Ontario Securities Commission Bulletin
Issue 43/30 - July 23, 2020
Ont. Sec. Bull. Issue 43/30
• Canada Cannabis Corporation et al.
• Canada Cannabis Corporation et al.
• Return On Innovation Advisors Ltd. et al.
• Temporary, Permanent & Rescinding Issuer Cease Trading Orders
• Temporary, Permanent & Rescinding Management Cease Trading Orders
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Coinsquare Ltd. et al. -- ss. 127, 127.1
FILE NO.: 2020-21
PROCEEDING TYPE: Public Settlement Hearing
HEARING DATE AND TIME: Tuesday, July 21, 2020 at 3:30 p.m.
LOCATION: By videoconference
The purpose of this hearing is to consider whether it is in the public interest for the Commission to approve the Settlement Agreement dated July 16, 2020, between Staff of the Commission and each of the respondents in respect of the Statement of Allegations filed by Staff of the Commission dated July 16, 2020.
Any party to the proceeding may be represented by a representative at the hearing.
IF A PARTY DOES NOT ATTEND, THE HEARING MAY PROCEED IN THE PARTY'S ABSENCE AND THE PARTY WILL NOT BE ENTITLED TO ANY FURTHER NOTICE IN THE PROCEEDING.
This Notice of Hearing is also available in French on request of a party. Participation may be in either French or English. Participants must notify the Secretary's Office in writing as soon as possible if the participant is requesting a proceeding be conducted wholly or partly in French.
L'avis d'audience est disponible en français sur demande d'une partie, que la participation à l'audience peut se faire en français ou en anglais et que les participants doivent aviser le Bureau du secrétaire par écrit dès que possible si le participant demande qu'une instance soit tenue entièrement ou partiellement en français.
Dated at Toronto this 17th day of July, 2020
For more information
Please visit www.osc.gov.on.ca or contact the Registrar at registrar@osc.gov.on.ca.
1. While the Ontario Securities Commission (the Commission or OSC) seeks to foster innovation in the capital markets, innovators must operate with the same honesty and responsibility as all other market participants.
2. Staff of the Commission (Staff) bring this proceeding against Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand) and Felix Mazer (Mazer) (collectively, the Respondents) to hold them accountable for their misconduct and to send a message to other market participants in the crypto asset sector that deceptive conduct will not be tolerated in Ontario's capital markets.
3. The Respondents engaged in conduct contrary to Ontario securities laws and/or conduct contrary to the public interest, including:
(a) Coinsquare engaged in market manipulation through the reporting of inflated trading volumes;
(b) Coinsquare misled its clients about trading volumes and Diamond and Rostand authorized, permitted or acquiesced in this conduct; and
(c) Coinsquare took a reprisal against an internal whistleblower and Diamond authorized, permitted or acquiesced in this conduct.
4. Coinsquare is a crypto asset trading platform located in Toronto. Between July 2018 and December 2019, Coinsquare inflated its trading volumes by reporting fake or "wash" trades representing over 90% of its reported trading volume.
5. Diamond, Coinsquare's CEO, directed that Coinsquare inflate its reported trading volumes. At Diamond's direction, Rostand, Coinsquare's founder and President, wrote the algorithm to inflate Coinsquare's trading volume.
6. Despite several Coinsquare employees raising concerns about inflated trading volumes, Coinsquare stuck with the practice. This tone from the top undermined the compliance culture at Coinsquare and contributed to:
(a) Coinsquare misleading clients and members of the public who raised suspicions that Coinsquare was reporting inflated trading volumes;
(b) Coinsquare concealing the inflated trading volumes from Staff; and
(c) Coinsquare taking a reprisal against an employee whistleblower for repeatedly raising concerns internally about Coinsquare inflating its reported trading volumes.
Staff of the Enforcement Branch of the Commission ("Enforcement Staff") make the following allegations of fact:
(1) THE RESPONDENTS
7. Coinsquare{1} operates a crypto asset trading platform based in Toronto (the Coinsquare Platform) that facilitates the buying and selling of crypto assets, including bitcoin, litecoin and ether. The Coinsquare Platform opened to the public in late 2014. As of December 14, 2019, it had approximately 235,000 client accounts.
8. Rostand founded Coinsquare and developed the Coinsquare Platform. Rostand is Coinsquare's President and acted as Chief Technology Officer until January 2019, after which time he continued to be in charge of the technological aspects of the Coinsquare Platform.
9. Diamond is Coinsquare's Chief Executive Officer (CEO) and has been its de facto Chief Financial Officer since approximately January 2019.
10. Mazer held the title of Chief Compliance Officer (CCO) at Coinsquare from May 2018 to June 2020. In this role, Mazer reported directly to Diamond. Coinsquare is not registered with the Commission and Mazer is not registered in connection with his role as Coinsquare's CCO.
(2) INFLATED TRADING VOLUMES
11. Coinsquare inflated the trading volumes on the Coinsquare Platform through reporting "wash" trades representing over 90% of its reported trading volume between July 2018 and December 2019. Diamond directed that Coinsquare engage in this activity and Rostand developed and implemented the algorithm that made it happen. Coinsquare misled clients about its trading volumes including when questioned about the suspicious trading activity. This took place while the Respondents were engaging with Staff for the purpose of registering a Coinsquare subsidiary, Coinsquare Capital Markets Ltd. (Coinsquare Capital Markets), and the Respondents concealed these activities from Staff.
12. In February 2018, Coinsquare submitted its first request for support to the OSC LaunchPad. The request for support process is an opportunity for firms to discuss their business with the OSC LaunchPad team, obtain informal guidance and discuss potential next steps for registration and/or exemptive relief, if required. LaunchPad staff commenced a dialogue regarding Coinsquare's intention to obtain registration with the Commission to permit the Coinsquare Platform to trade securities and derivatives in Ontario.
13. Shortly after reaching out to OSC LaunchPad, in March 2018, Diamond began directing Rostand to significantly inflate Coinsquare's reported trading volumes. Diamond continued to follow up with Rostand until Rostand implemented a solution on July 17, 2018.
14. On that day, Rostand implemented an algorithm to inflate the trading volumes reported on the Coinsquare Platform (the Market Volume Function). The Market Volume Function created simultaneous matching buy and sell orders from an internal Coinsquare account designated with the user identification number 100001 (Account #100001) and resulted in Coinsquare reporting "wash trades".{2} These wash trades had no economic substance and involved no change in beneficial or legal ownership over any assets. No funds or financial interests were actually exchanged in these transactions.
15. Between July 17, 2018 and December 4, 2019, the Market Volume Function resulted in approximately 840,000 wash trades on the Coinsquare Platform, with an aggregate value of approximately 590,000 bitcoins. The wash trades represented over 90% of the trading volume on the Coinsquare Platform during this period.
16. Coinsquare reported the inflated volumes on its website and through its application programming interface (the Coinsquare API),{3} which was in turn used by third-party websites (e.g. CoinMarketCap.com) that aggregated information on crypto asset trading platforms (the Data Aggregators). The Data Aggregators report trading volumes and rank international crypto asset trading platforms based on their reported trading volumes. They were accessible by the public at large, including Coinsquare's existing and prospective shareholders and clients. As a result, the inflated trading volumes on the Coinsquare Platform were also reported to the public by the Data Aggregators.
17. Almost immediately after Coinsquare commenced reporting the inflated trading volumes, clients and members of the public started to identify the suspicious activity and raise questions about it. In response to these questions, Coinsquare made misleading statements, including in responses to posts on Reddit.com about the significant increase in reported trading volumes on the Coinsquare Platform.
18. One such instance arose from a July 21, 2018 post created on Reddit titled "Coinsquare Fake Volume". In the post, the author questioned the sudden increase in Coinsquare's reported trading volumes and speculated that the reported figures were false. Coinsquare responded to the post on July 23, 2018 through the "Coinsquare_Support" Reddit account and suggested that the increase in volume was the result of over-the-counter (OTC) trades and/or third-party trading bots on the Coinsquare Platform that Coinsquare was working to remove.
19. In response to another Reddit post about potential inflated trading volumes on the Coinsquare Platform, the "Coinsquare_Support" Reddit account stated unequivocally on August 29, 2018 that "[w]e do not fake our volume".
20. Several Coinsquare clients also raised concerns regarding the unusual trading activity directly with Coinsquare, including through emails. In its responses, Coinsquare failed to disclose the wash trades and inflated volume. Instead, Coinsquare suggested that the unusual activity could be the result of "robo traders" or large orders and telling clients that Coinsquare was looking into the issue or working on solutions.
21. Coinsquare's responses were misleading. Coinsquare and its senior management knew the increase in trading volumes was the result of Coinsquare inflating those volumes.
22. During this same period, Coinsquare responded to questions from Staff regarding market integrity on the Coinsquare Platform and failed to provide complete responses to these questions. Rather than self-reporting that it was inflating trading volumes, Coinsquare asserted that it was taking steps to prevent market manipulation and highlighted controls it claimed could help detect such conduct.
23. In early 2019, Coinsquare Capital Markets submitted applications for registration as an investment dealer and to operate an Alternative Trading System with the Commission and the Investment Industry Regulatory Organization of Canada (IIROC).
24. Coinsquare failed to disclose that it was engaging in wash trading to Staff, including during an on-site pre-registration review at Coinsquare's offices between March 15 and March 19, 2019.
25. Beginning in March 2019, several employees raised concerns with senior management about Coinsquare reporting inflated trading volumes. These employees included professionals concerned about how Coinsquare's conduct could impact their professional designations. Nonetheless, Coinsquare continued to inflate its reported trading volumes.
26. On December 3, 2019, Enforcement Staff attended the Coinsquare office for an unannounced on-site inspection.
27. The next day, Coinsquare turned off the Market Volume Function and stopped reporting the inflated trading volumes.
Market Manipulation
28. As a result of the above, Coinsquare engaged in market manipulation contrary to the Ontario SecuritiesAct.
29. While the Coinsquare Platform facilitated purchases and sales of crypto assets, in practice, clients did not take possession or control of crypto assets purchased on the Coinsquare Platform unless and until they requested a withdrawal from Coinsquare and it was only at this time that transactions were completed on the blockchain. Instead, the crypto assets purchased and sold on the Coinsquare Platform were held in crypto wallets Coinsquare controlled and transactions were recorded on Coinsquare's internal ledger. As a result, in the normal course, Coinsquare provided its clients with contractual rights or claims to these crypto assets rather than the crypto assets themselves. These contractual rights constituted securities and derivatives, whereas the crypto assets themselves constituted commodities and/or the underlying interests of derivatives.
30. By inflating the reported trading volumes on the Coinsquare Platform, Coinsquare engaged in a course of conduct that it knew or reasonably ought to have known resulted in or contributed to a misleading appearance of trading activity in a security, derivative and/or underlying interest of a derivative, contrary to paragraph 126.1(1)(a) of Securities Act, RSO 1990, c S.5 (the Act).
Misleading Investors
31. By reporting the inflated trading volumes on the Coinsquare Platform through the Coinsquare website and the Coinsquare API, Coinsquare falsely represented that this trading volume was an accurate reflection of the trading activity on the Coinsquare Platform. In doing so, Coinsquare made statements about its trading volumes that were untrue and omitted information necessary to prevent the statements from being false or misleading.
32. Furthermore, Coinsquare's false and misleading statements to existing and prospective clients of the Coinsquare Platform to conceal the inflated trading volumes misled these investors regarding the nature of the trading activities on the Coinsquare Platform.
33. The trading volume on a platform is a factor that a reasonable investor would consider relevant in deciding whether to enter into or maintain a trading relationship.
34. In light of the above, Coinsquare contravened subsection 44(2) of the Act. Diamond, and Rostand each authorized, permitted or acquiesced in Coinsquare's failure to comply with Ontario securities law, contrary to section 129.2 of the Act.
Conduct Contrary to the Public Interest
35. Coinsquare, Diamond, and Rostand engaged in conduct contrary to the public interest as a result of the conduct set out above, including concealing the fact that Coinsquare was reporting inflated trading volumes from Staff.
(3) REPRISAL AGAINST INTERNAL WHISTLEBLOWER
36. In addition to the conduct set out above, Coinsquare took a reprisal against an internal whistleblower (the Internal Whistleblower) for raising concerns regarding the inflated trading volumes to Coinsquare's senior management. Diamond authorized, permitted and/or acquiesced in the reprisal.
37. Coinsquare hired the Internal Whistleblower to work on its automated trading strategies team (the Automated Trading Team) in November 2018. This meant that the Internal Whistleblower was responsible for internal trading operations at Coinsquare and could be viewed as responsible for the wash trading.
38. The Internal Whistleblower learned about the Market Volume Function and between March 2019 and October 2019 reported his concerns with this practice to senior management, including Rostand and Diamond. Despite the Internal Whistleblower's complaints, Coinsquare continued to engage in the wash trading.
39. In March 2019, after learning that the OSC planned to conduct an on-site review as part of Coinsquare's pending application for registration, the Internal Whistleblower raised his concerns about the inflated trading volumes with Rostand, his immediate supervisor at the time, who in turn deactivated the Market Volume Function. However, within days, Rostand reversed course after Diamond learned it had been disabled and directed that Rostand turn it back on.
40. The Internal Whistleblower continued to escalate his concerns. However, the message he received back was that the issue was not open for further discussion. The Internal Whistleblower was told that Coinsquare planned to slowly decrease the volume of wash trading in the lead up to registration but that if he continued to raise these concerns it would impact his employment at Coinsquare.
41. In October 2019, two members of Coinsquare staff approached the Internal Whistleblower in an open area of the office and proceeded to ask the Internal Whistleblower questions about wash trades appearing in records to be produced to the OSC. Following this conversation, the Internal Whistleblower again reported his concerns regarding wash trading, this time to his new supervisor.
42. On October 21, 2019, the Internal Whistleblower sent a further email to Coinsquare senior management asking for the Automated Trading Team to be left out of any and all discussions regarding wash trading and expressing his deep discomfort with the practice. A few days later, the Internal Whistleblower notified Coinsquare that he was taking stress leave as a result of the stress he was experiencing from the "wash trading" and a recent inquiry from the OSC.
43. Coinsquare formally terminated the Internal Whistleblower's employment on December 3, 2019.
44. Coinsquare's response to the Internal Whistleblower providing information regarding the inflated trading volumes adversely affected the Internal Whistleblower's employment and constituted a prohibited reprisal contrary to section 121.5 of the Act.
45. Diamond authorized, permitted, and/or acquiesced in Coinsquare's failure to comply with Ontario securities law as set out above, contrary to section 129.2 of the Act.
(4) FAILURE TO IMPLEMENT CONTROLS
46. In addition to the conduct described above, Coinsquare failed to implement appropriate controls to prevent other inappropriate trading practices.
Non-Economic Trading (Market Maker Function)
47. Early in its operations, Coinsquare implemented a function to act as a market maker on the Coinsquare Platform (the Market Maker Function). The Market Maker Function operated to generate liquidity on the Coinsquare Platform by placing buy and sell orders from an internal Coinsquare account to match orders placed by Coinsquare's clients.
48. However, without appropriate controls in place, the Market Maker Function also caused certain orders from Coinsquare's internal accounts to match each other.
49. As a result, between December 2014 and December 2019, Coinsquare reported additional non-economic, internal trades valued at approximately 112,000 bitcoins. These trades had no economic substance and involved no change in beneficial or legal ownership over any assets.
Misleading Orders (Market Bot Function)
50. In January 2017, Coinsquare implemented another function that also purported to serve a market making purpose on the Coinsquare Platform (the Market Bot Function). The Market Bot Function placed orders from an internal Coinsquare account to buy and sell the equivalent of approximately 57 million bitcoins up to December 2019.
51. However, these automated orders were priced outside a range likely to result in executed trades and automatically cancelled after three minutes, further reducing the chance that the orders would match with client orders. Coinsquare operated the Market Bot Function despite the fact that over 99% of the orders it generated never resulted in executed trades.
52. Between January 2017 and December 2019, the Market Bot Function resulted in Coinsquare placing more than 10.5 million of these orders, representing approximately 30% of all orders on the Coinsquare Platform during this period.
Conclusion
53. Coinsquare's failure to implement adequate controls over trading activities as set out above was contrary to the public interest.
(5) FAILURE TO FULFILL ROLE AS CHIEF COMPLIANCE OFFICER
54. The chief compliance officer of a registered firm is responsible for promoting a culture of compliance, overseeing the effectiveness of the firm's compliance system and assessing the firm's compliance with securities law. In carrying out these duties, a chief compliance officer "should be vigilant and ensure that all the employees and senior staff are aware of compliance issues within the firm and monitor compliance with regulatory requirements". The Commission has described the chief compliance officer role as "critical to securities law compliance oversight".
55. Mazer held the title of CCO at Coinsquare from May 2018 until his resignation in June 2020. Mazer was not acting in a registered capacity in connection with his role as Coinsquare's CCO but was held out as the CCO both within Coinsquare and to the general public.
56. Although Mazer was not the CCO of a registered firm, the public would reasonably expect that an employee with this title and held out as performing this role would generally fulfill the critical compliance responsibilities described above. Mazer failed to fulfill this critical compliance role at Coinsquare. Mazer learned about the wash trading in or around March 2019 and failed to take steps that a reasonable CCO would have taken in the circumstances. Mazer's conduct was contrary to the public interest.
Enforcement Staff allege the following breaches of Ontario securities law and/or conduct contrary to the public interest:
57. Coinsquare engaged in a course of conduct that it knew or reasonably ought to have known resulted in or contributed to a misleading appearance of trading activity in a security, derivative and underlying interest of a derivative, contrary to paragraph 126.1(1)(a) of the Act.
58. Coinsquare made statements about matters that a reasonable investor would consider relevant in deciding whether to enter into or maintain a trading relationship with Coinsquare which were untrue or omitted information necessary to prevent the statements from being false or misleading in the circumstances in which they were made, contrary to subsection 44(2) of the Act.
59. Diamond and Rostand as officers and/or directors of Coinsquare, authorized, permitted or acquiesced in Coinsquare's failure to comply with subsection 44(2) of the Act, contrary to section 129.2 of the Act.
60. Coinsquare took a reprisal against an employee of Coinsquare because the employee provided information to Coinsquare and its senior management about acts of Coinsquare and its senior management that have occurred, and that the employee reasonably believed were contrary to Ontario securities law, contrary to section 121.5 of the Act.
61. Diamond, as an officer and/or director of Coinsquare, authorized, permitted or acquiesced in Coinsquare's failure to comply with paragraph 121.5 of the Act, contrary to section 129.2 of the Act.
62. Coinsquare, Diamond, Rostand and Mazer acted in a manner contrary to the public interest.
63. Enforcement Staff request that the Commission make an order pursuant to subsection 127(1) and section 127.1 of the Act to approve the settlement agreement dated July 16, 2020 between the Respondents and Enforcement Staff.
64. Enforcement Staff reserve the right to amend these allegations and to make such further and other allegations as Enforcement Staff may advise and the Commission may permit.
DATED this 16th day of July, 2020.
{1} Formerly goNumerical Ltd. The company name was changed to Coinsquare Ltd. in September 2018.
{2} The account numbers associated with the trades were never made visible on the Coinsquare Platform. As a result, Coinsquare's clients could not see that the trades originated from orders from the same account or that the orders came from an internal Coinsquare account.
{3} At its most basic, an API is an intermediary that allows two applications to interact with each other.
FOR IMMEDIATE RELEASE
July 15, 2020
TORONTO -- The Commission issued an Order in the above named matter.
A copy of the Order dated July 15, 2020 is available at www.osc.gov.on.ca.
For Media Inquiries:
For General Inquiries:
FOR IMMEDIATE RELEASE
July 17, 2020
TORONTO -- The Office of the Secretary issued a Notice of Hearing for a hearing to consider whether it is in the public interest to approve a settlement agreement entered into by Staff of the Commission and Coinsquare Ltd., Cole Diamond, Virgile Rostand and Felix Mazer in the above named matter.
The hearing will be held on July 21, 2020 at 3:30 p.m.
A copy of the Notice of Hearing dated July 17, 2020 and Statement of Allegations dated July 16, 2020 are available at www.osc.gov.on.ca.
For Media Inquiries:
For General Inquiries:
Canada Cannabis Corporation et al.
FOR IMMEDIATE RELEASE
July 17, 2020
TORONTO -- Take notice that the Motion hearing in the above named matter shall continue on July 24 and 29, 2020 at 10:00 a.m.
For Media Inquiries:
For General Inquiries:
Canada Cannabis Corporation et al.
FOR IMMEDIATE RELEASE
July 17, 2020
TORONTO -- Take notice that the s. 144 Application hearing in the above named matter shall continue on July 24 and 29, 2020 at 10:00 a.m.
For Media Inquiries:
For General Inquiries:
Paramount Equity Financial Corporation et al.
FOR IMMEDIATE RELEASE
July 17, 2020
TORONTO -- Take notice that the dates for the hearing on the merits in the above-named matter have changed.
The hearing on the merits shall continue on July 24, 2020 at 10:00 a.m.
For Media Inquiries:
For General Inquiries:
FOR IMMEDIATE RELEASE
July 21, 2020
TORONTO -- Following a hearing held today, the Commission issued an Order in the above named matter approving the Settlement Agreement reached between Staff of the Commission and Coinsquare Ltd., Cole Diamond, Virgile Rostand and Felix Mazer in the above named matter.
A copy of the Order dated July 21, 2020 and Settlement Agreement dated July 16, 2020 are available at www.osc.gov.on.ca.
For Media Inquiries:
For General Inquiries:
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application by Filer for relief from prospectus requirement in connection with distribution by Filer of "contracts for difference" and over-the-counter (OTC) foreign exchange contracts (collectively, CFDs) to investors resident in Applicable Jurisdictions, subject to terms and conditions -- Filer is registered in Ontario as investment dealer and a member of the Investment Industry Regulatory Organization of Canada (IIROC) -- Applicant seeking relief to permit Applicant to offer CFDs to investors in Applicable Jurisdictions, including relief permitting Applicants to distribute CFDs on the basis of clear and plain language risk disclosure document rather than a prospectus -- risk disclosure document contains disclosure substantially similar to risk disclosure document required for recognized options in OSC Rule 91-502 Trades in Recognized Options, the regime for OTC derivatives contemplated by former proposed OSC Rule 91-504 OTC Derivatives (which was not adopted) and the Quebec Derivatives Act -- Relief consistent with relief contemplated by OSC Staff Notice 91-702 Offerings of contracts for difference and foreign exchange contracts to investors in Ontario (OSC SN 91-702) -- Relief granted, subject to terms and conditions as described in OSC SN 91-702 including four-year sunset clause.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).
OSC Rule 91-502 Trades in Recognized Options.
OSC Rule 91-503 Trades in Commodity Futures Contracts and Commodity Futures Options Entered into on Commodity Futures Exchanges Situate Outside of Ontario.
July 14, 2020
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) that the Filer and its officers, directors and representatives be exempt from the prospectus requirement in respect of the distribution of contracts for difference and over-the-counter (OTC) foreign exchange contracts (collectively, CFDs) to investors resident in the Applicable Jurisdictions (as defined below) (the Requested Relief) subject to the terms and conditions below.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada, other than the provinces of Québec and Alberta (the Non-Principal Jurisdictions, and, together with the Jurisdiction, the Applicable Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this Decision, unless otherwise defined.
This Decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the Business Corporations Act (Ontario), with its head office in Toronto, Ontario.
2. The Filer is registered as a dealer in the category of investment dealer in Ontario and British Columbia, and is a member of the Investment Industry Regulatory Organization of Canada (IIROC).
3. The Filer does not have any securities listed or quoted on an exchange or marketplace in any jurisdiction inside or outside of Canada.
4. The Filer is not in default of any requirements of securities legislation in Canada, or IIROC Rules or IIROC Acceptable Practices (each, as defined below).
5. The Filer currently offers contracts for difference and over-the-counter (OTC) foreign exchange contracts (collectively, CFDs) (a) to retail investors resident in Ontario pursuant to In the Matter of OTT Financial Canada Inc. dated July 19, 2016 (the July 19, 2016 Order) and (b) pursuant to a notice filed under section 4.7 of MI 11-102 Passport System (the Passport System) regarding the Filer's intent to rely on the July 19, 2016 Order for comparable relief in the Non-Principal Jurisdictions. Since the July 19, 2016 Order, the Filer has received a non-objection notice from IIROC to expand its service offering to include listed securities and options.
6. The Filer understands that staff of the Alberta Securities Commission have public interest concerns with CFD trading by retail clients and, accordingly, the Filer intends to offer CFDs to investors in Alberta only in reliance upon available exemptions in National Instrument 45-106 Prospectus Exemptions or otherwise in compliance with securities legislation in Alberta. The Filer undertakes not to give notice that subsection 4.7(1) of MI 11-102 is intended to be relied upon in Alberta.
7. As a member of IIROC, the Filer is only permitted to enter into CFDs pursuant to the rules and regulations of IIROC (the IIROC Rules).
8. In addition, IIROC has communicated to its members certain additional expectations as to acceptable business practices (IIROC Acceptable Practices) as articulated in IIROC's "Regulatory Analysis of Contracts for Differences (CFDs)" published by IIROC on June 6, 2007, as amended on September 12, 2007, for any IIROC member proposing to offer OTC foreign exchange contracts or other types of CFDs to investors. The Filer is in compliance with IIROC Acceptable Practices in offering CFDs. The Filer will continue to offer CFDs in accordance with IIROC Acceptable Practices as may be established from time to time, and will not offer CFDs linked to bitcoin, cryptocurrencies or other novel or emerging asset classes to investors in the Applicable Jurisdictions without the prior written consent of IIROC.
9. The Filer is required by IIROC to maintain a certain level of capital to address the business risks associated with its activities. The capital reporting required by IIROC (as per the calculation in the Form 1 and the Monthly Financial Reports to IIROC) is based predominantly on the generation of financial statements and calculations so as to ensure capital adequacy. The Filer, as an IIROC member, is required to have a specified minimum capital which includes having any additional capital required with regards to margin requirements and other risks. This risk calculation is summarized as a risk adjusted capital calculation which is submitted in the Filer's Form 1 and required to be kept positive at all times.
Online Trading Platform
10. The Filer has licensed on-line trading platform technology for CFD products and trading services that has certain imbedded "client protection mechanisms" and provides transparency of price to clients. The on-line trading platform (the Trading Platform) is a key component in a comprehensive risk management strategy which helps the Filer's clients and the Filer to manage the risk associated with leveraged products. This risk management system has evolved over many years with the objective of meeting the mutual interests of all relevant parties (including, in particular, clients). These attributes and services are described in more detail below:
(a) Real-time client reporting. Clients are provided with a real-time view of their account status. This includes how tick-by-tick price movements affect their account balances and required margins. Clients can view this information throughout the trading day by including it on their trading screen. Clients can also set up alerts that instruct the trading system to automatically send an email or produce a "pop-up" on the trading screen which notifies them of key identified levels being hit in the market.
(b) Fully automated risk management system. Clients are instructed that they must maintain the required margin against their position(s). If a client's funds drop below the required margin, margin calls are regularly issued via email (as frequently as hourly), alerting the client to the fact that the client is required to either deposit more funds to maintain the position or close/reduce it voluntarily. Where possible, daily telephone margin calls are provided as a supporting communication for clients. However, if a client fails to deposit more funds, where possible, the client's position is automatically liquidated. This liquidation procedure is intended to act as a mechanism to help reduce the risk of losses being greater than the amount deposited.
(c) Wide range of order types. The Trading Platform also provides risk management tools such as stops, limits, and contingent orders. Although not available on all products, these tools are designed to help reduce the risk of losses being greater than the amount deposited by a client.
11. The Trading Platform is a proprietary and fully automated internet-based trading platform.
12. The Filer will be the counterparty to its clients' CFD trades; it will not act as an intermediary, broker or trustee in respect of the CFD transactions. The Filer does not manage any discretionary accounts, nor does it provide any trading advice or recommendations regarding CFD transactions.
13. The Filer manages the risk in its client positions by simultaneously placing the identical CFD on a back-to-back basis with an "acceptable counterparty" or a "regulated entity" (as those terms are defined in the JRFQ) (the Acceptable/Regulated Counterparty). The Applicant does not have an inherent conflict of interest with its clients, since it does not profit on a position if the client loses on that position, and vice versa. The Applicant is compensated by the "spread" between the bid and ask prices it offers. Any additional charges shall be fully disclosed to the client prior to trading.
14. The CFDs are OTC contracts and are not transferable.
15. The ability to lever an investment is one of the principal features of CFDs. Leverage allows clients to magnify investment returns (or losses) by reducing the initial capital outlay required to achieve the same market exposure that would be obtained by investing directly in the underlying currency or instrument. The risk management functionality of the Trading Platform ensures that client positions are closed out when the client no longer maintains sufficient margin in their account to support the position, thereby preventing, to the extent possible, the client from losing more than their stated risk capital or cumulative loss limit. This functionality also seeks to ensure that the Filer will minimize any credit risk vis-a-vis its customers in respect of CFD transactions.
16. IIROC Rules and IIROC Acceptable Practices set out detailed requirements and expectations relating to leverage and margin for offerings of CFDs. The degree of leverage may be amended in accordance with IIROC Rules and IIROC Acceptable Practices as may be established from time to time.
17. Pursuant to Section 13.12 Restriction on lending to clients of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, only those firms that are registered as investment dealers (a condition of which is to be a member of IIROC) may lend money, extend credit or provide margin to a client.
18. Clients conduct CFD transactions through the Trading Platform. The Trading Platform is similar to those developed for on-line brokerages in that the client trades without other communication with, or advice from, the dealer. The Trading Platform is not a "marketplace" as defined in National Instrument 21-101 Marketplace Operation since a marketplace is any facility that brings together multiple buyers and sellers by matching orders in fungible contracts in a nondiscretionary manner. The Trading Platform does not bring together multiple buyers and sellers; rather it offers clients direct access to interbank prices.
Structure of CFDs
19. A CFD is a derivative product that allows clients to obtain economic exposure to the price movement of an underlying instrument, such as a share, index, market sector, currency pair, treasury or commodity, without the need for ownership and physical settlement of the underlying instrument. Unlike certain other OTC derivatives, such as forward contracts, CFDs do not require or oblige either the principal counterparty (being the Filer for the purposes of the Requested Relief) or any agent (also being the Filer for the purposes of the Requested Relief) to deliver the underlying instrument.
20. CFDs offered by the Filer do not confer the right or obligation to acquire or deliver the underlying security or instrument itself, and do not confer any other rights of holders of the underlying security or instrument, such as voting rights. Rather, a CFD is a derivative instrument which is represented by an agreement between a counterparty and a client to exchange the difference between the opening price of a CFD position and the price of the CFD at the closing of the position. The value of the CFD is generally reflective of the movement in prices at which the underlying instrument is traded at the time of opening and closing the position in the CFD.
21. CFDs allow clients to take a long or short position on an underlying instrument, but unlike futures contracts they may not have a fixed expiry date or standard contract size or an obligation for physical delivery of the underlying instrument.
22. CFDs allow clients to obtain exposure to markets and instruments that may not be available directly, or may not be available in a cost-effective manner. To the extent that clients are able to obtain long or short positions in an underlying instrument, CFDs can also serve as a tool for hedging this direct exposure.
CFDs Distributed in the Applicable Jurisdictions
23. Certain types of CFDs, such as CFDs where the underlying instrument is a security, may be considered to be "securities" under the securities legislation of the Applicable Jurisdictions.
24. Investors wishing to enter into CFD transactions must open an account with the Filer.
25. Prior to a client's first CFD transaction and as part of the account opening process, the Filer provides the client with a separate risk disclosure document that clearly explains, in plain language, the transaction and the risks associated with the transaction (the risk disclosure document). The risk disclosure document includes the required risk disclosure set forth in Schedule A to the Regulations to the Derivatives Act (Quebec) (QDA) and leverage risk disclosure required under IIROC Rules. The risk disclosure document contains disclosure that is substantially similar to the risk disclosure statement required for recognized options in OSC Rule 91-502 Trades in Recognized Options (which provides both registration and prospectus exemptions) (OSC Rule 91-502) and the regime for OTC derivatives contemplated by OSC SN 91-702 (as defined below) and proposed OSC Rule 91-504 OTC Derivatives (which was not adopted) (Proposed Rule 91-504). The Filer will ensure that, prior to a client's first trade in a CFD transaction, a complete copy of the risk disclosure document provided to that client has been delivered, or has previously been delivered, to the Principal Regulator.
26. Prior to the client's first CFD transaction and as part of the account opening process, the Filer obtains a written or electronic acknowledgement from the client confirming that the client has received, read and understood the risk disclosure document. Such acknowledgment is prominent and separate from other acknowledgements provided by the client as part of the account opening process.
27. As is customary in the industry, and due to the fact that this information is subject to factors beyond the control of the Filer (such as changes in IIROC Rules), information such as the underlying instrument listing and associated margin rates are not disclosed in the risk disclosure document but are part of a client's account opening package and are available on both the Filer's website and the Trading Platform.
Satisfaction of the Registration Requirement
28. The role of the Filer is (other than it being the principal under the CFDs) limited to acting as an execution-only dealer. In this role, the Filer is, among other things, responsible to approve all marketing, for holding of clients funds, and for client approval (including the review of know-your-client (KYC) due diligence and account opening suitability assessments).
29. IIROC Rules exempt member firms that provide execution-only services such as discount brokerage from the obligation to determine whether each trade is suitable for the client. However, IIROC has exercised its discretion to impose additional requirements on members proposing to trade in CFDs (the IIROC CFD Requirements) and requires, among other things, that:
(a) applicable risk disclosure documents and client suitability waivers provided be in a form acceptable to IIROC;
(b) the firm's policies and procedures, amongst other things, require the Filer to assess whether CFD trading is appropriate for a client before an account is approved to be opened. This account opening suitability process includes an assessment of the client's investment knowledge and trading experience;
(c) the Filer's registered salespeople who conduct the KYC and initial product suitability analysis, as well as their supervisory trading officer, meet proficiency requirements for futures trading, and are registered with IIROC as Investment Representative (Retail) (IR). The course proficiency requirements for an IR dealing with customers in futures contracts and futures contract options is the completion of the Derivatives Fundamental Course and Futures Licensing Course. In addition, the Filer must have a fully qualified Supervisor who has completed the Canadian Commodity Supervisors Examination in addition to Derivatives Fundamental Course and Futures Licensing Course;
(d) cumulative loss limits for each client's account are established (this is a measure normally used by IIROC in connection with futures trading accounts).
30. The CFDs offered in Canada are offered in compliance with applicable IIROC Rules and other IIROC Acceptable Practices.
31. IIROC limits the underlying instruments in respect of which a member firm may offer CFDs since only certain securities are eligible for reduced margin rates. For example, underlying equity securities must be listed or quoted on certain "recognized exchanges" (as that term is defined in IIROC Rules) such as the Toronto Stock Exchange or the New York Stock Exchange. The purpose of these limits is to ensure that CFDs offered in Canada will only be available in respect of underlying instruments that are traded in well-regulated markets, in significant enough volumes and with adequate publicly available information, so that clients can form a sufficient understanding of the exposure represented by a given CFD.
32. IIROC Rules prohibit the margining of CFDs where the underlying instrument is a synthetic product (single U.S. sector or "mini-indices"). For example, sector CFDs (i.e., basket of equities for the financial institutions industry) may be offered to non-Canadian clients; however, this is not permissible under IIROC Rules.
33. IIROC members seeking to trade CFDs are generally precluded, by virtue of the nature of the contracts, from distributing CFDs that confer the right or obligation to acquire or deliver the underlying security or instrument itself (convertible CFDs), or that confer any other rights of holders of the underlying security or instrument, such as voting rights.
34. The Requested Relief, if granted, would substantially harmonize the position of the regulators in the Applicable Jurisdictions (together, the Commissions) on the offering of CFDs to investors in the Applicable Jurisdictions with how those products are offered to investors in Québec under the QDA. The QDA provides a legislative framework to govern derivatives activities within the province. Among other things, the QDA requires such products to be offered to investors through an IIROC member and the distribution of a standardized risk disclosure document rather than a prospectus in order to distribute such contracts to investors resident in Québec.
35. The Requested Relief, if granted, would be consistent with the guidelines articulated by Staff of the Principal Regulator in OSC Staff Notice 91-702 Offerings of Contracts for Difference and Foreign Exchange Contracts to Investors (OSC SN 91-702). OSC SN 91-702 provides guidance with regards to the distributions of CFDs, foreign exchange contracts (forex or FX contracts) and similar OTC derivative products to investors in the Jurisdiction.
36. The Principal Regulator has previously recognized that the prospectus requirement may not be well suited for the distribution of certain derivative products to investors in the Jurisdiction, and that alternative requirements, including requirements based on clear and plain language risk disclosure, may be better suited for certain derivatives. In the Jurisdiction, both OSC Rule 91-502 and OSC Rule 91-503 Trades in Commodity Futures Contracts and Commodity Futures Options Entered into on Commodity Futures Exchanges Situate Outside of Ontario (OSC Rule 91-503) provide for a prospectus exemption for the trading of derivative products to clients. The Requested Relief is consistent with the principles and requirements of OSC Rule 91-502, OSC Rule 91-503 and Proposed Rule 91-504.
37. The Filer has also submitted that the Requested Relief, if granted, would harmonize the Principal Regulator's position on the offering of CFDs with certain other foreign jurisdictions that have concluded that a clear, plain language risk disclosure document is appropriate for retail clients seeking to trade in foreign exchange contracts.
38. The Filer is of the view that requiring compliance with the prospectus requirement in order to enter into CFDs with retail clients would not be appropriate since the disclosure of a great deal of the information required under a prospectus and under the reporting issuer regime is not material to a client seeking to enter into a CFD transaction. The information to be given to such a client should principally focus on enhancing the client's appreciation of product risk including counterparty risk. In addition, most CFD transactions are of short duration (positions are generally opened and closed on the same day and are in any event marked to market and cash settled daily).
39. The Filer is regulated by IIROC, which has a robust compliance regime including specific requirements to address market, capital and operational risks.
40. The Filer submits that the regulatory regimes developed by the Autorité des marchés financiers (the AMF) and IIROC for CFDs adequately address issues relating to the potential risk to the clients of the Filer acting as counterparty. In view of these regulatory regimes, investors would receive little or no additional benefit from requiring the Filer to also comply with the prospectus requirement.
41. The Requested Relief in respect of each Applicable Jurisdiction is conditional on the Filer being registered as an investment dealer with the Commission in such Applicable Jurisdiction and maintaining its membership with IIROC and that all CFD transactions be conducted pursuant to IIROC Rules and in accordance with IIROC Acceptable Practices.
The Principal Regulator is satisfied that the test set out in the Legislation to make the Decision is met.
The Decision of the Principal Regulator is that the Requested Relief is granted provided that:
(a) the Filer shall not rely on the July 19, 2016 Order and the notice provided thereunder.
(b) all CFD transactions with residents in the Applicable Jurisdictions shall be executed through the Filer;
(c) with respect to residents of an Applicable Jurisdiction, the Filer remains registered as a dealer in the category of investment dealer with the Principal Regulator and the Commission in such Applicable Jurisdiction and a member of IIROC;
(d) all CFD transactions with clients resident in the Applicable Jurisdictions shall be conducted pursuant to IIROC Rules imposed on members seeking to trade in CFDs and in accordance with IIROC Acceptable Practices, as amended from time to time;
(e) all CFD transactions with clients resident in the Applicable Jurisdictions be conducted pursuant to the rules and regulations of the QDA and the AMF, as amended from time to time, unless and to the extent there is a conflict between i) the rules and regulations of the QDA and the AMF and ii) the requirements of the securities laws of the Applicable Jurisdictions, the IIROC Rules and IIROC Acceptable Practices, in which case the latter shall prevail;
(f) prior to a client first entering into a CFD transaction, the Filer has provided to the client the risk disclosure document described in paragraph 29 and has delivered, or has previously delivered, a copy of the risk disclosure document provided to that client to the Principal Regulator;
(g) prior to the client's first CFD transaction and as part of the account opening process, the Filer has obtained a written or electronic acknowledgement from the client, as described in paragraph 26, confirming that the client has received, read and understood the risk disclosure document;
(h) the Filer has furnished to the Principal Regulator the name and principal occupation of its officers and directors, together with either the personal information form and authorization of indirect collection, use and disclosure of personal information provided for in National Instrument 41-101 General Prospectus Requirements or the registration information form for an individual provided for in Form 33-109F4 of National Instrument 33-109 Registration Information Requirements completed by any officer or director;
(i) the Filer shall promptly inform the Principal Regulator in writing of any material change affecting the Filer, being any change in the business, activities, operations or financial results or condition of the Filer that may reasonably be perceived by a counterparty to a derivative to be material;
(j) the Filer shall promptly inform the Principal Regulator in writing if a self-regulatory organization or any other regulatory authority or organization initiates proceedings or renders a judgment related to disciplinary matters against the Filer concerning the conduct of activities with respect to CFDs;
(k) within 90 days following the end of its financial year, the Filer shall submit to the IIROC its audited annual financial statements and, upon request of the Principal Regulator, to the Principal Regulator; and
(l) the Requested Relief shall immediately expire upon the earliest of
(i) four years from the date that this Decision is issued;
(ii) in respect of a subject Applicable Jurisdiction, the issuance of an order or decision by a court, the Commission in such Applicable Jurisdiction or other similar regulatory body that suspends or terminates the ability of the Filer to offer CFDs to clients in such Applicable Jurisdiction; and
(iii) with respect to an Applicable Jurisdiction, the coming into force of legislation or a rule by its Commission regarding the distribution of OTC derivatives to investors in such Applicable Jurisdiction.
(the Interim Period).
Return On Innovation Advisors Ltd. et al.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Labour sponsored investment fund merging with conventional mutual fund managed by different investment fund manager -- Merger approval required because the merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds -- Manager of continuing fund is not an affiliate of the manager of the terminating fund, the fundamental investment objectives and fee structures of the terminating fund and continuing fund may not be considered to be substantially similar, and the merger will not be completed as a 'qualifying exchange' under the Income Tax Act -- Unitholders of the terminating fund are provided with timely and adequate disclosure regarding the merger -- Approval for fund merger sought under paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds.
National Instrument 81-102 Investment Funds, s. 5.5(1)(b).
July 14, 2020
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) for the merger (the Merger) of Return on Innovation Fund Inc. (the Terminating Fund Corporation) into Stone Growth Fund (the Continuing Fund) (the Merger Approval).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator (Principal Regulator) for this application, and
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
Return On Innovation Advisors Ltd. (the Manager)
1. The Manager is a corporation incorporated under the laws of Ontario with its head office in Toronto, Ontario.
2. The Manager is the investment fund manager of the Terminating Funds (as defined below) and is registered under the securities legislation: (i) in Ontario, Québec and Newfoundland and Labrador as an investment fund manager; (ii) in Ontario as an adviser in the category of portfolio manager; and (iii) in Ontario as a dealer in the category of exempt market dealer.
Stone Asset Management Limited (SAM)
3. SAM is a corporation governed under the laws of Ontario with its head office in Toronto, Ontario.
4. SAM is the investment fund manager of the Continuing Fund and is registered under the securities legislation: (i) in Ontario, Québec and Newfoundland and Labrador as an investment fund manager; (ii) in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Nova Scotia as an adviser in the category of portfolio manager; and (iii) in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario as a dealer in the category of restricted dealer.
The Terminating Funds
5. The Terminating Fund Corporation is a corporation governed under and in compliance with the laws of Canada. The Terminating Fund Corporation is registered as a labour-sponsored investment fund corporation (LSIF) under the Community Small Business Investment Funds Act (Ontario) (the Ontario Act) and is registered as a labour-sponsored venture capital corporation under the Income Tax Act (Canada) (the Tax Act) and is therefore subject to restrictions set out in the Ontario Act and the Tax Act. As a labour-sponsored venture capital corporation under the Tax Act, the Terminating Fund Corporation also qualifies as a mutual fund corporation under the Tax Act.
6. The Terminating Fund Corporation consists of Class A, Series I, II and III shares (Series I, II and III), Class A, Series IV -- Private Placements shares (Series IV and together with Series I, II and III, the Terminating Funds) and Class B shares (the Class B Shares).
7. The Terminating Fund Corporation is comprised of two mutual funds because Series IV is referable to a separate portfolio of assets than Series I, II and III.
8. The Terminating Funds are sponsored by the ACTRA Toronto Performers, who hold the Class B shares.
9. The Terminating Fund Corporation is a reporting issuer under the securities legislation of Ontario and neither the Terminating Funds, the Terminating Fund Corporation nor the Manager is in default under the securities legislation of Ontario.
10. Other than circumstances in which an LSIF is expressly exempt therefrom, the Terminating Funds follow the standard investment restrictions and practices established under NI 81-102.
11. As all of the provincial tax credits that apply to LSIFs and federal tax credits that apply to labour-sponsored venture capital corporations have been discontinued, the Terminating Funds have ceased to be offered for sale as of August 28, 2015.
The Continuing Fund
12. The Continuing Fund is an open-ended unit trust established pursuant to an amended and restated master declaration of trust dated February 23, 1995, as amended. The Continuing Fund is governed under the laws of Ontario.
13. SAM operates a family of funds that are currently qualified for sale under the simplified prospectus, annual information form and fund facts each dated June 28, 2019, as amended (the Offering Documents). Series R of the Continuing Fund is a new series of the Continuing Fund which will only be available to the Terminating Funds and the shareholders thereof, and for which a simplified prospectus, annual information form and fund facts was filed on June 18, 2020 under SEDAR Project #03063773.
14. The Continuing Fund is a reporting issuer under the securities legislation of Ontario and the Other Jurisdictions and neither the Continuing Fund nor SAM is in default under such legislation.
15. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted the Terminating Funds therefrom, the Terminating Funds follow the standard investment restrictions and practices established under NI 81-102.
Reasons for Approval Sought
16. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. The pre-approval criteria are not satisfied in the following ways:
(a) The manager of the Continuing Fund is not an affiliate of the Manager;
(b) the fundamental investment objective of the Continuing Fund is not, or may be considered not to be, "substantially similar" to the investment objectives of Series I, II and III and the investment objectives of Series IV;
(c) the fee structure of the Continuing Fund is not, or may be considered not to be, "substantially similar" to the fee structure of Series I, II and III and the fee structure of Series IV; and
(d) the Merger will not be completed as a "qualifying exchange" or a tax-deferred transaction under the Tax Act.
17. The investment objectives of the Terminating Funds and the Continuing Fund are as follows:
Terminating Funds
Continuing Fund
<<Series I, II and III:>> The investment objective of Series I, II and III is to provide investors with yield as well as long-term capital gains by making debt and equity investments in a diversified portfolio of small- and medium-sized eligible businesses as required to meet the pacing requirements of the Fund. Series I, II and III also invest a certain portion of their assets in "reserves" that has the meaning ascribed thereto in the Federal Tax Act and the Ontario Act, which for each series of shares includes Canadian dollars in cash or on deposit with qualified Canadian financial institutions, debt obligations of or guaranteed by the Canadian federal government, debt obligations of provincial and municipal governments, Crown corporations, corporations and trusts listed on prescribed stock exchanges, guaranteed investment certificates issued by Canadian trust companies, qualified investment contracts, and securities listed on prescribed stock exchanges.
The investment objective of the Continuing Fund is to provide investors exposure to North American equity securities seeking long-term capital appreciation.
<<Series IV:>> The investment objective of Series IV is to provide investors with yield as well as long-term capital gains by making debt and equity investments in a diversified portfolio of small- and medium-sized eligible businesses as required to meet the pacing requirements of the Fund. Series IV also invests a certain portion of its assets in "reserves" that has the meaning ascribed thereto in the Federal Tax Act and the Ontario Act, which for each series of shares includes Canadian dollars in cash or on deposit with Canadian financial institutions, debt obligations of or guaranteed by the Canadian federal government, debt obligations of provincial and municipal governments, Crown corporations, corporations, and trusts listed on prescribed stock exchanges, guaranteed investment certificates issued by Canadian trust companies, and qualified investment contracts.
18. The management fee of Series I, II and III is 2.5% per annum, which is the same as the management fee of Series R units of the Continuing Fund. The management fee of Series IV is 2.3% per annum, which is 0.2% lower than the management fee of Series R units of the Continuing Fund. Series I, II and III pay the Manager an advisor fee of 1.0% per annum and a financing fee of 0.4% of net asset value, annually, plus an annual base financing fee equal to the aggregate of 1.25% of the original purchase price of Series I shares and 0.75% of the original purchase price of Series II shares (issued after January 1, 2004 that remain issued and unredeemed, provided that such fee ceases for any such shares retained for more than eight years), and pay a sponsor fee of 0.25% per annum to the sponsor of Series I, II and III. Series IV pays the Manager an advisor fee of 1.0% per annum and a financing fee of 0.4% of net asset value annually, plus an annual base financing fee equal to the aggregate of 1.5% of the original purchase price of Series IV shares (that remain issued and unredeemed, provided that such fee ceases for any such shares retained for more than eight years), and pay a sponsor fee of 0.25% per annum to the sponsor of Series IV. The Continuing Fund does not charge an advisor fee, a financing fee or a sponsor fee.
19. The Manager proposes to effect the Merger on a taxable basis because it would be in the overall best interests of the securityholders of the Terminating Funds and the Continuing Fund, as:
(a) the Terminating Funds have sufficient loss carry-forwards to shelter any net capital gains that could arise for it on the taxable disposition of its portfolio assets on the Merger;
(b) substantially all the shareholders in the Terminating Funds have an accrued capital loss on their units and effecting the Merger on a taxable basis will afford them the opportunity to realize that loss and use it against current capital gains or even carry it back as permitted under the Tax Act;
(c) substantially all the shareholders in the Terminating Funds have invested in the Terminating Funds in a registered plan
(d) effecting the Merger on a taxable basis would preserve the net losses and loss carry-forwards in the Continuing Fund;
(e) effecting the Merger on a taxable basis will have no other tax impact on the Continuing Fund; and
(f) the Manager believes that substantially all the shareholders of the Terminating Funds will not incur a negative tax impact, and if there is a negative impact, it will be nominal. Shareholders in the Terminating Funds typically invested no more than $5,000.00 per year in order to maximize the LSIF tax credit benefit.
20. Except as described in this decision, the proposed Merger complies with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Merger
21. The Filer intends to merge the Terminating Funds into the Continuing Fund.
22. Shareholders of the Terminating Funds will continue to have the right to redeem units of the Terminating Funds at any time up to the close of business on the business day immediately before the effective date of the Merger.
23. Shares of the Terminating Funds are, and are expected to continue to be at all material times, "qualified investments" under the Tax Act for trusts governed by registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs) and tax-free savings accounts (TFSAs). Units of the Continuing Fund are, and are expected to continue to be at all material times, "qualified investments" under the Tax Act for trusts governed by RRSPs, RRIFs, deferred profit sharing plans, registered education savings plans, registered disability savings plans and TFSAs.
24. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the proposed Merger was issued on June 2, 2020 and filed via SEDAR on June 2, 2020. A material change report with respect to the proposed Merger was filed via SEDAR on June 5, 2020. As the Terminating Funds are not in continuous distribution, no amendment to any offering documents has been filed.
25. SAM has concluded that the Merger will not be a "material change" for the Continuing Fund on the basis that the transaction essentially amounts to an influx of cash from the perspective of the Continuing Fund, which is effectively what an ordinary course investment in the fund constitutes. Additionally, the Merger is being completed on a taxable basis, which means that there will be no tax impact for the Continuing Fund.
26. A notice of meeting, a management proxy circular and a form of proxy in connection with a special meeting of Class A shareholders have been mailed to shareholders of the Terminating Funds on June 26, 2020 and have been concurrently filed via SEDAR.
27. Fund facts relating to the relevant series of the Continuing Fund have been mailed to shareholders of the Terminating Funds on June 26, 2020.
28. Holders of Class A shares of the Terminating Funds will be asked separately to approve the Merger at a special meeting to be held on or about July 23, 2020.
29. The Merger will also be approved by the sole Class B shareholder of the Terminating Fund Corporation, as required under applicable corporate law.
30. The closing of the Merger is subject to a number of conditions customary for a transaction of this nature. The Manager is confident that the conditions will be satisfied.
31. The Merger will be effected on a taxable basis.
32. The Manager will be responsible for the costs of the Merger. These costs consist mainly of legal, proxy solicitation, printing, mailing and regulatory fees.
33. The Merger has been approved by the board of directors of each of the Terminating Fund Corporation, the Manager and SAM.
34. If the required regulatory and shareholder approvals for the Merger are obtained, it is intended that the Merger will occur after the close of business on the Effective Date (as defined below). The Manager therefore anticipates that each shareholder of the Terminating Funds will become a unitholder of the Continuing Fund after the close of business on the Effective Date.
35. The tax implications of the Merger, differences between being a shareholder of a mutual fund corporation and a unitholder of a mutual fund trust, the fact that the Terminating Funds' classification as a LSIF will be terminated, differences between the investment objectives as well as the differences between the fee structures of the Terminating Funds and the Continuing Fund, a description of SAM, and the approval by the Independent Review Committee (IRC) for the Terminating Funds are described in the management proxy circular so that the shareholders of the Terminating Funds can consider this information before voting on the Merger. The meeting materials also describe the various ways in which investors can obtain a copy of the Offering Documents for the Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance.
36. The Terminating Fund Corporation will be dissolved as soon as reasonably possible following the Merger, and the Continuing Fund will continue as a publicly-offered open-ended mutual fund.
37. As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), an Independent Review Committee has been appointed for each of the Terminating Funds (the ROI IRC) and an IRC has been appointed for the Continuing Fund (the Stone Funds' IRC). The Manager presented the potential conflict of interest matters related to the proposed Merger to the ROI IRC for a decision. The ROI IRC reviewed the potential conflict of interest matters related to the proposed Merger and provided its positive recommendation on June 16, 2020, after determining that the proposed Merger, if implemented, would achieve a fair and reasonable result for the Terminating Funds. The Stone Funds' IRC reviewed the potential conflict of interest matters related to the proposed Merger and provided its positive recommendation on June 24, 2020, after determining that the proposed Merger, if implemented, would achieve a fair and reasonable result for the Continuing Fund.
Merger Steps
38. The proposed Merger of the Terminating Funds into the Continuing Fund will be structured as follows:
(a) The Terminating Fund Corporation will notify the Minister of National Revenue (Canada) of its intent to deregister itself under the Tax Act as a labour-sponsored venture capital corporation and request termination of all penalties.
(b) The Terminating Fund Corporation will notify the Minister of Finance (Ontario) of its proposal to dissolve pursuant to the Community Small Business Investment Funds Act (Ontario).
(c) The Manager will cause all assets of the Terminating Fund to be liquidated at fair value for cash. The Terminating Fund is currently fully invested in liquid assets. As a result, the Terminating Fund will not be invested in accordance with its investment objective prior to the Merger being effected.
(d) The Terminating Fund Corporation may declare, pay and automatically reinvest ordinary dividends and/or capital gains dividends to its shareholders, as determined by the Manager on or prior to the effective date (the Effective Date) of the Merger, which is anticipated to be on or about October 16, 2020.
(e) After the close of business on the Effective Date, the Manager will transfer all of the assets of the Terminating Funds which will consist exclusively of cash (after reserving sufficient assets to satisfy its estimated liabilities and the value of the Class B Shares, if any, as of the Effective Date) to the Continuing Fund. In consideration, SAM will issue to the Terminating Funds Series R units of the Continuing Fund, having an aggregate net asset value equal to the total value of the assets acquired.
(f) All of the issued and outstanding Class A shares of the Terminating Funds will be redeemed for portfolio assets attributable to the Terminating Funds, being units of the Continuing Fund, such units to be distributed by the Manager pro rata to the Class A Shareholders based on such Shareholders' proportionate net asset value of Class A Shares, so that Class A Shareholders become unitholders of the Continuing Fund.
(g) The Terminating Fund Corporation will pass a corporate resolution under the Canada Business Corporations Act to dissolve as soon as reasonably possible following the Effective Date.
(h) The Terminating Fund Corporation will send the Minister of National Revenue (Canada), a certified copy of the director's resolution seeking the voluntary revocation of its registration under the Tax Act.
(i) At least 30 days prior to the actual dissolution, the Terminating Fund Corporation will send a notification to the Minister of National Revenue (Canada) of the dissolution.
(j) Articles of dissolution in the prescribed form, will be filed with the Director of Corporations Canada pursuant to section 210(3) of the Canada Business Corporations Act.
39. The Terminating Funds are not mutual fund trusts under the Tax Act and so are not qualified investments for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans or tax-free savings accounts (collectively, Registered Plans).
40. The Continuing Fund is, and is expected to continue to be at all material times, a mutual fund trust under the Tax Act. Accordingly, units of the Continuing Fund are qualified investments under the Tax Act for Registered Plans.
Benefits of the Merger
41. The Merger will be beneficial to securityholders of the Terminating Funds and the Continuing Fund for the following reasons:
(a) The Continuing Fund is managed by an established independent asset manager located in Canada.
(b) Shareholders of the Terminating Funds will gain access to a wider range of expertise and asset management services at a lower cost to achieve their financial, regulatory and capital objectives.
(c) Shareholders of the Terminating Funds will also benefit from the SAM management team. The individuals principally responsible for the investment fund management of the Continuing Fund have the requisite integrity and experience, as required under Section 5.7(1)(a)(v) of NI 81-102.
(d) Shareholders of the Terminating Funds and unitholders of the Continuing Fund will enjoy increased economies of scale as part of a larger combined Continuing Fund that accepts new subscriptions.
(e) Following the Merger, the Continuing Fund will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities if desired and not be restricted as a labour-sponsored investment fund corporation.
(f) The Terminating Funds will waive any applicable redemption fees prior to the Merger.
(g) The Terminating Funds will confirm with applicable tax authorities that any applicable LSIF tax credit claw backs will be waived in connection with the Merger and subsequent termination of the Terminating Fund Corporation.
(h) The Terminating Funds' investment objective is to provide investors with yield as well as long-term capital gains by making debt and equity investments in a diversified portfolio of small- and medium-sized eligible businesses as required to meet the pacing requirements of the Funds. These pacing requirements have been met and it no longer prudent for the Manager to invest in illiquid pacing eligible business if Shareholders can redeem without a redemption penalty or a LSIF tax credit claw back.
(i) The Terminating Funds are fully invested in cash or liquid securities and no longer invest in eligible illiquid business to meet the pacing requirements of the Funds. In turn, the Merger can be completed in cash and at fair value.
(j) Shareholders of the Terminating Funds can redeem at any time since redemptions are not restricted in any manner at this time.
(k) It is expected that the Merger will be a smooth transition for all shareholders of the Terminating Funds and (in particular, shareholders that own shares of the Terminating Funds in a registered locked-in plan or a client-held account), as the custodian and the registrar and transfer agent for both the Terminating Funds and Continuing Fund are the same.
The Principal Regulator is satisfied that the decision meets the test set out in the legislation for the Principal Regulator to make the decision.
The decision of the Principal Regulator under the Legislation is that the Merger Approval is granted, provided that before implementing the Merger, the Filers obtain the prior approval of the shareholders of the Terminating Funds at a special meeting held for that purpose.
Fidelity Investments Canada ULC
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to funds for extension of the lapse date of two prospectuses -- Filer will incorporate funds currently qualified for distribution by two separate prospectuses into a third prospectus when it is renewed -- Extension of lapse date will not affect the currency or accuracy of the information contained in the prospectuses.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 62(5).
June 2, 2020
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) that the time limits for the renewal of each simplified prospectus, fund facts and annual information form of the Funds (each, a Renewal Prospectus) be extended to those time limits that would apply if the lapse date was November 1, 2020 (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation amalgamated under the laws of Alberta and has its head office in Toronto, Ontario.
2. The Filer is registered as follows: (i) as a portfolio manager and mutual fund dealer in each of the Jurisdictions; (ii) as an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador; and (iii) as a commodity trading manager under the Commodity Futures Act (Ontario).
3. The Filer is the trustee and investment fund manager of the Funds.
4. Each of the Funds is an open-end mutual fund trust established under the laws of the Province of Ontario, and is a reporting issuer as defined in the securities legislation of each of the Jurisdictions.
5. Neither the Filer nor any of the Funds is in default of securities legislation in any of the Jurisdictions.
6. The August Funds currently distribute securities in the Jurisdictions under a simplified prospectus dated August 28, 2019, as amended November 1, 2019 (the August Funds Prospectus). The October Funds currently distribute securities in the Jurisdictions under a simplified prospectus dated October 9, 2019 (the October Funds Prospectus).
7. Pursuant to subsection 62(1) of the Securities Act (Ontario) (the Act), the lapse date of the August Funds Prospectus is August 28, 2020 and the lapse date of the October Funds Prospectus is October 9, 2020. Accordingly, under subsection 62(2) of the Act, the distribution of securities of each Fund would have to cease on its current lapse date unless: (i) the Funds file a pro forma simplified prospectus at least 30 days prior to its current lapse date; (ii) the final simplified prospectus is filed no later than 10 days after its current lapse date; and (iii) a receipt for the final simplified prospectus is obtained within 20 days after its current lapse date.
8. The Filer is the investment fund manager of certain other mutual funds as listed in Schedule "C" (the Fidelity Funds), that currently distribute their securities under a simplified prospectus with a lapse date of November 1, 2020 (the Fidelity Funds Prospectus).
9. The Funds share many common operational and administrative features with the Fidelity Funds and combining them in the same simplified prospectus will allow investors to more easily compare the features of the Funds and the Fidelity Funds.
10. It would be impractical to alter and modify all the dedicated systems, procedures and resources required to prepare the renewal simplified prospectus, annual information form and fund facts for the Fidelity Funds (the Fidelity Funds Renewal Prospectus Documents), and unreasonable to incur the costs and expenses associated therewith, so that the Fidelity Funds Renewal Prospectus Documents can be filed earlier with any renewal simplified prospectus, annual information form and fund facts documents of the Funds (the Renewal Prospectus Documents).
11. If the Exemption Sought is not granted, it will be necessary to renew the August Funds Prospectus and the October Funds Prospectus twice within a short period of time in order to consolidate the August Funds Prospectus and the October Funds Prospectus with the Fidelity Funds Prospectus.
12. The Filer may make minor changes to the features of the Fidelity Funds as part of the Fidelity Funds Renewal Prospectus Documents. The ability to file the Renewal Prospectus Documents with the Fidelity Funds Renewal Prospectus Documents will ensure that the Filer can make the operational and administrative features of the Funds and the Fidelity Funds consistent with each other.
13. There have been no material changes in the affairs of the Funds since the relevant current prospectus filings, other than as described in the amendments to the August Funds Prospectus. Accordingly:
(a) the August Funds Prospectus and current fund facts document(s) of each of the August Funds represent current information regarding the August Funds, and
(b) the October Funds Prospectus and current fund facts document(s) of each of the October Funds represent current information regarding the October Funds.
14. Given the disclosure obligations of the Funds, should a material change in the affairs of any of the Funds occur, the current simplified prospectus and fund facts document(s) of the applicable Fund(s) will be amended as required under the Legislation.
15. New investors of the Funds will receive delivery of the most recently filed fund facts document(s) of the applicable Fund(s). The August Funds Prospectus and the October Funds Prospectus will still be available upon request.
16. The Exemption Sought will not affect the accuracy of the information contained in the August Funds Prospectus or the October Funds Prospectus and therefore will not be prejudicial to the public interest.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted.
Fidelity Canadian Short Term Corporate Bond ETF Fund
Fidelity Systematic Canadian Bond Index ETF Fund
Fidelity Systematic U.S. High Yield Bond ETF Fund (formerly Fidelity Fundamental High Yield ETF Fund)
Fidelity Systematic U.S. High Yield Bond Currency Neutral ETF Fund (formerly Fidelity Fundamental High Yield Currency Neutral ETF Fund)
Fidelity Global Core Plus Bond ETF Fund (formerly Fidelity Global Core Plus ETF Fund)
Fidelity Floating Rate High Income Currency Neutral Multi-Asset Base Fund
Fidelity Global Credit Ex-U.S. Currency Neutral Multi-Asset Base Fund
Fidelity High Income Commercial Real Estate Currency Neutral Multi-Asset Base Fund
Fidelity Insights Currency Neutral Multi-Asset Base Fund
Fidelity International Equity Currency Neutral Investment Trust
Fidelity International Growth Currency Neutral Multi-Asset Base Fund
Fidelity U.S. Bond Currency Neutral Multi-Asset Base Fund
Fidelity Canadian Disciplined Equity® Fund
Fidelity Canadian Growth Company Fund
Fidelity Canadian Large Cap Fund
Fidelity Canadian Opportunities Fund
Fidelity Dividend Fund
Fidelity Greater Canada Fund
Fidelity Dividend Plus Fund
Fidelity Special Situations Fund
Fidelity True North® Fund
Fidelity American Disciplined Equity® Fund
Fidelity American Disciplined Equity® Currency Neutral Fund
Fidelity American Equity Fund
Fidelity American Equity Systematic Currency Hedged Fund
Fidelity U.S. Focused Stock Fund
Fidelity U.S. Focused Stock Systematic Currency Hedged Fund
Fidelity Small Cap America Fund
Fidelity Small Cap America Systematic Currency Hedged Fund
Fidelity U.S. Dividend Fund
Fidelity U.S. Dividend Currency Neutral Fund
Fidelity U.S. Dividend Systematic Currency Hedged Fund
Fidelity U.S. Dividend Registered Fund
Fidelity U.S. All Cap Fund
Fidelity Event Driven Opportunities Fund
Fidelity Women's Leadership Fund
Fidelity Women's Leadership Systematic Currency Hedged Fund
Fidelity AsiaStar® Fund
Fidelity China Fund
Fidelity Emerging Markets Fund
Fidelity Europe Fund
Fidelity Far East Fund
Fidelity Global Fund
Fidelity Global Disciplined Equity® Fund
Fidelity Global Disciplined Equity® Currency Neutral Fund
Fidelity Global Dividend Fund
Fidelity Global Large Cap Fund
Fidelity Global Concentrated Equity Fund
Fidelity Global Concentrated Equity Currency Neutral Fund
Fidelity Global Small Cap Fund
Fidelity International Disciplined Equity® Fund
Fidelity International Disciplined Equity® Currency Neutral Fund
Fidelity International Concentrated Equity Fund
Fidelity International Concentrated Equity Currency Neutral Fund
Fidelity Japan Fund
Fidelity Frontier Emerging Markets Fund
Fidelity NorthStar® Fund
Fidelity NorthStar® Currency Neutral Fund
Fidelity International Growth Fund
Fidelity Insights Systematic Currency Hedged Fund
Fidelity Global Consumer Industries Fund
Fidelity Global Financial Services Fund
Fidelity Global Health Care Fund
Fidelity Global Natural Resources Fund
Fidelity Global Real Estate Fund
Fidelity Technology Innovators Fund (formerly Fidelity Global Technology Fund)
Fidelity Global Telecommunications Fund
Fidelity Canadian Asset Allocation Fund
Fidelity Canadian Balanced Fund
Fidelity Monthly Income Fund
Fidelity Income Allocation Fund
Fidelity Global Asset Allocation Fund
Fidelity Global Monthly Income Fund
Fidelity Global Monthly Income Currency Neutral Fund
Fidelity Tactical Strategies Fund
Fidelity U.S. Monthly Income Fund
Fidelity U.S. Monthly Income Currency Neutral Fund
Fidelity Tactical High Income Fund
Fidelity Tactical High Income Currency Neutral Fund
Fidelity NorthStar® Balanced Fund
Fidelity NorthStar® Balanced Currency Neutral Fund
Fidelity American Balanced Fund
Fidelity American Balanced Currency Neutral Fund
Fidelity Conservative Income Fund
Fidelity Income Portfolio
Fidelity Global Income Portfolio
Fidelity Balanced Portfolio
Fidelity Global Balanced Portfolio
Fidelity Growth Portfolio
Fidelity Global Growth Portfolio
Fidelity Balanced Managed Risk Portfolio
Fidelity Conservative Managed Risk Portfolio
Fidelity ClearPath® 2005 Portfolio
Fidelity ClearPath® 2010 Portfolio
Fidelity ClearPath® 2015 Portfolio
Fidelity ClearPath® 2020 Portfolio
Fidelity ClearPath® 2025 Portfolio
Fidelity ClearPath® 2030 Portfolio
Fidelity ClearPath® 2035 Portfolio
Fidelity ClearPath® 2040 Portfolio
Fidelity ClearPath® 2045 Portfolio
Fidelity ClearPath® 2050 Portfolio
Fidelity ClearPath® 2055 Portfolio
Fidelity ClearPath® 2060 Portfolio
Fidelity ClearPath® Income Portfolio
Fidelity Canadian Bond Fund
Fidelity Corporate Bond Fund
Fidelity Canadian Money Market Fund
Fidelity Canadian Short Term Bond Fund
Fidelity Tactical Fixed Income Fund
Fidelity American High Yield Fund
Fidelity American High Yield Currency Neutral Fund
Fidelity U.S. Money Market Fund
Fidelity Floating Rate High Income Fund
Fidelity Floating Rate High Income Currency Neutral Fund
Fidelity Multi-Sector Bond Fund
Fidelity Multi-Sector Bond Currency Neutral Fund
Fidelity Strategic Income Fund
Fidelity Strategic Income Currency Neutral Fund
Fidelity Investment Grade Total Bond Fund
Fidelity Investment Grade Total Bond Currency Neutral Fund
Fidelity Global Bond Fund
Fidelity Global Bond Currency Neutral Fund
Fidelity Canadian High Dividend Index ETF Fund
Fidelity Canadian High Quality Index ETF Fund
Fidelity Canadian Low Volatility Index ETF Fund
U.S. Equity ETF Funds
Fidelity U.S. Dividend for Rising Rates Index ETF Fund
Fidelity U.S. Dividend for Rising Rates Currency Neutral Index ETF Fund
Fidelity U.S. High Dividend Index ETF Fund
Fidelity U.S. High Dividend Currency Neutral Index ETF Fund
Fidelity U.S. High Quality Index ETF Fund
Fidelity U.S. High Quality Currency Neutral Index ETF Fund
Fidelity U.S. Low Volatility Index ETF Fund
Fidelity U.S. Low Volatility Currency Neutral Index ETF Fund
Global and International Equity ETF Funds
Fidelity International High Dividend Index ETF Fund
Fidelity International High Quality Index ETF Fund
Fidelity International Low Volatility Index ETF Fund
Fidelity Sustainable World ETF Fund
Fidelity Tactical Global Dividend ETF Fund
Fidelity U.S. Dividend Private Pool
Fidelity U.S. Growth and Income Private Pool
Fidelity Conservative Income Private Pool
Fidelity Global Asset Allocation Private Pool
Fidelity Global Asset Allocation Currency Neutral Private Pool
Fixed Income Pools
Fidelity Premium Fixed Income Private Pool
Fidelity Premium Money Market Private Pool
Fidelity Premium Tactical Fixed Income Private Pool
Fidelity Canadian Equity Multi-Asset Base Fund (formerly Fidelity Canadian Equity Investment Trust)
Fidelity Canadian Focused Equity Multi-Asset Base Fund (formerly Fidelity Canadian Focused Equity Investment Trust)
Fidelity Canadian Money Market Investment Trust
Fidelity Canadian Real Return Bond Index Multi-Asset Base Fund (formerly Fidelity Canadian Real Return Bond Index Investment Trust)
Fidelity Canadian Short Term Fixed Income Multi-Asset Base Fund (formerly Fidelity Canadian Short Term Fixed Income Investment Trust)
Fidelity Concentrated Canadian Equity Multi-Asset Base Fund (formerly Fidelity Concentrated Canadian Equity Investment Trust)
Fidelity Concentrated Value Investment Trust
Fidelity Convertible Securities Multi-Asset Base Fund (formerly Fidelity Convertible Securities Investment Trust)
Fidelity Dividend Multi-Asset Base Fund (formerly Fidelity Dividend Investment Trust)
Fidelity Emerging Markets Debt Multi-Asset Base Fund (formerly Fidelity Emerging Markets Debt Investment Trust)
Fidelity Emerging Markets Equity Multi-Asset Base Fund (formerly Fidelity Emerging Markets Equity Investment Trust)
Fidelity Emerging Markets Local Currency Debt Multi-Asset Base Fund (formerly Fidelity Emerging Markets Local Currency Debt Investment Trust)
Fidelity Floating Rate High Income Multi-Asset Base Fund (formerly Fidelity Floating Rate High Income Investment Trust)
Fidelity FoundersTM Investment Trust
Fidelity Global Bond Currency Neutral Multi-Asset Base Fund (formerly Fidelity Global Bond Currency Neutral Investment Trust)
Fidelity Global Bond Multi-Asset Base Fund (formerly Fidelity Global Bond Investment Trust)
Fidelity Global Credit Ex-U.S. Investment Trust
Fidelity Global Dividend Investment Trust
Fidelity Global Equity Investment Trust
Fidelity Global Growth and Value Investment Trust
Fidelity Global High Yield Multi-Asset Base Fund (formerly Fidelity Global High Yield Investment Trust)
Fidelity Global Innovators® Investment Trust
Fidelity Global Intrinsic Value Investment Trust
Fidelity Global Real Estate Multi-Asset Base Fund (formerly Fidelity Global Real Estate Investment Trust)
Fidelity High Income Commercial Real Estate Multi-Asset Base Fund (formerly Fidelity High Income Commercial Real Estate Investment Trust)
Fidelity Insights Investment Trust
Fidelity International Equity Investment Trust
Fidelity International Growth Multi-Asset Base Fund (formerly Fidelity International Growth Investment Trust)
Fidelity North American Equity Investment Trust
Fidelity U.S. Bond Multi-Asset Base Fund (formerly Fidelity U.S. Bond Investment Trust)
Fidelity U.S. Dividend Investment Trust
Fidelity U.S. Equity Investment Trust
Fidelity U.S. Money Market Investment Trust
Fidelity U.S. Multi-Cap Multi-Asset Base Fund (formerly Fidelity U.S. Multi-Cap Investment Trust)
Fidelity U.S. Small/Mid-Cap Equity Multi-Asset Base Fund (formerly Fidelity U.S. Small/Mid-Cap Equity Investment Trust)
Fidelity International Equity Multi-Asset Base Fund
Fidelity Canadian Fundamental Equity Multi-Asset Base Fund
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief to permit exchange-traded mutual fund prospectus to omit an underwriter's certificate -- relief from take-over bid requirements for normal course purchases of ETF securities on a marketplace in Canada -- relief granted to facilitate the offering of exchange-traded mutual funds.
Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 59(1), 147.
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2, s. 6.1.
June 30, 2020
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Proposed ETFs and any additional exchange-traded mutual funds (the Future ETFs, and together with the Proposed ETFs, the ETFs, each an ETF) established in the future for which the Filer is the manager, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
(a) exempts the Filer and each ETF from the requirement to include a certificate of an underwriter in an ETF's prospectus (the Underwriter's Certificate Requirement); and
(b) exempts a person or company purchasing ETF Securities (as defined below) in the normal course through the facilities of the TSX (as defined below) or another Marketplace (as defined below) from the Take-Over Bid Requirements (as defined below)
(collectively, the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units (as defined below) from time to time.
Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of an ETF authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more ETFs on a continuous basis from time to time.
Basket of Securities means, in relation to the ETF Securities of an ETF, a group of securities or assets representing the constituents of the ETF.
Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the manager of an ETF to perform certain duties in relation to the ETF, including the posting of a liquid two-way market for the trading of the ETF Securities on the TSX or another Marketplace.
ETF Facts means a prescribed summary disclosure document required in respect of one or more classes or series of ETF Securities being distributed under a prospectus.
ETF Security means a listed security of an ETF.
Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operations that is located in Canada.
NI 81-102 means National Instrument 81-102 Investment Funds.
Other Dealer means a registered dealer that is not an Authorized Dealer, Designated Broker or Affiliate Dealer
Prescribed Number of ETF Securities means the number of ETF Securities determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement.
Securityholders means beneficial or registered holders of ETF Securities.
Take-Over Bid Requirements means the requirements of National Instrument 62-104 Take-Over Bids and Issuer Bids relating to take-over bids, including the requirement to file a report of a take-over bid and to pay the accompanying fee, in each Jurisdiction.
TSX means the Toronto Stock Exchange.
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is an Ontario limited partnership, which is wholly-owned by Guardian Capital Group Limited. The general partner of the Filer is Guardian Capital Inc., an Ontario corporation wholly-owned by Guardian Capital Group Limited, with its head office in Ontario.
2. The Filer is registered as: (i) a portfolio manager in all of the provinces of Canada; (ii) an exempt market dealer in all of the provinces of Canada; (iii) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (iv) commodity trading counsel in Ontario; and (v) a commodity trading manager in Ontario.
3. The Filer is, or will be, the investment fund manager of the ETFs. The Filer has applied, or will apply, to list the ETF Securities on the TSX or another Marketplace.
4. The Filer is not in default of securities legislation in any of the Jurisdictions.
The ETFs
5. Each Proposed ETF will be a mutual fund structured as a trust that is governed by the laws of the Province of Ontario. The Future ETFs will be either trusts or corporations or classes thereof governed by the laws of a Jurisdiction. Each ETF will be a reporting issuer in the Jurisdiction(s) in which its securities are distributed.
6. Subject to any exemptions that have been, or may be, granted by the applicable securities regulatory authorities, each ETF will be an open-ended mutual fund subject to NI 81-102 and Securityholders of each ETF will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.
7. The ETF Securities will be listed on the TSX or another Marketplace.
8. The Filer will file a final long form prospectus prepared and filed in accordance with National Instrument 41-101 General Prospectus Requirements, subject to any exemptions that may be granted by the applicable securities regulatory authorities.
9. ETF Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a prospectus. ETF Securities may generally only be subscribed for or purchased directly from the ETFs (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the TSX or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.
10. In addition to subscribing for and re-selling Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer, Designated Broker or Affiliate Dealer.
11. Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, a Basket of Securities and/or cash in an amount sufficient so that the value of the Basket of Securities and/or cash delivered is equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order. In the discretion of the Filer, the ETFs may also accept subscriptions for Creation Units in cash only, in securities other than Baskets of Securities and/or in a combination of cash and securities other than Baskets of Securities, in an amount equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order.
12. Designated Brokers and Authorized Dealers will not receive any fees or commissions in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or an ETF may, in the Filer's discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.
13. Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker may be contractually required to subscribe for Creation Units of an ETF for cash in an amount not to exceed a specified percentage of the net asset value of the ETF or such other amount established by the Filer.
14. Each ETF will appoint, at any given time, a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for ETF Securities for the purpose of maintaining liquidity for the ETF Securities.
15. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement under the Legislation, ETF Securities generally will not be able to be purchased directly from an ETF. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. ETF Securities may also be issued directly to ETF Securityholders upon a reinvestment of distributions of income or capital gains.
16. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or multiple thereof may exchange such ETF Securities for Baskets of Securities and/or cash in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.
Underwriter's Certificate Requirement
17. Authorized Dealers and Designated Brokers will not provide the same services in connection with a distribution of Creation Units as would typically be provided by an underwriter in a conventional underwriting.
18. The Filer will generally conduct its own marketing, advertising and promotion of the ETFs.
19. The Authorized Dealers and Designated Brokers will not be involved in the preparation of an ETF's prospectus, will not perform any review or any independent due diligence as to the content of an ETF's prospectus, and will not incur any marketing costs or receive any underwriting fees or commissions from the ETFs or the Filer in connection with the distribution of ETF Securities. The Authorized Dealers and Designated Brokers generally seek to profit from their ability to create and redeem ETF Securities by engaging in arbitrage trading to capture spreads between the trading prices of ETF Securities and their underlying securities and by making markets for their clients to facilitate client trading in ETF Securities.
20. In addition, neither the Filer nor the ETFs will pay any fees or commissions to the Designated Brokers and Authorized Dealers. As the Designated Brokers and Authorized Dealers will not receive any remuneration in connection with distributing ETF Securities and as the Authorized Dealers will change from time to time, it is not practical to provide an underwriters' certificate in the prospectus of the ETFs.
Take-Over Bid Requirements
21. As equity securities that will trade on the TSX or another Marketplace, it is possible for a person or company to acquire such number of ETF Securities so as to trigger the application of the Take-Over Bid Requirements. However:
(a) it will not be possible for one or more Securityholders to exercise control or direction over an ETF, as the constating documents of each ETF provide that there can be no changes made to such ETF which do not have the support of the Filer;
(b) it will be difficult for purchasers of ETF Securities to monitor compliance with the Take-Over Bid Requirements because the number of outstanding ETF Securities will always be in flux as a result of the ongoing issuance and redemption of ETF Securities by each ETF; and
(c) the way in which the ETF Securities will be priced deters anyone from either seeking to acquire control or offering to pay a control premium for outstanding ETF Securities because pricing for each ETF Security will generally reflect the net asset value of the ETF Securities.
22. The application of the Take-Over Bid Requirements to the ETFs would have an adverse impact on the liquidity of the ETF Securities because they could cause the Designated Brokers and other large Securityholders to cease trading ETF Securities once the Securityholder has reached the prescribed threshold at which the Take-Over Bid Requirements would apply. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the ETFs.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator is that the Exemption Sought from:
1. the Underwriter's Certificate Requirement is granted; and
2. the Take-Over Bid Requirements is granted.
As to the Exemption Sought from the Underwriter's Certificate Requirement:
As to the Exemption Sought from the Take-Over Bid Requirements:
Miner Edge Inc. et al. -- ss. 127, 127.1
File No. 2019-44
July 15, 2020
WHEREAS on July 15, 2020, the Ontario Securities Commission held a hearing by teleconference;
ON HEARING the submissions of the representative for Staff of the Commission (Staff) and for Miner Edge Inc., Miner Edge Corp. and Rakesh Handa (together, the Respondents);
IT IS ORDERED THAT:
1. the Respondents shall file and serve a witness list and serve a summary of each witness's anticipated evidence on Staff by no later than July 22, 2020;
2. the parties shall disclose any expert evidence in accordance with the following schedule:
a. Staff shall serve the Respondents with any expert report(s) by no later than August 24, 2020;
b. the Respondents shall serve Staff with any expert response report(s) by no later than September 24, 2020; and
c. Staff shall serve the Respondents with any expert reply report(s) by no later than October 22, 2020;
3. each party shall serve the other party with a hearing brief containing copies of the documents, and identifying the other things, that the party intends to produce or enter as evidence at the merits hearing by no later than January 20, 2021;
4. each party shall file a completed copy of the E-hearing Checklist for the Hearing on the Merits by no later than January 25, 2021;
5. a further attendance in this proceeding is scheduled for February 1, 2021 at 10:00 a.m., or on such other date and time as may be agreed to by the parties and set by the Office of the Secretary;
6. each party shall provide to the Registrar the electronic documents that the Party intends to rely on or enter into evidence at the merits hearing, along with an Index File, in accordance with the Protocol for E-hearings, by no later than February 22, 2021; and
7. the merits hearing shall commence on March 1, 2021 at 10:00 a.m. and continue on March 3, 4, 5, 8, 10, 11, 12, 15 and 17, 2021 at 10:00 a.m. on each day, or on such other date and time as may be agreed to by the parties and set by the Office of the Secretary.
Coinsquare Ltd. et al. -- ss. 127, 127.1
File No. 2020-21
July 21, 2020
WHEREAS on July 21, 2020, the Ontario Securities Commission (the Commission) held a hearing by video conference to consider the request made jointly by Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand) and Felix Mazer (Mazer) and Staff of the Commission for approval of a settlement agreement dated July 16, 2020 (the Settlement Agreement);
ON READING the Joint Application for a Settlement Hearing, including the Statement of Allegations dated July 16, 2020 and the Settlement Agreement, and on hearing the submissions of the representatives of each of the parties, and on considering that Mazer has made a voluntary payment of $50,000 to the Commission, and on considering the undertaking given to the Commission by Coinsquare and its subsidiary Coinsquare Capital Markets Ltd., in the form attached as Annex I to this Order (the Undertaking);
IT IS ORDERED THAT:
1. The Settlement Agreement is approved;
2. Coinsquare shall pay costs in the amount of $200,000, pursuant to section 127.1 of the Securities Act, RSO 1990, c S.5 (the Act);
3. Diamond:
(a) shall resign any position that he holds as a director or officer of an issuer, pursuant to paragraph 7 of subsection 127(1) of the Act, subject to the following exception:
i. Diamond may continue to act as a director or officer of a private issuer as defined in section 2.4 of National Instrument 45-106 Prospectus Exemptions (NI 45-106) that is not affiliated with Coinsquare Ltd. and is not a market participant;
(b) is prohibited from becoming or acting as a director or officer of any issuer for a period of 3 years commencing on the date of this Order, pursuant to paragraph 8 of subsection 127(1) of the Act, subject to the following exceptions:
i. Diamond may become or act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare Ltd. and is not a market participant, and
ii. after 1 year from the date of this Order, Diamond may become or act as a director or officer of Coinsquare Ltd. and/or affiliated issuers, other than Coinsquare Capital Markets Ltd., provided that Coinsquare Ltd. and/or the affiliated issuer is not a market participant and that Diamond is not is involved in the mind, management and control of a market participant or the supervision of any person exercising such authority or influence;
(c) is prohibited from becoming or acting as a director or officer of a registrant for a period of 3 years commencing on the date of this Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Diamond shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
i. proposing, nominating and appointing new officers,
ii. participating in any meeting of the board of directors or any committee of the board of directors,
iii. providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
iv. having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
v. hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
vi. participating in any decisions with or attempt in any way to influence management or the board of directors of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Diamond's individual filing requirements,
vii. marketing the services of the registrant to clients or potential clients,
viii. playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
ix. playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
x. supervising any person performing any of the above enumerated activities, and
xi. nothing in paragraph 3(c) of this Order is intended to restrict the ability of Coinsquare Ltd. or Coinsquare Capital Markets Ltd.' board of directors to request and receive information from Diamond where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the board of directors maintains a record of all the requests and information received;
(d) is prohibited from becoming or acting as a registrant for a period of 3 years commencing on the date of this Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act;
(e) shall pay an administrative penalty in the amount of $1,000,000, pursuant to paragraph 9 of subsection 127(1) of the Act, which amount is designated for allocation or use by the Commission in accordance with subclause 3.4(2)(b)(i) or (ii) of the Act; and
(f) shall pay costs in the amount of $50,000, pursuant to section 127.1 of the Act.
4. Rostand:
(a) shall resign any position that he holds as a director or officer of an issuer, pursuant to paragraph 7 of subsection 127(1) of the Act, with the following exception:
i. Rostand may continue to act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare Ltd. and is not a market participant;
(b) is prohibited from becoming or acting as a director or officer of any issuer for a period of 2 years commencing on the date of this Order, pursuant to paragraph 8 of subsection 127(1) of the Act, subject to the following exception:
i. Rostand may become or act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare Ltd. and is not a market participant, and
ii. after 1 year from the date of this Order, Rostand may become or act as a director or officer of Coinsquare Ltd. and/or affiliated issuers, other than Coinsquare Capital Markets Ltd., provided that Coinsquare Ltd. and/or the affiliated issuer is not a market participant and that Rostand is not involved in the mind, management and control of a market participant or the supervision of any person exercising such authority or influence;
(c) is prohibited from becoming or acting as a director or officer of a registrant for a period of 3 years commencing on the date of this Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Rostand shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
i. proposing, nominating and appointing new officers,
ii. participating in any meeting of the board of directors or any committee of the board of directors,
iii. providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
iv. having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
v. hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
vi. participating in any decisions with or attempt in any way to influence management or the board of directors of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Rostand's individual filing requirements,
vii. marketing the services of the registrant to clients or potential clients,
viii. playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
ix. playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
x. supervising any person performing any of the above enumerated activities, and
xi. nothing in paragraph 4(c) of this Order is intended to restrict the ability of Coinsquare Ltd. or Coinsquare Capital Markets Ltd.'s board of directors to request and receive information from Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the board of directors maintain a record of all the requests and information received;
(d) is prohibited from becoming or acting as a registrant for a period of 3 years commencing on the date of this Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act;
(e) shall pay an administrative penalty in the amount of $900,000, pursuant to paragraph 9 of subsection 127(1) of the Act, which amount is designated for allocation or use by the Commission in accordance with subclause 3.4(2)(b)(i) or (ii) of the Act; and
(f) shall pay costs in the amount of $50,000, pursuant to section 127.1 of the Act.
5. Mazer:
(a) shall be prohibited from becoming or acting as a director or officer of a registrant for a period of 1 year commencing on the date of this Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Mazer shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
i. proposing, nominating and appointing new officers,
ii. participating in any meeting of the board of directors or any committee of the board of directors,
iii. providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
iv. having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
v. hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
vi. participating in any decisions with or attempt in any way to influence management or the board of directors of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Mazer's individual filing requirements,
vii. marketing the services of the registrant to clients or potential clients,
viii. playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
ix. playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
x. supervising any person performing any of the above enumerated activities, and
xi. nothing in paragraph 5(a) of this Order is intended to restrict the ability of Coinsquare Ltd. or Coinsquare Capital Markets Ltd.'s board of directors to request and receive information from Mazer where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the board of directors maintains a record of all the requests and information received; and
(b) is prohibited from becoming or acting as a registrant for a period of 1 year commencing on the date of this Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act.
6. The voluntary payment of $50,000 made by Mazer is designated for allocation or use by the Commission in accordance with subclause 3.4(2)(b)(i) or (ii) of the Act.
1. This Undertaking is given in connection with the settlement agreement dated July 16, 2020 (the Settlement Agreement) between Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand), Felix Mazer and Staff ("Staff") of the Ontario Securities Commission (the "Commission"). All terms shall have the same meanings in this Undertaking as in the Settlement Agreement.
2. Coinsquare and Coinsquare Capital Markets Ltd. (Coinsquare Capital Markets) undertake to do the following:
(a) within 45 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) create and permanently maintain an independent board of directors (the Board) that meets the following terms and conditions:
A. the Board shall be comprised of more than 50% independent directors,
B. the Chair of the Board shall be an independent director,{1}
C. the quorum for the Board shall consist of a majority of the Board members, with at least 50% of the majority being independent directors,
D. for the purposes of this undertaking, an individual is an independent director if the individual is "independent" within the meaning of section 1.4 of National Instrument 52-110 Audit Committees, as amended from time to time, but is not independent if the individual:
I. is a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets, or a partner, officer or employee of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer or employee,
II. is a shareholder, partner, officer, director or employee of an affiliated entity of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer, director or employee,
III. is a shareholder, partner, officer, director or employee of a person or company that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets,
IV. is a client or marketplace participant of Coinsquare Capital Markets or is a shareholder, partner, officer, director or employee of a client or marketplace participant of Coinsquare Capital Markets who is responsible for or is actively engaged in the day-to-day operations or activities of that Coinsquare Capital Markets client or marketplace participant,
V. is a director that was nominated, and as a result appointed or elected, by a founding shareholder or launch shareholder, or
VI. has, or has had, any relationship with a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets that could, in the view of the Board, having regard to all relevant circumstances, be reasonably perceived to interfere with the exercise of his or her independent judgment as a director of Coinsquare or Coinsquare Capital Markets;
(ii) create and permanently maintain a whistleblower program that contains reporting channels that are independent, broadly communicated and accessible (the Internal Whistleblower Program) and meets the following terms and conditions:
A. the Internal Whistleblower Program reports directly to an independent committee of the Board (the Independent Board Committee),
B. the Internal Whistleblower Program shall include protections from reprisal and mechanisms for anonymous reporting,
C. the Independent Board Committee shall exercise oversight of the Internal Whistleblower Program and ensure that information being submitted is properly investigated and resolved, and
D. the Independent Board Committee shall ensure that information received from the Internal Whistleblower Program is reported to the Commission, a recognized self-regulatory organization or law enforcement agency where appropriate or otherwise required by law; and
(iii) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 2(a)(i) or (ii) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure;
(b) within 90 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, the Board of Coinsquare and Coinsquare Capital Markets shall each:
(i) appoint a Chief Executive Officer (CEO); and
(ii) appoint a Chief Compliance Officer (CCO);
(c) within 15 days of the appointment of the CEO and CCO, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) submit an attestation, in a format acceptable to Staff and signed by the CEO and CCO, attesting to the fact that, from the date of their appointment, the CEO and CCO have and will continue to:
A. supervise the activities of the firm that are directed towards ensuring compliance with Ontario securities law by the firm and each individual acting on the firm's behalf, and
B. promote and require compliance by the firm, and individuals acting on its behalf, with Ontario securities law; and
(ii) submit an attestation, in a format acceptable to Staff and signed by the CCO, attesting to the fact that, from the date of the CCO's appointment, the CCO has and will continue to:
A. establish and maintain policies and procedures designed to monitor and assess compliance by the firm, and individuals acting on its behalf, with Ontario securities law,
B. monitor and assess compliance by the firm, and the individuals acting on its behalf, with Ontario securities law,
C. immediately report to the CEO of the firm if the CCO becomes aware of any circumstances indicating that the firm, or any individual acting on its behalf, may be in non-compliance with Ontario securities law, and
D. submit an annual report to the firm's Board for the purpose of assessing compliance by the firm, and individuals acting on its behalf, with Ontario securities law;
(d) after Coinsquare and Coinsquare Capital Markets have complied with the above and within 105 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare Capital Markets shall:
(i) resubmit complete and updated applications for registration as an investment dealer and to operate a marketplace with the Commission, including a complete and accurate Form 21-101F2 Information Statement Alternative Trading System, and for membership with IIROC;
(ii) submit a report from Coinsquare and Coinsquare Capital Market's Board that includes in a manner acceptable to Staff:
A. a description of the steps taken to ensure the fitness of its directors, officers and any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets and the policies and procedures designed to ensure continued fitness with respect to the operation of the Coinsquare Platform with integrity,
B. a description of the controls it has implemented or the steps it has taken to address the matters giving rise to the Settlement Agreement,
C. confirmation that it is the view of each Board that the directors and officers will perform their duties with integrity and in a manner consistent with the public interest, and
D. confirmation that each Board will take reasonable steps to ensure that any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets is a fit and proper person and that past conduct of each person or company affords reasonable grounds for the belief that the business of the Coinsquare Platform will be conducted with integrity;
(e) for three years from the date of the approval of this Settlement Agreement by the Commission, Coinsquare Capital Markets and any affiliated companies carrying on activities that require registration under Ontario securities law (the Coinsquare Affiliates) shall not permit Diamond or Rostand to perform functions similar to those normally performed by an officer or director, including:
(i) proposing, nominating and appointing new officers;
(ii) participating in any meeting of the Board or any committee of the Board;
(iii) providing instructions or directions to management of Coinsquare or Coinsquare Capital Markets or to any legal or financial advisors on behalf of Coinsquare or Coinsquare Capital Markets;
(iv) having signing authority for Coinsquare or Coinsquare Capital Markets, including signing authority over any bank or other accounts of Coinsquare or Coinsquare Capital Markets;
(v) hiring, supervising or terminating staff of Coinsquare or Coinsquare Capital Markets or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation;
(vi) participating in any decisions with or attempt in any way to influence management or the Board of Coinsquare or Coinsquare Capital Markets, or make any recommendations in relation to decisions: (a) affecting the compliance by Coinsquare or Coinsquare Capital Markets with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by Coinsquare or Coinsquare Capital Markets under Ontario securities law, except as required by law in respect of Diamond and/or Rostand's individual filing requirements;
(vii) marketing the services of the registrant to clients or potential clients;
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of Coinsquare or Coinsquare Capital Markets;
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of Coinsquare or Coinsquare Capital Markets;
(x) supervising any person performing any of the above enumerated activities; and
(xi) nothing in paragraph 2(e) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Diamond and/or Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the Board maintains a record of all the requests and information received;
(f) Coinsquare and Coinsquare Capital Markets shall establish, maintain and require compliance with policies and procedures reasonably designed to ensure compliance with paragraph 2(e) above, including compliance by all directors, officers and employees of Coinsquare and Coinsquare Capital Markets; and
(g) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 2(e) or (f) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure.
DATED at Toronto, Ontario this 16th day of July, 2020.
COINSQUARE LTD. |
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By: |
"Jason Theofilos" |
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____________________ |
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Name: |
Jason Theofilos |
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Title: |
Director |
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DATED at Toronto, Ontario this 16th day of July, 2020.
COINSQUARE CAPITAL MARKETS LTD. |
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By: |
"Jason Theofilos" |
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____________________ |
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Name: |
Jason Theofilos |
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Title: |
Authorized Signatory |
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1. While the Ontario Securities Commission (the Commission or OSC) seeks to foster innovation in the capital markets, innovators must operate with the same honesty and responsibility as all other market participants. This Settlement Agreement serves to emphasize the obligation to comply with Ontario securities law for crypto asset trading platforms. Firms and individuals that are found to have disregarded these obligations in the future are on notice and can expect Staff of the Commission (Staff) to seek more significant sanctions.
2. Staff bring this proceeding against Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand) and Felix Mazer (Mazer) (collectively, the Respondents) to hold them accountable for their misconduct and to send a message to other market participants in the crypto asset sector that deceptive conduct will not be tolerated in Ontario's capital markets.
3. The Settlement Agreement reflects the Respondents' admission to breaches of Ontario securities laws and/or conduct contrary to the public interest, including:
(a) Coinsquare admits that it engaged in market manipulation through the reporting of inflated trading volumes;
(b) Coinsquare admits that it misled its clients about trading volumes and Diamond and Rostand admit to authorizing, permitting or acquiescing in this conduct; and
(c) Coinsquare admits to taking a reprisal against an internal whistleblower and Diamond admits to authorizing, permitting or acquiescing in this conduct.
4. Coinsquare is a crypto asset trading platform located in Toronto. Between July 2018 and December 2019, Coinsquare inflated its trading volumes by reporting fake or "wash" trades representing over 90% of its reported trading volume.
5. Diamond, Coinsquare's CEO, directed that Coinsquare inflate its reported trading volumes. At Diamond's direction, Rostand, Coinsquare's founder and President, wrote the algorithm to inflate Coinsquare's trading volume.
6. Despite several Coinsquare employees raising concerns about inflated trading volumes, Coinsquare stuck with the practice. This tone from the top undermined the compliance culture at Coinsquare and contributed to:
(a) Coinsquare misleading clients and members of the public who raised suspicions that Coinsquare was reporting inflated trading volumes;
(b) Coinsquare concealing the inflated trading volumes from Staff; and
(c) Coinsquare taking a reprisal against an employee whistleblower for repeatedly raising concerns internally about Coinsquare inflating its reported trading volumes.
7. The parties shall jointly file a request that the Commission issue a Notice of Hearing (the Notice of Hearing) to announce that it will hold a hearing (Settlement Hearing) to consider whether, pursuant to sections 127 and 127.1 of the Securities Act, RSO 1990, c S.5 (the Act), it is in the public interest for the Commission to make certain orders against the Respondents.
8. Staff recommend settlement of the proceeding (the Proceeding) against the Respondents commenced by the Notice of Hearing, in accordance with the terms and conditions set out in Part VI of this Settlement Agreement. The Respondents consent to the making of an order (the Order) substantially in the form attached as Schedule "A" to this Settlement Agreement based on the facts set out herein.
9. For the purposes of the Proceeding, and any other regulatory proceeding commenced by a securities regulatory authority, the Respondents agree with the facts set out in Part III of this Settlement Agreement and the conclusions in Part V of this Settlement Agreement.
A. THE RESPONDENTS
10. Coinsquare{1} operates a crypto asset trading platform based in Toronto (the Coinsquare Platform) that facilitates the buying and selling of crypto assets, including bitcoin, litecoin and ether. The Coinsquare Platform opened to the public in late 2014. As of December 14, 2019, it had approximately 235,000 client accounts.
11. Rostand founded Coinsquare and developed the Coinsquare Platform. Rostand is Coinsquare's President and acted as Chief Technology Officer until January 2019, after which time he continued to be in charge of the technological aspects of the Coinsquare Platform.
12. Diamond is Coinsquare's Chief Executive Officer (CEO) and has been its de facto Chief Financial Officer since approximately January 2019.
13. Mazer held the title of Chief Compliance Officer (CCO) at Coinsquare from May 2018 to June 2020. In this role, Mazer reported directly to Diamond. Coinsquare is not registered with the Commission and Mazer is not registered in connection with his role as Coinsquare's CCO.
B. INFLATED TRADING VOLUMES
14. Coinsquare inflated the trading volumes on the Coinsquare Platform through reporting "wash" trades representing over 90% of its reported trading volume between July 2018 and December 2019. Diamond directed that Coinsquare engage in this activity and Rostand developed and implemented the algorithm that made it happen. Coinsquare misled clients about its trading volumes including when questioned about the suspicious trading activity. This took place while the Respondents were engaging with Staff for the purpose of registering a Coinsquare subsidiary, Coinsquare Capital Markets Ltd. (Coinsquare Capital Markets), and the Respondents concealed these activities from Staff.
(1) Chronology of Key Events
15. In February 2018, Coinsquare submitted its first request for support to the OSC LaunchPad. The request for support process is an opportunity for firms to discuss their business with the OSC LaunchPad team, obtain informal guidance and discuss potential next steps for registration and/or exemptive relief, if required. LaunchPad staff commenced a dialogue regarding Coinsquare's intention to obtain registration with the Commission to permit the Coinsquare Platform to trade securities and derivatives in Ontario.
16. Shortly after reaching out to OSC LaunchPad, in March 2018, Diamond began directing Rostand to significantly inflate Coinsquare's reported trading volumes. Diamond continued to follow up with Rostand until Rostand implemented a solution on July 17, 2018.
17. On that day, Rostand implemented an algorithm to inflate the trading volumes reported on the Coinsquare Platform (the Market Volume Function). The Market Volume Function created simultaneous matching buy and sell orders from an internal Coinsquare account designated with the user identification number 100001 (Account #100001) and resulted in Coinsquare reporting "wash trades".{2} These wash trades had no economic substance and involved no change in beneficial or legal ownership over any assets. No funds or financial interests were actually exchanged in these transactions.
18. Between July 17, 2018 and December 4, 2019, the Market Volume Function resulted in approximately 840,000 wash trades on the Coinsquare Platform, with an aggregate value of approximately 590,000 bitcoins. The wash trades represented over 90% of the trading volume on the Coinsquare Platform during this period.
19. Coinsquare reported the inflated volumes on its website and through its application programming interface (the Coinsquare API),{3} which was in turn used by third-party websites (e.g. CoinMarketCap.com) that aggregated information on crypto asset trading platforms (the Data Aggregators). The Data Aggregators report trading volumes and rank international crypto asset trading platforms based on their reported trading volumes. They were accessible by the public at large, including Coinsquare's existing and prospective shareholders and clients. As a result, the inflated trading volumes on the Coinsquare Platform were also reported to the public by the Data Aggregators.
20. Almost immediately after Coinsquare commenced reporting the inflated trading volumes, clients and members of the public started to identify the suspicious activity and raise questions about it. In response to these questions, Coinsquare made misleading statements, including in responses to posts on Reddit.com about the significant increase in reported trading volumes on the Coinsquare Platform.
21. One such instance arose from a July 21, 2018 post created on Reddit titled "Coinsquare Fake Volume". In the post, the author questioned the sudden increase in Coinsquare's reported trading volumes and speculated that the reported figures were false. Coinsquare responded to the post on July 23, 2018 through the "Coinsquare_Support" Reddit account and suggested that the increase in volume was the result of over-the-counter (OTC) trades and/or third-party trading bots on the Coinsquare Platform that Coinsquare was working to remove.
22. In response to another Reddit post about potential inflated trading volumes on the Coinsquare Platform, the "Coinsquare_Support" Reddit account stated unequivocally on August 29, 2018 that "[w]e do not fake our volume".
23. Several Coinsquare clients also raised concerns regarding the unusual trading activity directly with Coinsquare, including through emails. In its responses, Coinsquare failed to disclose the wash trades and inflated volume. Instead, Coinsquare suggested that the unusual activity could be the result of "robo traders" or large orders and telling clients that Coinsquare was looking into the issue or working on solutions.
24. Coinsquare's responses were misleading. Coinsquare and its senior management knew the increase in trading volumes was the result of Coinsquare inflating those volumes.
25. During this same period, Coinsquare responded to questions from Staff regarding market integrity on the Coinsquare Platform and failed to provide complete responses to these questions. Rather than self-reporting that it was inflating trading volumes, Coinsquare asserted that it was taking steps to prevent market manipulation and highlighted controls it claimed could help detect such conduct.
26. In early 2019, Coinsquare Capital Markets submitted applications for registration as an investment dealer and to operate an Alternative Trading System with the Commission and the Investment Industry Regulatory Organization of Canada (IIROC).
27. Coinsquare failed to disclose that it was engaging in wash trading to Staff, including during an on-site pre-registration review at Coinsquare's offices between March 15 and March 19, 2019.
28. Beginning in March 2019, several employees raised concerns with senior management about Coinsquare reporting inflated trading volumes. These employees included professionals concerned about how Coinsquare's conduct could impact their professional designations. Nonetheless, Coinsquare continued to inflate its reported trading volumes.
29. On December 3, 2019, Staff of the Enforcement Branch of the Commission (Enforcement Staff) attended the Coinsquare office for an unannounced on-site inspection.
30. The next day, Coinsquare turned off the Market Volume Function and stopped reporting the inflated trading volumes.
(2) Market Manipulation
31. As a result of the above, Coinsquare engaged in market manipulation contrary to the Ontario Securities Act.
32. While the Coinsquare Platform facilitated purchases and sales of crypto assets, in practice, clients did not take possession or control of crypto assets purchased on the Coinsquare Platform unless and until they requested a withdrawal from Coinsquare and it was only at this time that transactions were completed on the blockchain. Instead, the crypto assets purchased and sold on the Coinsquare Platform were held in crypto wallets Coinsquare controlled and transactions were recorded on Coinsquare's internal ledger. As a result, in the normal course, Coinsquare provided its clients with contractual rights or claims to these crypto assets rather than the crypto assets themselves. These contractual rights constituted securities and derivatives, whereas the crypto assets themselves constituted commodities and/or the underlying interests of derivatives.
33. By inflating the reported trading volumes on the Coinsquare Platform, Coinsquare engaged in a course of conduct that it knew or reasonably ought to have known resulted in or contributed to a misleading appearance of trading activity in a security, derivative and/or underlying interest of a derivative, contrary to paragraph 126.1(1)(a) of the Act.
(3) Misleading Investors
34. By reporting the inflated trading volumes on the Coinsquare Platform through the Coinsquare website and the Coinsquare API, Coinsquare falsely represented that this trading volume was an accurate reflection of the trading activity on the Coinsquare Platform. In doing so, Coinsquare made statements about its trading volumes that were untrue and omitted information necessary to prevent the statements from being false or misleading.
35. Furthermore, Coinsquare's false and misleading statements to existing and prospective clients of the Coinsquare Platform to conceal the inflated trading volumes misled these investors regarding the nature of the trading activities on the Coinsquare Platform.
36. The trading volume on a platform is a factor that a reasonable investor would consider relevant in deciding whether to enter into or maintain a trading relationship.
37. In light of the above, Coinsquare contravened subsection 44(2) of the Act. Diamond, and Rostand each authorized, permitted or acquiesced in Coinsquare's failure to comply with Ontario securities law, contrary to section 129.2 of the Act.
(4) Conduct Contrary to the Public Interest
38. Coinsquare, Diamond, and Rostand engaged in conduct contrary to the public interest as a result of the conduct set out above, including concealing the fact that Coinsquare was reporting inflated trading volumes from Staff.
C. REPRISAL AGAINST INTERNAL WHISTLEBLOWER
39. In addition to the conduct set out above, Coinsquare took a reprisal against an internal whistleblower (the Internal Whistleblower) for raising concerns regarding the inflated trading volumes to Coinsquare's senior management. Diamond authorized, permitted and/or acquiesced in the reprisal.
40. Coinsquare hired the Internal Whistleblower to work on its automated trading strategies team (the Automated Trading Team) in November 2018. This meant that the Internal Whistleblower was responsible for internal trading operations at Coinsquare and could be viewed as responsible for the wash trading.
41. The Internal Whistleblower learned about the Market Volume Function and between March 2019 and October 2019 reported his concerns with this practice to senior management, including Rostand and Diamond. Despite the Internal Whistleblower's complaints, Coinsquare continued to engage in the wash trading.
42. In March 2019, after learning that the OSC planned to conduct an on-site review as part of Coinsquare's pending application for registration, the Internal Whistleblower raised his concerns about the inflated trading volumes with Rostand, his immediate supervisor at the time, who in turn deactivated the Market Volume Function. However, within days, Rostand reversed course after Diamond learned it had been disabled and directed that Rostand turn it back on.
43. The Internal Whistleblower continued to escalate his concerns. However, the message he received back was that the issue was not open for further discussion. The Internal Whistleblower was told that Coinsquare planned to slowly decrease the volume of wash trading in the lead up to registration but that if he continued to raise these concerns it would impact his employment at Coinsquare.
44. In October 2019, two members of Coinsquare staff approached the Internal Whistleblower in an open area of the office and proceeded to ask the Internal Whistleblower questions about wash trades appearing in records to be produced to the OSC. Following this conversation, the Internal Whistleblower again reported his concerns regarding wash trading, this time to his new supervisor.
45. On October 21, 2019, the Internal Whistleblower sent a further email to Coinsquare senior management asking for the Automated Trading Team to be left out of any and all discussions regarding wash trading and expressing his deep discomfort with the practice. A few days later, the Internal Whistleblower notified Coinsquare that he was taking stress leave as a result of the stress he was experiencing from the "wash trading" and a recent inquiry from the OSC.
46. Coinsquare formally terminated the Internal Whistleblower's employment on December 3, 2019.
47. Coinsquare's response to the Internal Whistleblower providing information regarding the inflated trading volumes adversely affected the Internal Whistleblower's employment and constituted a prohibited reprisal contrary to section 121.5 of the Act.
48. Diamond authorized, permitted, and/or acquiesced in Coinsquare's failure to comply with Ontario securities law as set out above, contrary to section 129.2 of the Act.
D. FAILURE TO IMPLEMENT CONTROLS
49. In addition to the conduct described above, Coinsquare failed to implement appropriate controls to prevent other inappropriate trading practices.
(1) Non-Economic Trading (Market Maker Function)
50. Early in its operations, Coinsquare implemented a function to act as a market maker on the Coinsquare Platform (the Market Maker Function). The Market Maker Function operated to generate liquidity on the Coinsquare Platform by placing buy and sell orders from an internal Coinsquare account to match orders placed by Coinsquare's clients.
51. However, without appropriate controls in place, the Market Maker Function also caused certain orders from Coinsquare's internal accounts to match each other.
52. As a result, between December 2014 and December 2019, Coinsquare reported additional non-economic, internal trades valued at approximately 112,000 bitcoins. These trades had no economic substance and involved no change in beneficial or legal ownership over any assets.
(2) Misleading Orders (Market Bot Function)
53. In January 2017, Coinsquare implemented another function that also purported to serve a market making purpose on the Coinsquare Platform (the Market Bot Function). The Market Bot Function placed orders from an internal Coinsquare account to buy and sell the equivalent of approximately 57 million bitcoins up to December 2019.
54. However, these automated orders were priced outside a range likely to result in executed trades and automatically cancelled after three minutes, further reducing the chance that the orders would match with client orders. Coinsquare operated the Market Bot Function despite the fact that over 99% of the orders it generated never resulted in executed trades.
55. Between January 2017 and December 2019, the Market Bot Function resulted in Coinsquare placing more than 10.5 million of these orders, representing approximately 30% of all orders on the Coinsquare Platform during this period.
(3) Conclusion
56. Coinsquare's failure to implement adequate controls over trading activities as set out above was contrary to the public interest.
E. FAILURE TO FULFILL ROLE AS CHIEF COMPLIANCE OFFICER
57. The chief compliance officer of a registered firm is responsible for promoting a culture of compliance, overseeing the effectiveness of the firm's compliance system and assessing the firm's compliance with securities law. In carrying out these duties, a chief compliance officer "should be vigilant and ensure that all the employees and senior staff are aware of compliance issues within the firm and monitor compliance with regulatory requirements". The Commission has described the chief compliance officer role as "critical to securities law compliance oversight".
58. Mazer held the title of CCO at Coinsquare from May 2018 until his resignation in June 2020. Mazer was not acting in a registered capacity in connection with his role as Coinsquare's CCO but was held out as the CCO both within Coinsquare and to the general public.
59. Although Mazer was not the CCO of a registered firm, the public would reasonably expect that an employee with this title and held out as performing this role would generally fulfil the critical compliance responsibilities described above. Mazer failed to fulfill this critical compliance role at Coinsquare. Mazer learned about the wash trading in or around March 2019 and failed to take steps that a reasonable CCO would have taken in the circumstances. Mazer's conduct was contrary to the public interest.
F. MITIGATING FACTORS
60. The Respondents cooperated with Enforcement Staff's investigation, including by sharing the eDiscovery platform used by Coinsquare to facilitate document production at the outset of the investigation.
61. Diamond and Rostand had no experience in the capital markets or the securities industry prior to running Coinsquare.
62. The Respondents have no prior disciplinary record with any securities regulatory authority, including the Commission.
63. The Respondents sought to reach an early resolution of this matter, prior to the commencement of proceedings.
64. The Respondents request that the Settlement Hearing panel consider the following circumstances. Staff do not object to the Respondents putting forward the circumstances set out below.
65. During the relevant period, Coinsquare was a new company in the novel and fast-evolving crypto asset industry. The Respondents obtained legal advice that the crypto assets traded on the Coinsquare Platform were not subject to Ontario securities law. Until recently, the Respondents wrongly believed that the trading activity on the Coinsquare Platform was not subject to Ontario securities law.
66. The Market Volume Function did not affect the bid-ask spread and was not designed to impact the execution price that clients received on the Coinsquare Platform.
67. Coinsquare admits that its response to the Internal Whistleblower providing information regarding the inflated trading volumes adversely affected the Internal Whistleblower's employment and constituted a prohibited reprisal. Coinsquare was in active litigation with the Internal Whistleblower. Coinsquare's position is that it did not terminate the Internal Whistleblower's employment as a reprisal in response to the Internal Whistleblower providing information regarding the inflated trading volumes.
68. Coinsquare discontinued the Market Volume Function in December 2019 and has enhanced its internal controls by developing a new automated trading program that prevents the opportunity to create inflated trading volumes.
69. Coinsquare's independent director was not aware of the Market Volume Function and the resulting inflation of trading volumes, the reprisal against the Internal Whistleblower and the failure to implement controls until December 2019, after Enforcement Staff commenced its investigation. At no time did the independent director authorize, permit or acquiesce in such conduct.
70. By engaging in the conduct described above, the Respondents acknowledge and admit the following:
(a) Coinsquare engaged in a course of conduct that it knew or reasonably ought to have known resulted in or contributed to a misleading appearance of trading activity in a security, derivative and underlying interest of a derivative, contrary to paragraph 126.1(1)(a) of the Act;
(b) Coinsquare made statements about matters that a reasonable investor would consider relevant in deciding whether to enter into or maintain a trading relationship with Coinsquare which were untrue or omitted information necessary to prevent the statements from being false or misleading in the circumstances in which they were made, contrary to subsection 44(2) of the Act;
(c) Diamond and Rostand as officers and/or directors of Coinsquare, authorized, permitted or acquiesced in Coinsquare's failure to comply with subsection 44(2) of the Act, contrary to section 129.2 of the Act;
(d) Coinsquare took a reprisal against an employee of Coinsquare because the employee provided information to Coinsquare and its senior management about acts of Coinsquare and its senior management that have occurred, and that the employee reasonably believed were contrary to Ontario securities law, contrary to section 121.5 of the Act;
(e) Diamond, as an officer and/or director of Coinsquare, authorized, permitted or acquiesced in Coinsquare's failure to comply with paragraph 121.5 of the Act, contrary to section 129.2 of the Act; and
(f) Coinsquare, Diamond, Rostand and Mazer acted in a manner contrary to the public interest.
71. The Respondents agree to the terms of settlement set forth below.
72. The Respondents consent to the Order, pursuant to which it is ordered that:
(a) this Settlement Agreement be approved;
(b) Coinsquare shall pay costs in the amount of $200,000 by wire transfer to the Commission before the commencement of the Settlement Hearing, pursuant to section 127.1 of the Act;
(c) Diamond shall:
(i) resign any position that he holds as a director or officer of an issuer, pursuant to paragraph 7 of subsection 127(1) of the Act, subject to the following exception:
A. Diamond may continue to act as a director or officer of a private issuer as defined in section 2.4 of National Instrument 45-106 Prospectus Exemptions (NI 45-106) that is not affiliated with Coinsquare and is not a market participant;
(ii) be prohibited from becoming or acting as a director or officer of any issuer for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8 of subsection 127(1) of the Act, subject to the following exceptions:
A. Diamond may become or act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare and is not a market participant, and
B. after 1 year from the date of the Order, Diamond may become or act as a director or officer of Coinsquare and/or affiliated issuers, other than Coinsquare Capital Markets, provided that Coinsquare and/or the affiliated issuer is not a market participant and that Diamond is not is involved in the mind, management and control of a market participant or the supervision of any person exercising such authority or influence;
(iii) be prohibited from becoming or acting as a director or officer of a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Diamond shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
A. proposing, nominating and appointing new officers,
B. participating in any meeting of the board of directors (the Board) or any committee of the Board,
C. providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
D. having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
E. hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
F. participating in any decisions with or attempt in any way to influence management or the Board of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Diamond's individual filing requirements,
G. marketing the services of the registrant to clients or potential clients,
H. playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
I. playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
J. supervising any person performing any of the above enumerated activities, and
K. nothing in paragraph 72(c)(iii) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Diamond where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the Board maintains a record of all the requests and information received;
(iv) be prohibited from becoming or acting as a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act;
(v) pay an administrative penalty in the amount of $1,000,000 by wire transfer to the Commission before the commencement of the Settlement Hearing, pursuant to paragraph 9 of subsection 127(1) of the Act, which amount be designated for allocation or use by the Commission in accordance with subparagraph 3.4(2)(b)(i) or (ii) of the Act; and
(vi) pay costs in the amount of $50,000 by wire transfer to the Commission before the commencement of the Settlement Hearing, pursuant to section 127.1 of the Act.
(d) Rostand shall:
(i) resign any position that he holds as a director or officer of an issuer, pursuant to paragraph 7 of subsection 127(1) of the Act, subject to the following exception:
A. Rostand may continue to act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare and is not a market participant;
(ii) be prohibited from becoming or acting as a director or officer of any issuer for a period of 2 years commencing on the date of the Order, pursuant to paragraph 8 of subsection 127(1) of the Act, subject to the following exceptions:
A. Rostand may become or act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare and is not a market participant, and
B. after 1 year from the date of the Order, Rostand may become or act as a director or officer of Coinsquare and/or affiliated issuers, other than Coinsquare Capital Markets, provided that Coinsquare and/or the affiliated issuer is not a market participant and that Rostand is not involved in the mind, management and control of a market participant or the supervision of any person exercising such authority or influence;
(iii) be prohibited from becoming or acting as a director or officer of a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Rostand shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
A. proposing, nominating and appointing new officers,
B. participating in any meeting of the Board or any committee of the Board,
C. providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
D. having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
E. hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
F. participating in any decisions with or attempt in any way to influence management or the Board of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Rostand's individual filing requirements,
G. marketing the services of the registrant to clients or potential clients,
H. playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
I. playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
J. supervising any person performing any of the above enumerated activities, and
K. nothing in paragraph 72(d)(iii) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided that the Board maintain a record of all the requests and information received;
(iv) be prohibited from becoming or acting as a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act;
(v) pay an administrative penalty in the amount of $900,000 by wire transfer to the Commission before the commencement of the Settlement Hearing, pursuant to paragraph 9 of subsection 127(1) of the Act, which amount be designated for allocation or use by the Commission in accordance with subparagraph 3.4(2)(b)(i) or (ii) of the Act; and
(vi) pay costs in the amount of $50,000 by wire transfer to the Commission before the commencement of the Settlement Hearing, pursuant to section 127.1 of the Act.
(e) Mazer shall:
(i) be prohibited from becoming or acting as a director or officer of a registrant for a period of 1 year commencing on the date of the Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Mazer shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
A. proposing, nominating and appointing new officers,
B. participating in any meeting of the Board or any committee of the Board,
C. providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
D. having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
E. hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
F. participating in any decisions with or attempt in any way to influence management or the Board of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Mazer's individual filing requirements,
G. marketing the services of the registrant to clients or potential clients,
H. playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
I. playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
J. supervising any person performing any of the above enumerated activities, and
K. nothing in paragraph 72(e)(i) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Mazer where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the Board maintains a record of all the requests and information received.
(ii) be prohibited from becoming or acting as a registrant for a period of 1 year commencing on the date of the Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act.
73. Mazer further agrees to make a voluntary payment in the amount of $50,000 by wire transfer to the Commission before the commence of the Settlement Hearing, which amount be designated for allocation or use by the Commission in accordance with subparagraph 3.4(2)(b)(i) or (ii) of the Act.
74. The Respondents acknowledge that this Settlement Agreement and the Order may form the basis for orders of parallel effect in other jurisdictions in Canada. The securities laws of some other Canadian jurisdictions allow orders made in this matter to take effect in those other jurisdictions automatically, without further notice to the Respondents. The Respondents should contact the securities regulator of any other jurisdiction in which the Respondents intend to engage in any securities- or derivatives-related activities, prior to undertaking such activities.
75. Coinsquare and Coinsquare Capital Markets have both given an undertaking (the Undertaking) to the Commission in the form attached as Schedule "B" to this Settlement Agreement, under which Coinsquare and Coinsquare Capital Markets undertake to do the following:
(a) within 45 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) create and permanently maintain an independent Board that meets the following terms and conditions:
A. the Board shall be comprised of more than 50% independent directors,
B. the Chair of the Board shall be an independent director,{4}
C. the quorum for the Board shall consist of a majority of the Board members, with at least 50% of the majority being independent directors,
D. for the purposes of this undertaking, an individual is an independent director if the individual is "independent" within the meaning of section 1.4 of National Instrument 52-110 Audit Committees, as amended from time to time, but is not independent if the individual:
I. is a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets, or a partner, officer or employee of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer or employee,
II. is a shareholder, partner, officer, director or employee of an affiliated entity of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer, director or employee,
III. is a shareholder, partner, officer, director or employee of a person or company that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets,
IV. is a client or marketplace participant of Coinsquare Capital Markets or is a shareholder, partner, officer, director or employee of a client or marketplace participant of Coinsquare Capital Markets who is responsible for or is actively engaged in the day-to-day operations or activities of that Coinsquare Capital Markets client or marketplace participant,
V. is a director that was nominated, and as a result appointed or elected, by a founding shareholder or launch shareholder, or
VI. has, or has had, any relationship with a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets that could, in the view of the Board, having regard to all relevant circumstances, be reasonably perceived to interfere with the exercise of his or her independent judgment as a director of Coinsquare or Coinsquare Capital Markets;
(ii) create and permanently maintain a whistleblower program that contains reporting channels that are independent, broadly communicated and accessible (the Internal Whistleblower Program) and meets the following terms and conditions:
A. the Internal Whistleblower Program reports directly to an independent committee of the Board (the Independent Board Committee),
B. the Internal Whistleblower Program shall include protections from reprisal and mechanisms for anonymous reporting,
C. the Independent Board Committee shall exercise oversight of the Internal Whistleblower Program and ensure that information being submitted is properly investigated and resolved, and
D. the Independent Board Committee shall ensure that information received from the Internal Whistleblower Program is reported to the Commission, a recognized self-regulatory organization or law enforcement agency where appropriate or otherwise required by law; and
(iii) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 75(a)(i) or (ii) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure;
(b) within 90 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, the Board of Coinsquare and Coinsquare Capital Markets shall each:
(i) appoint a CEO; and
(ii) appoint a CCO;
(c) within 15 days of the appointment of the CEO and CCO, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) submit an attestation, in a format acceptable to Staff and signed by the CEO and CCO, attesting to the fact that, from the date of their appointment, the CEO and CCO have and will continue to:
A. supervise the activities of the firm that are directed towards ensuring compliance with Ontario securities law by the firm and each individual acting on the firm's behalf, and
B. promote and require compliance by the firm, and individuals acting on its behalf, with Ontario securities law; and
(ii) submit an attestation, in a format acceptable to Staff and signed by the CCO, attesting to the fact that, from the date of the CCO's appointment, the CCO has and will continue to:
A. establish and maintain policies and procedures designed to monitor and assess compliance by the firm, and individuals acting on its behalf, with Ontario securities law,
B. monitor and assess compliance by the firm, and the individuals acting on its behalf, with Ontario securities law,
C. immediately report to the CEO of the firm if the CCO becomes aware of any circumstances indicating that the firm, or any individual acting on its behalf, may be in non-compliance with Ontario securities law, and
D. submit an annual report to the firm's Board for the purpose of assessing compliance by the firm, and individuals acting on its behalf, with Ontario securities law;
(d) after Coinsquare and Coinsquare Capital Markets have complied with the above and within 105 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare Capital Markets shall:
(i) resubmit complete and updated applications for registration as an investment dealer and to operate a marketplace with the Commission, including a complete and accurate Form 21-101F2 Information Statement Alternative Trading System, and for membership with IIROC;
(ii) submit a report from Coinsquare and Coinsquare Capital Market's Board that includes in a manner acceptable to Staff:
A. a description of the steps taken to ensure the fitness of its directors, officers and any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets and the policies and procedures designed to ensure continued fitness with respect to the operation of the Coinsquare Platform with integrity,
B. a description of the controls it has implemented or the steps it has taken to address the matters giving rise to the Settlement Agreement,
C. confirmation that it is the view of each Board that the directors and officers will perform their duties with integrity and in a manner consistent with the public interest, and
D. confirmation that each Board will take reasonable steps to ensure that any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets is a fit and proper person and that past conduct of each person or company affords reasonable grounds for the belief that the business of the Coinsquare Platform will be conducted with integrity;
(e) for three years from the date of the approval of this Settlement Agreement by the Commission, Coinsquare Capital Markets and any affiliated companies carrying on activities that require registration under Ontario securities law (the Coinsquare Affiliates) shall not permit Diamond or Rostand to perform functions similar to those normally performed by an officer or director, including:
(i) proposing, nominating and appointing new officers;
(ii) participating in any meeting of the Board or any committee of the Board;
(iii) providing instructions or directions to management of Coinsquare or Coinsquare Capital Markets or to any legal or financial advisors on behalf of Coinsquare or Coinsquare Capital Markets;
(iv) having signing authority for Coinsquare or Coinsquare Capital Markets, including signing authority over any bank or other accounts of Coinsquare or Coinsquare Capital Markets;
(v) hiring, supervising or terminating staff of Coinsquare or Coinsquare Capital Markets or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation;
(vi) participating in any decisions with or attempt in any way to influence management or the Board of Coinsquare or Coinsquare Capital Markets, or make any recommendations in relation to decisions: (a) affecting the compliance by Coinsquare or Coinsquare Capital Markets with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by Coinsquare or Coinsquare Capital Markets under Ontario securities law, except as required by law in respect of Diamond and/or Rostand's individual filing requirements;
(vii) marketing the services of the registrant to clients or potential clients;
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of Coinsquare or Coinsquare Capital Markets;
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of Coinsquare or Coinsquare Capital Markets;
(x) supervising any person performing any of the above enumerated activities; and
(xi) nothing in paragraph 75(e) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Diamond and/or Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the Board maintains a record of all the requests and information received;
(f) Coinsquare and Coinsquare Capital Markets shall establish, maintain and require compliance with policies and procedures reasonably designed to ensure compliance with paragraph 75(e) above, including compliance by all directors, officers and employees of Coinsquare and Coinsquare Capital Markets; and
(g) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 75(e) or (f) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure.
76. This Settlement Agreement, as well as any failure to satisfy the terms of the Settlement Agreement, including the Undertaking, may be considered as a factor relevant to suitability for registration in any application for registration by any of the Respondents or affiliated companies.
77. If the Commission approves this Settlement Agreement, Staff will not commence or continue any proceeding against the Respondents under Ontario securities law in relation to the facts set out in Part III of this Settlement Agreement, unless one or all of the Respondents fail to comply with any term in this Settlement Agreement (including the Undertaking), in which case Staff may bring proceedings under Ontario securities law against that or those Respondents that may be based on, among other things, the facts set out in Part III of this Settlement Agreement as well as the breach of this Settlement Agreement.
78. The Respondents acknowledge that, if the Commission approves this Settlement Agreement and any of the Respondents fail to comply with any term in it, Staff or the Commission, as the case may be, is entitled to bring any proceedings necessary to enforce compliance with the terms of the Settlement Agreement.
79. The Respondents waive any defences to a proceeding referenced in paragraph 77 or 78 that are based on the limitation period in the Act, provided that no such proceeding shall be commenced later than six years from the date of the occurrence of the last failure to comply with this Settlement Agreement.
80. The parties will seek approval of this Settlement Agreement at the Settlement Hearing before the Commission, which shall be held on a date determined by the Secretary to the Commission in accordance with this Settlement Agreement and the Commission's Rules of Procedure (2019), 42 O.S.C.B. 9714.
81. The parties confirm that this Settlement Agreement sets forth all of the agreed facts that will be submitted at the Settlement Hearing, unless the parties agree that additional facts should be submitted at the Settlement Hearing.
82. If the Commission approves this Settlement Agreement:
(a) the Respondents irrevocably waive all rights to a full hearing, judicial review or appeal of this matter under the Act; and
(b) neither Staff nor the Respondents will make any public statement that is inconsistent with this Settlement Agreement or with any additional agreed facts submitted at the Settlement Hearing.
83. Whether or not the Commission approves this Settlement Agreement, the Respondents will not use, in any proceeding, this Settlement Agreement or the negotiation or process of approval of this Settlement Agreement as the basis for any attack on the Commission's jurisdiction, alleged bias, alleged unfairness or any other remedies or challenges that may be available.
84. If the Commission does not make the Order or an order substantially in the form attached as Schedule "A" to this Settlement Agreement:
(a) this Settlement Agreement and all discussions and negotiations between Staff and the Respondents before the Settlement Hearing will be without prejudice to Staff and the Respondents; and
(b) Staff and the Respondents will each be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing on the merits of the allegations contained in the Statement of Allegations in respect of the Proceeding. Any such proceedings, remedies and challenges will not be affected by this Settlement Agreement, or by any discussions or negotiations relating to this Settlement Agreement.
85. The parties will keep the terms of this Settlement Agreement confidential until the Settlement Hearing, unless they agree in writing not to do so or unless otherwise required by law.
86. This Settlement Agreement may be signed in one or more counterparts which together constitute a binding agreement.
87. A facsimile copy or other electronic copy of any signature will be as effective as an original signature.
DATED at Toronto, Ontario this 16th day of July, 2020.
"Lewis Bateman" |
"Cole Diamond" |
____________________ |
____________________ |
Witness: Lewis Bateman |
COLE DIAMOND |
"Karine Roy-Loubier" |
"Virgile Rostand" |
____________________ |
____________________ |
Witness: Karine Roy-Loubier |
VIRGILE ROSTAND |
"James Smith" |
"Felix Mazer" |
____________________ |
____________________ |
Witness: James Smith |
FELIX MAZER |
COINSQUARE LTD. |
|
By: |
"Jason Theofilos" |
Name: Jason Theofilos |
|
Title: Director |
|
DATED at Toronto, Ontario this 16th day of July, 2020.
ONTARIO SECURITIES COMMISSION |
|
By: |
"Jeff Kehoe" |
____________________ |
|
Name: Jeff Kehoe |
|
Title: Director, Enforcement Branch |
|
{1} However, where this provision conflicts with applicable regulatory requirements, Staff may permit Coinsquare Capital Markets to implement an alternative that is acceptable to Staff.
{1} Formerly goNumerical Ltd. The company name was changed to Coinsquare Ltd. in September 2018.
{2} The account numbers associated with the trades were never made visible on the Coinsquare Platform. As a result, Coinsquare's clients could not see that the trades originated from orders from the same account or that the orders came from an internal Coinsquare account.
{3} At its most basic, an API is an intermediary that allows two applications to interact with each other.
{4} However, where this provision conflicts with applicable regulatory requirements, Staff may permit Coinsquare Capital Markets to implement an alternative that is acceptable to Staff.
File No.: 2020-21
[Day and date Order made]
WHEREAS on July 21, 2020, the Ontario Securities Commission (the Commission) held a hearing by video conference to consider the request made jointly by Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand) and Felix Mazer (Mazer) (collectively, the Respondents) and Staff (Staff) of the Commission (Commission) for approval of a settlement agreement dated July 16, 2020 (the Settlement Agreement).
AND WHEREAS Coinsquare and its subsidiary Coinsquare Capital Markets Ltd. have both given an undertaking to the Commission, in the form attached as Annex I to this Order (the Undertaking).
ON READING the Joint Application for a Settlement Hearing, including the Statement of Allegations dated July 16, 2020 and the Settlement Agreement, and on hearing the submissions of the representatives of each of the parties, appearing by video conference, and on considering the Undertaking and Mazer having made a voluntary payment of $50,000 to the Commission,
IT IS ORDERED THAT:
1. this Settlement Agreement is approved;
2. Coinsquare shall pay costs in the amount of $200,000, pursuant to section 127.1 of the Securities Act, RSO 1990, c S.5 (the Act);
3. Diamond shall:
(a) resign any position that he holds as a director or officer of an issuer, pursuant to paragraph 7 of subsection 127(1) of the Act, subject to the following exception:
(i) Diamond may continue to act as a director or officer of a private issuer as defined in section 2.4 of National Instrument 45-106 Prospectus Exemptions (NI 45-106) that is not affiliated with Coinsquare Ltd. and is not a market participant;
(b) be prohibited from becoming or acting as a director or officer of any issuer for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8 of subsection 127(1) of the Act, subject to the following exceptions:
(i) Diamond may become or act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare Ltd. and is not a market participant, and
(ii) after 1 year from the date of the Order, Diamond may become or act as a director or officer of Coinsquare Ltd. and/or affiliated issuers, other than Coinsquare Capital Markets Ltd., provided that Coinsquare Ltd. and/or the affiliated issuer is not a market participant and that Diamond is not is involved in the mind, management and control of a market participant or the supervision of any person exercising such authority or influence;
(c) be prohibited from becoming or acting as a director or officer of a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Diamond shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
(i) proposing, nominating and appointing new officers,
(ii) participating in any meeting of the board of directors or any committee of the board of directors,
(iii) providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
(iv) having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
(v) hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
(vi) participating in any decisions with or attempt in any way to influence management or the board of directors of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Diamond's individual filing requirements,
(vii) marketing the services of the registrant to clients or potential clients,
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
(x) supervising any person performing any of the above enumerated activities, and
(xi) nothing in paragraph 3(c) is intended to restrict the ability of Coinsquare Ltd. or Coinsquare Capital Markets Ltd.' board of directors to request and receive information from Diamond where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the board of directors maintains a record of all the requests and information received;
(d) be prohibited from becoming or acting as a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act;
(e) pay an administrative penalty in the amount of $1,000,000, pursuant to paragraph 9 of subsection 127(1) of the Act, which amount is designated for allocation or use by the Commission in accordance with subparagraph 3.4(2)(b)(i) or (ii) of the Act; and
(f) pay costs in the amount of $50,000, pursuant to section 127.1 of the Act.
4. Rostand shall:
(a) resign any position that he holds as a director or officer of an issuer, pursuant to paragraph 7 of subsection 127(1) of the Act, with the following exception:
(i) Rostand may continue to act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare Ltd. and is not a market participant;
(b) be prohibited from becoming or acting as a director or officer of any issuer for a period of 2 years commencing on the date of the Order, pursuant to paragraph 8 of subsection 127(1) of the Act, subject to the following exception:
(i) Rostand may become or act as a director or officer of a private issuer as defined in section 2.4 of NI 45-106 that is not affiliated with Coinsquare Ltd. and is not a market participant, and
(ii) after 1 year from the date of the Order, Rostand may become or act as a director or officer of Coinsquare Ltd. and/or affiliated issuers, other than Coinsquare Capital Markets Ltd., provided that Coinsquare Ltd. and/or the affiliated issuer is not a market participant and that Rostand is not involved in the mind, management and control of a market participant or the supervision of any person exercising such authority or influence;
(c) be prohibited from becoming or acting as a director or officer of a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Rostand shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
(i) proposing, nominating and appointing new officers,
(ii) participating in any meeting of the board of directors or any committee of the board of directors,
(iii) providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
(iv) having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
(v) hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
(vi) participating in any decisions with or attempt in any way to influence management or the board of directors of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Rostand's individual filing requirements,
(vii) marketing the services of the registrant to clients or potential clients,
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
(x) supervising any person performing any of the above enumerated activities, and
(xi) nothing in paragraph 4(c) is intended to restrict the ability of Coinsquare Ltd. or Coinsquare Capital Markets Ltd.'s board of directors to request and receive information from Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the board of directors maintain a record of all the requests and information received;
(d) be prohibited from becoming or acting as a registrant for a period of 3 years commencing on the date of the Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act;
(e) pay an administrative penalty in the amount of $900,000, pursuant to paragraph 9 of subsection 127(1) of the Act, which amount is designated for allocation or use by the Commission in accordance with subparagraph 3.4(2)(b)(i) or (ii) of the Act; and
(f) pay costs in the amount of $50,000, pursuant to section 127.1 of the Act.
5. Mazer shall:
(a) be prohibited from becoming or acting as a director or officer of a registrant for a period of 1 year commencing on the date of the Order, pursuant to paragraph 8.2 of subsection 127(1) of the Act, and for greater certainty, Mazer shall not perform functions similar to those normally performed by an officer or director of a registrant, including:
(i) proposing, nominating and appointing new officers,
(ii) participating in any meeting of the board of directors or any committee of the board of directors,
(iii) providing instructions or directions to management or to any legal or financial advisors on behalf of the registrant,
(iv) having signing authority for the registrant, including signing authority over any bank or other accounts of the registrant,
(v) hiring, supervising or terminating staff of the registrant or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation,
(vi) participating in any decisions with or attempt in any way to influence management or the board of directors of the registrant, or make any recommendations in relation to decisions: (a) affecting the compliance by the registrant with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by the registrant under Ontario securities law, except as required by law in respect of Mazer's individual filing requirements,
(vii) marketing the services of the registrant to clients or potential clients,
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of the registrant,
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of the registrant,
(x) supervising any person performing any of the above enumerated activities, and
(xi) nothing in paragraph 5(a) is intended to restrict the ability of Coinsquare Ltd. or Coinsquare Capital Markets Ltd.'s board of directors to request and receive information from Mazer where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the board of directors maintains a record of all the requests and information received; and
(b) be prohibited from becoming or acting as a registrant for a period of 1 year commencing on the date of the Order, pursuant to paragraph 8.5 of subsection 127(1) of the Act.
6. the voluntary payment of $50,000 made by Mazer is designated for allocation or use by the Commission in accordance with subparagraph 3.4(2)(b)(i) or (ii) of the Act.
____________________ |
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[Chair of the Panel] |
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____________________ |
____________________ |
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[Commissioner] |
[Commissioner] |
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1. This Undertaking is given in connection with the settlement agreement dated July 16, 2020 (the Settlement Agreement) between Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand), Felix Mazer and Staff ("Staff") of the Ontario Securities Commission (the "Commission"). All terms shall have the same meanings in this Undertaking as in the Settlement Agreement.
2. Coinsquare and Coinsquare Capital Markets Ltd. (Coinsquare Capital Markets) undertake to do the following:
(a) within 45 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) create and permanently maintain an independent board of directors (the Board) that meets the following terms and conditions:
A. the Board shall be comprised of more than 50% independent directors,
B. the Chair of the Board shall be an independent director,{5}
C. the quorum for the Board shall consist of a majority of the Board members, with at least 50% of the majority being independent directors,
D. for the purposes of this undertaking, an individual is an independent director if the individual is "independent" within the meaning of section 1.4 of National Instrument 52-110 Audit Committees, as amended from time to time, but is not independent if the individual:
I. is a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets, or a partner, officer or employee of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer or employee,
II. is a shareholder, partner, officer, director or employee of an affiliated entity of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer, director or employee,
III. is a shareholder, partner, officer, director or employee of a person or company that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets,
IV. is a client or marketplace participant of Coinsquare Capital Markets or is a shareholder, partner, officer, director or employee of a client or marketplace participant of Coinsquare Capital Markets who is responsible for or is actively engaged in the day-to-day operations or activities of that Coinsquare Capital Markets client or marketplace participant,
V. is a director that was nominated, and as a result appointed or elected, by a founding shareholder or launch shareholder, or
VI. has, or has had, any relationship with a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets that could, in the view of the Board, having regard to all relevant circumstances, be reasonably perceived to interfere with the exercise of his or her independent judgment as a director of Coinsquare or Coinsquare Capital Markets;
(ii) create and permanently maintain a whistleblower program that contains reporting channels that are independent, broadly communicated and accessible (the Internal Whistleblower Program) and meets the following terms and conditions:
A. the Internal Whistleblower Program reports directly to an independent committee of the Board (the Independent Board Committee),
B. the Internal Whistleblower Program shall include protections from reprisal and mechanisms for anonymous reporting,
C. the Independent Board Committee shall exercise oversight of the Internal Whistleblower Program and ensure that information being submitted is properly investigated and resolved, and
D. the Independent Board Committee shall ensure that information received from the Internal Whistleblower Program is reported to the Commission, a recognized self-regulatory organization or law enforcement agency where appropriate or otherwise required by law; and
(iii) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 2(a)(i) or (ii) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure;
(b) within 90 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, the Board of Coinsquare and Coinsquare Capital Markets shall each:
(i) appoint a Chief Executive Officer (CEO); and
(ii) appoint a Chief Compliance Officer (CCO);
(c) within 15 days of the appointment of the CEO and CCO, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) submit an attestation, in a format acceptable to Staff and signed by the CEO and CCO, attesting to the fact that, from the date of their appointment, the CEO and CCO have and will continue to:
A. supervise the activities of the firm that are directed towards ensuring compliance with Ontario securities law by the firm and each individual acting on the firm's behalf, and
B. promote and require compliance by the firm, and individuals acting on its behalf, with Ontario securities law; and
(ii) submit an attestation, in a format acceptable to Staff and signed by the CCO, attesting to the fact that, from the date of the CCO's appointment, the CCO has and will continue to:
A. establish and maintain policies and procedures designed to monitor and assess compliance by the firm, and individuals acting on its behalf, with Ontario securities law,
B. monitor and assess compliance by the firm, and the individuals acting on its behalf, with Ontario securities law,
C. immediately report to the CEO of the firm if the CCO becomes aware of any circumstances indicating that the firm, or any individual acting on its behalf, may be in non-compliance with Ontario securities law, and
D. submit an annual report to the firm's Board for the purpose of assessing compliance by the firm, and individuals acting on its behalf, with Ontario securities law;
(d) after Coinsquare and Coinsquare Capital Markets have complied with the above and within 105 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare Capital Markets shall:
(i) resubmit complete and updated applications for registration as an investment dealer and to operate a marketplace with the Commission, including a complete and accurate Form 21-101F2 Information Statement Alternative Trading System, and for membership with IIROC;
(ii) submit a report from Coinsquare and Coinsquare Capital Market's Board that includes in a manner acceptable to Staff:
A. a description of the steps taken to ensure the fitness of its directors, officers and any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets and the policies and procedures designed to ensure continued fitness with respect to the operation of the Coinsquare Platform with integrity,
B. a description of the controls it has implemented or the steps it has taken to address the matters giving rise to the Settlement Agreement,
C. confirmation that it is the view of each Board that the directors and officers will perform their duties with integrity and in a manner consistent with the public interest, and
D. confirmation that each Board will take reasonable steps to ensure that any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets is a fit and proper person and that past conduct of each person or company affords reasonable grounds for the belief that the business of the Coinsquare Platform will be conducted with integrity;
(e) for three years from the date of the approval of this Settlement Agreement by the Commission, Coinsquare Capital Markets and any affiliated companies carrying on activities that require registration under Ontario securities law (the Coinsquare Affiliates) shall not permit Diamond or Rostand to perform functions similar to those normally performed by an officer or director, including:
(i) proposing, nominating and appointing new officers;
(ii) participating in any meeting of the Board or any committee of the Board;
(iii) providing instructions or directions to management of Coinsquare or Coinsquare Capital Markets or to any legal or financial advisors on behalf of Coinsquare or Coinsquare Capital Markets;
(iv) having signing authority for Coinsquare or Coinsquare Capital Markets, including signing authority over any bank or other accounts of Coinsquare or Coinsquare Capital Markets;
(v) hiring, supervising or terminating staff of Coinsquare or Coinsquare Capital Markets or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation;
(vi) participating in any decisions with or attempt in any way to influence management or the Board of Coinsquare or Coinsquare Capital Markets, or make any recommendations in relation to decisions: (a) affecting the compliance by Coinsquare or Coinsquare Capital Markets with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by Coinsquare or Coinsquare Capital Markets under Ontario securities law, except as required by law in respect of Diamond and/or Rostand's individual filing requirements;
(vii) marketing the services of the registrant to clients or potential clients;
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of Coinsquare or Coinsquare Capital Markets;
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of Coinsquare or Coinsquare Capital Markets;
(x) supervising any person performing any of the above enumerated activities; and
(xi) nothing in paragraph 2(e) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Diamond and/or Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the Board maintains a record of all the requests and information received;
(f) Coinsquare and Coinsquare Capital Markets shall establish, maintain and require compliance with policies and procedures reasonably designed to ensure compliance with paragraph 2(e) above, including compliance by all directors, officers and employees of Coinsquare and Coinsquare Capital Markets; and
(g) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 2(e) or (f) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure.
DATED at Toronto, Ontario this 16th day of July, 2020.
COINSQUARE LTD. |
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By: |
"Jason Theofilos" |
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____________________ |
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Name: |
Jason Theofilos |
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Title: |
Director |
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DATED at Toronto, Ontario this 16th day of July, 2020.
COINSQUARE CAPITAL MARKETS LTD. |
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By: |
"Jason Theofilos" |
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____________________ |
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Name: |
Jason Theofilos |
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Title: |
Authorized Signatory |
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{5} However, where this provision conflicts with applicable regulatory requirements, Staff may permit Coinsquare Capital Markets to implement an alternative that is acceptable to Staff.
1. This Undertaking is given in connection with the settlement agreement dated July 16, 2020 (the Settlement Agreement) between Coinsquare Ltd. (Coinsquare), Cole Diamond (Diamond), Virgile Rostand (Rostand), Felix Mazer and Staff ("Staff") of the Ontario Securities Commission (the "Commission"). All terms shall have the same meanings in this Undertaking as in the Settlement Agreement.
2. Coinsquare and Coinsquare Capital Markets Ltd. (Coinsquare Capital Markets) undertake to do the following:
(a) within 45 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) create and permanently maintain an independent board of directors (the Board) that meets the following terms and conditions:
A. the Board shall be comprised of more than 50% independent directors,
B. the Chair of the Board shall be an independent director,{6}
C. the quorum for the Board shall consist of a majority of the Board members, with at least 50% of the majority being independent directors,
D. for the purposes of this undertaking, an individual is an independent director if the individual is "independent" within the meaning of section 1.4 of National Instrument 52-110 Audit Committees, as amended from time to time, but is not independent if the individual:
I. is a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets, or a partner, officer or employee of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer or employee,
II. is a shareholder, partner, officer, director or employee of an affiliated entity of Coinsquare or Coinsquare Capital Markets or an associate of that shareholder, partner, officer, director or employee,
III. is a shareholder, partner, officer, director or employee of a person or company that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets,
IV. is a client or marketplace participant of Coinsquare Capital Markets or is a shareholder, partner, officer, director or employee of a client or marketplace participant of Coinsquare Capital Markets who is responsible for or is actively engaged in the day-to-day operations or activities of that Coinsquare Capital Markets client or marketplace participant,
V. is a director that was nominated, and as a result appointed or elected, by a founding shareholder or launch shareholder, or
VI. has, or has had, any relationship with a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or Coinsquare Capital Markets that could, in the view of the Board, having regard to all relevant circumstances, be reasonably perceived to interfere with the exercise of his or her independent judgment as a director of Coinsquare or Coinsquare Capital Markets;
(ii) create and permanently maintain a whistleblower program that contains reporting channels that are independent, broadly communicated and accessible (the Internal Whistleblower Program) and meets the following terms and conditions:
A. the Internal Whistleblower Program reports directly to an independent committee of the Board (the Independent Board Committee),
B. the Internal Whistleblower Program shall include protections from reprisal and mechanisms for anonymous reporting,
C. the Independent Board Committee shall exercise oversight of the Internal Whistleblower Program and ensure that information being submitted is properly investigated and resolved, and
D. the Independent Board Committee shall ensure that information received from the Internal Whistleblower Program is reported to the Commission, a recognized self-regulatory organization or law enforcement agency where appropriate or otherwise required by law; and
(iii) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 2(a)(i) or (ii) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure;
(b) within 90 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, the Board of Coinsquare and Coinsquare Capital Markets shall each:
(i) appoint a Chief Executive Officer (CEO); and
(ii) appoint a Chief Compliance Officer (CCO);
(c) within 15 days of the appointment of the CEO and CCO, unless an alternative timeline is agreed to by Staff, Coinsquare and Coinsquare Capital Markets shall each:
(i) submit an attestation, in a format acceptable to Staff and signed by the CEO and CCO, attesting to the fact that, from the date of their appointment, the CEO and CCO have and will continue to:
A. supervise the activities of the firm that are directed towards ensuring compliance with Ontario securities law by the firm and each individual acting on the firm's behalf, and
B. promote and require compliance by the firm, and individuals acting on its behalf, with Ontario securities law; and
(ii) submit an attestation, in a format acceptable to Staff and signed by the CCO, attesting to the fact that, from the date of the CCO's appointment, the CCO has and will continue to:
A. establish and maintain policies and procedures designed to monitor and assess compliance by the firm, and individuals acting on its behalf, with Ontario securities law,
B. monitor and assess compliance by the firm, and the individuals acting on its behalf, with Ontario securities law,
C. immediately report to the CEO of the firm if the CCO becomes aware of any circumstances indicating that the firm, or any individual acting on its behalf, may be in non-compliance with Ontario securities law, and
D. submit an annual report to the firm's Board for the purpose of assessing compliance by the firm, and individuals acting on its behalf, with Ontario securities law;
(d) after Coinsquare and Coinsquare Capital Markets have complied with the above and within 105 days of the approval of this Settlement Agreement, unless an alternative timeline is agreed to by Staff, Coinsquare Capital Markets shall:
(i) resubmit complete and updated applications for registration as an investment dealer and to operate a marketplace with the Commission, including a complete and accurate Form 21-101F2 Information Statement Alternative Trading System, and for membership with IIROC;
(ii) submit a report from Coinsquare and Coinsquare Capital Market's Board that includes in a manner acceptable to Staff:
A. a description of the steps taken to ensure the fitness of its directors, officers and any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets and the policies and procedures designed to ensure continued fitness with respect to the operation of the Coinsquare Platform with integrity,
B. a description of the controls it has implemented or the steps it has taken to address the matters giving rise to the Settlement Agreement,
C. confirmation that it is the view of each Board that the directors and officers will perform their duties with integrity and in a manner consistent with the public interest, and
D. confirmation that each Board will take reasonable steps to ensure that any person that plays a role in the decision-making that impacts the business, day-to-day management or operations of Coinsquare or Coinsquare Capital Markets is a fit and proper person and that past conduct of each person or company affords reasonable grounds for the belief that the business of the Coinsquare Platform will be conducted with integrity;
(e) for three years from the date of the approval of this Settlement Agreement by the Commission, Coinsquare Capital Markets and any affiliated companies carrying on activities that require registration under Ontario securities law (the Coinsquare Affiliates) shall not permit Diamond or Rostand to perform functions similar to those normally performed by an officer or director, including:
(i) proposing, nominating and appointing new officers;
(ii) participating in any meeting of the Board or any committee of the Board;
(iii) providing instructions or directions to management of Coinsquare or Coinsquare Capital Markets or to any legal or financial advisors on behalf of Coinsquare or Coinsquare Capital Markets;
(iv) having signing authority for Coinsquare or Coinsquare Capital Markets, including signing authority over any bank or other accounts of Coinsquare or Coinsquare Capital Markets;
(v) hiring, supervising or terminating staff of Coinsquare or Coinsquare Capital Markets or providing input or participating in decisions relating to hiring, supervising or terminating staff or executive compensation;
(vi) participating in any decisions with or attempt in any way to influence management or the Board of Coinsquare or Coinsquare Capital Markets, or make any recommendations in relation to decisions: (a) affecting the compliance by Coinsquare or Coinsquare Capital Markets with Ontario securities law, including its system of controls and supervision; and (b) relating to the preparation of any filing or disclosure documents required to be submitted or filed by Coinsquare or Coinsquare Capital Markets under Ontario securities law, except as required by law in respect of Diamond and/or Rostand's individual filing requirements;
(vii) marketing the services of the registrant to clients or potential clients;
(viii) playing any role (other than as a representative of the shareholder) in the financial affairs of Coinsquare or Coinsquare Capital Markets;
(ix) playing any role (other than as a shareholder) in the decision-making that impacts the business or day-to-day management of Coinsquare or Coinsquare Capital Markets;
(x) supervising any person performing any of the above enumerated activities; and
(xi) nothing in paragraph 2(e) is intended to restrict the ability of Coinsquare or Coinsquare Capital Markets' Board to request and receive information from Diamond and/or Rostand where the independent directors determine that such information is necessary to fulfil their duties as directors and in the best interest of the company or companies, provided the Board maintains a record of all the requests and information received;
(f) Coinsquare and Coinsquare Capital Markets shall establish, maintain and require compliance with policies and procedures reasonably designed to ensure compliance with paragraph 2(e) above, including compliance by all directors, officers and employees of Coinsquare and Coinsquare Capital Markets; and
(g) in the event that Coinsquare and/or Coinsquare Capital Markets fail(s) to meet any of the requirements of paragraph 2(e) or (f) above, it shall immediately advise the Commission and take appropriate measures to promptly remedy such failure.
DATED at Toronto, Ontario this 16th day of July, 2020.
COINSQUARE LTD. |
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By: |
"Jason Theofilos" |
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____________________ |
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Name: |
Jason Theofilos |
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Title: |
Director |
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DATED at Toronto, Ontario this 16th day of July, 2020.
COINSQUARE CAPITAL MARKETS LTD. |
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By: |
"Jason Theofilos" |
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____________________ |
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Name: |
Jason Theofilos |
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Title: |
Authorized Signatory |
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{6} However, where this provision conflicts with applicable regulatory requirements, Staff may permit Coinsquare Capital Markets to implement an alternative that is acceptable to Staff.
Bruce Power L.P. and Bruce Power Inc. -- s. 42 of OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting
OSC Rule 91-507 -- derivatives trade reporting obligations -- filers seeking relief from derivatives data reporting obligations in respect of power market contracts entered into with U.S. power systems operators -- relief granted from the requirement to report over-the-counter (OTC) derivative transactions in the primary electricity transmission rights market that are executed between the filers and the Independent System Operators and Regional Transmission Operators (ISO/RTOs) of which it is a market participant, subject to conditions. ON reference no. 2020/0157.
WHEREAS Financial Transmission Rights, Transmission Congestion Contracts, Virtual Transactions, and Bookouts (each as defined below, each a "Financial Contract" and collectively, "Financial Contracts") are derivatives (as such term is defined in Section 1 of the Ontario Securities Act (the "Act")) and are therefore subject to reporting obligations under Ontario Securities Commission (the "OSC" or the "Commission") Rule 91-507 Trade Repositories and Derivatives Data Reporting (OSC Rule 91-507);
AND WHEREAS Bruce Power L.P. ("BPLP") and its general partner, Bruce Power Inc. ("BP" and together with BPLP, the "Filers"), filed an application received by OSC on September 23, 2015 pursuant to section 42 of OSC Rule 91-507 seeking an exemption from the obligation to report certain over-the-counter ("OTC") derivative transactions in accordance with Part 3 of OSC Rule 91-507. This application was granted through a director's order dated November 11, 2016 (the "Original Exemption Order") and applied to transactions in three electricity markets in the U.S., the New York Independent System Operator, Inc. ("NYISO"), the PJM Interconnection, LLC ("PJM"), and the Midcontinent Independent System Operator, Inc. ("MISO") which are independent system operators and regional transmission operators (each individually, an "ISO/RTO" and collectively, the "ISO/RTOs");
AND WHEREAS on March 19, 2020, the Filers submitted an application to vary the Original Exemption Order. Bruce Power has become an authorized market participant in a fourth U.S. market, the ISO New England Inc. ("ISO-NE"), which is also an ISO/RTO, and is requesting that the Original Exemption Order be varied to include the same reporting relief for transactions in ISO-NE (the "Requested Relief").
AND UPON the Filers having represented to the Director that:
Background:
1. BP is a corporation incorporated under the Business Corporations Act (Ontario);
2. BPLP is an all-Canadian limited partnership established under the Limited Partnerships Act (Ontario) and BPLP's sole general partner is BP;
3. the objects of BPLP include trading electricity in the United States, which involves trading in over-the-counter energy-related derivatives;
4. NYISO, PJM, ISO-NE and MISO are independent system operators and regional transmission operators. These ISO/RTOs are authorized by the United States Federal Power Act ("FPA") and the regulations made thereunder by the Federal Energy Regulatory Commission ("FERC") to create and administer wholesale electricity markets in their respective jurisdictions within the United States;
5. FERC Order No. 2000 empowers and requires the ISO/RTOs to implement comprehensive codified sets of rules, tariffs, rate schedules, protocols, processes and policies to govern the wholesale electricity markets in their respective jurisdictions ("Market Rules");
6. the wholesale electricity markets established, administered and operated by the ISO/RTOs in accordance with the FPA and the regulations thereunder, consist of both physical and financial markets;
7. each ISO/RTO establishes, administers and operates a physical market which governs the real-time operation of power systems, allowing load and generation to be balanced, flows on the transmission systems to be within limits, and voltage and frequency to be maintained (each a "Physical Market");
8. in addition to the Physical Market, each ISO/RTO establishes, administers and operates a financial market for the trading of financial contracts linked to the Physical Market (each a "Financial Market", together with the same ISO/RTO's Physical Market, a "Market");
9. all persons participating in an ISO/RTO's Market must be approved in advance by the ISO/RTO as authorized market participants in accordance with the applicable Market Rules and are required to meet financial thresholds that are at least equal to those to be applied under OSC Rule 45-501 dealing with "accredited investors" ("Authorized Market Participants");
10. BP is an Authorized Market Participant in each ISO/RTO's Market;
11. financial contracts traded in the Financial Markets may be linked to locational price differences across transmission paths and to price differences between the day-ahead energy market, which is the ISO/RTOs' advanced scheduling and commitment of resources required to meet the next day's level of physical electricity demand (the "Day-Ahead Energy Market"), and the real-time energy market, which is the ISO/RTOs' scheduling and commitment of resources in the current day, for the same specified locations and time periods (the "Real-Time Energy Market");
12. a financial transmission right is a financial contract available to Authorized Market Participants in the Financial Markets administered by MISO, ISO-NE and PJM to offset potential costs related to the congestion price risk of delivering energy to the grid when the grid is congested in the Day-Ahead Energy Market ("Financial Transmission Right");
13. payments under a Financial Transmission Right are based on the difference between the price of electricity determined on an ISO/RTO's Physical Market at a specified injection point into the ISO/RTO's energy grid and a specified point where the electricity is deemed to have been withdrawn from the ISO/RTO's energy grid;
14. under an obligation-type Financial Transmission Right, the holder may be entitled to receive a payment or obligated to make a payment whereas under an option-type Financial Transmission Right, the holder may be entitled to receive a payment but is under no obligation to make payments;
15. a transmission congestion contract is a financial contract available to Authorized Market Participants in NYISO's Markets to hedge price fluctuations of transmission congestion by providing the holder a right to collect, or an obligation to pay, congestion rents in the Day-Ahead Energy Market for energy associated with transmission between specified points of injection and withdrawal ("Transmission Congestion Contract");
16. a virtual transaction is a financial contract available to Authorized Market Participants of the ISO/RTOs for the purchase or sale of electricity in the Day-Ahead Energy Market that is not backed by physical assets such as load or generation resources at a specified location and where settlement occurs financially through an offsetting position which is automatically taken in the Real-Time Energy Market at the same specified location (a "Virtual Transaction");
17. a bookout is a contract available to Authorized Market Participants of the ISO/RTOs for the purchase or sale of electricity in the Day-Ahead Energy Market with a feature that operates to offset the purchase or sale in the Day-Ahead Market prior to physical delivery or curtailment, with a transaction of equal and opposite volume for the same delivery period and location in the Real-Time Energy Market (a "Bookout");
18. the provisions of the Market Rules are complete codes, covering the form and content of all the transactions in a ISO/RTO's Market, including the Financial Market;
19. Financial Contracts are issued by the ISO/RTOs to Authorized Market Participants in the Financial Markets in accordance with the Market Rules (the "Primary Market");
20. the Market Rules may allow for the resale of Financial Contracts between Authorized Market Participants (the "Secondary Market");
Regulatory Oversight
21. the Filers are not in default of securities legislation in any jurisdiction in Canada or the United States;
22. BP operates pursuant to the license granted to it by the Ontario Energy Board (the "OEB") under the Ontario Energy Board Act, 1998 (the "OEB Licence");
23. each ISO/RTO's Market is subject to monitoring and oversight by FERC in accordance with the Market Rules, FERC Order No. 2000, FERC Order No. 719 and FERC Regulation 35.47;
24. BP operates in each ISO/RTO's Market pursuant to the market-based rate authority FERC Electric Tariff, Docket No. ER07-907-000, issued to it by FERC;
25. FERC is the principal regulatory body under the FPA vested with the powers to oversee the ISO/RTOs, including the ISO/RTO-administered Financial Markets;
26. FERC Order No. 719 requires: (i) each ISO/RTO to establish an internal market monitoring department ("MMU") and to provide the MMU with full and free access to all market data collected by the ISO/RTO and (ii) the MMU to report directly to the ISO/RTO's board of directors and to make a market surveillance report public at least quarterly;
27. FERC conducts real-time monitoring of each of the ISO/RTOs' Markets and analyses reports from each MMU;
28. FERC has broad investigative powers into the conduct of the ISO/RTOs and the authority to impose penalties, order disgorgement of ill-gotten profits and to impose criminal liability for willful violations of the FPA;
29. all transactions, including the Financial Contracts, concluded within the Markets must conform to the applicable ISO/RTO's Market Rules;
30. the regulation of each Market by the ISO/RTOs and FERC is comprehensive and consistent with the purposes of the Act; and
31. by Final Order 78 FR 19879 (2013), the United States Commodity Futures Trading Commission (the "CFTC"), in response to a petition from certain regional transmission equivalents and independent system operators, including the ISO/RTOs, exempted the Financial Contracts from the application of certain provisions of the United States Commodity Exchange Act, including the swap transaction reporting obligations therein ("CFTC Order");
AND UPON the Director being satisfied that exempting the Filers from the reporting requirements under Part 3 of OSC Rule 91-507, in relation to Financial Contracts executed in the RTO/ISOs' Financial Markets, would not be prejudicial to the public interest;
IT IS THE DECISION of the Director that pursuant to section 42 of OSC Rule 91-507 that transactions in Financial Contracts executed by the BPLP or by BP, in its capacity as general partner of BPLP, with the ISO/RTOs in the Primary Market are exempt from the reporting requirements under Part 3 of OSC Rule 91-507;
PROVIDED THAT:
a. BP continues to operate pursuant to a valid OEB Licence;
b. BP continues to operate pursuant to a valid FERC Electric Tariff;
c. the Filers remain in compliance with the Market Rules;
d. transactions in the Financial Contracts continue to be excluded from CFTC swap data reporting requirements under the CFTC Order;
e. each Financial Contract is linked to, and the aggregate volume of Financial Contracts for any period of time is limited by, the physical capability of the electricity transmission system operated by the ISO/RTO offering the Financial Contract, for such period;
f. the Filers promptly comply with requests from the Commission, on an as-needed basis, to share (i) positional data, (ii) transactional data, (iii) valuation data and (iv) clearing account data, within the Filers' possession in respect of the Financial Contracts, including any information or documentation concerning such data, in a form acceptable to the Commission; and
g. the Filers shall not disclose to any person or company any request by the Commission for data, information, or documentation and shall maintain the confidentiality of the request and any response to it. Where disclosure may be required by law, the Filers will, to the extent permitted by law, inform the Commission of the disclosure requirement.
Dated July 8, 2020
1. For the reasons outlined below, following the exercise by John Doe (the Applicant) of an opportunity to be heard before me (the OTBH) under section 31 of the Securities Act, R.S.O. 1990, c. S.5, as amended (the Act), it is my decision to register the Applicant as a mutual fund dealing representative of the registered mutual fund dealer (the Sponsoring Firm) that has sponsored his application (the Application) for such registration, which staff (Staff) of the Ontario Securities Commission (the Commission or OSC) had recommended I refuse on the basis that the Applicant lacks the integrity required for registration, and that his registration would be objectionable.
2. It is also my decision, pursuant to clause 10 (a) of the Procedures for Opportunities to be Heard Before Director's Decisions On Registration Matters,{1} that all written submissions (including Exhibits) and transcripts of appearances in the OTBH be sealed and not available for disclosure to the public, on the basis that, in my opinion, the desirability of avoiding the disclosure of intimate personal matters that are discussed in these documents outweighs the public benefit of openness in Commission proceedings. Accordingly, in this Decision I have replaced the proper name of the Applicant with the pseudonym "John Doe," and limited the presentation of certain other personal identifying information in order to protect the privacy interests of persons that are involved with, or may be affected by, this matter.
3. In 2015, the Applicant plead guilty to one count of possession of child pornography in the form of a computer video file, contrary to section 163.1(4) of the Criminal Code (Canada) (the Offence), for which he received a sentence of four months imprisonment followed by three years of probation and a monetary fine. The Applicant was also required to receive counseling after his release from prison as directed by his probation officer.
4. In 2011, at the time the Offence was committed, the Applicant was in university.
5. In 2019, the Applicant submitted his application for registration as a mutual fund dealing representative of the Sponsoring Firm. In his Application, he fully disclosed his prior criminal conviction, including the nature of the Offence, the length of the prison sentence imposed, the length of probation, and the monetary fine.
6. The OSC administers the registration process for firms and individuals applying for registration as a mutual fund dealer or as a dealing representative of a mutual fund dealer.
7. In 2019, the Applicant attended, without representation by counsel, a voluntary interview with Staff to discuss his Application (the Interview). In this Interview, Staff enquired about his Offence and the Applicant provided an explanation of the circumstances that gave rise to the criminal charge and his ultimate conviction. It is during this Interview that Staff asserts that the Applicant was not being honest with them by representing to Staff that his purpose in possessing the child pornography was to conduct academic research, which staff has asserted was unreasonable and unrealistic given the circumstances.
8. The OTBH included written submissions of Mark Skuce, Senior Legal Counsel, OSC and Ellen Bessner and Brendan Monahan of Babin Bessner Spry, counsel for the Applicant, with appearances that took place on June 26, 2020 via video conference. These proceeding were not made open to the public because intimate personal or other matters may have been disclosed that, in my opinion, would outweigh the public benefit of openness in Commission proceedings.
9. Subsection 27(1) of the Act provides that the Director shall register a person, unless it appears to the Director that the person is not suitable for registration under the Act, or that the registration is otherwise objectionable. Subsection 27(2) states that in considering whether a person is suitable for registration, the Director shall consider the requirements prescribed in the regulations relating to proficiency, solvency and integrity.
Staff's Submissions
10. Staff has submitted that the criminal conduct of the Applicant which was the subject matter of the Offence has been appropriately dealt with by the criminal justice system and does not form the basis of Staff's recommendation that his Application for registration be refused.
11. The basis for Staff's recommendation to refuse the registration of the Applicant is that during the Interview he was not honest with Staff about the underlying reasons for his commission of the Offence. Staff has asserted that, by not being honest to Staff about his true purpose in possessing the child pornography, which Staff has contended was his personal curiosity, this impugns the Applicant's integrity for the purpose of registration.
12. Staff obtained the court records and transcripts from the plea and sentencing hearing in respect of the Offence, which were submitted in the OTBH.
The Applicant's Submissions
13. Counsel for the Applicant has submitted that, at the time of the Offence, the Applicant was a young adult. He plead guilty to the Offence and has completed his sentence and probation. He has accepted responsibility for his actions, is remorseful, and understands that the Offence was not a "victimless" crime.
14. Counsel for the Applicant has also submitted that this was the Applicant's first and only offence and that he has had no other issues with the law. He has paid the price for his crime and, in this circumstance, the underlying criminal conviction should not be the basis for the recommendation to refuse his registration.
15. Counsel for the Applicant has submitted that the Applicant was honest with Staff during the Interview. He responded in detail to the questions asked. However, counsel asserts that Staff did not explicitly ask the question for which Staff is asserting he did not provide an honest response.
Findings
16. The primary question of fact in the OTBH is whether the Applicant was honest with Staff during the Interview. If I find that the Applicant was honest in the Interview, then Staff has stated that there is no other basis to refuse his Application at this time.
17. Staff submits that the Applicant's responses to certain questions asked during the Interview relating to his personal motives for committing the Offence were unreasonable and unrealistic. I don't believe that as Director, or Staff for that matter, can get into the mind of the Applicant at the time the Offence was committed to determine if his thoughts then were reasonable or realistic.
18. However, what I can assess is the record from the criminal trial. Having reviewed the transcripts from the court proceedings (plea and sentencing) against the transcript of the Interview, I have found there to be a consistent representation of the facts and circumstances of the criminal case. This leads me to conclude that the Applicant provided an honest response to Staff during the Interview.
19. The Applicant has complied with the regulatory requirement to disclose the criminal conviction in his registration application. He also provided a letter of support from the Chief Compliance Officer of his Sponsoring Firm, who has interacted with him, in a capacity that did not require registration, for a period of six years, prior to his application for registration.
20. I am satisfied that the Applicant has taken responsibility for his actions, is remorseful and understands that his actions were a crime.
21. Based on the foregoing, I reject Staff's recommendation to refuse the Applicant's registration and have directed our registration Staff to, as soon as practicable, register the Applicant as mutual fund dealing representative of the Sponsoring Firm.
22. Moreover, upon the request of counsel for the Applicant which was supported by Staff, I have also decided to seal the record of this OTBH, as provided for in the above paragraph 2 of this Decision.
July 20, 2020
{1} online: OSC $lt;https://www.osc.gov.on.ca/en/34426.htm$gt;.
Temporary, Permanent & Rescinding Issuer Cease Trading Orders
Company Name |
Date of Temporary Order |
Date of Hearing |
Date of Permanent Order |
Date of Lapse/Revoke |
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THERE IS NOTHING TO REPORT THIS WEEK. |
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Company Name |
Date of Order |
Date of Revocation |
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3 Sixty Risk Solutions Ltd. |
July 15, 2020 |
__________ |
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Alturas Minerals Corp. |
June 22, 2020 |
July 20, 2020 |
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Core One Labs Inc. |
July 15, 2020 |
__________ |
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Harborside Inc. |
July 15, 2020 |
__________ |
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Tree of Knowledge International Corp. |
July 15, 2020 |
__________ |
Temporary, Permanent & Rescinding Management Cease Trading Orders
Company Name |
Date of Order |
Date of Lapse |
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3 Sixty Risk Solutions Ltd. |
18 June 2020 |
July 15, 2020 |
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DelphX Capital Markets Inc. |
June 16, 2020 |
July 15, 2020 |
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Harborside Inc. |
16 June 2020 |
July 15, 2020 |
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Tree of Knowledge International Corp. |
24 June 2020 |
July 15, 2020 |
Outstanding Management & Insider Cease Trading Orders
Company Name |
Date of Order or Temporary Order |
Date of Hearing |
Date of Permanent Order |
Date of Lapse/ Expire |
Date of Issuer Temporary Order |
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Performance Sports Group Ltd. |
19 October 2016 |
31 October 2016 |
31 October 2016 |
__________ |
__________ |
Company Name |
Date of Order |
Date of Lapse |
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3 Sixty Risk Solutions Ltd. |
18 June 2020 |
July 15, 2020 |
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DelphX Capital Markets Inc. |
16 June 2020 |
July 15, 2020 |
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Imaging Dynamics Company Ltd. |
17 June 2020 |
__________ |
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Harborside Inc. |
16 June 2020 |
July 15, 2020 |
__________ |
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RYU Apparel Inc. |
17 June 2020 |
__________ |
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SponsorsOne Inc. |
22 June 2020 |
__________ |
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Tree of Knowledge International Corp. |
24 June 2020 |
July 15, 2020 |
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Type |
Company |
Category of Registration |
Effective Date |
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Voluntary Surrender |
Northwater Capital Management Inc. |
Exempt Market Dealer, Investment Fund Manager, Portfolio Manager and Commodity Trading Manager |
July 13, 2020 |
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From: Lysander Capital Limited |
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Firm Name Change |
Exempt Market Dealer |
July 17, 2020 |
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To: PBY Capital Limited |
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Investment Industry Regulatory Organization of Canada (IIROC) -- Notice of Proposed Early Adoption of Certain IIROC Rules into the Dealer Member Rules -- Request for Comment
IIROC is publishing for public comment certain proposed amendments to its Dealer Member Rules (DMRs) to align with their parallel provisions in the IIROC Dealer Member Plain Language Rule Book (IIROC Rules).
With implementation of the IIROC Rules having been postponed to December 31, 2021, the proposed amendments are intended to improve the DMRs without negatively impacting investor protection or increasing regulatory burden on Dealer Members.
A copy of the IIROC Notice, including the text of the proposed amendments, is also published on our website at http://www.osc.gov.on.ca. The comment period ends on September 8, 2020.