by the Canadian Subscriber each and every time it enters an order for a trade on the Platform.
11. Execution Access proposes to rely 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. Execution Access is not registered in any capacity under the securities legislation of the Jurisdictions.
12. Execution Access is regulated and operating in the US as an ATS registered with the US Securities Exchange Commission (SEC) (SEC#: 8-68021) 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#: 148423), the US equivalent of the Investment Industry Regulatory Organization of Canada (IIROC). As such, Execution Access is subject to a comprehensive regulatory regime in the US and will remain subject to the same regulatory regime after the Closing.
13. Execution Access is not in default of securities legislation in any jurisdiction.
14. Execution Access does not have any offices or maintain other physical installations in the Jurisdictions or any other Canadian province or territory.
15. Execution Access provides institutional investors in the Jurisdictions with direct, electronic access to trading in Treasuries, and is therefore considered to be an ATS in the Jurisdictions, as defined in applicable securities legislation.
16. As an ATS, Execution Access is prohibited from carrying on business in the Jurisdictions unless it complies with, or is exempted from, the Marketplace Rules.
17. In order to obtain direct access to the Platform, a Canadian Subscriber must agree to abide by the Execution Access terms and conditions contained in Execution Access's Subscriber Agreement.
18. Execution Access will also require Canadian Subscribers to sign a Subscriber Agreement agreeing to the terms and conditions of the use of the Platform, including clear and transparent access criteria and requirements for all market subscribers on the Platform to maintain the integrity of the Platform. Execution Access applies these criteria to all Subscribers in an impartial manner.
19. In addition to complying with the Subscriber Agreement and all applicable laws pertaining to the use of the Platform, prospective clients must also satisfy Execution Access's credit, know-your customer 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 Execution Access requirements.
20. Execution Access will only permit trading in Treasuries that are permitted to be traded in the US under applicable securities laws and regulations.
21. All trades on the Platform are for securities which are Trade Reporting and Compliance Engine (TRACE) eligible. Execution Access displays orders of Treasuries and provides accurate and timely information regarding orders. Additionally, Execution Access automatically reports all transactions to TRACE in a timely manner (within fifteen (15) minutes) via FIX or at month end as required under FINRA Rule 6723, and would report transactions of Canadian Subscribers in the same manner as it reports US-based Subscriber trades. Trade information is consistent with FINRA TRACE reporting standards. Execution Access's reporting does not absolve any Subscriber of their own regulatory reporting requirements. Execution Access is a FINRA TRACE reporting firm and as such, these transactions are reported to TRACE on an anonymized basis, identifying only that it was a "customer" that traded with Execution Access. Execution Access's market participant identifier is "NFIT" and, after the closing of the Sale Agreement, Execution Access's market participant identifier is expected to be updated.
AND WHEREAS the Decision Makers will monitor developments in international and domestic capital markets and Execution Access'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 Order;
AND WHEREAS Execution Access 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 Order may change as a result of its monitoring of developments in international and domestic capital markets or Execution Access's activities, or as a result of any changes to the laws in the Jurisdictions affecting trading in securities;
AND WHEREAS based on the Application, together with the representations made by, and acknowledgements of Execution Access to the Decision Makers, the Decision Makers have determined that the granting of the Requested Relief would not be prejudicial to the public interest;
IT IS HEREBY ORDERED by the Decision Makers that, pursuant to Section 15.1 of NI 21-101, section 12.1 of NI 23-101 and section 10 of NI 23-103, Execution Access is exempt from the requirement to comply with the Marketplace Rules;
PROVIDED THAT Execution Access complies with the terms and conditions attached hereto as Schedule A.
TERMS AND CONDITIONS
Regulation and Oversight
1. Execution Access will continue to be subject to the regulatory oversight of its home regulator;
2. Execution Access will either be registered in an appropriate category or rely on an exemption from registration under Canadian securities laws;
3. Execution Access 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. Execution Access will not provide direct access to a Canadian Subscriber unless the Canadian Subscriber is a permitted client as that term is defined in National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations;
5. Execution Access will require Canadian Subscribers to provide prompt notification to Execution Access if they no longer qualify as permitted clients;
6. Execution Access must make available to Canadian Subscribers appropriate training for each person who has access to trade on the Platform;
Trading by Canadian Subscribers
7. Execution Access will permit Canadian Subscribers to only trade Treasuries as described in this Order;
8. Trading on the Platform by Canadian Subscribers must be cleared and settled through a direct clearing member of Fixed Income Clearing Corporation (FICC), a clearing agency that is regulated by the clearing agency's applicable regulator or on Fedwire, the Federal Reserve Bank securities settlement network, through such clearing member of FICC, clearing agency or recognized "Depository Institution" such as BNY Mellon.
9. Execution Access will permit Canadian Subscribers to only trade those securities which are permitted to be traded in the United States under applicable securities laws and regulations;
10. Execution Access will automatically report all transactions of Canadian Subscribers to TRACE in a timely manner (within fifteen (15) minutes via FIX). This trade information is consistent with FINRA TRACE reporting standards;
11. Execution Access will promptly notify staff of the Decision Makers of any of the following:
a. within 60 days of implementation, 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 Subscribers;
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, Execution Access by its home regulator or any other regulatory authority to which it is subject;
d. any matter known to Execution Access 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 Subscriber known to Execution Access or its representatives that may have a material, adverse impact upon the ATS or any Canadian Subscriber;
12. Execution Access 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 Subscribers, organized on a per province basis, specifically identifying for each Canadian Subscriber the basis upon which it represented to Execution Access that it could be provided with direct access;
b. a list of all Canadian applicants for status as a Canadian Subscriber on a per province basis who were denied such status or access or who had such status or access revoked during the period;
c. for those Canadian applicants for status as Canadian Subscribers who had their access to such status denied, an explanation as to why their access was denied;
d. for those Canadian Subscribers who had their status revoked, an explanation as to why their status was revoked;
e. for each product:
f. the total trading volume and value originating from Canadian Subscribers, presented on a per province basis, and
g. the proportion of worldwide trading volume and value on the Platform conducted by Canadian Subscribers, presented in the aggregate for such Canadian Subscribers on a per province basis; and
h. a list of any system outages that occurred for any system impacting Canadian Subscribers' trading activity on the Platform which were reported to the home regulator;
13. Execution Access will provide to its Canadian Subscribers 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 Execution Access may be governed by the laws of the home jurisdiction, rather than the laws of Canada; and
c. Execution Access 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 arising out of, related to, concerning, or in any other manner connected with the Decision Makers' regulation and oversight of the activities of Execution Access in Canada, Execution Access will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Canada, and (ii) an administrative proceeding in Canada;
15. Execution Access 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 Maker's regulation and oversight of Execution Access's activities in Canada;
16. Execution Access 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 Execution Access 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. Execution Access 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.