Ontario Securities Commission Bulletin
Issue 48/47 - November 27, 2025
Ont. Sec. Bull. Issue 48/47
• John Cecil and Ontario Securities Commission
• Katanga Mining Limited and Ontario Securities Commission -- s. 17
• MR Group Investment US, Inc. et al. -- ss. 74, 144
• International Royalty Corporation et al.
• Arrow Capital Management Inc. and WaveFront All-Weather Alternative Fund
• Temporary, Permanent & Rescinding Issuer Cease Trading Orders
• Temporary, Permanent & Rescinding Management Cease Trading Orders
• Amendments to National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives
• Lombard Street Capital Corp. -- s. 21(b) of Ont. Reg. 398/21 of the OBCA
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John Cecil and Ontario Securities Commission -- s. 144.1
FILE NO.: 2025-30
BETWEEN:
Section 144.1 of the Securities Act, RSO 1990, c S.5
PROCEEDING TYPE: Application for Variation of a Decision
HEARING DATE AND TIME: December 5, 2025, at 10:00 a.m.
LOCATION: By videoconference
The purpose of this proceeding is to consider the application for variation of a decision dated November 14, 2025, made by John Cecil in respect of the Capital Markets Tribunal order issued on December 11, 2024, in file number 2023-12.
The hearing set for the date and time indicated above is the first case management hearing in this proceeding, as described in subrule 13(3) of the Capital Markets Tribunal Rules of Procedure.
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 Tribunal 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 Tribunal par écrit dès que possible si le participant demande qu'une instance soit tenue entièrement ou partiellement en français.
Dated at Toronto this 24th day of November, 2025
For more information
Please visit capitalmarketstribunal.ca or contact the Registrar at registrar@capitalmarketstribunal.ca.
BETWEEN:
Rules 1, 3 and 18 of the Capital Markets Tribunal Rules of Procedure, Sections 2.1 and 144.1 of the Securities Act, R.S.O. 1990, c. S.5, and Section 25.01 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22
The Applicant John Cecil requests that the Capital Markets Tribunal make the following orders:
(a) an Order varying the Tribunal's Order bearing file number 2023-12 dated December 11, 2024 (the "Order") to extend the deadline for payment of the outstanding $175,000 (the "Outstanding Amount") to the Ontario Securities Commission by six months; and
(b) such further relief as counsel may advise and the Tribunal may permit.
The grounds for the application are:
1. Mr. Cecil, Kallo Inc. ("Kallo") and Samuel Pyo were named as Respondents in the Statement of Allegations dated May 23, 2023;
2. Mr. Cecil, Kallo, Mr. Pyo, and the Ontario Securities Commission entered into the Settlement Agreement dated November 28, 2024 (the "Settlement Agreement");
3. As set out in the Order, Chief Adjudicator Moseley approved the Settlement Agreement and ordered the sanctions set out in the Settlement Agreement;
4. Pursuant to the Settlement Agreement and the Order, Mr. Cecil and Kallo are required to pay to the Ontario Securities Commission an administrative penalty of $200,000, jointly and severally, and costs of the investigation of $50,000, jointly and severally;
5. Pursuant to the Settlement Agreement and the Order, Mr. Cecil paid $75,000 to the Ontario Securities Commission prior to the date of the Order and are required to pay the Outstanding Amount to the Ontario Securities Commission on or before November 14, 2025 (the "Deadline");
6. Kallo is defunct. All trading in Kallo's shares has been permanently suspended and the company is not functioning. The principals of Kallo intend to dissolve the company;
7. Mr. Cecil had expected to be able to make payment of the Outstanding Amount by the Deadline;
8. On or about October 22, 2025, Mr. Cecil advised the Ontario Securities Commission via counsel that he will not be able to pay the Outstanding Amount by the Deadline;
9. On or about October 27, 2025, the Ontario Securities Commission requested certain information from Mr. Cecil to assist in formulating its position;
10. On or about November 7, 2025, Crawley MacKewn Brush LLP sent a letter to the Ontario Securities Commission enclosing the information requested by the Ontario Securities Commission, including Mr. Cecil's request for a six-month extension to pay the Outstanding Amount and evidence from third parties indicating that an extension is likely to result in payment;
11. On or about November 11, 2025, the Ontario Securities Commission advised that it would not consent to the extension requested by Mr. Cecil;
12. Mr. Cecil's current financial position is unchanged from November 2024;
13. Mr. Cecil's ability to pay the Outstanding Amount is dependent on him earning revenue from a licensing agreement and joint venture to implement a contract with the Central African Republic ("CAR") to provide mobile health care infrastructure via the Patient-Centric Integrated Delivery System developed by Mr. Cecil;
14. CAR and Elenxis Global Connectors GmbH ("Elenxis") entered into a contract in September 2024 (the "Contract"), and the Contract is transferable to IterMed Patient-Centric Healthcare AG i.GR, a corporation to be incorporated in Switzerland ("IterMed Switzerland");
15. Arrangements for a joint venture involving Mr. Cecil and Elenxis are underway, and it is intended that IterMed Switzerland will engage IterMed Canada, a corporation to be incorporated in Canada, to carry out the Contract;
16. IterMed Canada is intended to be incorporated as a private corporation with Mr. Cecil as an officer and director;
17. It is expected that Mr. Cecil will earn revenue from (a) a licensing agreement to license his Patient-Centric Integrated Delivery System to IterMed Canada, and (b) income from IterMed Canada from performance of the Contract;
18. The proposed project and joint venture are close to being finalized;
19. The Contract is conditional on financing. There has been material progress in arranging financing, but it has not yet finalized;
20. The project that is the subject of the abovementioned Contract between CAR and Elenxis has been included in the CAR National Development Plan 2024-2028. The funding of the National Development Plan was the topic of the Ambition28 Central African Republic conference in Casablanca, Morocco, in September 2025. Mr. Cecil was a major participant at this conference. From that conference, funding commitments of in excess of $10 billion USD have been made to fund the National Development Plan by a number of international agencies, including the African Development Bank and the World Bank;
21. Elenxis is currently awaiting advice from the Minister of Finance of CAR as to the timing of the funding of the project, but Elenxis understands that the project is considered a priority and is to commence in 2026. This understanding is consistent with the October 29, 2025, announcement on the CAR Ambition28 journal website;
22. An extension of six months to make payment of the Outstanding Amount is likely to result in payment;
23. Rules 1, 3, and 18 of the Capital Markets Tribunal Rules of Procedure;
24. Sections 2.1 and 144.1 of the Securities Act, R.S.O. 1990, c. S.5;
25. Section 25.01 of the Statutory Powers Procedure Act, R.S.O 1990, c. S.22;
26. Such further and other grounds as the lawyers may advise and the Tribunal may permit.
The Applicant intends to rely on the following evidence at the hearing:
(a) the Affidavit of John Cecil affirmed November 14, 2025;
(b) such further and other evidence as the lawyers may advise.
November 14, 2025 |
CRAWLEY MACKEWN BRUSH LLP |
Barristers & Solicitors |
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Suite 800, 179 John Street |
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Toronto ON M5T 1X4 |
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Alistair Crawley (LSO# 38726D) |
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acrawley@cmblaw.ca |
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Tel: 416.217.0806 |
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Katarina Wasielewski (LSO# 85009G) |
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kwasielewski@cmblaw.ca |
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Tel: 416.217.0897 |
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Tel: 416.217.0110 |
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Lawyers for the Applicant |
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TO: |
ONTARIO SECURITIES COMMISSION |
20 Queen St. W., 22nd Floor |
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Toronto, ON L4Z 3M3 |
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Johanna Braden (LSO# 40775L) |
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jbraden@osc.gov.on.ca |
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Tel: 416.263.7689 |
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Matthew McMurray (LSO# 92598S) |
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mmcmurray@osc.gov.on.ca |
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Lawyers for the Respondent |
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John Cecil and Ontario Securities Commission
FOR IMMEDIATE RELEASE
November 24, 2025
TORONTO -- The Tribunal issued a Notice of Hearing to consider the application for variation of a decision dated November 14, 2025, made by John Cecil in respect of the Capital Markets Tribunal order issued on December 11, 2024, in file number 2023-12.
The hearing will be held on December 5, 2025 at 10:00 a.m. by videoconference.
Members of the public may observe the hearing by videoconference, by selecting the "Register to attend" link on the Tribunal's hearing schedule, at capitalmarketstribunal.ca/en/hearing-schedule.
A copy of the Notice of Hearing dated November 24, 2025 and the Application dated November 14, 2025 are available at capitalmarketstribunal.ca
Subscribe to notices and other alerts from the Capital Markets Tribunal:
For Media Inquiries:
For General Inquiries:
Ontario Securities Commission et al.
FOR IMMEDIATE RELEASE
November 24, 2025
TORONTO -- The Tribunal issued an Order in the above-named matter.
A copy of the Order dated November 24, 2025 is available at capitalmarketstribunal.ca.
Subscribe to notices and other alerts from the Capital Markets Tribunal:
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For General Inquiries:
Katanga Mining Limited and Ontario Securities Commission
FOR IMMEDIATE RELEASE
November 25, 2025
TORONTO -- The Tribunal issued an Order in the above-named matter.
A copy of the Order dated November 25, 2025 and Reasons and Decision dated November 20, 2025 are available at capitalmarketstribunal.ca.
Subscribe to notices and other alerts from the Capital Markets Tribunal:
For Media Inquiries:
For General Inquiries:
Ontario Securities Commission et al.
File No. 2025-18
Adjudicator: |
Russell Juriansz |
November 24, 2025
WHEREAS the Capital Markets Tribunal held a hearing in writing to consider a motion brought by the Ontario Securities Commission for permission to amend its Application for Enforcement Proceeding (Application);
ON READING the materials filed by the Ontario Securities Commission, and Purpose Investments Inc. and Som Seif did not provide any materials or submissions in response to the motion;
IT IS ORDERED THAT pursuant to Rule 22 of the Tribunal's Rules of Procedure, the Application is amended as reflected in Appendix A to this order.
(Subsection 127(1) and Section 127.1 of the Securities Act, RSO 1990, c S.5)
1. Amid continuing public interest in environmental, social and governance (ESG) investing and the potential for greenwashing, it is critical that investment fund managers ensure that their sales communications accurately describe how they consider ESG factors in making investment decisions on behalf of investors. Investment fund managers must also ensure that their sales communications are consistent with disclosure made in the prospectuses of the investment funds they manage.
2. This matter involves sales communications made by a registered investment fund manager about its consideration of ESG factors that were misleading, untrue, and in conflict with the prospectuses of the funds it managed.
3. Purpose Investments Inc. (Purpose) is a registered investment fund manager based in Toronto, Ontario. During the period September 2019 to March 2023 (the Material Time), Purpose made sales communications which falsely stated or suggested that: (a) Purpose considered ESG factors when making investment decisions for most or all of the investment funds it managed; (b) Purpose embedded ESG principles across its entire investment process; (c) in making investment decisions, Purpose applied ESG data effectively and in a nuanced way across the full range of industry sectors; and (d) Purpose embedded ESG factors at the foundation of how it built products or invested, and ESG was a core, key, fundamental and/or meaningful consideration for all of the funds managed by Purpose.
4. In reality, Purpose did not consider ESG in making investment decisions for many of the funds it managed. Purpose did not implement any formal policy and did not have documented procedures relating to the consideration of ESG by its portfolio management team for funds managed by Purpose; instead, consideration of ESG at Purpose during the Material Time was ad hoc. Until at least the fall of 2020, there were also significant gaps in the amount and quality of ESG data accessible by Purpose personnel. Prior to April 2022, prospectuses filed by Purpose for its investment funds generally did not refer to ESG as a part of the investment objectives or investment strategies of those funds.
The Ontario Securities Commission (the Commission) makes the following allegations of fact:
i. The Respondents
5. Purpose is a registered investment fund manager based in Toronto, Ontario and has been registered in that category and others, including exempt market dealer and portfolio manager, since December 2012. Purpose had over $20 billion in assets under management (AUM) as of March 2024.
6. Som Seif, the founder of Purpose, has been the Chairman, Chief Executive Officer, and Ultimate Designated Person (UDP) of Purpose since December 2012 and continues to act in those roles. As the UDP of Purpose, Seif was required to supervise the activities of Purpose directed towards ensuring compliance with Ontario securities law by the firm and each individual acting on the firm's behalf, and promote compliance by them with Ontario securities law.
ii. The Respondents made false or misleading statements about Purpose's ESG considerations in the investment funds it managed
Purpose viewed ESG considerations as helpful for improving sales and for marketing
7. Prior to and during the Material Time, Purpose personnel, including Seif and other senior members at Purpose, stated in internal communications their intention to market Purpose as considering ESG, and their belief that having ESG considerations would be helpful for improving sales and for marketing.
The false or misleading statements
8. During the Material Time, on at least 19 separate occasions, Purpose and/or Seif made public statements that stated or suggested the following:
(a) Purpose considered ESG factors when making investment decisions for most or all of the investment funds it managed;
(b) Purpose embedded ESG principles across its entire investment process;
(c) in making investment decisions, Purpose applied ESG data effectively and in a nuanced way across the full range of industry sectors; and/or
(d) Purpose embedded ESG factors at the foundation of how it built products or invested, and ESG was a core, key, fundamental and/or meaningful consideration for all of the funds managed by Purpose
(collectively, ESG Sales Communications).
9. The ESG Sales Communications were made in the following publicly available media:
(a) September 16, 2019 -- Purpose website post entitled "Why Purpose Premium Yield Fund Is A Proven Guard Against Uncertainty";
(b) October 2, 2019 -- Purpose website post entitled "Purpose Investments Continues Its Mission to Create Success for Canadians by Fully Integrating Environmental, Social and Governance (ESG) Principles";
(c) On or before October 2, 2019 -- Purpose webpage entitled "The Purpose Approach to ESG Investing";
(d) In October 2019 -- the "About" page on the Purpose website, which identified "The principles of Purpose", including "ESG Always";
(e) October 7, 2019 -- Purpose website post entitled "Som Seif joins BNN Bloomberg's Amanda Lang to discuss integrating ESG", containing a link to a BNN Bloomberg video;
(f) October 9, 2019 -- Purpose website post entitled "Wealth Professional: Seif hopes industry will follow his lead on ESG", containing a link to a Wealth professional article of the same title;
(g) November 13, 2019 -- Purpose website post entitled "Som Seif turns his focus to responsible investing factors", containing a link to a Globe and Mail article entitled "ETF pioneer Som Seif turns his focus to responsible investing factors";
(h) November 19, 2019 -- video interview of Som Seif published on advisoranalyst.com with the headline "What is ESG's True Purpose?";
(i) December 16, 2019 -- Purpose website post entitled "The Next Chapter In Our Story: A Brand New Look Reflecting the Principles That Guide Our Way";
(j) February 14, 2020 -- Purpose website post entitled "Wealth Professional: Why transparency is vital to ESG process", containing a link to a Wealth Professional article of the same title;
(k) March 16, 2020 -- an interview of Som Seif published in the form of a Wealth Professional article entitled "Architect of innovation";
(l) December 2, 2020 -- Purpose website post entitled "Freeport McMoran: A Case Study in Using a Multi-Faceted ESG Approach";
(m) December 21, 2020 -- Purpose website post entitled "Purpose Investments Crosses $10 Billion in Assets Under Management, Donates to Second Harvest and Commits to Volunteering in Honour of Milestone";
(n) April 27, 2021 -- Purpose website post entitled "Purpose Investments Launches Global Climate Opportunities Fund, Canada's New Growth-Focused Climate Fund";
(o) June 30, 2021 -- Purpose website post entitled "Purpose Investments Inc. Launches Europe's First Carbon Offsetting ETF in Partnership with HANetf";
(p) July 29, 2021 -- Purpose website post entitled "Purpose Investments to Launch World's First Pure Play Enterprise Software ETF in Partnership with HANetf";
(q) November 8, 2021 -- Purpose website post entitled "Cryptocurrency and ESG: Are They Really at Odds?";
(r) November 9, 2021 -- Purpose website post entitled "Purpose Investments Launches Carbon Neutral Series for Purpose Bitcoin and Ether ETFs"; and
(s) March 3, 2022 -- Purpose website post entitled "Purpose Investments Divests All Holdings of Russian Companies".
10. After they were made, the ESG Sales Communications remained publicly available during the Material Time, although the ESG Sales Communication described in paragraph 9(d) above was amended in January 2023.
The reality
11. Contrary to the ESG Sales Communications, Purpose did not consider ESG in making investment decisions for many of the funds it managed.
12. As at October 2, 2019, Purpose funds that already considered or were going to consider ESG accounted for only 29% to 35% of total assets under management (AUM) of all funds managed by Purpose, despite Purpose claiming that funds representing 75% of total AUM already operated with its new ESG framework.
13. During the Material Time, Purpose did not implement any formal policy to ensure the consideration of ESG factors by its portfolio management team for any funds managed by Purpose. While Purpose appears to have prepared an "ESG Policy" dated January 2023, that policy only purported to apply to a subset of funds managed by Purpose, and was not broadly communicated or known within Purpose, including to its portfolio management team. Purpose also did not have documented procedures for its portfolio management team relating to the consideration of ESG in the investment process.
14. Rather, contemporaneous records at Purpose indicate that the considerations of ESG at Purpose during the Material Time were ad hoc, a work in progress that was gradually evolving, and not applied across the board for all Purpose funds.
15. In addition, there were significant gaps in the amount and quality of ESG data accessible by Purpose personnel. These gaps persisted until at least the fall of 2020, when Purpose purchased access to ESG data directly from Sustainalytics. Prior to obtaining direct access to ESG data from Sustainalytics, Purpose personnel had access to ESG scores from Sustainalytics indirectly through Bloomberg Terminal but did not have complete and real-time ESG data otherwise available from Sustainalytics for a significant portion of issuers such that: (a) generally, Purpose personnel had little information on the basis on which Sustainalytics determined its ESG scores for any issuer; and (b) the ESG data available to Purpose personnel for certain portfolio holdings in investment funds managed by Purpose was stale from as far back as 2016.
16. Furthermore, prior to April 2022, the prospectus documents that Purpose filed for the investment funds it managed did not refer to ESG considerations as a part of the investment objectives or investment strategies of those funds (with the limited exception of two investment funds newly launched by Purpose in 2021 and 2022).
17. Beginning on April 14, 2022, Purpose updated the prospectus documents for a subset of the investment funds it managed by adding references to ESG considerations.
18. On February 24, 2023, in response to a review by the Commission, Purpose provided the Commission with two lists of the investment funds it managed. The first list identified that as of October 2, 2019, only 24 of 54 funds integrated ESG considerations. The second list, as of February 24, 2023, labeled only 24 of 72 76 funds as "ESG", on the basis that ESG integration in those funds "rise to the standard of prospectus incorporation."
19. On March 7, 2023, Purpose issued a press release announcing changes it made to its website, including a change to the "Principles of Purpose" identified on the "About" webpage that replaced "ESG Always" with "ESG Conscious", clarifying that Purpose integrated ESG factors "into a specific subset of our fund lineup where we believe it fits well with the investment strategy." That press release also identified 38 funds managed by Purpose that "do not fall under the ESG classification."
iii. Seif authorized, permitted or acquiesced in misconduct of Purpose
20. Despite being aware of the state of ESG integration at Purpose, Seif did not act to prevent Purpose from making false or misleading statements regarding its consideration of ESG factors and allowed the misrepresentations to persist during the Material Time.
21. Seif also provided quotes and reviewed and edited some of the ESG Sales Communications before they were made by Purpose.
C. BREACHES AND CONDUCT CONTRARY TO THE PUBLIC INTEREST
22. The Commission alleges the following breaches of Ontario securities law and conduct contrary to the public interest:
(a) Purpose and Seif made sales communications that were untrue or misleading, contrary to s. 15.2(1)(a) of National Instrument 81-102 Investment Funds (NI 81-102);
(b) Purpose and Seif made sales communications that included statements that conflicted with information contained in a preliminary prospectus or prospectus of an investment fund, contrary to s. 15.2(1)(b) of NI 81-102;
(c) Purpose made statements about a matter that a reasonable investor would consider relevant in deciding whether to enter into or maintain a trading or advising relationship with Purpose that 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 s. 44(2) of the Securities Act, RSO 1990, c S.5 (the Act);
(d) Seif, as a director and officer of Purpose, authorized, permitted or acquiesced in Purpose's breaches of Ontario securities law set out above and is therefore liable for those breaches pursuant to s. 129.2 of the Act; and
(e) In addition to breaching Ontario securities law, by engaging in the conduct described above, Purpose and Seif each acted in a manner contrary to the fundamental purposes of the Act set out in s. 1.1 of the Act, and contrary to the public interest. Specifically, by making statements about Purpose's consideration of ESG factors in investment funds that were untrue or misleading, they undermined the purposes of the Act to provide protections to investors from unfair, improper or fraudulent practices and to foster fair, efficient and competitive capital markets and confidence in capital markets.
23. The Commission requests that the Tribunal make the following orders against the Respondents:
(a) that their registration or recognition under Ontario securities law be suspended or restricted for such period as is specified by the Tribunal or be terminated, or that terms and conditions be imposed on their registration or recognition, pursuant to paragraph 1 of s. 127(1) of the Act;
(b) that they cease trading in any securities or derivatives permanently or for such period as is specified by the Tribunal, pursuant to paragraph 2 of s. 127(1) of the Act;
(c) that they be prohibited from acquiring any securities permanently or for such period as is specified by the Tribunal, pursuant to paragraph 2.1 of s. 127(1) of the Act;
(d) that any exemptions contained in Ontario securities law do not apply to them permanently or for such period as is specified by the Tribunal, pursuant to paragraph 3 of s. 127(1) of the Act;
(e) that they submit to a review of their practices and procedures and institute such changes as may be ordered by the Tribunal, pursuant to paragraph 4 of s. 127(1) of the Act;
(f) that they be reprimanded, pursuant to paragraph 6 of s. 127(1) of the Act;
(g) that they resign any position they may hold as a director or officer of any issuer, pursuant to paragraph 7 of s. 127(1) of the Act;
(h) that they be prohibited from becoming or acting as a director or officer of any issuer permanently or for such period as is specified by the Tribunal, pursuant to paragraph 8 of s. 127(1) of the Act;
(i) that they resign any position they may hold as a director or officer of any registrant, pursuant to paragraph 8.1 of s. 127(1) of the Act;
(j) that they be prohibited from becoming or acting as a director or officer of any registrant permanently or for such period as is specified by the Tribunal, pursuant to paragraph 8.2 of s. 127(1) of the Act;
(k) that they resign any position they may hold as a director or officer of any investment fund manager, pursuant to paragraph 8.3 of s. 127(1) of the Act;
(l) that they be prohibited from becoming or acting as a director or officer of any investment fund manager permanently or for such period as is specified by the Tribunal, pursuant to paragraph 8.4 of s. 127(1) of the Act;
(m) that they be prohibited from becoming or acting as a registrant, investment fund manager or promoter permanently or for such period as is specified by the Tribunal, pursuant to paragraph 8.5 of s. 127(1) of the Act;
(n) that they pay an administrative penalty of not more than $5 million for each failure to comply with Ontario securities law, pursuant to paragraph 9 of s. 127(1) of the Act;
(o) that they disgorge to the Commission any amounts obtained as a result of non-compliance with Ontario securities law, pursuant to paragraph 10 of s. 127(1) of the Act;
(p) that they pay costs of the investigation and the hearing, pursuant to s. 127.1 of the Act; and/or
(q) such other order as the Tribunal considers appropriate in the public interest.
DATED this 12th day of September, 2025 17th day of November, 2025.
ONTARIO SECURITIES COMMISSION |
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20 Queen Street West, 22nd Floor |
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Toronto, ON M5H 3S8 |
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Robin McKechney |
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Senior Litigation Counsel |
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Enforcement Division |
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Tel: 437-333-0588 |
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Email: rmckechney@osc.gov.on.ca |
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Alvin Qian |
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Senior Litigation Counsel |
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Enforcement Division |
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Tel: 647-972-8695 |
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Email: aqian@osc.gov.on.ca |
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Emma Coffin |
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Litigation Counsel |
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Enforcement Division |
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Tel: 416-593-2374 |
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Email: ECoffin@osc.gov.on.ca |
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Katanga Mining Limited and Ontario Securities Commission -- s. 17 of OSA, s. 2(2) of Tribunal Adjudicative Records Act, 2019, Rule 8(4) of the CMT Rules of Procedure
File No. 2025-12
Adjudicators: |
Jane Waechter (chair of the panel) |
Russell Juriansz |
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Dale R. Ponder |
November 25, 2025
(Section 17 of theSecurities Act, RSO 1990, c S.5, subsection 2(2) of the Tribunal Adjudicative Records Act, 2019, SO 2019, c 7, Sched 60, and rule 8(4) of the Rules of Procedure)
WHEREAS the Capital Markets Tribunal held a confidential hearing by videoconference on November 11, 2025, to consider an Application made by Katanga Mining Limited pursuant to section 17 of the Securities Act for an order permitting Katanga to disclose certain information received from the Ontario Securities Commission in connection with the Commission's confidential investigation of Katanga to Katanga's parent company, Glencore plc, for use in a civil proceeding in the United Kingdom;
WHEREAS on November 20, 2025, the Tribunal dismissed Katanga's application, and requested submissions from the parties on whether the Reasons and Decision in this application should remain confidential;
ON READING the written joint submission of Katanga and the Commission and on considering that the parties consent to this order;
IT IS ORDERED THAT:
1. pursuant to subsection 2(2) of the Tribunal Adjudicative Records Act, 2019 and rule 8(4) of the Tribunal's Rules of Procedure, the Tribunal's Reasons and Decision in this proceeding, dated November 20, 2025, shall be made available to the public:
2. pursuant to subsection 2(2) of the Tribunal Adjudicative Records Act, 2019 and rule 8(4) of the Rules of Procedure, the remaining materials filed in connection with the application continue to be marked as confidential and shall not be made available to the public, subject to further order of the Tribunal.
Katanga Mining Limited and Ontario Securities Commission -- s. 17
These Reasons and Decision were originally issued on a confidential basis and later published pursuant to the terms of the Order issued in the same application on November 25, 2025
Citation: Katanga Mining Limited v Ontario Securities Commission, 2025 ONCMT 16
Date: 2025-11-20
File No. 2025-12
BETWEEN:
(Section 17 of the Securities Act, RSO 1990, c S.5)
Adjudicators: |
Jane Waechter (chair of the panel) |
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Russell Juriansz |
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Dale Ponder |
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Hearing: |
By videoconference, November 11, 2025 |
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Appearances: |
Aaron Dantowitz |
For the Ontario Securities Commission |
Emma Seip |
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Amanda McLachlan |
For Katanga Mining Limited |
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Shaan Tolani |
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Pavan Pasha |
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[1] Katanga Mining Limited applies under section 17 of the Securities Act{1} (the Act) for permission to disclose certain confidential documents obtained during an Ontario Securities Commission investigation to its parent company, Glencore plc, for use in civil proceedings in the United Kingdom (the Confidential Documents).
[2] For the reasons that follow, we dismiss the application. Katanga did not establish that the order sought was in the public interest. Disclosure of information protected by s. 16 for use in private civil proceedings is generally not in the public interest, and a court order stating that relevant documents must be disclosed cannot alone satisfy the public interest analysis. Despite the investigation being concluded, there still exist privacy concerns and policy considerations that weigh against the disclosure of confidential s. 16 information.
[3] Katanga was a reporting issuer with shares listed on the Toronto Stock Exchange. In March 2017, the Commission commenced a confidential investigation of Katanga and several of its officers and directors which resulted in a settlement agreement that was approved by the Tribunal in December 2018.{2}
[4] In 2020, Katanga became a wholly-owned subsidiary of Glencore. Glencore is a defendant in a civil claim in the UK High Court of Justice alleging material misleading statements and omissions in its public company disclosure. The UK Court ordered that, among other records, documents provided by the Commission to Katanga during the investigation must be disclosed in the UK proceeding, to the extent they are relevant to the issues in the litigation.
[5] In March 2025, the Tribunal granted Katanga limited authorization to share some confidential materials with Glencore's UK counsel for the sole purpose of conducting a relevance review.{3} After that review, Glencore's counsel determined that all but one of the documents must be disclosed to comply with a UK court's production order.
[6] Following that determination, Glencore applied in the UK to vary the production order, relying on expert evidence about Ontario's confidentiality provisions. That UK application has been adjourned pending the outcome of this proceeding.
[7] Katanga now seeks broader authorization to disclose the Confidential Documents for use in the UK litigation. Katanga provided notice to individuals whose compelled testimony appears in the documents. Two individuals objected, one, while taking no formal position, stated he had an expectation the testimony would remain confidential, and one did not respond. Another individual whose testimony is included has passed away.
[8] Due to the confidential nature of s. 17 applications, the Tribunal ordered that this hearing take place in the absence of the public and that the materials filed be marked as confidential.{4} We have drafted these reasons without reference to any confidential information in order to increase the public transparency of this proceeding.
[9] The sole issue to determine on this application is whether it is in the public interest to authorize disclosure of the Confidential Documents for use in the UK proceeding.
[10] Ontario's public policy, consistent with other jurisdictions with modern securities regulation, is that confidentiality is essential to the integrity and effectiveness of regulatory investigations.
[11] Disclosure of the existence or nature of an investigation risks impairing market integrity by signalling that regulatory action may be imminent, prompting premature market reactions.
[12] Confidentiality also protects the investigative process in a number of other ways. It does so by reducing the risk of witness coordination, and the tailoring, concealing and destruction of evidence. It encourages candid cooperation by assuring witnesses that compelled testimony and produced documents will not be disclosed except as expressly permitted by statute. It safeguards the Commission's investigative and market-surveillance methods.
[13] Importantly, confidentiality protects commercial and personal privacy interests and avoids unwarranted reputational harm where no wrongdoing is ultimately found.
[14] Part VI of the Act, which deals with Investigations and Examinations, implements the public policy of maintaining the confidentiality of securities investigations.
[15] Section 13 of the Act grants investigators the power to force persons to attend and testify under oath and produce documents and other things. Compelled interviews are a central investigative tool. At such interviews witnesses cannot refuse to answer on self-incrimination grounds but may invoke the protection of s. 9 of the Evidence Act{5} which precludes the subsequent use of their compelled answers against them in any civil proceeding or prosecution under any Act of the Legislature.
[16] Section 16 of the Act codifies Ontario's strong policy of non-disclosure. It prohibits disclosure of the existence or content of an investigation order, the identity of persons examined, the content of compelled testimony, production demands, and materials produced.
[17] Section 16 contains limited exceptions, including disclosure to counsel or insurers and certain uses by the Commission itself. Outside these exceptions, the information "shall not be disclosed or produced...in any other proceeding." The exception engaged here is s. 17, which authorizes the Tribunal to permit disclosure where it "considers that it would be in the public interest."
[18] In determining whether it is in the public interest to order disclosure, the Tribunal must:
a. consider the purpose for which the evidence is sought and the specific circumstances of the case; and
b. balance the continued requirements for confidentiality with its assessment of the public interests at stake, including harm to the person whose testimony is sought.{6}
[19] In applying this test we keep in mind the statement of the Supreme Court of Canada in Deloitte and Touche LLP v Ontario (Securities Commission) that the Tribunal "is obligated to order disclosure only to the extent necessary to carry out its mandate under the Act."{7} The Tribunal has observed that "an order under subsection 17(1) of the Act will be appropriate only in the 'most unusual circumstances' where the public interest in disclosure clearly outweighs the confidentiality protections provided in the Act."{8}
[20] It is well-established, as acknowledged by the applicant, that disclosure of information protected by s. 16 for use in private civil proceedings is generally not in the public interest.{9} The applicant seeking an order under s. 17 authorizing disclosure bears the onus of demonstrating disclosure for use in private civil litigation would nonetheless advance the public interest under the Act.{10}
[21] This principle reflects the scheme of the Act. It is not a purpose of the Act's investigation and enforcement provisions to assist private litigants in recovering losses arising from alleged breaches of securities law. The Tribunal lacks jurisdiction to order restitution to private investors, and even disgorgement orders are protective and preventative, not compensatory.{11} The Tribunal in X and Co (Re) stated, "Whatever public interest concerns may be relevant under s. 17, we are satisfied that they do not include disclosure to facilitate investors in pursuing civil causes of action against those investigated under s.11."{12}
[22] The general purposes of the Act are expressly stated in s. 1.1 as follows:
(i) protect investors from unfair, improper, or fraudulent practices;
(ii) foster fair, efficient, and competitive capital markets and confidence in those markets;
(iii) foster capital formation; and
(iv) contribute to financial-system stability and the reduction of systemic risk.
[23] The Tribunal's decision in X and A Co (Re), illustrates the application of the principle.
[24] In that case, a court-appointed receiver sought authorization to use compelled interview transcripts in a civil action and in a class proceeding. The receiver argued that its appointment at the Commission's request gave it a special public-interest status and that its civil action was a natural extension of the Commission's enforcement efforts. It submitted several grounds for disclosure, including relevance to the civil claims, alleged inconsistency between the defendant's court pleadings and its settlement with the Commission, and the absence of prejudice to the examined witness.{13}
[25] The Tribunal rejected the receiver's application, holding that the receiver was not acting as an agent or instrumentality of the Commission in pursuing civil litigation, and that the providers of the compelled evidence reasonably expected confidentiality. Disclosure for collateral civil proceedings was not justified in the public interest.{14}
[26] However, there is no blanket rule against disclosure for use in private litigation. In Biscotti v Ontario Securities Commission,{15} the Court of Appeal confirmed that the Commission cannot maintain a blanket policy against disclosure and must assess each request on its own merits by reference to the purposes of the Act. The Tribunal must consider the specific circumstances of each case.{16}
[27] The applicant seeks disclosure in this case to fulfil Glencore's duty of production in civil proceedings. Glencore's lawyers have determined that the Confidential Documents are relevant and subject to Glencore's disclosure obligations in those civil proceedings.
[28] These facts are not unusual. Materials obtained by a Commission investigator would always be relevant to private civil litigation arising from the same or related subject matter. Such material, without s. 16, would be subject to civil procedure rules governing production and discovery whether in domestic or foreign litigation.
[29] The special circumstance in this case, the crux of the case according to counsel for the applicant, is that Glencore is subject to a case management order issued by the United Kingdom Court requiring Glencore to produce the Confidential Documents to the claimants in the UK litigation.
[30] We see several reasons why a case management order of a foreign court, without more, cannot determine the outcome under s. 17.
[31] First, Ontario's confidentiality regime is statutory. Section 16 creates a broad prohibition on disclosure, and the Tribunal may depart from it only where s. 17 expressly authorizes it. The Tribunal's jurisdiction is therefore limited to determining whether disclosure would advance the purposes of the Act. A foreign court order, grounded in foreign procedural rules and directed to the conduct of foreign civil litigation, does not fulfil those purposes.
[32] Second, principles of comity cannot displace the statutory framework. Ontario's courts and tribunals respect foreign judicial processes, but comity does not permit this Tribunal to disregard the Legislature's express confidentiality requirements. A foreign order cannot expand the statutory exceptions in s. 16, nor can it shift the focus of the s. 17 inquiry from Ontario's regulatory purposes to the procedural needs of foreign private litigants.
[33] Third, if the existence of a foreign production order were sufficient to justify disclosure under s. 17, the provision would be transformed from a narrow exception designed to preserve the integrity of Ontario's investigative processes into a mechanism for accommodating foreign civil-procedure rules. That outcome is inconsistent with both the language of the Act and the jurisprudence holding that disclosure for private civil litigation is generally not in the public interest.
[34] We do not accept the applicant's submission that in Hamlin (Re){17} the Tribunal "recognized the importance of allowing parties to comply with foreign court obligations". The facts in Hamlin were unusual and complicated.
[35] The Commission issued its s. 11 investigation order at the request of the US Commodity Futures Trading Commission Division of Enforcement (CFTC). The s. 11 order authorized both CFTC staff and Commission staff to investigate the possible violations of the US Commodity Exchange Act and regulations. The compelled examination of Hamlin under s. 13 of the Act was conducted by both Commission staff and CFTC staff. The CFTC commenced an action in the United States District Court for the Southern District of New York (SDNY). Hamlin was not a party to the proceeding but a party sought to examine him. The SDNY Court issued a Letter of Request to the Ontario court to compel Hamlin's attendance at an examination, which was recognized and enforced by the Ontario Superior Court of Justice. When Hamlin attended the examination in the US proceeding, he refused to answer questions about his compelled examination because he was subject to s. 16 of the Act. Hamlin applied under s. 17 for authority to disclose his compelled examination before he attended for a scheduled re-examination in the US proceeding.{18} The Tribunal granted his application.{19}
[36] On our reading, the Tribunal in Hamlin applied the purpose driven public interest analysis under s. 17. The Tribunal permitted disclosure not because the foreign court required it, but because the requested use aligned with the Ontario investigation that produced the compelled evidence and disclosure posed no risk to the Commission's investigation integrity or to any person's privacy interests.{20}
[37] It is noteworthy that even though the Ontario court had recognized and enforced a foreign letter of request, the Tribunal held that it had to independently apply the statutory public interest test and did so.{21} While Hamlin's proposed disclosure advanced the foreign proceeding, that proceeding was a product of the cooperative cross-border regulatory investigation in which he gave his compelled testimony. As he was seeking the order himself, there was no threat to his privacy interests. The Commission confirmed the privacy of other persons was not a consideration and there was no concern about impairment of the integrity of an ongoing commission investigation.{22}
[38] On our reading, Hamlin indicates a foreign disclosure order is a contextual fact but not a substitute for the statutory analysis that s. 17 requires. We see a distinction between foreign assistance tied to the Commission's s. 11 investigation and foreign private litigation unconnected to the Act's purposes.
[39] The foreign proceeding in this case lacks any special features. On the information we have, the foreign proceeding in this case is private civil litigation in which the Confidential Documents are relevant. As we noted above, the products of a Commission investigation are always relevant in private civil litigation involving related subject matter. This is not a case, like Hamlin, where disclosure in the foreign proceedings aligns with the public interest under s. 11 of the Act.
[40] Accordingly, the existence of a UK court order directing production in foreign civil proceedings does not, without more, satisfy the applicant's onus to demonstrate that disclosure is in Ontario's public interest under s. 17. The applicant's proposal to create a "ring of confidentiality" within the UK litigation falls outside this Tribunal's authority and, in any event, does not alter the statutory analysis.
[41] As the applicant points out the investigation in this matter was completed almost seven years ago. The investigation culminated in a settlement that the Tribunal approved on December 18, 2018.{23} The settlement agreement is available to the public on the Commission's website. That substantial information is publicly available through the approved settlement does not diminish the statutory confidentiality attaching to the Confidential Documents.
[42] The Tribunal and supervising courts have recognized that confidentiality under s. 16 does not lapse when an investigation concludes. The Ontario Court of Appeal said in Biscotti:
Section 14 [now s. 16] of the Act requires that it be and remain confidential and that the prohibition against disclosure continues unless the Commission consents to its disclosure. Further, the need for confidentiality does not diminish once the investigation is complete. There is no reason why the legislation should be construed that way. If that had been the legislature's intention, the section would have expressly so provided.{24}
[43] The Divisional Court in Coughlan said that while some of the legislative provisions had changed, this was still binding authority. The Divisional Court said:
The fact that there is no ongoing investigation that might be compromised by disclosure is a relevant factor to be taken into account in determining the public interest in disclosure. However, it is by no means the only factor supporting a public interest in maintaining confidentiality.{25}
[44] Persons who are compelled to provide testimony or documents do so on the understanding that the use of that information will be tightly confined. Maintaining confidentiality after an investigation ends preserves that expectation and protects the privacy of individuals who have been compelled to provide sensitive personal, financial or proprietary information.
[45] Two of the individuals whose testimony is included in Confidential Documents advised that the request to disclose the transcripts was contrary to their expectations that the information provided in the interviews would be kept confidential. Another simply advised that they objected to the release of their testimony.
[46] These responses highlight that maintaining confidentiality after an investigation preserves the expectations of persons subjected to compelled interviews and is necessary to maintain trust in the Commission's processes. This has long been recognized. In 1983, the then Commission chairman said in Norcen Energy Resources, "The effective functioning of the Commission depends upon the reliance which parties affected by its operations can place upon the confidentiality of the Commission's administrative proceedings."{26}
[47] It is in the public interest to safeguard the integrity and perceived fairness of the Commission's investigative processes. It is not in the public interest that compelled information be transformed into a litigation resource serving the procedural needs of external proceedings.
[48] Our reasoning makes a review of the comprehensive material filed by the parties unnecessary. We conclude the applicant has not established that it is in the public interest tied to the purposes of the Act to authorize disclosure of the Confidential Documents in this case. Consequently, this application is dismissed. Any unauthorized disclosure would constitute a breach of Ontario securities law.
Dated at Toronto this 20th day of November, 2025.
{1} RSO 1990, c. S.5
{2} Katanga Mining Limited (Re), 2018 ONSEC 59
{3} Katanga Mining Limited v Ontario Securities Commission, 2025 ONCMT 4 (Katanga)
{4} (2025), 48 OSCB 7636
{5} RSO 1990, c E.23
{6} Deloitte & Touche LLP v. Ontario (Securities Commission), 2002 CanLII 44980 (Ont CA) at para 15, aff'd by Deloitte & Touche LLP v Ontario (Securities Commission), 2003 SCC 61 (Deloitte SCC) at para 13; Coughlan, Re, [2000] OJ No 5109, 102 ACWS (3d) 241 (Div Ct) (Coughlan) at para 38; Katanga at para 12
{7} Deloitte SCC at para 29
{8} Black (Re) (2008), 31 OSCB 10397 (Black) at para 220
{9} X and A Co (Re), 2007 ONSEC 1 (X and A Co) at para 32; Coughlan at paras 5, 40-41
{10} Black at para 78
{11} Cartaway Resources Corp. (Re), 2004 SCC 26 at para 58; Committee for the Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), 2001 SCC 37 at para 41
{12} X and A Co at para 33
{13} X and A Co at para 12
{14} X and A Co at paras 27-42
{15} 1991 CanLII 7216 (Ont CA) (Biscotti)
{16} Biscotti at p 9
{17} 2023 ONCMT 5 (Hamlin)
{18} Hamlin at paras 7-13
{19} Hamlin at para 33
{20} Hamlin at para 24
{21} Hamlin at paras 28-29
{22} Hamlin at paras 23-24
{23} Katanga Mining Limited (Re), 2018 ONSEC 59
{24} Biscotti at p 8
{25} Coughlan at para 57
{26} Quoted in Coughlan at para 57
CSA Multilateral Staff Notice 31-367 -- Notice and Consultation Regarding CSA Coordinated Blanket Order 31-930 Exemption to Allow Exempt Market Dealer Participation in Selling Groups in Offerings of Securities Under a Prospectus
November 27, 2025
The securities regulatory authorities in Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, Québec, and Saskatchewan (the Participating Jurisdictions) are publishing this staff notice and consultation questions to inform stakeholders that the temporary Canadian Securities Administrators Coordinated Blanket Order 31-930 Exemption to Allow Exempt Market Dealer Participation in Selling Groups in Offerings of Securities Under a Prospectus (theBlanket Order) expires on December 20, 2025 and will not be extended. The Participating Jurisdictions are also seeking feedback on the exemption that was provided in the Blanket Order to assist in future policy-making, including to consider whether a revised exemption should be published in the future.
Early-stage, small- and medium-sized issuers are an important part of the provincial economies, serving as key contributors to employment, quality of life, and income within communities. Exempt market dealers play an important role in assisting these issuers in raising capital by acting as dealers or underwriters for the issuers' securities and distributing the issuers' securities under exemptions from the prospectus requirement.
As the issuers grow and mature, they may seek financing through offerings of their securities under a prospectus. Exempt market dealers are often limited in their ability to continue to support these issuers at this stage because exempt market dealers can only participate in a distribution of securities to investors if the distribution is made in reliance on an exemption from the prospectus requirement. Generally, the appropriate dealer registration category for participating in distributions of securities under a prospectus is the investment dealer category. However, allowing exempt market dealers to participate as members of a selling group in prospectus offerings may make available additional sources of capital to issuers, may provide investors with more investment opportunities, and may allow exempt market dealers to participate in more of an issuer's lifecycle (i.e., from early to growth or maturity stage).
In late June 2024, the securities regulatory authorities in Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, Québec, Saskatchewan, and Yukon (the Blanket Order Participating Jurisdictions) published the Blanket Order setting out a temporary exemption from the restrictions set out in paragraph 7.1(2)(d) of National Instrument 31-103Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) so that exempt market dealers could participate in prospectus offerings as members of selling groups.{1} The Blanket Order will expire on December 20, 2025.
Exempt market dealers that intend to rely on the Blanket Order are required under National Instrument 33-109 Registration Information to report a change in business activity by filing a Form 33-109F5 Change of Registration Information indicating that they will be participating as members of selling groups in prospectus offerings. As of October 20, 2025, only three exempt market dealers have made such filing and, of the three firms, only two have participated in selling groups in prospectus offerings. The two firms each participated in two prospectus offerings. We are seeking feedback as set out below to consider if a new exemption should be issued to allow exempt market dealer participation in selling groups in prospectus offerings.
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Q1. Are there any significant factors not identified below that contributed to the limited use of the Blanket Order?
Q2. Do stakeholders have any additional feedback on the exemption to allow the participation of exempt market dealers in selling groups for prospectus offerings?
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Through inquiries from and outreach to stakeholders since the publication of the Blanket Order, the Participating Jurisdictions received feedback on the Blanket Order in the following areas:
1. Participation limit
Stakeholders raised concerns that the restriction on compensation that an exempt market dealer may receive for their participation in a selling group reduces the incentive for exempt market dealers to rely on the exemption, and that an exempt market dealer may earn more compensation by distributing other securities or from a referral arrangement.
Staff note that the condition in the Blanket Order that limits the compensation for an exempt market dealer does not set the amount of compensation that exempt market dealers may receive. Rather, the condition establishes the maximum percentage of compensation that exempt market dealers participating in selling groups may receive. It was intended to reflect the exempt market dealers' participation in the selling group compared to investment dealers (i.e., exempt market dealers are not acting as underwriters and are not signing the underwriter certificate).
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Q3. Should compensation to exempt market dealers that participate as members of selling groups in prospectus offerings be limited? Why or why not?
Q4. If compensation to exempt market dealers that participate as members of selling groups in prospectus offerings should be limited, how should the limit on compensation be established?
Q5. Are there mechanisms other than on compensation limits that can serve a similar role?
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2. Exempt market dealers cannot access electronic settlement
Stakeholders noted that exempt market dealers cannot participate in electronic settlement through the Canadian Depository for Securities. Additionally, exempt market dealers are unable to enter into a carrying broker arrangement with investment dealers because investment dealers may only offer carrying broker services to other investment dealers and mutual fund dealers. As a result, if an exempt market dealer participates in a selling group for a prospectus offering, the issuer must be willing to accommodate by providing paper certificates, which increases costs and complexity to the transaction to the issuer.
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Q6. To what extent does the inability of an exempt market dealer to access electronic settlement impact an issuer's or underwriter's decision to include an exempt market dealer in a selling group of a prospectus offering?
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3. Exempt market dealers cannot subsequently advise clients on the securities purchased
An exempt market dealer may not necessarily be able to subsequently advise a client regarding securities purchased under a prospectus and may be reluctant to refer the client to an investment dealer who is able to advise on those securities.
Specifically, except as set out in the Blanket Order, exempt market dealers are permitted to:
• trade or underwrite securities if the trade is a distribution made under a prospectus exemption;
• participate in the resale of securities that are subject to resale restrictions; and
• participate in the resale of securities, if a prospectus exemption would be available to the seller if the trade were a distribution and the class of securities is not listed, quoted or traded on a marketplace.
An exempt market dealer would only be able to subsequently advise a client on the securities purchased in the circumstances outlined above.
Additionally, exempt market dealers are not permitted to establish an omnibus account with an investment dealer and trade listed securities through the investment dealer on behalf of their clients since this activity is trading in listed securities which exempt market dealers are not permitted to do as set out in subparagraph 7.1(2)(d)(ii) of NI 31-103. In such cases, secondary trading in listed securities must be conducted through an investment dealer in accordance with the rules and requirements applicable to investment dealers.
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Q7. To what extent does the inability of an exempt market dealer to subsequently advise clients on the securities purchased affect an exempt market dealer's decision to participate in selling groups for prospectus offerings?
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4. Issuers' and Investment Dealers' Awareness of the Blanket Order
Some stakeholders suggested that there was limited awareness of the Blanket Order among issuers and investment dealers. As a result, issuers and investment dealers may not have been informed that exempt market dealers could have participated in a selling group for prospectus offerings, which may have impacted the use of the Blanket Order. The Blanket Order Participating Jurisdictions issued a news release when the Blanket Order was issued. Staff are aware that many law firms issued communications regarding the Blanket Order. Additionally, certain jurisdictions used mass email communications and other publications to highlight the Blanket Order.
Staff also received feedback that there may be difficulties for exempt market dealers to participate in selling groups under a prospectus offering because investment dealers may not have understood the conditions to include exempt market dealers and may have been reluctant to include them.
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Q8. Please comment on other steps that could be taken to increase awareness among issuers and investment dealers if a new blanket order is issued.
Q9. Is there any confusion as to how issuers and investment dealers may involve exempt market dealers in selling groups in prospectus offerings?
Q10. Are there any other factors that may affect the decision of an issuer or an investment dealer to include exempt market dealers in a selling group of a prospectus offering?
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The Participating Jurisdictions invite participants to provide input on the issues outlined in this staff notice and consultation questions. The consultation period expires January 26, 2026.
Address your submission to all of the Participating Jurisdictions as follows:
Submit your comments through the CSA consultation page. Your comments will be distributed to the Participating Jurisdictions.
When submitting your comments from Québec through the link above, you are submitting your comments to:
We cannot keep submissions confidential because securities legislation in certain provinces requires publication of the written comments received during the comment period. All comments received will be posted on the websites of the Alberta Securities Commission at www.asc.ca, the Autorité des marchés financiers at www.lautorite.qc.ca, and the Ontario Securities Commission at www.osc.ca. Therefore, you should not include personal information directly in comments to be published. It is important that you state on whose behalf you are making the submission. Content may be moderated so that all submissions are respectful and professional.
Please refer your questions to any of the following:
{1} The local blanket orders were published by the securities regulatory authorities in Alberta, British Columbia, Nova Scotia, Ontario, Québec, Saskatchewan, and Yukon on June 20, 2024, and in New Brunswick on June 27, 2024.
Notice of Correction -- Canadian Investment Regulatory Organization (CIRO) -- Amendments to UMIR Respecting Contingent Derivative Orders -- Notice of Commission Approval
AMENDMENTS TO UMIR RESPECTING CONTINGENT DERIVATIVE ORDERS
In the Notice of Commission Approval -- Amendments to UMIR Respecting Contingent Derivative Orders published at (2025), 48 OSCB 9691, the coming into effect date was incorrect. The correct coming into effect date is December 22, 2025. The corrected Notice is republished in full in Chapter B.11 of this issue.
Notice of Ministerial Approval of Amendments to National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivative
Nov 27, 2025
On Nov 21, 2025, the Ontario Minister of Finance approved amendments (theAmendments) to National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivative (the Rule), pursuant to section 143.3 of the Securities Act (Ontario).
The Amendments were published in the Ontario Securities Commission's (OSC) Bulletin on September 25, 2025 at (2025), 48 OSCB 8013 and on the OSC website at www.osc.ca. The Amendments will become effective on March 25, 2026.
The full text of the Amendments is published in Chapter 5 of this Bulletin.
MR Group Investment US, Inc. et al. -- ss. 74, 144
Rulings under subsection 74(1) of the Securities Act (Ontario) (the Act) exempting three affiliated companies from the adviser registration requirement in subsection 25(3) where the companies act as an adviser to other affiliated companies, subject to certain terms and conditions -- Decision providing for rulings also includes Orders under subsection 144(1) that revoke the following the prior ruling of the Commission that had provided exemptions from the adviser registration requirement for the applicant companies: (i) the Ruling of the Commission dated November 20, 2020, In the Matter of MR Group Investment US, Inc., MEAG New York Corporation, MEAG Munich Ergo Asset Management GMBH, (2020), 43 OSCB 8922.
Securities Act, R.S.O. 1990, c. S.5, ss. 74(1), 144(1), 25(3).
(Section 74 and Section 144 of the Act)
UPON the application (the Application) of MR Group Investment US, Inc. (MR Group Investment), MEAG New York Corporation (MEAG New York), and MEAG MUNICH ERGO Asset Management GmbH (MEAG Munich) (collectively, the Applicants) to the Ontario Securities Commission (the Commission) for:
(i) a ruling, pursuant to subsection 74(1) of the Act, that each Applicant not be subject to the registration requirement contained in subsection 25(3) of the Act (the Adviser Registration Requirement), where it acts as an adviser to an Affiliated Company (as defined below) or, in the case of MEAG New York and MEAG Munich, where it acts as a sub-adviser to MR Group Investment, in the circumstances set out below;
(ii) an order, pursuant to subsection 144(1) of the Act, revoking the ruling of the Commission dated November 20, 2020, In the Matter of MR Group Investment, MEAG New York and MEAG Munich, (2020), 43 OSCB 8922 (the Prior Ruling).
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicants having represented to the Commission as follows:
MR Group Investment
1. MR Group Investment is a corporation existing under the laws of Delaware that has its headquarters in the state of New Jersey, in the United States of America (the U.S.A.). It does not have any office or employees located in Canada.
2. MR Group Investment is, in all material respects, in compliance with the securities laws of the U.S.A.
3. MR Group Investment is not in default of any requirements of securities legislation in any jurisdiction of Canada.
4. MR Group Investment is a member of the Munich Re Group (defined below) and plays a central role in the investment advisory function of the Munich Re Group.
5. MR Group Investment is not registered in any category of registration under the securities legislation of any jurisdiction of Canada.
The Munich Re Group
6. Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (Munich Re), is a global re-insurance company headquartered in Germany. Each of the Applicants is part of the corporate group of companies affiliated with Munich Re and collectively known as the 'Munich Re Group'. Munich Re, Munich Reinsurance Company of Canada, Temple Insurance Company, The Boiler Inspection and Insurance Company of Canada, and Munich Reinsurance America, Inc. (collectively, the Insurance Companies) are insurance companies that carry on business in Canada as Canadian federally-licensed insurance companies with their Canadian head offices located in Ontario. Munich Holdings Ltd., a company established under the laws of Canada with its Canadian head office located in Ontario, is the holding company of Munich Reinsurance Company of Canada and Temple Insurance Company. Munich Holdings Ltd. and the Insurance Companies are collectively referred to herein as the Affiliated Companies. Each of the Affiliated Companies is a direct or indirect wholly owned subsidiary of Munich Re.
7. With respect to the above Affiliated Companies:
(a) Munich Re operates as an insurance company in Canada on a branch basis;
(b) Munich Reinsurance Company of Canada underwrites the following classes of business: property, accident and sickness, aircraft, automobile, boiler and machinery, credit, fidelity, hail, liability, surety and marine;
(c) Temple Insurance Company underwrites large industrial and commercial risk management accounts;
(d) The Boiler Inspection and Insurance Company of Canada offers equipment breakdown insurance and other specialty insurance and reinsurance coverages worldwide;
(e) Munich Reinsurance America, Inc. is a major provider of property and casualty reinsurance in the U.S.A., operating also through its branch in Canada (its Canadian Branch is in run-off, writing no new business in Canada); and
(f) Munich Holdings Ltd. is a holding company and does not conduct insurance operations in Canada.
8. Each of the Affiliated Companies is deemed to be an "affiliate" of each of the Applicants for the purposes of the Act, pursuant to subsection 1(2) of the Act. Each of the Affiliated Companies is also a "permitted client" as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
MEAG New York
9. MEAG New York is a corporation existing under the laws of the State of Delaware, U.S.A, that has its headquarters located in the state of New York, U.S.A. It does not have any office or employees located in Canada.
10. Since August 9, 2022, MEAG New York is registered with the Securities and Exchange Commission (the SEC) in the U.S.A. as an investment adviser.
11. MEAG New York is, in all material respects, in compliance with the securities laws of the U.S.A.
12. MEAG New York is not in default of any requirements of securities legislation in any jurisdiction of Canada.
13. MEAG New York provides investment management services exclusively to entities affiliated with Munich Re, including the Affiliated Companies.
14. MEAG New York is not registered in any category of registration under the securities legislation of any jurisdiction of Canada.
15. Pursuant to the Prior MEAG New York Ruling, MEAG New York obtained an exemption from the Adviser Registration Requirement permitting it to act as an adviser to Affiliated Companies, subject to certain terms and conditions.
MEAG Munich
16. MEAG Munich is a corporation existing under the laws of the Federal Republic of Germany (Germany), based in the City of Munich, Germany. It does not have any office or employees located in Canada.
17. MEAG Munich is exempt from the obligation to obtain the authorization of BaFin (the German Federal Financial Supervisory Authority) to provide financial services pursuant to the German Banking Act (Kreditwesengesetz) on the basis that it provides such services exclusively to affiliated entities.
18. MEAG Munich is, in all material respects, in compliance with the securities laws of Germany.
19. MEAG Munich is not in default of any requirements of securities legislation in any jurisdiction of Canada.
20. MEAG Munich provides investment management services exclusively to entities affiliated with Munich Re, including the Affiliated Companies.
21. MEAG Munich is not registered in any category of registration under the securities legislation of any jurisdiction of Canada.
22. Pursuant to the Prior MEAG Munich Ruling, MEAG Munich obtained an exemption from the Adviser Registration Requirement permitting it to act as an adviser to Affiliated Companies, subject to certain terms and conditions.
Adviser Activities
23. MR Group Investment is the central investment advisory services hub in the Canadian and United States markets for the Munich Re Group, with MEAG Munich and MEAG New York serving as sub-advisers to MR Group Investment. MR Group Investment provides a group overlay to the global investment management performed by MEAG Munich and MEAG New York for Munich Re Group affiliates around the world, including the Affiliated Companies.
24. MEAG New York and MEAG Munich handle the bulk of the investment advisory services for the Affiliated Companies on a sub-advisory basis through, and coordinated by, MR Group Investment. The following sub-advisory agreements are in effect: (1) as between MEAG New York and MR Group Investment as of September 30, 2020 with an effective date in respect of the Affiliated Companies as of January 1, 2020, and (2) as between MEAG Munich and MR Group Investment as of December 17, 2020 with an effective date as of January 1, 2021, respectively (collectively, the Sub-Advisory Agreements).
25. The portfolio assets of the Affiliated Companies are beneficially owned by each of the respective Affiliated Companies. There are no external stakeholders (including, for example, holders of variable annuity contracts or segregated/separate accounts for policyholders) that have any direct or indirect interest in the performance of such portfolios. There will continue to be no stakeholders in Ontario or elsewhere, other than the Affiliated Companies and Munich Re (as the direct or indirect owner of the Affiliated Companies), that will be directly affected by the results of the investment advice and portfolio management services to be provided by any of the Applicants to an Affiliated Company, in accordance with the exemptions from the Adviser Registration Requirement set out in this Ruling.
26. Employees of a corporation do not trigger the Adviser Registration Requirement if the employee provides investment advice to their corporate employer with respect to the portfolio assets of their corporate employer. The Affiliated Companies do not currently employ individuals to provide investment advice with respect to their respective portfolio assets. Even though the Affiliated Companies have outsourced such services to MR Group Investment (and to MEAG New York and MEAG Munich through the Sub-Advisory Agreements), the individuals who provide such services will continue to be employees of affiliates of the Affiliated Companies (i.e., as employees of MR Group Investment, MEAG New York or MEAG Munich). Accordingly, the outsourced adviser function stays within the Munich Re Group and, in any event, is performed by employees of affiliates of the Affiliated Companies, substantially reflecting the circumstances that prevent the employees of a corporation from triggering the Adviser Registration Requirement, with this outsourcing of the investment advisory function permitted under applicable federal or provincial insurance company legislation.
27. Each of MR Group Investment and MEAG Munich operates under an exemption from registration under the securities legislation of the jurisdiction in which its head office is located, which permits each to carry on activities in that jurisdiction that registration as an adviser under the Act would permit it to carry on in Ontario.
28. MEAG NEW YORK is registered as an adviser with the SEC in the U.S.A. where its head office is located, which permits each to carry on activities in the U.S.A. that registration as an adviser under the Act would permit it to carry on in Ontario.
29. NI 31-103 provides certain exemptions from the registration requirements of applicable Canadian securities legislation, including the exemption from the Adviser Registration Requirement set out in section 8.26 of NI 31-103 (the International Adviser Exemption).
30. None of the Applicants can rely on the International Adviser Exemption for advice it provides to an Affiliated Company because the advice includes advice in respect of a security that is not a "foreign security" as defined in subsection 8.26(2), and such advice is not, or will not, be incidental to advice provided on a foreign security (the Foreign Security Restriction).
Revocation of Prior Ruling
31. The Prior Ruling expires on November 20, 2025. To continue the exemptions granted under the Prior Ruling, and to reflect the current facts, the Applicants have requested: (i) a restatement in this Ruling of substantially similar exemptive relief to that previously made available to them under the Prior Ruling; and (ii) a revocation of the Prior Ruling.
AND WHEREAS section 74 of the Act provides that the Commission may, upon the application of an interested person or company make a ruling that a person or company is not subject to section 25 of the Act, subject to such terms and conditions as the Commission considers necessary, where the Commission is satisfied that to do so would not be prejudicial to the public interest;
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS RULED, pursuant to section 74 of the Act, that each of the Applicants is not subject to the Adviser Registration Requirement in respect of that Applicant acting as an adviser to an Affiliated Company, or, in the case of MEAG New York and MEAG Munich, where such Applicant acts as sub-adviser to MR Group Investment, provided that:
(a) the Affiliated Company is:
(i) licensed or otherwise duly permitted or authorized to carry on the business of an insurance company in Canada or the business of a branch of a foreign insurance company in Canada; or
(ii) a holding company that has as its principal business activity holding securities of one or more affiliates that are in each case licensed or otherwise duly permitted or authorized to carry on business as an insurance company in Canada;
(b) in the case of MEAG New York and MEAG Munich, where such Applicant acts as a sub-adviser to MR Group Investment, the sub-advised advice is only provided to an Affiliated Company referred to in paragraph (a)(i) or (a)(ii), above;
(c) with respect to any advice to an Affiliated Company referred to in paragraph (a) or paragraph (b), above, the advice or sub-advised advice is provided only so long as:
(i) the Affiliated Company remains deemed to be an "affiliate" of the Applicant pursuant to subsection 1(2) of the Act;
(ii) the Affiliated Company remains a "permitted client" as defined in section1.1 of NI 31-103; and
(iii) the beneficial ownership of the portfolio assets of the Affiliated Company and the affected stakeholders continues to be as set out in paragraph 28, above;
(d) with respect to any sub-advised advice referred to in paragraph (b), above, the sub-advised advice is provided only so long as MR Group Investment remains deemed to be an "affiliate" of the Applicant pursuant to subsection 1(2) of the Act;
(e) the Applicant notifies the Commission of any regulatory action initiated after the date of this Ruling in respect of the Applicant or, to the best of that Applicant's knowledge and after reasonable inquiry, in respect of any "predecessor" or "specified affiliate" of the Applicant (as those terms are defined in Form 33109F6 to National Instrument 33-109 Registration Information), by completing and filing with the Commission Appendix "A" hereto within 10 days of the commencement of such regulatory action, or in the case of a predecessor or specified affiliate of the Applicant, within 10 days of such knowledge;
(f) the Applicant, in the course of its dealings with any Affiliated Company referred to in paragraph (a) or (b), above, acts fairly, honestly and in good faith;
(g) the Applicant complies with, and remains in compliance with, any applicable adviser licensing or registration requirements under applicable securities legislation in the jurisdiction in which its head office is located; and
(h) this Ruling will terminate on the date that is the earlier of:
(i) the date that is five years after the date of this Ruling; and
(ii) the date of the coming into force of a change in securities legislation in Ontario that exempts any of the Applicants from the Adviser Registration Requirement in connection with any advising activity the Applicant provides to an Affiliated Company, on terms and conditions other than those set out in this Ruling;
AND WHEREAS section 74 of the Act provides that the Commission may, upon the application of a person or company affected by the decision, make an order revoking or varying a decision of the Commission, if, in the Commission's opinion, the order would not be prejudicial to the public interest;
AND UPON the Commission being of the opinion that to do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to section 144 of the Act, that each of the Prior MEAG Rulings is hereby revoked.
DATED at Toronto, Ontario, this 14th day of November, 2025.
International Royalty Corporation et al.
National Policy 11-206 Process for Cease to be a Reporting Issuer Applications -- The issuer ceased to be a reporting issuer under securities legislation.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 1(10)(a)(ii).
November 13, 2025
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer for an order under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the Filer has ceased to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer (the Order Sought).
Under the Process for Cease to be a Reporting Issuer Applications (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4C.5(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.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this order, unless otherwise defined.
This order is based on the following facts represented by the Filer:
1. the Filer is not an OTC reporting issuer under Multilateral Instrument 51-105 -- Issuers Quoted in the U.S. Over-the-Counter Markets;
2. the outstanding securities of the Filer, including debt securities, are beneficially owned, directly or indirectly, by fewer than 15 securityholders in each of the jurisdictions of Canada and fewer than 51 securityholders in total worldwide;
3. no securities of the Filer, including debt securities, are traded in Canada or another country on a marketplace as defined in National Instrument 21-101 Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported;
4. the Filer is applying for an order that the Filer has ceased to be a reporting issuer in all of the jurisdictions of Canada in which it is a reporting issuer; and
5. the Filer is not in default of securities legislation in any jurisdiction.
The Decision Maker is satisfied that the order meets the test set out in the Legislation for the Decision Maker to make the order.
The decision of the Decision Maker under the Legislation is that the Order Sought is granted.
OSC File #: 2025/0669
RF Capital Group Inc. -- s. 1(6) of the OBCA
Applicant deemed to have ceased to be offering its securities to the public under the Business Corporations Act (Ontario).
Business Corporations Act, R.S.O. 1990, c. B.16, as am., s. 1(6).
(Subsection 1(6) of the OBCA)
UPON the application of the Applicant to the Ontario Securities Commission (the Commission) for an order pursuant to subsection 1(6) of the OBCA to be deemed to have ceased to be offering its securities to the public;
AND UPON the Applicant representing to the Commission that:
1. the Applicant is an "offering corporation" as defined in subsection 1(1) of the OBCA;
2. the Applicant's head and registered office is located at 100 Queens Quay East, Suite 2500, Toronto, Ontario, M5E 1Y3;
3. the Applicant has no intention to seek public financing by way of an offering of securities;
4. on November 12, 2025, the Applicant was granted an order (the Reporting Issuer Order) pursuant to subclause 1(10)(a)(ii) of the Securities Act (Ontario) that it is not a reporting issuer in Ontario and is not a reporting issuer or the equivalent in any jurisdiction of Canada in accordance with the procedure set out in National Policy 11-206 Process for Cease to be a Reporting Issuer Applications; and
5. the representations set out in the Reporting Issuer Order continue to be true.
AND UPON the Commission being satisfied that to grant this order would not be prejudicial to the public interest;
IT IS HEREBY ORDERED by the Commission pursuant to subsection 1(6) of the OBCA that the Applicant is deemed to have ceased to be offering its securities to the public.
DATED at Toronto this 21st day of November 2025.
OSC File #: 2025/0648
Bellwether Investment Management Inc. (formerly known as Lorne Park Capital Partners Inc.) -- s. 1(6) of the OBCA
Applicant deemed to have ceased to be offering its securities to the public under the Business Corporations Act (Ontario).
Business Corporations Act, R.S.O. 1990, c. B.16, as am., s. 1(6).
(Subsection 1(6) of the OBCA)
UPON the application of the Applicant to the Ontario Securities Commission (the Commission) for an order pursuant to subsection 1(6) of the OBCA to be deemed to have ceased to be offering its securities to the public;
AND UPON the Applicant representing to the Commission that:
1. the Applicant is an "offering corporation" as defined in subsection 1(1) of the OBCA;
2. the Applicant's head office is located at 1295 Cornwall Road Unit A3, Oakville, Ontario, L6J 7T5 and its registered office is located at 199 Bay Street, Suite 5300, Commerce Court West, Toronto, Ontario, M5L 1B9;
3. the Applicant has no intention to seek public financing by way of an offering of securities;
4. on October 31, 2025, the Applicant was granted an order (the Reporting Issuer Order) pursuant to subparagraph 1(10)(a)(ii) of the Securities Act (Ontario) that it is not a reporting issuer in Ontario and is not a reporting issuer or the equivalent in any other jurisdiction of Canada in accordance with the simplified procedure set out in section 19 of National Policy 11-206 Process for Cease to be a Reporting Issuer Applications; and
5. the representations set out in the Reporting Issuer Order continue to be true.
AND UPON the Commission being satisfied that to grant this order would not be prejudicial to the public interest;
IT IS HEREBY ORDERED pursuant to subsection 1(6) of the OBCA that the Applicant be deemed to have ceased to be offering its securities to the public.
DATED at Toronto on this 24th day of November, 2025.
OSC File #: 2025/0634
Arrow Capital Management Inc. and WaveFront All-Weather Alternative Fund
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted under subsection 62(5) of the Securities Act (Ontario) to extend the lapse date of a fund's prospectus by 1 year and 166 days to facilitate its combination with the prospectus of other funds under common management -- Fund became a reporting issuer shortly before the coming into force of amendments to NI 81-101 and NI 41-101 on March 3, 2025, which extended the lapse date for the prospectus of a mutual fund in continuous distribution from 12 months to 24 months -- As the fund's prospectus was receipted before the coming into force of the March 3rd amendments, it remains subject to 12-month renewal timeline as prescribed by the Legislation that was in force on March 2, 2025, until after its next renewal -- Manager of fund wishing to combine the fund's prospectus with the prospectus of other funds under common management which is subject to 24-month prospectus renewal timeline -- Lapse date extension granted subject to the fund complying with the prospectus renewal requirements in force further to March 3, 2025 -- Fund will file a renewal fund facts and ETF facts document for each series of securities of the fund no earlier than 13 months and no later than 11 months before the new lapse date.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 62(2) and 62(5).
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.5 and 2.5.1.
November 18, 2025
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) set out in subsection 62(5) of the Securities Act (Ontario) (the Act) and subsection 2.5(6) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) that the time limit for the renewal of the simplified prospectus of the Fund dated January 1, 2025 (the Prospectus) be extended to a time limit that would apply if the lapse date of the Prospectus was June 16, 2027 (the Lapse Date Relief).
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 subsection 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 the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 81-102 Investment Funds, 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 existing under the laws of Ontario having its registered head office in Toronto, Ontario.
2. The Filer is the investment fund manager and portfolio manager of the Fund.
3. The Filer is registered in the following categories in the Jurisdictions as indicated below:
a) Ontario: Portfolio Manager, Investment Fund Manager (IFM); Exempt Market Dealer (EMD) and Commodity Trading Manager under the Commodity Futures Act (Ontario);
b) Alberta: EMD;
c) British Columbia: EMD;
d) Quebec: EMD and IFM; and
e) Newfoundland and Labrador: IFM.
4. The Fund is an alternative mutual fund established under the laws of the Province of Ontario that became a reporting issuer in each of the Jurisdictions on January 1, 2025.
5. The Filer and the Fund are not in default of applicable securities legislation in any of the Jurisdictions.
6. The Fund currently distributes Series AD, FD, I and ETF Units in the Jurisdictions under the Prospectus and fund facts document (the Fund Facts) prepared in accordance with NI 81-101 and ETF facts document (the ETF Facts) prepared in accordance with National Instrument 41-101 General Prospectus Requirements (NI 41-101), each dated January 1, 2025. Series ETF Units of the Fund trade on the Toronto Stock Exchange.
7. On March 3, 2025, amendments to NI 81-101 and to NI 41-101 came into force which extended the lapse date for the prospectus of a mutual fund in continuous distribution from 12 months to 24 months after the date of the previous prospectus relating to the security (the March 3rd Amendment). The transition provisions of the March 3rd Amendment provide that where a fund's prospectus was filed and receipted before March 3, 2025, the lapse date prescribed by the Legislation that was in force on March 2, 2025, applies. As the Fund's Prospectus was receipted shortly before the coming into force of the March 3rd Amendment, the current lapse date of the Prospectus is 12 months from the date of the Prospectus, being January 1, 2026 (the Lapse Date). Accordingly, absent the Lapse Date Relief, the distribution of securities of the Fund would have to cease on the Lapse Date unless: (i) the Fund files a pro forma prospectus at least 30 days prior to the Lapse Date; (ii) the final prospectus is filed no later than 10 days after the Lapse Date; and (iii) a receipt for the final prospectus is obtained within 20 days of the Lapse Date. After its next prospectus renewal in 2026, the Fund would going forward be able to avail itself of the 24-month prospectus renewal timeline prescribed by the Legislation in force further to the March 3rd Amendment.
8. The Filer is also the investment fund manager of certain other mutual funds (the Arrow Funds, and together with the Fund, the Funds) that currently distribute their securities to the public under a simplified prospectus dated June 16, 2025 (the Arrow Funds Prospectus) that has a lapse date of June 16, 2027, in accordance with the Legislation in force further to the March 3rd Amendment.
9. The Filer wishes to combine the Prospectus with the Arrow Funds Prospectus given that the Funds share many common operational and administrative features, to allow investors to compare the features of the Funds more easily and in order to reduce renewal, printing and related costs of the Funds. For this purpose, the Filer requests that the Lapse Date of the Fund's Prospectus be extended to June 16, 2027 (the New Lapse Date), to coincide with the renewal of the Arrow Funds Prospectus.
10. Offering securities of the Funds under a single prospectus document rather than two would enable the Filer to streamline disclosure across its fund platform and allow investors to more easily compare the features of the Funds.
11. It would be impractical to alter and modify the dedicated systems, procedures and resources required to prepare the renewal of the Arrow Funds Prospectus, and unreasonable to incur the costs and expenses associated therewith, so that it can be filed earlier than its lapse date.
12. The Filer may make minor changes to the features of the Arrow Funds as part of the process of renewing the Arrow Funds Prospectus. The ability to consolidate the Prospectus with the Arrow Funds Prospectus will ensure that the Filer can make the operational and administrative features of the Funds consistent with one another, if necessary.
13. If the Lapse Date Relief is not granted, it will be necessary to renew the Prospectus in January 2026, and then renew it again in June 2027, ahead of its then scheduled January 2028 lapse date, in order to consolidate the Prospectus with the Arrow Funds Prospectus and establish a uniform filing timeline for the Funds. It would be unreasonable for the Filer to incur the costs and expenses associated therewith, given that investors would not be prejudiced by the Lapse Date Relief, as discussed below.
14. If the Lapse Date Relief is granted, the Filer will file a renewal Fund Facts or ETF Facts, as applicable, for each series of securities of the Fund no earlier than 13 months and no later than 11 months before the New Lapse Date, in accordance with the prospectus renewal requirements prescribed by the Legislation in force further to the March 3rd Amendment. As such, the Fund will provide updated key information about the Fund to investors in 2026 including current fund value, top investment holdings, fund expenses, any initial performance data and other information as prescribed by Form 81-101F3 --- Contents of Fund Facts Document and Form 41-101F4 --- Information Required in an ETF Facts Document.
15. There have been no material changes in the affairs of the Fund since the date of the Prospectus. Accordingly, the Prospectus and current Fund Facts and ETF Facts of the Fund represent current information regarding the Fund.
16. Given the disclosure obligations of the Fund, should a material change in the affairs of the Fund occur, the Prospectus and current Fund Facts and ETF Facts of the Fund will be amended as required under the Legislation.
17. New investors in the Fund will receive the most recently filed Fund Facts or ETF Facts of the Fund. The Prospectus of the Fund will still be available upon request.
18. The Lapse Date Relief will not affect the accuracy of the information contained in the Prospectus or the Fund Facts or ETF Facts of the Fund and will therefore 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 Lapse Date Relief is granted provided that the Fund complies with the investment fund prospectus renewal requirements prescribed by the Legislation in force further to the March 3rd Amendment.
Application File #: 2025/0660
SEDAR+ File #: 6355392
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from section 6.1 and 6.3 to permit Fund to appoint foreign sub-custodian to hold crypto assets that does not meet minimum $100 million equity requirement -- Parent company is providing guarantee of minimum equity requirement until sub-custodian reaches the threshold on its own.
National Instrument 81-102 Investment Funds, ss. 6.1(3)(b), 6.3 and 19.1.
October 23, 2025
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 an exemption pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102) from:
(a) paragraph 6.1(3)(b) of NI 81-102 to permit, ADB (as defined below), which is not a person or company described in section 6.2 or 6.3 of NI 81-102, to be appointed as a sub-custodian of the Funds to hold the Funds' Crypto Assets (as defined below), and
(b) section 6.3 of NI 81-102 to permit ADB to be appointed as a sub-custodian of the Funds to hold the Funds' Crypto Assets outside of Canada
(collectively, the Requested Relief).
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 Filers have 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 other province and territory in Canada (together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions, MI 11-102, and securities legislation have the same meaning if used in this Decision, unless otherwise defined in this Decision.
For the purposes of this Decision, the following terms have the following meanings:
(a) "ADB" means Anchorage Digital Bank, National Association.
(b) Crypto Assets means anything commonly considered a crypto asset, digital or virtual currency, or digital or virtual token, and includes, Bitcoin, Ether, Solana and XRP.
(c) The Existing Funds means each investment fund, for which the Manager is the investment fund manager as of the date of this decision, that is a reporting issuer subject to NI 81-102 and has investment objectives that permit it to directly invest in and hold Crypto Assets.
(d) Funds means the Existing Funds and the Future Funds.
(e) Future Funds means any investment funds established in the future, for which the Manager or an affiliate act as investment fund manager, that are reporting issuers subject to NI 81-102 have investment objectives to permit them to directly invest in and hold Crypto Assets.
(f) Manager means 3iQ Corp.
This Decision is based on the following facts represented by the Filers:
The Manager
1. The Manager is a corporation established under the laws of the Province of Ontario with its head office located in Toronto, Ontario.
2. The Manager is registered as (i) a portfolio manager in Alberta, Ontario and Quebec; (ii) an exempt market dealer in Alberta, British Columbia, Ontario and Quebec; (iii) an investment fund manager in Alberta, Ontario and Quebec; and (iv) a commodity trading manager in Ontario.
3. The Manager is the trustee, manager and portfolio adviser of the Existing Funds. The Manager or an affiliate will be the investment fund manager of the Future Funds.
4. The Manager is not in default of securities legislation in any of the Jurisdictions.
The Funds
5. Each Fund is, or will be, an "investment fund" as defined in Canadian securities legislation and is or will be established under the laws of Canada or a Jurisdiction.
6. The securities of each Fund are, or will be, qualified for distribution pursuant to a prospectus that has been prepared, filed and granted a prospectus receipt under the securities legislation of one or more Jurisdictions. The Funds are or will be reporting issuers subject to NI 81-102.
7. The Funds have or will have investment objectives that permit them to invest in Crypto Assets through direct investment.
8. The Existing Funds are not in default of securities legislation in any of the Jurisdictions.
Custody of Fund Assets
9. Tetra Trust Company (Tetra), an Alberta trust company, is currently the custodian for the Existing Funds', pursuant to an amended and restated custody Agreement dated February 6, 2025 and in accordance with the requirements of section 6.1 of NI 81-102. The custodians of the Future Funds will also be appointed in accordance with NI 81-102.
10. Coinbase Custody Trust Company, LLC (Coinbase) was appointed as the sub-custodian for the Existing Funds pursuant to a custodian agreement dated October 11, 2022, as amended from time to time, between the Manager, Tetra and Coinbase and in accordance with the requirements of section 6.3 of NI 81-102. The Crypto Assets in the Funds' portfolio are currently held by Coinbase in that capacity.
Why the Requested Relief is Needed.
11. The Manager wishes to appoint ADB as an additional sub-custodian in order to also hold the Funds' Crypto Assets outside of Canada.
12. The Manager has assessed whether ADB meets the criteria set forth in section 6.3 of NI 81-102 to permit ADB to be appointed as a sub-custodian of the Funds to the hold the Funds' Crypto Assets outside of Canada and has determined that ADB satisfies these criteria, except for the requirement in subsection 6.3(2) that a sub-custodian of fund assets held outside of Canada have equity, as reported in its most recent audited financial statements of $100 million (the Equity Requirement).
13. In addition, ADB is not an affiliate of an entity that satisfies the necessary criteria in subsection 6.3(3) of NI 81-102.
14. The Requested Relief is needed in order for ADB to be appointed as a sub-custodian for the Funds.
ADB
15. The Manager represents the following, based solely on information provided to it by ADB:
ADB Regulatory Status
(a) ADB is a national trust bank chartered by the Office of the Comptroller of the Currency (OCC) in the United States. ADB received its U.S. federal banking charter in January 2021. ADB offers digital asset custody and settlement solutions, among other services, to institutional clients and certain high net worth individuals, pursuant to the terms of its operating agreement with the OCC (the Operating Agreement).
(b) Pursuant to its Operating Agreement, ADB is subject to oversight by the OCC to ensure that it meets stringent compliance and anti-money laundering requirements, including the Basic Capital Requirement (as defined below).
(c) As a federally chartered trust bank, ADB is a member of the Federal Reserve and has full fiduciary powers under the U.S. Code of Federal Regulations, Title 12 Part 9 governing fiduciary activities of national banks.
(d) ADB is one of the types of entities that can serve as a "qualified custodian" under the U.S.Investment Advisers Act of 1940 (the Advisers Act) in its status as a bank defined in section 202(a)(2) of the Advisers Act, subject to other requirements.
(e) As a federally chartered trust bank, ADB is deemed a "good control location" pursuant to the U.S. Securities Exchange Act of 1934 so long as, among other things, ADB has acknowledged that the client securities are not subject to any right, charge, security interest, lien or claim of any kind in favour of the ADB or any person claiming through ADB and the securities are in the custody or control of ADB.
Anchor Labs and ADB's Capital Requirements
(f) ADB is a wholly owned subsidiary of Anchor Labs, Inc. (Anchor Labs), a Delaware corporation incorporated on October 27, 2017. Anchor Labs is not regulated as a banking institution or trust company under the U.S. federal or state laws, for the purposes of paragraph 6.3(2)(b) of NI 81-102.
(g) The Operating Agreement among other things, prescribes the minimum capital ADB is required to maintain at all times in connection with its status as a federally chartered trust bank (the Basic Capital Requirement).
(h) Pursuant to OCC requirements, ADB maintains at all times a liquidity buffer equivalent to 6-months of operating expenses.
(i) ADB has entered into a "capital and liquidity support agreement" with Anchor Labs and the OCC and a "capital assurance and liquidity maintenance agreement" with Anchor Labs that set forth ADB's right and obligation to seek and obtain all necessary capital and liquidity support from Anchor Labs and Anchor Labs' obligation to provide ADB with such support. These agreements require Anchor Labs to provide ADB with all financial support necessary to ensure the maintenance of capital and liquidity in accordance with the Basic Capital Requirement and additional requirements set out in the Operating Agreement.
ADB's Security Technology
(j) ADB employs industry-leading security measures and crypto-native capabilities, ensuring safety and security in asset custody. Sensitive operations necessitate a consensus of approvals, and multiple well-defined "quorum" authorizations from clients and ADB's personnel are mandatory for transaction processing. The use of advanced biometrics and behavioral analytics enhances user identification, while clients possess unique cryptographic keys stored in secure client-side hardware.
(k) ADB generates asset-holding private keys which are processed in air-gapped hardware security modules (HSMs). HSMs, as widely adopted in the industry, are generally acknowledged to offer a robust solution for safeguarding custody clients' private keys. These physical devices, integrated with servers, provide a layer of physical security, substantially mitigating unauthorized access risks.
(l) Within HSMs, private keys are securely processed and any attempt to move them beyond the HSM's physical boundary triggers immediate encryption, rendering them unusable except by trusted secure execution engine (SEE) software. Code running on the SEE undergoes rigorous validation and is signed by trusted parties to ensure the absence of malicious code, underscoring the stringent control over both hardware and software.
(m) Private keys remain safeguarded and accessible only within authorized contexts.
(n) HSMs are equipped with tamper-resistant and tamper-evident features, adhering to industry standards such as FIPS PUB 140-2 Level 3. This high level of physical security provides robust protection against physical tampering and unauthorized access, crucial to handling Crypto Assets.
(o) HSMs are isolated from external networks and the public internet, maintaining an air-gap that substantially reduces the risk of cyberattacks and data breaches. Private key operations exclusively occur within the secure confines of the HSM's hardware environment, adding an extra layer of defense against external threats.
(p) In all cases, client protection remains paramount, with bankruptcy remoteness, segregated custody for client assets, verifiable on-chain assets, and institutional financial audits conducted by Ernst & Young LLP (EY). ADB has completed a Service Organization Controls (SOC) report under the SOC 1 --- Type 2 and the SOC 2 -- Type 2 standards from EY.
ADB's Resolution Planning Framework
(q) ADB maintains a risk-based resolution planning framework, overseen by ADB's board of directors (Board) to address key loss scenarios, such as cyber events and market crashes.
(r) An executive crisis response team is maintained as part of ADB's complementary business continuity management and disaster recovery programs, with designated individuals assigned to facilitating execution of ADB's resolution plan, if triggered.
(s) In the event of ADB's resolution, Anchor Labs is committed to providing financial support pursuant to the terms of the CSA and CALMA, including additional infusions of capital and liquidity as required, in order to enable an orderly wind-down or sale. If ADB is unable to continue operations and provide custody services, ADB would be wound down with remaining assets under custody being transferred to clients and/or an identified third-party custodian, as applicable.
ADB's Operational Processes
Custodial Fiduciary Compliance
(t) ADB does not put client assets on its balance sheet as it is not the beneficial owner of client assets. Instead, under generally accepted accounting principles, client assets are noted in ADB's financial statements as assets held in trust for the benefit of clients.
(u) As a national trust bank authorized by the OCC to exercise fiduciary powers, ADB is required to segregate all assets held in a fiduciary capacity from the general assets of ADB, as well as to keep a separate set of books and records showing in proper detail all transactions engaged in.
(v) Moreover, ADB is required to undergo an annual audit of all significant fiduciary activities. This annual audit, among other matters, verifies that ADB maintains the segregation of client assets from those maintained on its own balance sheet. ADB's internal audit function serves as the third line of defense for ADB, independent from the business and tests the non-commingling of client and firm assets as part of the annual audit of the fiduciary activities of ADB.
(w) ADB's custody client records are maintained separate from the books and records of ADB. These records:
(i) Contain full information relative to each account, including information regarding the establishment and termination/closing of such accounts required pursuant to ADB's custodial account policies and under applicable law;
(ii) Clearly reflect the interests of the various account holders and permit thorough and satisfactory audit and supervisory review; and
(iii) Are retained, with an appropriate level of information security, for a period of five years from the later of the termination of the account or the termination of any litigation relating to the account, or other time frames required under applicable law, whichever is greater.
(x) Crypto Assets are maintained through segregated accounts and may be further segregated within sub-accounts beneath a client account by multiple vaults. Within each vault, a client may have multiple Crypto Asset addresses dedicated to a variety of Crypto Assets. Each vault is segregated from every other vault within a client's organization account with ADB and ensures full separation of multiple assets, segregated on-chain.
(y) Operationally, ADB periodically reconciles its internal records of client asset balances against data on the blockchain to ensure its internal records have not diverged from the blockchain source of truth. Specifically, a reconciliation script is configured to run at least daily and verify the previous day's transactions recorded are consistent with the blockchain's records.
(z) If the reconciliation script identifies a discrepancy between ADB's systems and the blockchain, it sends an alert to Anchor Labs' engineering team. The engineering team investigates each alert and documents resolution according to Anchor Labs' and ADB's incident management processes. Similarly, if the reconciliation script fails to return a discrepancy report, indicating the script may have failed to start or experienced an error while running, an alert is also sent to the engineering team for resolution.
Dual Controls
(aa) Under U.S. federal banking law, ADB ensures dual controls are in place with respect to fiduciary assets pursuant to 12 CFR 9.13(a), which requires:
A national bank shall place assets of fiduciary accounts in the joint custody or control of not fewer than two of the fiduciary officers or employees designated for that purpose by the board of directors.
(bb) ADB's operations and related staffing follow a dual-controls design with maker and checker roles to meet this fiduciary requirement. Procedures detail how dual controls are in place at all times when any Crypto Assets are being transferred; controls exist to prevent a single individual from unilaterally taking action related to the custody and control of client assets.
Transaction Initiation and Institutional Intent
(cc) Each vault must have a minimum of three approvers, as well as a minimum quorum of two users. Within those parameters, the total number of approvers and minimum quorum can be customized as needed. Clients authenticate directly to ADB's HSMs through multi-signature policies.
(dd) ADB's unique security architecture allows for Crypto Assets to be stored offline and air-gapped at all times but still allows for quick speed and settlement. ADB's iOS application allows it to quickly acquire a client's intent behind a transfer, and to verify user identity as long as users have their device within their possession. Once a quorum of users has authenticated a transfer, ADB's risk review team evaluates the details of the transfer and ensures that the transfer is compliant as it relates to ADB's AML (as defined below) and sanctions screening requirements. Once approved, the details are sent to the HSM, where the transfer is signed within the platform's HSM. ADB's average transaction speeds are about 15 minutes, with over 90% of all transfers completed within 20 minutes.
ADB's Financial Crimes Compliance Program
(ee) ADB is committed to maintaining compliance with all applicable Anti-Money Laundering and Anti-Terrorist Financing laws, rules and regulations (collectively "AML") and sanctions laws, rules and regulations.
(ff) ADB maintains a robust financial crimes compliance program, consistent with its regulatory obligations pursuant to the Bank Secrecy Act, as amended by Title III of the USA PATRIOT Act and supplemented by the Anti-Money Laundering Act of 2020, in order to deter, detect, and report the use of its products, services, and delivery channels for illegal purposes.
(gg) ADB is committed to full compliance with sanctions regulations administered by the relevant authorities of the United States and any other countries or jurisdictions in which it operates, including screening for international sanctions lists, such as the United Nations Security Council Consolidated List.
(hh) ADB maintains comprehensive risk-based AML and sanctions programs, overseen by its Board, covering effective know-your-customer processes, transaction monitoring and sanctions screening, regulatory reporting, and training. These programs are supported by leading technologies, including blockchain analytics, and sufficient staffing to administer the day-to-day operations of these programs.
(ii) Pursuant to the ADB's Operating Agreement, ADB maintains industry-leading financial crimes compliance controls, including full implementation of compliance with the Travel Rule, consistent with Financial Action Task Force Recommendation 16.
(jj) ADB's financial crimes compliance controls are subject to regular monitoring and testing and annual independent testing.
(kk) ADB's financial crimes compliance systems are subject to periodic model validation to ensure ongoing operating effectiveness.
Insurance Coverage
(ll) Anchor Labs has a comprehensive crime insurance policy which covers a certain amount of losses of assets in custody at ADB.
(mm) The crime insurance policy covers losses up to USD100,000,000 and spans the life cycle of assets under custody, consistent with industry norms in view of ADB's security infrastructure and low likelihood of loss.
(nn) The policy is bound by Endurance Worldwide Insurance Limited (Sompo), one of the world's largest insurance brokers, with Lloyd's of London acting as insurer.
Parental Guarantee
16. ADB is continuing to grow its business and, solely based on the assumption that ADB's growth maintains a similar trajectory as in recent years ADB anticipates satisfying the Equity Requirement within three (3) years of the date of this Decision.
17. Anchor Labs has provided to ADB a guarantee in the amount of $100,000,000 that will be made available to ADB in connection with ADB's custodial obligations the Funds (the Parental Guarantee).
18. Anchor Labs has equity, as reported on its most recent audited financial statements, in excess of $100,000,000, and will hold cash and cash equivalents in an amount sufficient to satisfy its obligations under the Parental Guarantee during any period when ADB does not satisfy the Equity Requirement.
Custodial Services Agreement
19. The Manager will appoint ADB to act as the sub-custodian of the Crypto Assets for the Existing Funds and potentially the Future Funds pursuant to the terms of a custodial services agreement between the Manager, on behalf of the Funds, Tetra and ADB (the ADB Custodial Services Agreement), that shall comply with all of the requirements in Part 6 of NI 81-102, other than the matters covered in the Requested Relief. Pursuant to the Custodial Services Agreement, ADB will not be permitted to pledge, re-hypothecate or otherwise use any Crypto Assets held as sub-custodian for the Filers in the course of its business or otherwise.
20. The Manager will be entitled to automatically terminate the provision of sub-custodial services by ADB and will cease to use ADB as a sub-custodian if the Parental Guarantee is no longer in effect or Anchor Labs no longer has cash or cash equivalents in an amount sufficient to satisfy its obligations under the Parental Guarantee for any period in which ADB is unable to satisfy the Equity Requirement. In such case, the Manager will identify a suitable alternative custody provider that qualified as a sub-custodian under section 6.3 of NI 81-102, to hold the Crypto Assets.
Generally
21. The Manager is satisfied that ADB is able to comply with all of the necessary requirements for the provision of custody services to the Funds under the applicable provisions in Part 6 of NI 81-102 and will consent to its appointment as a sub-custodian to the Funds if the Requested Relief is granted.
22. The Manager, in compliance with its fiduciary duty to the Funds, believes the appointment of ADB as a sub-custodian to the Funds is in the best interest of the Existing Funds and will be in the best interest of the Future Funds, as applicable.
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 Requested Relief is granted, provided that:
1. During any period when the Funds' Crypto Assets are being held by ADB in its capacity as a sub-custodian and its most recent audited financial statements indicate that ADB does not satisfy the Equity Requirement, the Manager will take reasonable steps to verify that the Parental Guarantee remains in effect.
2. The Filers will cease to use ADB and be entitled to terminate the ADB Custodial Services Agreement if, during a period where ADB does not satisfy the Equity Requirement, (i) the Parental Guarantee is no longer in effect; (ii) Anchor Labs no longer has cash or cash equivalents in an amount sufficient to satisfy its obligations under Parental Guarantee; or (iii) ADB no longer qualifies as a sub-custodian under any other criteria prescribed in section 6.3 of NI 81-102. In such case, the Manager will identify and appoint a suitable alternative custody provider that qualifies under the criteria established in section 6.3 of NI 81-102 to act as a sub-custodian for the Funds.
3. The Manager, on behalf of the Funds will promptly notify the principal regulator if the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, the Financial Industry Regulatory Authority and the National Futures Association or the OCC, makes a determination that ADB is not permitted by that regulatory authority to hold clients' Crypto Assets. In such case, the Manager will identify and appoint a suitable alternative custody provider that qualifies under the criteria established in section 6.3 of NI 81-102 to act as a sub-custodian for the Funds.
Application File #: 2025/0186
SEDAR+ File #: 6265326
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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THERE IS NOTHING TO REPORT THIS WEEK. |
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Temporary, Permanent & Rescinding Management Cease Trading Orders
Company Name |
Date of Order |
Date of Lapse |
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THERE IS NOTHING TO REPORT THIS WEEK. |
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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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Agrios Global Holdings Ltd. |
September 17, 2020 |
__________ |
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Sproutly Canada, Inc. |
June 30, 2022 |
__________ |
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iMining Technologies Inc. |
September 30, 2022 |
__________ |
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Alkaline Fuel Cell Power Corp. |
April 4, 2023 |
__________ |
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mCloud Technologies Corp. |
April 5, 2023 |
__________ |
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FenixOro Gold Corp. |
July 5, 2023 |
__________ |
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HAVN Life Sciences Inc. |
August 30, 2023 |
__________ |
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Perk Labs Inc. |
April 4, 2024 |
__________ |
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Dye & Durham Limited |
September 30, 2025 |
__________ |
Amendments to National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives
1. National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives is amended by this Instrument.
2. Appendix A is replaced with the following:
Appendix A to National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives
Mandatory Clearable Derivatives
(Subsection 1(1))
Interest Rate Swaps
Fixed-to-float swaps
Floating rate index
Settlement currency
Maturity
Settlement currency type
Optionality
Notional type
EURIBOR
EUR
28 days to 50 years
Single currency
No
Constant or variable
BBSW
AUD
28 days to 30 years
Single currency
No
Constant or variable
Basis swaps
Floating rate index
Settlement currency
Maturity
Settlement currency type
Optionality
Notional type
EURIBOR
EUR
28 days to 50 years
Single currency
No
Constant or variable
Overnight index swaps
Floating rate index
Settlement currency
Maturity
Settlement currency type
Optionality
Notional type
CORRA
CAD
7 days to 30 years
Single currency
No
Constant
FedFunds
USD
7 days to 3 years
Single currency
No
Constant
SOFR
USD
7 days to 50 years
Single currency
No
Constant
€STR
EUR
7 days to 3 years
Single currency
No
Constant
SONIA
GBP
7 days to 50 years
Single currency
No
Constant
Forward Rate Agreements
Floating rate index
Settlement currency
Maturity
Settlement currency type
Optionality
Notional type
EURIBOR
EUR
3 days to 3 years
Single currency
No
Constant
Credit Default Swaps
Index
Region
Maturity
Applicable series
Tranched
CDX.NA.IG
North America
5 years and 10 years
Series 47 and subsequent series
No
CDX.NA.HY
North America
5 years
Series 47 and subsequent series
No
iTraxx Europe
Europe
5 years
Series 46 and subsequent series
No
3. This Instrument comes into force on March 25, 2026.
CSA Notice and Request for Comment -- Proposed Amendments to National Instrument 81-102 Investment Funds; and Proposed Changes to Companion Policy 81-102 Investment Funds; and Consultation Paper on Liquidity Risk Management Tools, Liquidity Classification, and Regulatory Disclosure and Data
November 27, 2025
The Canadian Securities Administrators (the CSA or we) are publishing, for a 120-day comment period, proposed amendments (the Proposed Amendments) to National Instrument 81-102 Investment Funds (NI 81-102) and proposed changes (the Proposed CP Changes) to Companion Policy 81-102 Investment Funds. The Proposed Amendments and Proposed CP Changes pertain to the liquidity risk management (LRM) of all investment funds, including those that are reporting issuers and those that are not. The Proposed Amendments and Proposed CP Changes relate to the LRM framework of an investment fund, operational LRM matters, and oversight of the LRM framework.
The text of the Proposed Amendments and Proposed CP Changes is contained in Annexes A and B of this Notice and Request for Comment and will also be available on the websites of the following CSA jurisdictions:
www.bcsc.bc.cawww.asc.cawww.fcaa.gov.sk.cawww.mbsecurities.cawww.osc.cawww.lautorite.qc.cawww.fcnb.canssc.novascotia.ca
Concurrently with this Notice and Request for Comment, we are also publishing a consultation paper (the Consultation Paper) that seeks feedback on potential additional changes to the regulatory framework to address other aspects of LRM. Specifically, the Consultation Paper addresses the following 3 areas of LRM: (a) LRM tools (LMTs); (b) liquidity classification of underlying portfolio assets; and (c) regulatory disclosure and data relating to LRM.
For LMTs, the Consultation Paper
• provides an overview of commonly used LMTs, including advantages and disadvantages of each LMT,
• seeks feedback from stakeholders on whether there is a need to permit, or even require, the use of LMTs that are not currently permitted in Canada, and
• solicits specific comments relating to certain LMTs.
For liquidity classification, the Consultation Paper
• sets out a potential liquidity classification framework, and
• seeks stakeholder feedback on the overall framework, as well as specific elements of the framework.
Finally, for regulatory disclosure and data, the Consultation Paper:
• sets out potential disclosure and confidential reporting requirements, and
• solicits stakeholder feedback on each of the requirements.
Any proposal to create new rules or amend existing rules to establish requirements relating to these 3 areas as a result of the Consultation Paper would require a further public comment process.
The Proposed Amendments and Proposed CP Changes are intended to strengthen the LRM framework of all investment funds, in line with the CSA's objectives of protecting investors, promoting fair, efficient and transparent markets, and reducing systemic risk. A strengthened LRM framework will safeguard the interests of investors, including both redeeming investors and remaining investors in an investment fund. An investment fund that has a robust LRM framework will be able to better manage the liquidity of its portfolio in order to meet the redemption needs of its investors in an orderly fashion without disadvantaging remaining investors in the fund. Ensuring that all investment funds have strong LRM frameworks will contribute to fair and efficient markets and will reduce the risk of liquidity crises that may impact the entire financial system.
We are proposing that the Proposed Amendments and Proposed CP Changes apply to all investment funds, regardless of whether they are reporting issuers. In the CSA's view, both investment funds that are reporting issuers and those that are not are similarly susceptible to liquidity risk, and both types of funds should have a robust LRM framework to manage this risk.
In particular, the Proposed Amendments and Proposed CP Changes will codify the guidance in CSA Staff Notice 81-333 Guidance on Effective Liquidity Risk Management for Investment Funds (SN 81-333) relating to 3 of the elements of the LRM framework set out in SN 81-333, specifically: (a) strong and effective governance; (b) creation and ongoing maintenance; and (c) stress testing. In addition, the Proposed Amendments and Proposed CP Changes build upon the guidance in SN 81-333 by imposing more specific requirements relating to LRM-related policies and procedures, oversight, operations, and stress testing.
(a) Domestic Developments
In September 2020, the CSA published SN 81-333, which provided guidance to investment fund managers (IFMs) on the development and maintenance of an effective LRM framework for investment funds. SN 81-333 covered the following 5 elements of an effective LRM framework: (a) strong and effective governance; (b) creation and ongoing maintenance; (c) stress testing; (d) disclosure of liquidity risks; and (e) use of LRM tools to manage potential and actual liquidity issues.
Since the publication of SN 81-333, the CSA have continued to monitor the LRM of investment funds to assess the adoption of good LRM practices set out in the guidance in SN 81-333 and promote LRM tools and disclosure.{1}
The Bank of Canada has consistently noted the risk associated with liquidity mismatches potentially faced by fixed income and money market mutual funds in its annual Financial Stability Report.{2}
(b) International Developments
There have been significant international regulatory developments relating to LRM, chiefly led by the International Organization of Securities Commissions (IOSCO) and Financial Stability Board (FSB) and there is currently significant international momentum involving securities regulators around the world to strengthen regulatory frameworks relating to LRM.
In 2013, IOSCO published its principles (the 2013 IOSCO Principles) relating to the regulation of, and industry practices concerning, LRM for collective investment schemes (CIS).{3} In 2017, the FSB published policy recommendations (the 2017 FSB Recommendations), most of which were directed at IOSCO, to address risks to global financial stability associated with the relevant structural vulnerabilities from asset management activities, including liquidity mismatch of open-ended funds (OEFs).{4} This was followed by IOSCO's 2018 recommendations for LRM for CIS (the 2018 IOSCO Recommendations),{5} which replaced the 2013 IOSCO Principles, and accompanying good practices.{6}
2022 IOSCO Thematic Reviews
In November 2022, IOSCO published a report titled Thematic Review on Liquidity Risk Management Recommendations,{7} which sets out the results and observations of thematic reviews conducted by IOSCO of 25 IOSCO member jurisdictions, including Canada, that were focused on the implementation of regulatory measures to address the 2018 IOSCO Recommendations (the 2022 IOSCO Thematic Reviews).
The 2022 IOSCO Thematic Reviews found the Canadian regulatory framework with regard to LRM to be "fully consistent" for 6 of the 10 recommendations, and "broadly consistent" for the other 4. With regard to 2 of the 4 recommendations for which Canada was assessed as "broadly consistent", IOSCO noted that the LRM regulatory framework is based on guidance that is not legally enforceable and that does not, in some respects according to IOSCO, cover all relevant key elements of the recommendations.
On the recommendation relating to conducting liquidity assessment in different scenarios, IOSCO noted that the guidance does not explicitly require such ongoing assessments, resulting in the "broadly consistent" assessment. In addition, on the recommendation relating to the implementation of additional LMTs, IOSCO noted that there was a lack of flexibility in applying some of the LMTs, resulting in the "broadly consistent" assessment.
2022 FSB Assessment
In December 2022, the FSB published a report titled Assessment of the Effectiveness of the FSB's 2017 Recommendations on Liquidity Mismatch in Open-Ended Funds (the 2022 FSB Assessment).{8} The report shares findings from the FSB's assessment of the implementation and effectiveness of the 2017 FSB Recommendations.
The FSB found that while the 2017 FSB Recommendations remain broadly appropriate, certain enhancements to the existing international recommendations and related guidance would significantly strengthen the current framework and OEF liquidity management practices.
The FSB and IOSCO agreed to revise the earlier FSB and IOSCO recommendations to address structural liquidity mismatch, promote greater inclusion and use of LMTs, and clarify the appropriate roles of fund managers and authorities in implementing the recommendations. They also agreed to develop detailed guidance on the design and use of LMTs, enhance the availability of OEF-related data for financial stability monitoring, and promote the use of stress testing.
2023 FSB Revised Recommendations
In December 2023, the FSB published a report titled Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds.{9} The revised recommendations in the report (the 2023 FSB Revised Recommendations) are addressed to financial regulatory and supervisory authorities and supersede the 2017 FSB Recommendations.
The 2023 FSB Revised Recommendations address the following areas:
• Adequacy of information and transparency
• Adequacy of liquidity management both at the design phase and on an ongoing basis, including a liquidity categorization approach
• Adequacy of LRM tools and measures to deal with stressed market conditions
• Additional market liquidity considerations.
2023 IOSCO Guidance
In December 2023, IOSCO published a report titled Anti-dilution Liquidity Management Tools -- Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes.{10} The report sets out guidance (the 2023 IOSCO Guidance) on the use of anti-dilution LMTs by OEFs to mitigate investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs.
2025 IOSCO Revised Recommendations
In May 2025, IOSCO published a report titled Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (the 2025 IOSCO Revised Recommendations),{11} as well as accompanying guidance in a report titled Guidance for Open-ended Funds for Effective Implementation of the Recommendations for Liquidity Risk Management (the 2025 IOSCO Guidance).{12}
The 2025 IOSCO Revised Recommendations update the 2018 IOSCO Recommendations to reflect the 2023 FSB Revised Recommendations and 2023 IOSCO Guidance. The major changes in the 2025 IOSCO Revised Recommendations relate to the liquidity categorization approach included in the 2023 FSB Revised Recommendations and anti-dilution and quantity-based LMTs and other liquidity management measures.
The 2025 IOSCO Guidance sets out technical elements focusing on OEFs to facilitate effective implementation of the 2025 IOSCO Revised Recommendations.
2025 IMF Recommendations
In August 2025, the International Monetary Fund (IMF) published its Financial System Stability Assessment for Canada (the FSSA).{13} The IMF recommended that Canada align its regulatory framework relating to liquidity of assets held by publicly offered funds with FSB and IOSCO guidance in this area.{14} The IMF also recommended that Canadian authorities strengthen their approach to stress testing at the level of industry practice.{15}
The following is a summary of the Proposed Amendments and Proposed CP Changes:
(a) Liquidity Risk Management Framework
We are proposing to require an investment fund to establish and maintain an LRM framework.
As part of the LRM framework, we are proposing to require that the investment fund establish, maintain, and apply policies and procedures that address all matters relating to LRM, including, for example, compliance with the requirements set out in the Proposed Amendments.
(b) Operational Requirements
We are proposing a number of requirements addressing LRM throughout various stages of the lifecycle of an investment fund, including establishing a new investment fund, considering prospective portfolio transactions, and performing ongoing monitoring of the portfolio.
As part of the ongoing monitoring requirement, we are proposing requirements relating to liquidity thresholds and targets and stress testing. In addition, we are proposing requirements relating to contingency plans.
(c) Oversight
We are proposing that an investment fund be required to appoint an LRM supervisor or establish an LRM committee to provide oversight of the LRM framework.
The Proposed Amendments include requiring that, where an investment fund has an LRM committee, the committee include either the chief compliance officer (CCO) of the IFM or a person who reports directly to the CCO of the IFM. Where an investment fund has an LRM supervisor, the LRM supervisor must be the CCO of the IFM, an individual who reports directly to the CCO of the IFM, or an individual who reports directly to the CCO of the IFM in respect of LRM matters.
The Proposed Amendments also outline requirements relating to the qualifications and functions of the LRM supervisor or LRM committee, as well as the frequency of meetings of the LRM committee, where applicable.
Subject to the nature of comments we receive on the Proposed Amendments and Proposed CP Changes, as well as any applicable regulatory requirements, we are proposing that, if approved, the Proposed Amendments will come into force 3 months after the final publication date.
Annex D is being published in any local jurisdiction that is making related changes to local securities laws, including local notices or other policy instruments in that jurisdiction. It also includes any additional information that is relevant to that jurisdiction only.
We welcome your comments on the Proposed Amendments and Proposed CP Changes.
We are seeking specific feedback on the following questions:
1. Do you have any comments pertaining to section 6.1.1 Liquidity Risk Management Framework?
2. Do you have any comments pertaining to section 6.1.2 Operational Requirements?
3. Do you have any comments pertaining to section 6.1.3 Oversight?
4. Are there any types of investment funds that should be carved out of the Proposed Amendments? Alternatively, are there any types of investment funds that should be carved out of certain requirements in the Proposed Amendments? Please explain.
5. Do you have any other comments pertaining to the Proposed Amendments and Proposed CP Changes?
Please submit your comments in writing on or before March 27, 2026.
Address your submission to all of the CSA as follows:
Submit your comments here. Your comments will be distributed to the participating CSA members.
When submitting your comments from Québec through the link above, you are submitting your comments to:
We cannot keep submissions confidential because securities legislation in certain provinces requires publication of the written comments received during the comment period. All comments received will be posted on the websites of each of the Alberta Securities Commission at www.albertasecurities.com, the Autorité des marchés financiers at www.lautorite.qc.ca and the Ontario Securities Commission at www.osc.gov.on.ca. Therefore, you should not include personal information directly in comments to be published. It is important that you state on whose behalf you are making the submission.
The text of the Proposed Amendments and Proposed CP Changes is contained in the following annexes to this Notice and Request for Comment and is available on the websites of members of the CSA:
Annex A: |
Proposed Amendments to National Instrument 81-102 Investment Funds |
|
|
Annex B: |
Proposed Changes to Companion Policy 81-102 Investment Funds |
|
|
Annex C: |
Consultation Paper on Liquidity Risk Management Tools, Liquidity Classification, and Regulatory Disclosure and Data |
|
|
Annex D: |
Local Matters |
Please refer your questions to any of the following:
British Columbia Securities Commission |
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James Leong |
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Senior Legal Counsel |
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Corporate Finance |
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Phone: 604-899-6681 |
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E-mail: jleong@bcsc.bc.ca |
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Alberta Securities Commission |
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Jan Bagh |
Melissa Yeh |
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Senior Legal Counsel |
Legal Counsel |
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Corporate Finance |
Corporate Finance |
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Phone: 403-355-2804 |
Phone: 403-355-4181 |
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E-mail: jan.bagh@asc.ca |
E-mail: melissa.yeh@asc.ca |
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Financial and Consumer Affairs Authority of Saskatchewan |
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Heather Kuchuran |
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Director |
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Corporate Finance |
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Phone: 306-787-1009 |
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E-mail: heather.kuchuran@gov.sk.ca |
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Manitoba Securities Commission |
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Patrick Weeks |
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Deputy Director |
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Corporate Finance |
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Phone: 204-945-3326 |
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E-mail: patrick.weeks@gov.mb.ca |
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Ontario Securities Commission |
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Ritu Kalra |
Bryana Lee |
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Senior Accountant |
Senior Legal Counsel |
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Investment Management |
Investment Management |
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Phone: 416-721-3847 |
Phone: 416-593-2382 |
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E-mail: rkalra@osc.gov.on.ca |
E-mail: blee@osc.gov.on.ca |
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Stephen Paglia |
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Vice President |
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Investment Management |
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Phone: 416-593-2393 |
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E-mail: spaglia@osc.gov.on.ca |
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Autorité des marchés financiers |
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Sahra Badrudin |
Marie-Aude Gosselin |
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Senior Analyst |
Senior Analyst |
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Investment Products Oversight |
Investment Products Supervision |
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Phone: 514-395-0337, ext. 4427 |
Phone: 514-395-0337, ext. 4456 |
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E-mail: sahra.badrudin@lautorite.qc.ca |
E-mail: marie-aude.gosselin@lautorite.qc.ca |
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Financial and Consumer Services Commission of New Brunswick |
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Ray Burke |
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Manager |
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Corporate Finance |
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Phone: 506-643-7435 |
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E-mail: ray.burke@fcnb.ca |
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Nova Scotia Securities Commission |
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Jack Jiang |
Peter Lamey |
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Securities Analyst |
Legal Analyst |
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Phone: 902-424-7059 |
Phone: 902-424-7630 |
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E-mail: jack.jiang@novascotia.ca |
E-mail: peter.lamey@novascotia.ca |
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{1} See pg. 9 of the 2022-2025 CSA Business Plan, https://www.securities-administrators.ca/wp-content/uploads/2022/10/2022_2025CSA_BusinessPlan.pdf.
{2} See, for example, the Financial Stability Report 2024, https://www.bankofcanada.ca/2024/05/financial-stability-report-2024/.
{3} IOSCO, "Principles of Liquidity Risk Management for Collective Investment Schemes: Final Report" (March 2013), https://www.iosco.org/library/pubdocs/pdf/?IOSCOPD405.pdf.
{4} FSB, "Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities, (January 12, 2017), https://www.fsb.org/wp-content/?uploads/FSB-Policy-Recommendations-on-Asset-Management-Structural-Vulnerabilities.pdf.
{5} IOSCO, "Recommendations for Liquidity Risk Management for Collective Investment Schemes: Final Report" (February 2018), https://www.iosco.org/library/?pubdocs/pdf/IOSCOPD590.pdf.
{6} IOSCO, "Open-ended Fund Liquidity and Risk Management -- Good Practices and Issues for Consideration: Final Report" (February 2018), https://www.iosco.org/?library/pubdocs/pdf/IOSCOPD591.pdf.
{7} IOSCO, "Thematic Review on Liquidity Risk Management Recommendations: Final Report" (November 2022), https://www.iosco.org/library/pubdocs/pdf/?IOSCOPD721.pdf.
{8} FSB, "Assessment of the Effectiveness of the FSB's 2017 Recommendations on Liquidity Mismatch in Open-Ended Funds" (December 14, 2022), https://www.fsb.org/wp-content/uploads/P141222.pdf.
{9} FSB, "Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds" (December 20, 2023), https://www.fsb.org/wp-content/uploads/P201223-1.pdf.
{10} IOSCO, "Anti-dilution Liquidity Management Tools -- Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes: Final Report" (December 2023), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD756.pdf.
{11} IOSCO, "Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes: Final Report" (May 2025), https://www.iosco.org/library/?pubdocs/pdf/IOSCOPD798.pdf.
{12} IOSCO, "Guidance for Open-ended Funds for Effective Implementation of the Recommendations for Liquidity Risk Management: Final Report" (May 2025), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD799.pdf.
{13} International Monetary Fund, "Canada: Financial System Stability Assessment -- Press Release and Staff Report" (August 1, 2025), https://www.imf.org/en/?Publications/CR/Issues/2025/07/31/Canada-Financial-System-Stability-Assessment-Press-Release-and-Staff-Report-569167.
{14} FSSA, pg. 24.
{15} FSAA, pg. 24.
1. National Instrument 81-102 Investment Funds is amended by this Instrument.
2. Section 1.1 is amended by adding the following definitions:
"liquidity risk management committee" means a committee that provides oversight of a liquidity risk management framework;,
"liquidity risk management framework" means a system in respect of the management of liquidity risk;, and
"liquidity risk management supervisor" means an individual that provides oversight of a liquidity risk management framework;.
3. Section 1.2 is amended
(a) by replacing subsection (2) with the following:
(2) Despite subsection (1), this Instrument does not apply to a scholarship plan, except for Part 6.1.,
(b) by replacing subsection (2.1) with the following:
(2.1) Despite subsection (1), section 2.5.1 and Part 6.1 apply to an investment fund that is not a reporting issuer., and
(c) in subsection (3) by adding the following paragraph:
(b.1) Part 6.1;.
4. The following Part is added:
PART 6.1 LIQUIDITY RISK MANAGEMENT
6.1.1 Liquidity Risk Management Framework
(1) An investment fund must establish and maintain a liquidity risk management framework.
(2) For the purposes of subsection (1), an investment fund must establish, maintain and apply policies and procedures in respect of all of the following matters:
(a) compliance with this Part;
(b) identification of the following:
(i) if the investment fund appoints a liquidity risk management supervisor under subsection 6.1.3(1), the position within and specified by a manager for appointment as the liquidity risk management supervisor;
(ii) if the investment fund establishes a liquidity risk management committee under subsection 6.1.3(1), each position within and specified by a manager for appointment as a member of the liquidity risk management committee;
(c) any other matter relating to the management of liquidity risk of the investment fund.
6.1.2 Operational Requirements
(1) Before the filing of an initial prospectus of a newly established investment fund, a manager must ensure that the investment fund's investment objectives and investment strategies and permitted redemption frequency of the investment fund's securities align with the nature of the investment fund's expected portfolio assets and expected redemption activity of the investment fund's securities.
(2) Before the distribution for the first time of securities of a newly established investment fund for which the prospectus requirement does not apply, a manager must ensure that the investment fund's investment objectives and investment strategies and permitted redemption frequency of the investment fund's securities align with the nature of the investment fund's expected portfolio assets and expected redemption activity of the investment fund's securities.
(3) An investment fund must monitor, review and assess the investment fund's liquidity profile and relevant market conditions on an ongoing basis using qualitative and quantitative metrics and, if necessary, adjust the composition of the investment fund's portfolio assets.
(4) An investment fund must establish and maintain liquidity thresholds and targets to monitor, review and assess the investment fund's liquidity profile under subsection (3).
(5) An investment fund must conduct stress tests of the liquidity of the investment fund's portfolio assets to monitor, review and assess the investment fund's liquidity profile under subsection (3), including, for greater certainty, the application to the stress tests of historical and hypothetical scenarios that are relevant to the investment fund's liquidity profile.
(6) If market conditions are normal, an investment fund must conduct stress tests under subsection (5) at least quarterly.
(7) If market conditions are stressed, an investment fund must increase the frequency of the stress tests conducted under subsection (6) until market conditions are normal.
(8) An investment fund must assess the impact of a portfolio transaction on its liquidity profile before making a decision in respect of entering into the transaction.
(9) An investment fund must establish and maintain contingency plans that address liquidity risk, including, for greater certainty, contingency plans that include the use of liquidity risk management tools.
(10) An investment fund must periodically test contingency plans referred to in subsection (9) to ensure that, to a reasonable person, the contingency plans are suitable for the adequate management of liquidity risk.
6.1.3 Oversight
(1) An investment fund must appoint a liquidity risk management supervisor or establish a liquidity risk management committee.
(2) For the purposes of subsection (1), an investment fund that is required to appoint a liquidity risk management supervisor must appoint as the liquidity risk management supervisor one of the following:
(a) the chief compliance officer of the manager;
(b) an individual who reports directly to the chief compliance officer of the manager;
(c) an individual who reports directly to the chief compliance officer of the manager in respect of liquidity risk management matters.
(3) For the purposes of subsection (1), an investment fund that is required to establish a liquidity risk management committee must appoint as a member of the liquidity risk management committee one of the following:
(a) the chief compliance officer of the manager;
(b) an individual who reports directly to the chief compliance officer of the manager.
(4) An investment fund must ensure that a liquidity risk management supervisor or each individual who is a member of a liquidity risk management committee, as applicable, has sufficient knowledge of the management of liquidity risk.
(5) An investment fund must ensure the following:
(a) that a liquidity risk management supervisor or liquidity risk management committee, as applicable, approves a liquidity risk management framework referred to in subsection 6.1.1(1), periodically assesses the effectiveness of the liquidity risk management framework and, if applicable, approves any proposed updates to the liquidity risk management framework;
(b) that, before the filing of an initial prospectus referred to in subsection 6.1.2(1), a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews and approves the investment fund's investment objectives and investment strategies and the permitted redemption frequency of the investment fund's securities to ensure that the investment objectives, investment strategies and permitted redemption frequency align with the nature of the investment fund's expected portfolio assets and expected redemption activity of the investment fund's securities;
(c) that, before a distribution referred to in subsection 6.1.2(2), a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews and approves the investment fund's investment objectives and investment strategies and the permitted redemption frequency of the investment fund's securities to ensure that the investment objectives, investment strategies and permitted redemption frequency align with the nature of the investment fund's expected portfolio assets and expected redemption activity of the investment fund's securities;
(d) that a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews and approves the liquidity thresholds and targets referred to in subsection 6.1.2(4), and, if applicable, approves any proposed updates to those liquidity thresholds and targets;
(e) that a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews the results of the stress tests referred to in subsection 6.1.2(5) and, if applicable, approves proposed actions to address those results;
(f) that a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews and approves the contingency plans referred to in subsection 6.1.2(9) and, if applicable, approves proposed updates to those contingency plans;
(g) that a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews the results of the contingency plan testing referred to in subsection 6.1.2(10) and, if applicable, approves proposed actions to address those results;
(h) that a liquidity risk management supervisor or liquidity risk management committee, as applicable, reviews a referral by a manager of a matter under subsection (6) and, if applicable, approves proposed actions to address the matter.
(6) A manager must, as soon as reasonably possible, refer for review to the liquidity risk management supervisor or liquidity risk management committee, as applicable, a matter that would reasonably be expected to significantly impact the liquidity profile of the investment fund and provide, with the referral, information in respect of both of the following:
(a) actions taken to address the matter;
(b) whether other actions to address the matter, including obtaining approvals of the other actions, are necessary.
(7) An investment fund that is required to establish a liquidity risk management committee must ensure that the liquidity risk management committee meets to conduct the business of the committee as often as necessary and at least quarterly each consecutive 12-month period.
5. This Instrument comes into force on •.
1. Companion Policy 81-102 Investment Funds is changed by this Document.
2. Part 2 is changed by adding the following:
"liquidity risk management framework"
2.8.1 A liquidity risk management framework should include all of the elements set out in the requirements in Part 6.1 and any other practices or mechanisms to manage liquidity risk, including, but not limited to, the disclosure of liquidity risk and liquidity risk management tools, as applicable.
3. Part 3 is changed by replacing section 3.3.1 with the following:
3.3.1 The Canadian securities regulatory authorities are of the view that illiquid assets are generally more difficult to value, for the purposes of calculating an investment fund's net asset value, than assets which are liquid. As a result, where a non-redeemable investment fund has a large proportion of its assets invested in illiquid assets, this raises concerns about the accuracy of the investment fund's net asset value and the amount of any fees calculated with reference to net asset value. Accordingly, staff of the Canadian securities regulatory authorities may raise comments or questions in the course of their reviews of the prospectuses or continuous disclosure documents of non-redeemable investment funds where such funds have a significant proportion of their assets invested in illiquid assets.
4. The following Part is added:
PART 8.1 LIQUIDITY RISK MANAGEMENT
8.1.1 Liquidity Risk Management Framework
(1) Subsection 6.1.1(1) requires that an investment fund establish and maintain a liquidity risk management framework.
The liquidity risk management framework should take into account
• the liquidity profile of the investment fund's assets and liabilities,
• current market conditions,
• redemption activity,
• investor behavior, and
• the unique characteristics of the investment fund.
As part of the establishment and maintenance of the liquidity risk management framework, the investment fund should consider how to obtain and assess information from various sources across different functions of the manager and portfolio adviser(s), where applicable, and consider whether new or enhanced reporting and other compliance mechanisms need to be implemented to ensure that the necessary information is being shared with relevant parties within the manager.
(2) Subsection 6.1.1(2) requires that the investment fund establish, maintain, and apply policies and procedures in respect of the management of liquidity risk. Such policies and procedures should be detailed and written.
(3) Paragraph 6.1.1(2)(c) provides that the matters to be addressed in policies and procedures relating to liquidity risk management must include any other matter relating to liquidity risk management that is not specified in paragraphs 6.1.1(2)(a) and (b). Such matters may include circumstances in which it is not possible to obtain reliable and independent valuations for portfolio assets, to the extent that this is not already addressed in the manager's policies and procedures relating to valuation.
Such matters may also include conflicts of interest between the investment fund and the manager that may arise due to liquidity issues for investment funds that are not required to have independent review committees pursuant to NI 81-107. For example, there may be a conflict of interest if the level of a portfolio adviser's compensation is based on the level of the portfolio's returns, as a portfolio adviser may be incentivized to invest in more illiquid assets that have the potential for higher returns relative to more liquid assets, even though the more illiquid assets may not be suitable for the investment objectives or redemption needs of the investment fund. The Canadian securities regulatory authorities remind investment funds that are required to have independent review committees pursuant to NI 81-107 that any conflicts of interest that may arise due to liquidity issues must be addressed pursuant to the applicable requirements in NI 81-107. In addition, the Canadian securities regulatory authorities remind managers that sections 13.4 and 13.4.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103") apply to managers in respect of an investment fund that is not subject to NI 81-107.
8.1.2 Operational Requirements
(1) Subsections 6.1.2(1) and (2) require a manager to, for a newly established investment fund, ensure that the investment fund's investment objectives and investment strategies and permitted redemption frequency of its securities align with the nature of its expected portfolio assets and expected redemption activity of its securities.
The permitted redemption frequency of the securities of an investment fund is the dealing frequency of the investment fund. For example, mutual funds generally have daily redemptions.
The nature of an investment fund's expected portfolio assets would include the types of assets held in the portfolio and the quantity of time required to dispose of and settle those assets.
The expected redemption activity of the securities of an investment fund may depend on the types of securityholders of the investment fund. For example, the expected redemption needs of an investment fund that primarily has retail investors will likely be different from the expected redemption needs of an investment fund that primarily has institutional investors. The expected redemption activity may also depend on the type of investment fund. For example, an investment fund that is targeted at investors with a longer time horizon will typically have different expected redemption activity compared to a money market fund.
(2) Subsection 6.1.2(3) requires an investment fund to monitor, review and assess the investment fund's liquidity profile and relevant market conditions on an ongoing basis.
The Canadian securities regulatory authorities are of the view that this requirement will help ensure adequate levels of liquidity exist to meet redemption needs and enable the early identification of the impact of market conditions on the portfolio of the investment fund.
The liquidity profile of an investment fund is the ability of the portfolio of the investment fund to be disposed of and settled quickly and easily without a significant loss in value. As part of the requirement to monitor, review and assess its liquidity profile and relevant market conditions, the Canadian securities regulatory authorities are of the view that an investment fund should regularly review the composition of its portfolio assets, including cash and short-term securities, with consideration of past redemption activity, distribution channels, investor base, fund performance, and any other special considerations, such as changing market or other economic factors. In particular, an effective assessment should incorporate the identification and monitoring of large redemptions by investors.
(3) Subsection 6.1.2(3) specifies the use of qualitative and quantitative metrics.
Examples of qualitative metrics may include
• the credit quality of underlying portfolio assets,
• investor concentration in the investment fund,
• investor profile,
• industry risk,
• geographic risk, and
• the specific terms and conditions of underlying portfolio securities.
Examples of quantitative metrics may include
• volume metrics,
• market depth,
• reasonably anticipated size of trade, and
• third party assessments of liquidity of the underlying portfolio assets.
Specifically, for fixed income funds, examples of quantitative metrics may include
• volume metrics provided by third-party trading platforms,
• broker-dealer quotes,
• volatility,
• bid-ask spreads,
• fund holdings relative to outstanding issue size, and
• other internal estimates such as market depth.
(4) Subsection 6.1.2(4) requires that an investment fund establish and maintain liquidity thresholds and targets. For example, in addition to ensuring compliance with the illiquid asset restrictions under the Instrument, an investment fund may elect to impose internal minimum and maximum limits for portfolio assets that could be convertible to cash in a certain number of days and classify those assets accordingly. Certain historical stress data points may be directly built into establishing liquidity thresholds and/or targets of the investment fund, such as largest redemptions or largest client redemptions.
(5) Subsection 6.1.2(5) requires that an investment fund conduct stress tests of the liquidity of the investment fund's portfolio assets. Stress testing is a risk management technique used to evaluate the potential effects of changes to certain factors that impact liquidity corresponding to exceptional but plausible events on the liquidity of an investment fund's portfolio. Stress testing simulates stressed events, market conditions and liquidity events in order to understand their implications on an investment fund's ability to meet redemption requests.
(6) Subsection 6.1.2(5) requires that the stress tests include the application to the stress tests of historical and hypothetical scenarios that are relevant to the liquidity profile of the investment fund. The use of such scenarios is often referred to as scenario analysis.
Historical scenario analysis is backward-looking and is based on the use of historical statistical events to assess risk, with the objective of quantifying the impact of an event on the liquidity of an investment fund. Factors to consider for historical scenario analysis may include
• a comparison of historical cash flows with industry-wide cash flows for investment funds of similar size and strategy,
• the redemption activity of the largest investor or group of investors in the investment fund,
• general redemption activity during stress conditions with varying percentages of redemption requests, and
• historical redemption patterns.
Hypothetical scenario analysis is forward-looking and measures the potential impact of an event which has not yet occurred. Factors to consider for hypothetical scenario analysis may include
• interest rate changes,
• increased redemption requests,
• decreases in fund sales,
• changes in investors, markets, and portfolio composition, and
• the potential for counterparty default.
The Canadian securities regulatory authorities are of the view that investment funds should consider including reverse stress testing as part of the stress tests. Reverse stress testing is a risk management technique where a predetermined outcome, usually a defined failure point, is used to identify the specific circumstances or scenarios that could lead to that outcome.
(7) Subsection 6.1.2(5) requires that the stress tests involve historical and hypothetical scenarios that are relevant to the liquidity profile of the investment fund. Stress tests should cover a range of scenarios that reflect a spectrum of events and severity levels. It is the view of the Canadian securities regulatory authorities that they should be diverse and reflect material risks relevant to the investment fund, such as credit risk, reputational risk, and geopolitical risk. When designing scenarios for a stress test, a manager may consider a number of factors, such as
• a downgrade of the credit rating of an underlying portfolio asset or of the issuer of the underlying portfolio asset,
• a change in interest rates,
• a widening of bid-ask spreads,
• a change in the value of foreign currency, and
• an economic shock.
For example, it may be appropriate for an investment fund for which collateral comprises a significant proportion of its portfolio assets to conduct stress testing that also covers the collateral. This is because collateral posted by the investment fund's counterparties in derivatives and securities lending transactions may affect the liquidity of the investment fund if the counterparties are unable to meet their obligations under stressed market conditions and the investment fund has to liquidate the collateral due to the counterparties' inability to meet their outstanding obligations to the investment fund.
Depending on the nature of the investment fund, the types of assets held by the investment fund, and market conditions, the complexity of the stress tests may range from a simple sensitivity test using a single factor to complex stress tests using multiple factors.
While the stress testing scenarios used should be consistent over a period of time so that the scenarios can be compared and analyzed over time, they should also be updated regularly to reflect changes in market conditions, the composition of the portfolio, and any other conditions that may impact liquidity. Investment funds should incorporate reliable and up-to-date market information in their stress tests.
(8) As part of the stress tests required under subsection 6.1.2(5), an investment fund should consider using a "pro-rata" methodology rather than a "most liquid first" methodology in all of the scenarios used. A "pro rata" methodology would involve all investors receiving a proportional share of the portfolio assets when the assets are sold to meet redemption demands, whereas a "most liquid first" methodology would involve the manager prioritizing the liquidation of the most liquid assets first to meet redemption demands.
(9) Subsection 6.1.2(6) requires that, if market conditions are normal, an investment fund conduct stress tests at least quarterly. However, an investment fund may determine that it is necessary to conduct stress tests on a more frequent basis. This determination may be based on specific attributes of the investment fund, including
• the size of the investment fund,
• the nature of its underlying portfolio assets,
• its redemption frequency,
• its investment strategy,
• the types of investors invested in the investment fund, and
• current market conditions.
(10) Subsection 6.1.2(7) requires that, if market conditions are stressed, an investment fund increase the frequency of the stress tests until market conditions are normal. The Canadian securities regulatory authorities are of the view that during stressed market conditions, there may be unexpected or unanticipated market changes, investor behaviour, etc., which could suddenly decrease the liquidity of the portfolio of an investment fund, and therefore, there is a need for more frequent stress testing to ensure the ability of the investment fund to satisfy redemption requests. Examples of stressed market conditions may include market-wide or economy-wide events, such as global pandemics, and events that are relevant for certain types of funds, such as significant changes in interest rates that would likely impact fixed income funds.
(11) Subsection 6.1.2(9) requires that an investment fund establish and maintain contingency plans that address liquidity risk, including, for greater certainty, contingency plans that include the use of liquidity risk management tools. Contingency plans are operational arrangements to address liquidity challenges during stressed market conditions. Liquidity risk management tools may include the suspension of redemptions, redemptions in kind, and the use of redemption fees.
8.1.3 Oversight
(1) Subsection 6.1.3(1) requires that an investment fund appoint a liquidity risk management supervisor or establish a liquidity risk management committee. In the case of an investment fund that establishes a liquidity risk management committee, the committee may be an existing committee that covers multiple areas within its mandate, one of which would be liquidity risk management.
The Canadian securities regulatory authorities recognize that it may not be appropriate for some smaller managers to establish a liquidity risk management committee due to resource limitations, and that it may be more appropriate for them to appoint a liquidity risk management supervisor instead.
(2) Subsection 6.1.3(2) sets out the individuals who can be appointed as a liquidity risk management supervisor. However, the liquidity risk management supervisor should engage with any individuals involved in decision-making relating to the purchase and sale of portfolio assets in order to obtain any necessary information or insights to better understand liquidity risks from the perspective of portfolio management. The engagement may take the form of involving such individuals as advisers to the liquidity risk management supervisor.
(3) Subsection 6.1.3(3) requires the involvement of either the chief compliance officer of the manager or an individual who reports directly to the chief compliance officer of the manager as a member of the liquidity risk management committee. The liquidity risk management committee should also either include an individual involved in decision-making relating to the purchase and sale of portfolio assets or engage with any individuals involved in decision-making relating to the purchase and sale of portfolio assets for the same reason. The engagement may take the form of involving such individuals as advisers to the liquidity risk management committee or including them in meetings on an as-needed ad hoc basis.
(4) Paragraphs 6.1.3(5)(a) to (h) set out specific functions of the liquidity risk management supervisor or liquidity risk management committee. The liquidity risk management supervisor or liquidity risk management committee should consult any individuals with relevant expertise or knowledge, as needed, in order to fulfill each such function. However, the Canadian securities regulatory authorities remind managers that the ultimate designated person and chief compliance officer of the manager are still responsible for the compliance of the manager with securities legislation under sections 5.1 and 5.2 of NI 31-103.
(5) Paragraphs 6.1.3(5)(a) to (h) refer to approvals granted by the liquidity risk management supervisor or liquidity risk management committee, as applicable. The liquidity risk management supervisor or liquidity risk management committee should consult any individuals with relevant expertise or knowledge, as needed, in order for the liquidity risk management supervisor or liquidity risk management committee to grant approval. In addition, the liquidity risk management supervisor or liquidity risk management committee should maintain proper books and records relating to the decision-making process with regard to the approval.
(6) Subsection 6.1.3(6) references a matter that would reasonably be expected to significantly impact the liquidity profile of the investment fund. An example of such a matter is a significant redemption request.
5. These changes become effective on •.
November 27, 2025
A. Introduction
I. Purpose and overview
II. Background
B. Liquidity risk management tools
I. Background
II. Purpose
III. Regulatory considerations around the use of additional LMTs
IV. Types of LMTs
C. Liquidity classification of underlying portfolio assets
I. Background
II. Purpose
III. Potential classification framework
D. Regulatory disclosure and data relating to LRM
I. Background
II. Purpose
III. Potential requirements
E. Conclusion
As part of the CSA's work to strengthen the regulatory framework for LRM in Canada, we are publishing this Consultation Paper for a 120-day comment period to seek feedback on potential additional changes to the regulatory framework to address aspects of LRM that are not included in the Proposed Amendments and Proposed CP Changes.
Specifically, we are seeking comments on the following three areas of LRM:
1. LMTs
2. Liquidity classification of underlying portfolio assets
3. Regulatory disclosure and data relating to LRM
Any proposal to create new rules or amend existing rules to establish requirements relating to any of the above three areas as a result of this consultation would require a further public comment process.
For LMTs, this Consultation Paper provides an overview of commonly used LMTs, including advantages and disadvantages of each LMT, and seeks feedback from stakeholders on whether there is a need to permit, or even require, the use of LMTs that are not currently permitted in Canada, and solicits specific comments relating to certain LMTs.
With regard to liquidity classification of underlying portfolio assets, this Consultation Paper sets out a potential liquidity classification framework and seeks stakeholder feedback on the framework as a whole, as well as specific elements of the framework.
For regulatory disclosure and data relating to LRM, this Consultation Paper sets out potential disclosure and confidential reporting requirements and solicits stakeholder feedback on each of them.
As discussed in the accompanying Notice and Request for Comments, the FSB and IOSCO have been developing recommendations and guidance relating to LRM over the past decade, and there is currently significant international momentum involving securities regulators around the world to strengthen regulatory frameworks relating to LRM.
In particular, there have been significant recent international regulatory developments relating to the three areas covered in this Consultation Paper, which are discussed in greater detail in each of the subsequent sections relating to each topic.
(a) What are LMTs?
LMTs, which are techniques and tools used to manage liquidity needs and risks, form an important part of an IFM's LRM framework. LMTs can be used by IFMs to manage liquidity needs in both normal and stressed market conditions.
There are different types of LMTs, often divided into two groups: (a) anti-dilution or price-based LMTs; and (b) quantity-based LMTs.
Anti-dilution or price-based LMTs aim to pass on the estimated costs of liquidity associated with fund subscriptions and redemptions to the subscribing or redeeming investors by adjusting the net asset value (NAV) of the fund or the price at which securities of the fund transact. These types of tools do not preclude an investor from subscribing or redeeming.
Quantity-based LMTs reduce the liquidity obligations of funds through delaying or deferring payments to investors and are seen as more disruptive because they restrict investor access to their invested capital either proportionally or in its entirety. In addition, there are other LMTs that are neither price-based nor quantity-based, such as redemptions in kind and borrowing.
(b) International developments
Recently, there has been significant international momentum regarding the need to increase the availability of LMTs in both normal and stressed market conditions.
In the 2022 IOSCO Thematic Reviews, IOSCO assessed the Canadian regulatory framework with regard to the recommendation relating to LMTs as "broadly consistent".{1} IOSCO noted that there is a lack of flexibility in Canada in applying some of the LMTs and, other than redemption fees, in-kind redemptions, and suspension of redemptions, the use of LMTs in Canada requires exemptive relief from the CSA.
The 2022 FSB Assessment found that most jurisdictions permit OEF managers to implement a broad range of LMTs and that there has been a gradual increase in the inclusion of LMTs in the constitutional documents of OEFs since the publication of the 2017 FSB Recommendations.{2} The FSB found that the use of anti-dilution LMTs increased during the COVID-19 shock in response to increased redemption requests. The FSB found that there is room for greater uptake of LMTs, in particular anti-dilution LMTs. When LMTs are available, cost, competitive or reputational concerns, as well as operational hurdles, may have prevented OEF managers from both including them in the constitutional documents of OEFS and using them.
The 2023 FSB Revised Recommendations updated the 2017 FSB Recommendations relating to LMTs.{3} One of the major changes was an emphasis on the need for authorities to ensure the availability of a broad set of anti-dilution and quantity-based LMTs for use by OEF managers in normal and stressed market conditions, rather than only focusing on meeting redemptions under stressed market conditions. In addition, the FSB further elaborated on the need to include anti-dilution LMTs in fund constitutional documents and greater use and consistency in use of anti-dilution LMTs in both normal and stressed market conditions, with a focus on imposing on redeeming investors the explicit and implicit costs of redemptions.
In addition, the 2023 IOSCO Guidance, which relates to the use of anti-dilution LMTs by OEFs, addresses the following areas:
• use of appropriate anti-dilution LMTs for OEFs
• imposition of estimated cost of liquidity on subscribing and redeeming investors
• need for responsible entities{4} to demonstrate to authorities the appropriate calibration of the LMT for both normal and stressed market conditions
• appropriate and sufficiently prudent activation thresholds for anti-dilution LMTs
• adequate and appropriate governance arrangements for decision-making processes for the use of anti-dilution LMTs
• clear disclosure to investors of the objectives and operation of anti-dilution LMTs.{5}
The 2025 IOSCO Revised Recommendations updated the 2018 IOSCO Recommendations relating to LMTs.{6} Firstly, with regard to consistency between an OEF's investment strategy and liquidity with the terms and conditions of fund subscriptions and redemptions, IOSCO included guidance relating to notice periods, lock-up periods, settlement periods, and redemption caps for structuring OEFs that allocate a significant proportion of their portfolio to illiquid assets.{7}
Additionally, IOSCO recommended that the responsible entity consider and implement a broad set of LMTs and measures to the extent allowed by local law and regulation for each OEF under its management, for both normal and stressed market conditions.{8} IOSCO also recommended that the responsible entity consider and use anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatches in the OEFs it manages.{9}
IOSCO also updated the recommendation in the 2018 IOSCO Recommendations relating to governance to specifically include governance relating to the use of LMTs and other liquidity management measures.{10} IOSCO recommended that responsible entities have adequate and appropriate governance arrangements in place for their LRM processes, including clear decision-making processes for the use of LMTs and other liquidity management measures in normal and stressed market conditions.
In addition, IOSCO updated the recommendation in the 2018 IOSCO Recommendations relating to the disclosure of liquidity risk and a collective investment scheme's (CIS) LRM process to specifically include disclosure about the availability and use of LMTs and liquidity management measures.{11} Finally, IOSCO also added a new recommendation that the responsible entity publish clear disclosures of the objectives and operation, including design and use, of anti-dilution LMTs, quantity-based LMTs and other liquidity management measures.{12}
In August 2025, the IMF recommended in the FSSA that Canada align its regulatory framework relating to liquidity of assets held by publicly offered funds with FSB and IOSCO guidance in this area,{13} which would include FSB and IOSCO guidance and recommendations relating to LMTs.
LMTs are an important part of an investment fund's LRM framework and serve two main purposes.
Firstly, LMTs protect the remaining investors in a fund from "first mover advantage" and the dilutive effects of redemptions by other investors. When investors in a fund redeem out of the fund, there are costs of liquidating portfolio assets to meet those redemption requests. In particular, in stressed market conditions, there may be a run on redemptions as investors rush to redeem out of the fund to avoid potential losses. Without effective LMTs, those costs are generally borne by the remaining investors rather than redeeming investors. Price-based or anti-dilution LMTs are intended to mitigate this issue and are generally used as maintenance tools to prevent liquidity issues before they occur.
Secondly, LMTs help IFMs better manage redemptions in an orderly fashion during stressed market conditions or periods of unusually high redemptions. Quantity-based LMTs, which are typically emergency tools that are used in stressed market conditions, assist IFMs in such circumstances by limiting the number of redemptions that need to be met during a certain period of time, so that a fund does not need to urgently dispose of assets at discounted prices, which would be detrimental to all unitholders. The use of such LMTs can give an IFM additional time to try to dispose of portfolio assets at a price that is not significantly discounted.
Currently, there are generally only three LMTs that are used by investment funds that are reporting issuers: suspension of redemptions, redemption fees, and redemptions in kind. The CSA is considering permitting other LMTs to be used by investment funds that are reporting issuers in both normal and stressed market conditions in order to strengthen the ability of investment funds to manage liquidity and better protect investors.
This section provides an overview of some regulatory considerations around the use of additional LMTs.
There are different potential regulatory approaches to permitting funds to use additional LMTs. One approach would be to amend the existing rules to permit the use of certain LMTs by investment funds that are reporting issuers without requiring that funds adopt or use those LMTs. This approach would allow IFMs to have access to a broader range of LMTs to help manage their liquidity and would ultimately allow IFMs to decide which LMTs, if any, to adopt for their particular funds. Arguably, IFMs would be best positioned to make this determination, since there may be different strategies and methods for the use of LMTs for different investment funds in different circumstances. However, this approach could result in different LMTs being adopted by different IFMs for similar types of funds.
A different approach would be to amend the existing rules to not only permit the use of additional LMTs, but to require funds to adopt a minimum number of LMTs or even specific LMTs. This approach addresses the potential issue of IFMs choosing not to adopt any LMTs because of a perceived competitive disadvantage. Specifically, some IFMs may choose not to adopt any LMTs at all because they fear that investors may choose funds that do not have LMTs over those that do. This could be because some investors may perceive funds that have adopted LMTs to be more susceptible to liquidity issues than those that do not, or because some investors may prefer funds that do not have the ability to adjust their redemption prices or prevent or delay redemption requests in exceptional circumstances. By requiring funds to adopt a minimum number of LMTs or specific LMTs, this approach would potentially level the playing field.
It is worth noting that an investment fund will realistically not be able to adopt all types of LMTs as the implementation of some LMTs would conflict with others. In particular, since price-based or anti-dilution LMTs have different methodologies for calculating the redemption price of a fund, it would likely not be possible for a fund to adopt multiple price-based or anti-dilution LMTs. As such, even if funds were permitted to use a wide range of LMTs, they would not be able to use all of them, and IFMs would need to select the appropriate LMTs for their specific funds.
In addition, some LMTs, including many of the price-based or anti-dilution LMTs, may need to be built into a fund at the product design phase. For existing funds, since the adoption of LMTs may impact the price that an investor receives upon redemption or the ability of the investor to redeem out of the fund in exceptional circumstances, there may be a need for unitholder notification, consent or approval.
Finally, depending on the type of LMT, there may be a need for internal governance and oversight by an IFM before activating the use of an LMT.
To provide a more comprehensive picture of potential LMTs that could be made available by the CSA, this section provides an overview of each of the most commonly used LMTs, including the advantages and disadvantages of each LMT.
(a) Swing pricing
Swing pricing is the process by which the fund's NAV is adjusted by applying a swing factor that reflects the liquidity cost of net subscriptions or redemptions. All investors would pay or receive the same swung price. Generally, swing pricing is not used during an initial ramp-up period of a fund, or during termination of the fund.
For the purpose of this Consultation Paper, the CSA refers to swing pricing in the context of applying a swing factor that reflects the liquidity cost of net redemptions, not subscriptions.
There are two main forms of swing pricing. The first is known as "full" swing pricing, and involves the NAV being adjusted down on each day that NAV is calculated if there are net outflows on that day.
The second form of swing pricing is known as "partial" swing pricing and is only used when the net outflows of the fund are greater than a predetermined threshold, often referred to as the swing threshold. The swing threshold is usually set as a percentage or a number of basis points. One type of partial swing pricing is a tiered swing pricing model, whereby the fund's NAV is adjusted based on multiple predetermined threshold and factors. In a tiered swing pricing model, when the net outflows reach certain thresholds, the fund applies a different corresponding swing factor.
In some jurisdictions, there is often a maximum swing factor that would be disclosed in a fund's prospectus, such as a maximum of 2% of NAV.
Advantages |
Disadvantages |
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• As with other price-based LMTs, swing pricing protects against dilution by passing on transaction costs to redeeming investors and mitigates first-mover advantage |
• Swing pricing is relatively complex, requiring a high level of expertise to set up and operate |
• Swing pricing is a relatively cost-effective anti-dilution LMT, in comparison to other anti-dilution LMTs |
• Since swing pricing is activated by net outflows of the fund, individual investors may be disadvantaged when swing pricing is activated by a large redemption from a single redeeming investor |
• Swing pricing is a widely adopted and established LMT in certain jurisdictions |
• Swing pricing may be perceived to be too complex to investors who are not familiar with the concept of swing pricing |
• Swing pricing can be used as a deterrent against frequent trading activity and market timing activity |
• Swing pricing may be perceived to be non-transparent to investors, as the redemption price may be subject to information that is not available to the redeeming investor (e.g. a redeeming investor may not know if there are net outflows on the relevant calculation date) |
• Swing pricing can be used as a deterrent against potential large redemptions when liquidity costs increase |
• While swing pricing does not actually make the NAV more volatile, the NAV may appear to be volatile for the purpose of NAV calculation due to the NAV changing as a result of the application of the swing factor |
• Compared to full swing pricing, tiered swing pricing better reflects the trading curve by taking into account different potential dilution impacts of different trade sizes |
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(b) Dual pricing
Dual pricing is the system by which there are two NAVs calculated for each point in time in which NAV is calculated. Subscribing investors would subscribe using the higher NAV and redeeming investors would redeem using the lower NAV. The spread between the two prices could be dynamic to reflect the liquidity costs during real-time market conditions.
One common form of dual pricing is for one NAV to reflect the ask prices of the underlying assets and the other NAV to reflect the bid prices of the underlying assets. Another common form of dual pricing is to use an adjustable spread around the fund's NAV under which assets are priced on a mid-market basis. In this type of dual pricing, the spread is between a bid price at which fund redemptions are conducted and an ask price at which fund subscriptions are transacted.
Advantages |
Disadvantages |
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• As with other price-based LMTs, dual pricing protects against dilution by passing on transaction costs to redeeming investors and mitigates first-mover advantage |
• Dual pricing is relatively complex, requiring a high level of expertise to set up and operate |
• Dual pricing can be used as a deterrent against frequent trading activity and market timing activity |
• Dual pricing imposes additional operational burdens and complexity on fund intermediaries, service providers and other third parties as they would need to be able to handle two different unit prices on each trade date |
• Dual pricing can be used as a deterrent against potential large redemptions when liquidity costs increase |
• Dual pricing imposes operational costs on intermediaries due to necessity of submitting purchase and redemption orders separately |
• Dual pricing based on bid and ask prices fully reflects market movements |
• Dual pricing based on bid and ask prices does not naturally take into account any significant market impact or explicit transaction costs, which would need to be accounted for separately through an additional adjustment to the NAV |
• Dual pricing based on an adjustable spread is dynamic and reflects liquidity costs based on real-time market conditions |
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(c) Redemption or liquidity fees
A redemption or liquidity fee is a fee charged to the transacting investor by a fund when the investor redeems units of the fund and is usually deducted from the net asset value per unit. The redemption or liquidity fee is intended to cover the liquidity costs associated with the redemption.
In Canada, while redemption fees were commonly charged by investment funds that had a deferred sales charge option prior to the ban on deferred sales charge options,{14} such redemption fees were typically charged if an investor sold units of the fund within a specified time frame and were not necessarily intended to address liquidity costs.
Outside of redemption fees charged as part of the deferred sales charge option, redemption or liquidity fees in Canada have often taken the form of large transaction or sizable transaction fees (whereby investors are charged a fee where a redemption or switch to another fund exceeds a certain value threshold) and short term trading fees (whereby investors are charged a fee for redeeming or switching out of the fund within a specified short period of time after subscribing or switching into the fund).
However, IFMs may charge redemption or liquidity fees in the case of redemptions to explicitly pass on liquidity costs to redeeming unitholders, and such redemption or liquidity fees may be mandatory or discretionary. Where the redemption or liquidity fee is mandatory, it is applicable to each redemption. Where the redemption or liquidity fee is discretionary, the applicability of the fee is at the discretion of the IFM.
Advantages |
Disadvantages |
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• As with other price-based LMTs, redemption or liquidity fees protect against dilution by passing on transaction costs to redeeming investors and mitigate first-mover advantage |
• High redemption or liquidity fees may harm unitholders who need to redeem during a period of investor hardship |
• Redemption or liquidity fees are a relatively straightforward and cost-effective anti-dilution LMT, in comparison to other anti-dilution LMTs |
• If redemption or liquidity fees are applied on a discretionary basis, they may cause unfair advantages or disadvantages for certain investors |
• Redemption or liquidity fees can be used as a deterrent against frequent trading activity |
• If redemption or liquidity fees are applied on a discretionary basis, investors may not know when such fees will be charged and the amount of such fees |
• Redemption or liquidity fees can be used as a deterrent against potential large redemptions when liquidity costs increase |
• If fund managers have discretion over the applicability of a redemption or liquidity fee, they may hesitate to impose the fee for fear of investor complaints or for reputation-related reasons |
• Unlike other price-based LMTs such as swing pricing and dual pricing, redemption or liquidity fees do not involve adjustments to NAV and therefore do not impact performance |
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• Unlike other price-based LMTs such as swing pricing and dual pricing, redemption or liquidity fees are more transparent and understandable for investors |
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• Unlike other price-based LMTs such as swing pricing and dual pricing, redemption or liquidity fees can be structured to only apply to individual redeeming investors whose redemptions trigger a certain threshold |
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(d) Anti-dilution levies
An anti-dilution levy is a variable levy or fee that investment funds impose on investors who buy or redeem units of the fund. For the purpose of this Consultation Paper, the CSA refers to anti-dilution levies in the context of redeeming investors rather than subscribing investors. In the context of redemptions, an anti-dilution levy is an amount deducted from the proportion of the NAV received by a redeeming securityholder, which is meant to cover the transaction costs associated with the redemption, such as trading and administrative expenses.
There are different ways to impose anti-dilution levies; they can be based on the fund's net outflows and be imposed on all redeeming securityholders, or they can also be based on an individual investor's outflows and charged to each investor accordingly.
While anti-dilution levies are similar to redemption fees in that they both involve reducing the proportion of the NAV received by a redeeming securityholder, redemption fees generally involve a fixed rate, while anti-dilution levies involve variable rates and can be adjusted based on market conditions. For example, the rate of an anti-dilution levy may be increased during stressed market conditions or during a period of higher redemptions.
Advantages |
Disadvantages |
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• Unlike other price-based LMTs such as swing pricing and dual pricing, anti-dilution levies do not involve adjustments to NAV and therefore do not impact performance |
• Compared to redemption fees, anti-dilution levies are relatively complex and difficult to implement, as they are variable and take into account different conditions and factors |
• Unlike other price-based LMTs such as swing pricing and dual pricing, anti-dilution levies are more transparent and arguably more understandable for investors. |
• If anti-dilution levies are applied arbitrarily, they may cause unfair advantages or disadvantages for certain investors |
• Unlike other price-based LMTs such as swing pricing and dual pricing, anti-dilution levies can be structured to only apply to individual redeeming investors whose redemptions trigger a certain threshold |
• Transparency of limits associated with anti-dilution levies may lead to some redeeming investors "gaming" the system |
• Anti-dilution levies can be used as a deterrent against frequent trading activity and market timing activity |
• If fund managers have discretion over the applicability of an anti-dilution levy, they may hesitate to impose the levy for fear of investor complaints or for reputation-related reasons |
• Anti-dilution levies can be used as a deterrent against potential large redemptions when liquidity costs increase |
• High anti-dilution levies may harm unitholders who need to redeem during a period of investor hardship |
(e) Valuation at bid or ask prices
Valuation at bid or ask prices is an asset valuation procedure that consists of switching from valuation at mid-price to valuation according to bid or ask price, depending on the net fund flows, which would result in adjustments to net asset value calculations that reflect the transaction costs of redemptions. Where there is a net inflow, the net asset value is based on the ask-price. Where there is a net outflow, the net asset value is based on the bid-price.
A variation of this procedure involves setting a threshold, which would be used to determine whether to value assets at the bid or ask price.
In the case of valuation at bid or ask prices, the net asset value is the same for all investors.
Advantages |
Disadvantages |
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• Valuation at bid or ask prices takes into account the actual transaction costs of redemptions |
• Since valuation at bid or ask prices is activated by net outflows of the fund, individual investors may be disadvantaged when valuation at bid or ask prices is activated by a large redemption from a single redeeming investor |
• As with other price-based LMTs, valuation at bid or ask prices protects against dilution by passing on transaction costs to redeeming investors and mitigates first-mover advantage |
• Valuation at bid or ask prices is more complex for investors to understand |
• Valuation at bid or ask prices can be used as a deterrent against frequent trading activity and market timing activity |
• Valuation at bid or ask prices may be perceived to be non-transparent to investors, as the redemption price may be subject to information that is not available to the redeeming investor (e.g. a redeeming investor may not know if there are net outflows on the relevant calculation date) |
• Valuation at bid or ask prices can be used as a deterrent against potential large redemptions when liquidity costs increase |
• While valuation at bid or ask prices does not actually make the NAV more volatile, the NAV may appear to be volatile for the purpose of NAV calculation due to the valuation of assets changing between bid and ask prices |
(f) Expansion of suspension of redemptions
The suspension of redemptions involves a fund suspending the right of investors to redeem their securities for a period of time. It is generally intended to be used for short periods of times during exceptional market conditions and is commonly seen as a last resort.
In Canada, the suspension of redemptions is permitted where normal trading is suspended on a stock exchange, options exchange, or futures exchange and a number of other conditions exist.{15} An IFM must obtain the approval of the applicable securities regulatory authority for the suspension of redemptions in any other circumstances.{16}
Some jurisdictions outside of Canada permit the suspension of redemptions in other circumstances or leave the suspension of redemptions to the discretion of the fund manager. In some jurisdictions, the suspension of redemptions may be required by the regulator if the regulator deems it to be necessary for the public interest, including for financial stability reasons.
There may be circumstances in which a fund manager may believe that the suspension of redemptions is required beyond the suspension of normal trading on a stock exchange, such as when daily redemption requests of a fund exceed a predefined threshold or in the event of a cyber-security incident.
The expansion of the ability to suspend redemptions in Canada could involve expanding the types of circumstances in which the suspension of redemptions is permitted without regulatory approval.
Advantages |
Disadvantages |
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• The suspension of redemptions allows for a fund to address liquidity challenges quickly and effectively |
• Suspension of redemptions should be a last resort, and expanding the ability to suspend redemptions may lead to overuse of this tool |
• The suspension of redemptions prevents a sudden outflow of cash that could force the sale of assets under unfavourable conditions or leave remaining investors with the least liquid or riskier portfolio assets by enabling the fund to spread out redemptions over time |
• The suspension of redemptions may signal to the market that the fund is in "trouble", which may lead to broader negative consequences, such as contagion effects and reputational damage for the IFM |
• The suspension of redemptions treats all investors equally |
• The suspension of redemptions may harm unitholders who need to redeem during a period of investor hardship |
• The suspension of redemptions provides additional time for communication among IFMs, investors and other market participants, potentially leading to investors changing their intentions to redeem |
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(g) Redemption gates
A redemption gate is a mechanism that allows an investment fund to limit the amount of the fund's net asset value that can be redeemed by investors on a specific trading day when redemption requests exceed a predefined threshold, often set as a percentage of the fund's total assets. Redemption gates are generally imposed after a predefined threshold is crossed. Once a redemption gate is activated, only a pro rata portion of each investor's redemption request is processed immediately, while the remaining amount is deferred to the next trading day, or, in some cases, cancelled.
In some cases, redemption gates are only used on a temporary basis, and after a certain period of time has passed, the IFM would remove the redemption gate.
Advantages |
Disadvantages |
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• Redemption gates prevent a sudden outflow of cash that could force the sale of assets under unfavourable conditions or leave remaining investors with the least liquid or riskier portfolio assets by spreading out redemptions over time |
• Redemption gates may signal to the market that the fund is in "trouble", which may lead to broader negative consequences, such as contagion effects and reputational damage for the IFM |
• Redemption gates provide additional time for communication among IFMs, investors and other market participants, potentially leading to investors changing their intentions to redeem |
• Unless redemption gates are implemented on a pro rata basis, they can still reward first movers who redeem before the redemption gate is implemented |
• If redemption gates are not temporary, they restrict the ability of investors to redeem |
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(h) Notice periods
A notice period is the period of advance notice that investors must give to an investment fund when redeeming their securities in the fund. The notice period does not include the settlement period and may not include the time period from which the redemption request is submitted to a dealer, for example, to the request being received by the investment fund. A notice period is generally applicable to all investors in the fund. In some cases, notice periods may only apply during certain periods of time.
Advantages |
Disadvantages |
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• Notice periods allow the fund to satisfy redemption requests in an orderly manner without the need to sell portfolio assets at discounted prices, which would be disadvantageous to the remaining investors in the fund |
• Notice periods extend the length of time that it takes for an investor to receive the proceeds of the investment that they're redeeming, which is particularly disadvantageous in the case where the investor needs the capital as soon as possible |
• Notice periods give the fund the ability to align redemption needs with the underlying liquidity of the investments |
• The delay in receiving their redemption proceeds may dissuade an investor from investing in the fund |
• Notice periods enable a smooth and orderly sale of portfolio assets to meet redemption requests in the case of a significant number of redemptions without sending a negative signal to the market |
• For a fund with daily redemptions, the existence of a notice period could be seen as misleading by investors who expect to be able to redeem on-demand |
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• Notice periods may incentivize some IFMs to invest in less liquid assets |
(i) Extension of settlement periods
A settlement period is the time period between the date of the redemption request and the date on which the redemption is completed and settled. An extension of the settlement period for a redemption would provide a fund manager with more time to dispose of portfolio assets to meet redemption requests in an orderly fashion.
In some cases, the extension of a settlement period may only be applicable under certain circumstances, such as when redemptions exceed a predetermined threshold.
Advantages |
Disadvantages |
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• The extension of settlement periods allows the fund to satisfy redemption requests in an orderly manner without the need to sell portfolio assets at discounted prices, which would be disadvantageous to the remaining investors in the fund |
• The extension of settlement periods extends the length of time that it takes for an investor to receive the proceeds of the investment that they're redeeming, which is particularly disadvantageous in the case where the investor needs the capital as soon as possible |
• The extension of settlement periods gives the fund the ability to align redemption needs with the underlying liquidity of the investments |
• The delay in receiving their redemption proceeds may dissuade an investor from investing in the fund |
• The extension of settlement periods enables a smooth and orderly sale of portfolio assets to meet redemption requests in the case of a significant number of redemptions without sending a negative signal to the market |
• For a fund with daily redemptions, the extension of the settlement period could be seen as misleading by investors who expect to be able to redeem on-demand |
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• The extension of settlement periods may incentivize some IFMs to invest in less liquid assets |
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• Compared to notice periods, the net asset value for redeeming investors is determined before managers begin to sell assets, which can introduce unfair treatment between investors, as exiting investors are artificially locking in the price at which they will exit the fund, leaving the remaining investors to carry larger market risk than usual |
(j) Side pockets
A side pocket is a mechanism by which a fund manager segregates specific illiquid assets from liquid assets in the fund's portfolio within a separate account or fund, often referred to as the illiquid pocket. Side pockets are often used when the valuation of illiquid assets is temporarily difficult or even impossible, affecting the ability of the fund manager to dispose of such assets.
Where a side pocket is in place, existing investors in the fund receive a pro rata share in the illiquid pocket. Existing investors that redeem out of the fund remain invested in the illiquid pocket until the assets in the illiquid pocket can be sold, while new investors do not receive a share in the illiquid pocket. The liquid pocket remains open to subscriptions and redemptions.
While side pockets may take the form of a separate account in some jurisdictions, if side pockets were to become permitted in Canada, the side pocket would likely need to be a separate fund given the requirement under subsection 1.3(1) of NI 81-102 that each section, part, class or series of a class of securities of an investment fund that is referable to a separate portfolio of assets is considered to be a separate investment fund.
Advantages |
Disadvantages |
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• Side pockets protect investors by mitigating first-mover advantage and avoiding the "last man standing" scenario |
• Side pockets limit when and how investors can withdraw their investment in the fund |
• Side pockets ensure that only existing investors will be impacted by the performance of the illiquid investments in the side pocket, and not new investors |
• Side pockets may harm unitholders who need to redeem during a period of investor hardship |
• Side pockets prevent the forced sale of illiquid assets under unfavourable conditions |
• Side pockets increase the opportunity cost of investing for investors as it removes their ability to withdraw capital from poorly performing funds |
• Side pockets provide access to the liquid component of a portfolio without compromising the integrity of the entire portfolio |
• Side pockets may lead to different performance for new vs. existing investors |
• Side pockets ensure fair treatment among investors as investors receive a pro rata share of the illiquid portion of the portfolio |
• The creation of a side pocket may require the creation of a separate investment fund, which will have costs and operational burdens |
• Side pockets allow a fund to continue to grow and operate the liquid portion of the portfolio without being impacted by the illiquid portion of the portfolio |
• Side pockets may create conflicts of interest, in that illiquid assets may be segregated into side pockets for reasons other than liquidity risk management, such as to protect manager fees on the liquid portion of the portfolio |
(k) Increased temporary borrowing limit
Currently, investment funds are subject to the borrowing limits in NI 81-102.{17} The rules permit an investment fund to borrow cash or provide a security interest over any of its portfolio assets if the transaction is a temporary measure to: (a) accommodate requests for the redemption of securities of the investment fund while the investment fund effects an orderly liquidation of portfolio assets; or (b) permit the investment fund to settle portfolio transactions; and in both cases, so long as the outstanding amount of all borrowings of the investment fund does not exceed 5% of its NAV at the time of the borrowing.
Permitting funds to temporarily increase their borrowing limit can help a fund meet its redemption needs on a temporary basis. An increased temporary borrowing limit could involve increasing the limit beyond 5% of a fund's NAV.
Exemptive relief to increase, or exempt funds from, the borrowing limits has previously been granted in certain circumstances. For example, in April 2020, the CSA provided mutual funds that invested in fixed income securities with a temporary exemption from the borrowing limits in order to accommodate requests for redemptions for a period of approximately 3 months during the COVID-19 pandemic.{18} Specifically, the temporary exemption was intended to facilitate an orderly liquidation of fixed income securities to address the short-term dislocation in the fixed income securities market due to the COVID-19 pandemic.
Advantages |
Disadvantages |
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• Relative to more complex LMTs, borrowing can be done fairly quickly |
• Borrowing costs and risks would ultimately be borne by the remaining investors in the fund |
• Borrowing does not affect the ability of investors to redeem or explicitly and directly change the redemption price, as compared to other LMTs |
• Unless disclosure is provided about each borrowing transaction, investors may not be aware of the use of borrowing to manage liquidity needs |
Question 1: For investment funds that are reporting issuers, is there a need for the CSA to permit the use of LMTs that are not already currently permitted? Please explain, and if applicable, identify any specific LMTs that the CSA should permit the use of.
Question 2: For IFMs of investment funds that are reporting issuers, have there been past situations in which one of your investment funds would have benefited from being permitted to use an LMT that is not already currently permitted? If so, please explain, including an explanation for why you did not apply for exemptive relief from the applicable securities regulatory authority to use the LMT.
Question 3: Are there any LMTs that the CSA should not permit to be used by investment funds that are reporting issuers? If so, please identify the specific LMTs and explain.
Question 4: Should the CSA be requiring investment funds that are reporting issuers to adopt LMTs, including by requiring that such investment funds adopt a minimum number of LMTs or for example, a minimum number of price-based LMTs? Please explain, and if applicable, identify any specific LMTs that the CSA should require investment funds that are reporting issuers to adopt.
Question 5: Should the CSA expand the circumstances in which an investment fund that is a reporting issuer can suspend redemption rights without regulatory approval beyond the circumstances set out in subsection 10.6(1) of NI 81-102? If so, please explain and identify the circumstances.
Question 6: Should the CSA increase the temporary borrowing limit beyond what is currently permitted under section 2.6 of NI 81-102? If so, please explain and identify any potential parameters around the increased temporary borrowing limit.
Question 7: For investment funds that are reporting issuers, are there any LMTs that are not discussed in this Consultation Paper that the CSA should consider permitting or requiring the use of? Please explain.
Question 8: Are there any types of investment funds that are reporting issuers that should: (a) be carved out of any requirements relating to LMTs; (b) be subject to different requirements relating to LMTs; or (c) not be permitted to use any specific LMTs? Please explain.
The 2023 FSB Revised Recommendations include the recommendation that authorities outline their approach to defining assets as liquid, less liquid or illiquid, or comparable categories.{19} The FSB recommended that such an approach be based on the liquidity of the funds' assets in normal and stressed market conditions. The 2023 FSB Revised Recommendations also include guidance for authorities to consider classifying entire fund portfolios by liquidity, such that a fund may be considered to invest mainly in liquid assets, invest mainly in less liquid assets, or allocate a significant proportion of its assets to illiquid assets.
The 2025 IOSCO Revised Recommendations echo the FSB recommendation relating to both the classification of assets and classification of the fund's portfolio as a whole.{20}
As discussed earlier, in the FSSA, the IMF recommended that Canada align its regulatory framework relating to liquidity of assets held by publicly offered funds with FSB and IOSCO guidance in this area,{21} which would include the FSB and IOSCO recommendations relating to liquidity classification.
The CSA is of the view that the classification of portfolio assets into liquidity buckets serves 4 purposes.
Firstly, it allows the IFM to construct a portfolio for the investment fund that meets the fund's liquidity needs by matching the expected redemption needs of the investor base with the appropriate mix of portfolio assets based on the time that it would take to convert the asset into cash without adversely impacting value of the asset.
Secondly, classification would allow the IFM to ensure, on an ongoing basis, that the liquidity profile of the portfolio continues to meet the liquidity needs of the fund. Specifically, the classification framework would enhance the fund's ability to adjust its portfolio composition in situations where the IFM must either anticipate or react to adverse events.
The classification requirement would enable investment funds to manage their ability to meet redemptions based on specific time periods by categorizing their investments in terms of the time period needed to dispose of and settle such investments without adverse impact on the price of the investment. This benefit is equally applicable during both the design phase and on an ongoing basis.
Thirdly, public disclosure of the classification of the portfolio assets of a fund into liquidity buckets would provide investors with transparency into the liquidity of the fund's portfolio, enabling investors to assess a fund's relative liquidity and therefore make more informed investment decisions.
Finally, the classification framework would facilitate meaningful and useful reporting to the applicable securities regulatory authority on the liquidity characteristics of an investment fund's portfolio, which would enable the securities regulatory authorities to monitor for system-wide liquidity trends and risks.
In both the case of public disclosure and reporting to securities regulatory authorities, the CSA is of the view that a standardized liquidity classification framework would ensure consistency across the investment fund industry, benefiting both investors for comparability purposes and the securities regulatory authorities for monitoring purposes.
The CSA is considering establishing new requirements for all investment funds, including those that are not reporting issuers, to classify the liquidity of each of the fund's investments as part of the design phase of the fund, as well as for each new investment. This would also include requiring investment funds to review the liquidity classification of each of the fund's investments on an ongoing basis.
The potential requirements would also include, for investment funds that are reporting issuers, disclosing to investors the percentage of the fund's portfolio assets that belong to each liquidity category. Additionally, this would also require all investment funds, including those that are not reporting issuers, to report on a confidential basis to the relevant securities regulatory authorities the liquidity classification of each investment held by the fund. The potential disclosure and reporting requirements are further discussed below under "Regulatory disclosure and data relating to LRM".
(a) Classification categories
The classification framework would be based on the number of business days within which a fund's portfolio asset would be readily disposed of and its disposition would be settled. The disposition would need to be at an amount that at least approximates the amount at which the asset is valued in calculating the net asset value per security of the fund.
The classification framework would be made up of the following categories:
1. Highly liquid assets: Assets that would be readily disposed of, and their disposition would be settled, within 3 business days during both normal and stressed market conditions at an amount that at least approximates the amount at which the asset is valued in calculating the net asset value per security of the fund
2. Moderately liquid assets: Assets that would be readily disposed of, and their disposition would be settled, in either 4 or 5 business days during both normal and stressed market conditions at an amount that at least approximates the amount at which the asset is valued in calculating the net asset value per security of the fund
3. Less liquid assets: Assets that would be readily disposed of in 5 or less business days during both normal and stressed market conditions at an amount that at least approximates the amount at which the asset is valued in calculating the net asset value per security of the fund, but where the settlement of the disposition is reasonably expected to take more than 5 business days
4. Illiquid assets: Assets that would be readily disposed of, and their disposition would be settled in more than 5 business days during both normal and stressed market conditions at an amount that at least approximates the amount at which the asset is valued in calculating the net asset value per security of the fund
The definition of each of the above classification categories requires that the timeline include an assessment of the time needed for both disposition and settlement. The CSA's view is that the timeline used to measure the liquidity of an asset would need to take into account the settlement period because it is the actual conversion of the asset into cash that enables an investor to receive their redemption proceeds.
Question 9: Do you agree with the four classification categories? If not, please explain.
Question 10: Do you agree with including the settlement period in the timeline set out in each of the four classification categories? If not, please explain.
Question 11: Should any of the four classification categories be revised to distinguish between the timeline required to readily dispose of and settle an asset during normal market conditions and the timeline required to do so during stressed market conditions? If so, please explain the distinction that should be made.
(b) Illiquid asset restrictions
The potential requirements would not change the existing illiquid asset restrictions under NI 81-102.{22} However, in order to align the definition of illiquid asset with the above classification categories, the definition of illiquid asset would need to be revised accordingly. Specifically, the definition of illiquid asset would need to be revised to include the words "within 5 business days" between "readily disposed of" and "through market facilities", as follows:
(a) a portfolio asset that cannot be readily disposed of within 5 business daysthrough market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating the net asset value per security of the investment fund, or
(b) a restricted security held by an investment fund.
The CSA notes that a liquidity classification framework serves a related but different purpose than the illiquid asset restrictions. In the CSA's view, the illiquid asset restrictions are intended to limit an investment fund's exposure to assets that cannot be readily disposed of quickly. However, the illiquid asset restrictions do not address the overall liquidity of the portfolio, particularly the allocation of the remainder of the portfolio among highly liquid assets, moderately liquid assets, and less liquid assets, and does not assist the IFM in aligning the types of investments held in the portfolio with redemption obligations. In addition, the illiquid asset restrictions do not provide transparency for investors and the regulatory securities authorities into the rest of the portfolio beyond the illiquid assets held by the fund, preventing investors from having a complete picture of the liquidity profile of the fund and securities regulatory authorities from monitoring for systemic liquidity risks.
Question 12: Do you agree with the potential change to the definition of illiquid asset? If not, please explain.
Question 13: Are there other aspects of the current definition of illiquid asset that should be revised? If so, please explain.
(c) Classification of assets with similar characteristics
The potential classification framework would allow for IFMs to use a classification method that groups together portfolio assets that have similar characteristics, such that the IFM would not need to conduct a separate assessment for each individual portfolio asset. For example, if an IFM determined that all equity securities of publicly listed Canadian large cap companies are highly liquid assets, the IFM could classify each such security held by the fund as a highly liquid asset. However, if the IFM or portfolio adviser became aware of any information that would reasonably be expected to significantly impact the liquidity of that portfolio asset such that the liquidity of that portfolio asset would be different from the liquidity of other assets with similar characteristics, the IFM would need to take this factor into account as part of the ongoing review of the classification of that portfolio asset.
However, the CSA notes that, even when an IFM classifies each portfolio asset based on the classification of other assets that have similar characteristics, IFMs would still need to identify the liquidity category for each portfolio asset individually and report on a confidential basis to the relevant securities regulatory authorities the liquidity classification of each portfolio asset held by the fund, as discussed further below.
The CSA does not intend to prescribe the liquidity classification category of specific asset classes or asset types as part of the potential classification framework. In the CSA's view, it is the IFM who is best equipped to assess and review the liquidity classification of each of the fund's portfolio assets.
Question 14: Do you agree that IFMs should be permitted to use a classification method that groups together portfolio assets that have similar characteristics? If not, please explain.
Question 15: Do you agree that the CSA should not prescribe the liquidity classification category of specific asset classes or asset types as part of the classification framework and should leave such classification to the IFM?
(d) Factors
The classification framework would include requiring the IFM, in classifying and reviewing the classification of a fund's portfolio assets, to consider both quantitative and qualitative factors, such as:
• Existence and nature of the market for the asset, including whether the market is active, whether the asset is listed on an exchange, and the number, diversity, and quality of market participants
• Anticipated trade size, as further discussed below
• Relative size of the fund's position in the asset, market depth and impact of large transactions, as further discussed below
• Market conditions and turnover, including the frequency of trades or quotes for the asset, average daily trading volumes and volatility of trading prices
• Bid-ask spreads
• Efficiency and effectiveness of the pricing mechanism
• Calculation certainty
• For fixed income securities, maturity and date of issue, and credit quality
• Restrictions on trading of the asset and limitations on transfer of the asset
• Political, social, and economic events and conditions
The IFM would need to classify and review the classification of a portfolio asset assuming the reasonably anticipated size of its dispositions of the asset. If the IFM does not reasonably anticipate the disposition of its entire holding in a portfolio asset, but rather, reasonably anticipates disposing only a portion of that holding, the IFM's classification and review of the classification of the portfolio asset would need to reflect the timeline expected for the disposition and settlement of that portion of the holding.
In both the initial classification and ongoing review of the classification of the fund's portfolio assets, the IFM would need to consider market depth by assessing whether the sale of portions or all of a position in an investment would be so sizable as to significantly affect the liquidity of that investment. If so, the IFM would need to take this factor into account as part of the classification and ongoing review of the classification of that investment.
As part of the classification and review process, the IFM would need to consider factors in both normal and stressed market conditions.
Question 16: Do you agree with the examples of factors included above? If not, please explain why you disagree, and if there are other factors that should be included as examples, please indicate.
Question 17: If the classification framework requires that the IFM take into account the reasonably anticipated trade size for a portfolio asset in classifying the portfolio asset, should the framework require that the entire holding of that portfolio asset be classified into a single liquidity classification category, or should it allow for different portions of that portfolio asset to be classified into multiple liquidity classification categories?
(e) Ongoing review of classifications
As indicated above, the classification framework would include requiring investment funds to review the liquidity classification of each of the fund's investments on an ongoing basis. The frequency of the review would be, at a minimum, monthly, and the ongoing review would need to be more frequent if there are changes in the aforementioned classification factors that would be reasonably expected to change the classification category of the portfolio asset.
Question 18: Do you agree with a minimum monthly frequency for the requirement to review the liquidity classification of each of the fund's investments? If not, please explain.
(f) Policies and procedures
The classification framework would include a requirement for the IFM to establish, maintain, and apply policies and procedures relating to the classification of the fund's portfolio assets into the aforementioned four categories. In addition, such policies and procedures would also need to address the ongoing review of the classification of the fund's portfolio assets, including to identify any developments or information that would reasonably be expected to significantly impact the liquidity of an investment such that the classification of that investment would need to change.
Question 19: Are there any types of investment funds that should be carved out of the liquidity classification framework or be subject to different liquidity classification requirements? Please explain.
There have been a number of recent international developments relating to regulatory disclosure and data pertaining to LRM.
The 2022 FSB Assessment found that while many jurisdictions enhanced their regulatory reporting requirements following the publication of the 2017 FSB Recommendations, there was variance in the scope, frequency and content of periodic reporting. The FSB also found that while many jurisdictions have the ability to collect more frequent ad hoc supervisory information from fund managers where necessary and this data is useful during times of market stress, it is less suited to preventative monitoring for vulnerabilities. The 2022 FSB Assessment also encountered challenges in obtaining and analyzing data to support its assessment, suggesting that measuring and monitoring liquidity mismatch as well as evaluating the availability, use and effectiveness of LMTs continue to be challenging for authorities. Finally, the FSB also found that while all surveyed jurisdictions require disclosure of fund liquidity risk to investors, more could be done to enhance such disclosure.
The 2023 FSB Revised Recommendations updated two of the disclosure-related recommendations from the 2017 FSB Recommendations. Firstly, the FSB recommended that authorities enhance existing investor disclosure requirements and determine the degree to which additional disclosures should be provided by OEFs to investors regarding the availability and use of LMTs.{23} Secondly, the FSB recommended that clear decision-making processes for OEFs' use of quantity-based LMTs and other liquidity management measures, particularly in stressed market conditions, be made transparent to investors and the relevant authorities.{24}
In addition, the 2023 IOSCO Guidance included the principle that responsible entities should publish clear disclosures of the objectives and operation, including design and use, of anti-dilution LMTs.{25}
The 2025 IOSCO Revised Recommendations updated the earlier 2018 IOSCO recommendation relating to the disclosure of liquidity risk and the LRM process. The updated recommendation is that the responsible entity should ensure that liquidity risk and the CIS' LRM process, including the availability and use of LMTs and liquidity management measures, are effectively disclosed to investors and prospective investors.{26}
In addition, IOSCO expanded the aforementioned anti-dilution LMT principle from the 2023 IOSCO Guidance into a new recommendation for all LMTs. The recommendation is that the responsible entity should publish clear disclosures of the objectives and operation, including design and use, of anti-dilution LMTs, quantity-based LMTs and other liquidity management measures.{27}
Finally, in the FSSA, the IMF recommended that, in the context of the regulation and supervision of investment funds, Canadian authorities strengthen their approach to stress testing at the level of authority-led exercises.{28} The IMF also recommended that sector-wide data on liquidity be collected quarterly.{29}
Both public disclosure and reporting to securities regulatory authorities about liquidity would contribute to the CSA's goal of strengthening the regulatory framework for LRM in Canada.
Public disclosure about liquidity-related matters provides investors with transparency into both the liquidity of the fund's portfolio and the fund's liquidity risk management framework. Such disclosure is important in that it enables investors to make more informed investment decisions about whether a fund is suitable for their needs and to assess a fund's liquidity and ability to manage its liquidity.
Reporting to securities regulatory authorities on liquidity-related matters enables them to effectively monitor for system-wide liquidity trends and risks, ultimately protecting both investors and participants in the investment fund industry, as well as the financial system as a whole.
The CSA is considering establishing new requirements relating to both public disclosure and confidential reporting to securities regulatory authorities with regard to liquidity and LRM issues. The public disclosure requirements would be applicable to investment funds that are reporting issuers, while the confidential reporting requirements would be applicable to all investment funds, including those that are not reporting issuers.
Each of the potential new requirements is discussed below.
(a) Public disclosure
Annual and interim fund report
In September 2024, the CSA published for comment a series of proposed amendments aimed at modernizing the continuous disclosure regime for investment funds.{30} As part of the proposed amendments, the CSA proposed to replace the existing annual and interim management report of fund performance with a new annual and interim fund report that includes a section relating to the liquidity profile of the fund (the Proposed Fund Report).
The liquidity profile information in the Proposed Fund Report would include the following:
• a pie chart that presents the percentage of the investment fund's portfolio that can be sold for cash in certain periods of time, organized into liquidity classification categories (e.g. one day, 2 to 7 days, 8 to 30 days, 31 to 90 days, etc.)
• if the investment fund faced any material liquidity issues during the applicable period, a discussion of the fund's liquidity profile, including the fund's ability to satisfy redemptions on a timely basis
• if the investment fund did not face any material liquidity issues during the applicable period, a statement to that effect.
If the CSA were to proceed with implementing the aforementioned liquidity classification framework and including liquidity profile information in the Proposed Fund Report, the liquidity classification buckets referenced in the Proposed Fund Report would be replaced with the liquidity classification categories set out above in this Consultation Paper.
The CSA has reviewed stakeholder comments on the proposed liquidity disclosure for the Proposed Fund Report.{31} While some commenters supported the inclusion of the proposed liquidity disclosure, some were of the view that such disclosure should not be included in the Proposed Fund Report. For example, some stakeholders noted that it may result in investor confusion, that investors in certain types of investment funds may not find it useful, and that the disclosure is as of a point in time. Some stakeholders also noted that the requirements could be burdensome and identified methodological challenges in preparing the proposed liquidity disclosure. In addition, some stakeholders noted that the CSA should consider the proposed liquidity disclosure as part of a liquidity risk management-focused CSA policy initiative.
Question 20: Should liquidity profile information be disclosed in the Proposed Fund Report? Please explain and if applicable, identify the liquidity-related information that should be included in the Proposed Fund Report and the format in which it should be disclosed.
Prospectus, fund facts, and ETF facts
If the CSA permits or requires the use of LMTs that are not already currently permitted or required, as discussed above, the CSA is considering requiring that the investment fund disclose in its prospectus information relating to all LMTs that may be used by the fund, including how the LMT works, the circumstances (such as thresholds) that would trigger the use of each LMT, and any parameters around the use of such LMT.
In addition, the CSA is considering requiring that funds that may use any LMT that impacts redemption prices or an investor's ability to redeem out of the fund disclose information about such LMTs in their fund facts or ETF facts, as applicable. This may require adding a new section to the fund facts and ETF facts forms.
Question 21: If the CSA permits or requires the use of LMTs that are not already currently permitted or required, should the CSA require that all information about LMTs be disclosed in a new, separate section of the prospectus relating to LMTs or in an existing section of the prospectus, such as the "Purchases, Switches and Redemptions" section of the simplified prospectus? Please explain.
Question 22: Is there any other liquidity-related information that should be disclosed in the prospectus, fund facts or ETF facts? Please explain.
(b) Confidential reporting to securities regulatory authorities
Periodic reporting of liquidity classification of each investment held by the fund
As discussed above, reporting to securities regulatory authorities on liquidity-related matters enables them to effectively monitor for system-wide liquidity trends and risks. In order to facilitate system-wide monitoring, the CSA is considering requiring that all investment funds, including those that are not reporting issuers, confidentially disclose to the applicable securities regulatory authority on a quarterly basis the liquidity classification category of each investment held by the fund.
Question 23: Do you agree with requiring that investment funds disclose on a confidential basis to the applicable securities regulatory authority the liquidity classification category of each investment held by the fund? Please explain.
Question 24: If the answer to question 23 is yes, do you agree with a quarterly reporting frequency? Please explain.
Question 25: Is there any other liquidity profile-related information that the CSA should require investment funds to report to securities regulatory authorities on a confidential and periodic basis? Please explain.
Question 26: Should investment funds be required to publicly disclose the liquidity classification category of each investment held by the fund and if so, what would be the appropriate frequency and timing of such disclosure? Please explain.
Question 27: Should investment funds that are not reporting issuers be subject to this periodic reporting requirement? Please explain.
Reporting on occurrence of liquidity-related events
In order to facilitate real-time monitoring of liquidity-related events in the investment fund industry and the financial system as a whole, the CSA is considering requiring that all investment funds, including those that are not reporting issuers, promptly report to the applicable securities regulatory authority when the following liquidity-related events occur:
• When the fund receives redemption requests above a certain threshold
• When the fund breaches its applicable illiquid asset restriction under NI 81-102
• When the fund suspends redemptions
• When the fund activates LMTs that impact the redemption price or an investor's ability to redeem out of the fund
• When the fund borrows cash or provides a security interest over any of its portfolio assets as a temporary measure to accommodate requests for the redemption of securities of the fund while the fund effects an orderly liquidation of portfolio assets
The reporting would include an explanation of how the event has impacted the fund's liquidity profile and in the case of redemption requests above a certain threshold and breaches of the illiquid asset restriction, how the fund is managing the liquidity-related event.
Question 28: Do you agree with requiring that investment funds promptly report to the applicable securities regulatory authority when the above liquidity-related events occur? Please explain.
Question 29: Are there any other liquidity-related events for which the CSA should require prompt reporting to the applicable securities regulatory authority? Please explain.
Question 30: Should the occurrence of any of the above liquidity-related events also require public disclosure beyond the current material change reporting requirements? Please explain.
Question 31: Should investment funds that are not reporting issuers be subject to these liquidity-related event reporting requirements? Please explain.
E. Conclusion
This Consultation Paper seeks comments on:
1. LMTs
2. Liquidity classification of underlying portfolio assets
3. Regulatory disclosure and data relating to LRM.
Specifically, the CSA is seeking feedback on the following questions:
1. For investment funds that are reporting issuers, is there a need for the CSA to permit the use of LMTs that are not already currently permitted? Please explain, and if applicable, identify any specific LMTs that the CSA should permit the use of.
2. For IFMs of investment funds that are reporting issuers, have there been past situations in which one of your investment funds would have benefited from being permitted to use an LMT that is not already currently permitted? If so, please explain, including an explanation for why you did not apply for exemptive relief from the applicable securities regulatory authority to use the LMT.
3. Are there any LMTs that the CSA should not permit to be used by investment funds that are reporting issuers? If so, please identify the specific LMTs and explain.
4. Should the CSA be requiring investment funds that are reporting issuers to adopt LMTs, including by requiring that such investment funds adopt a minimum number of LMTs or for example, a minimum number of price-based LMTs? Please explain, and if applicable, identify any specific LMTs that the CSA should require investment funds that are reporting issuers to adopt.
5. Should the CSA expand the circumstances in which an investment fund that is a reporting issuer can suspend redemption rights without regulatory approval beyond the circumstances set out in subsection 10.6(1) of NI 81-102? If so, please explain and identify the circumstances.
6. Should the CSA increase the temporary borrowing limit beyond what is currently permitted under section 2.6 of NI 81-102? If so, please explain and identify any potential parameters around the increased temporary borrowing limit.
7. For investment funds that are reporting issuers, are there any LMTs that are not discussed in this Consultation Paper that the CSA should consider permitting or requiring the use of? Please explain.
8. Are there any types of investment funds that are reporting issuers that should: (a) be carved out of any requirements relating to LMTs; (b) be subject to different requirements relating to LMTs; or (c) not be permitted to use any specific LMTs? Please explain.
9. Do you agree with the four classification categories? If not, please explain.
10. Do you agree with including the settlement period in the timeline set out in each of the four classification categories? If not, please explain.
11. Should any of the four classification categories be revised to distinguish between the timeline required to readily dispose of and settle an asset during normal market conditions and the timeline required to do so during stressed market conditions? If so, please explain the distinction that should be made.
12. Do you agree with the potential change to the definition of illiquid asset? If not, please explain.
13. Are there other aspects of the current definition of illiquid asset that should be revised? If so, please explain.
14. Do you agree that IFMs should be permitted to use a classification method that groups together portfolio assets that have similar characteristics? If not, please explain.
15. Do you agree that the CSA should not prescribe the liquidity classification category of specific asset classes or asset types as part of the classification framework and should leave such classification to the IFM?
16. Do you agree with the examples of factors included above under "Factors"? If not, please explain why you disagree, and if there are other factors that should be included as examples, please indicate.
17. If the classification framework requires that the IFM take into account the reasonably anticipated trade size for a portfolio asset in classifying the portfolio asset, should the framework require that the entire holding of that portfolio asset be classified into a single liquidity classification category, or should it allow for different portions of that portfolio asset to be classified into multiple liquidity classification categories?
18. Do you agree with a minimum monthly frequency for the requirement to review the liquidity classification of each of the fund's investments? If not, please explain.
19. Are there any types of investment funds that should be carved out of the liquidity classification framework or be subject to different liquidity classification requirements? Please explain.
20. Should liquidity profile information be disclosed in the Proposed Fund Report? Please explain and if applicable, identify the liquidity-related information that should be included in the Proposed Fund Report and the format in which it should be disclosed.
21. If the CSA permits or requires the use of LMTs that are not already currently permitted or required, should the CSA require that all information about LMTs be disclosed in a new, separate section of the prospectus relating to LMTs or in an existing section of the prospectus, such as the "Purchases, Switches and Redemptions" section of the simplified prospectus? Please explain.
22. Is there any other liquidity-related information that should be disclosed in the prospectus, fund facts or ETF facts? Please explain.
23. Do you agree with requiring that investment funds disclose on a confidential basis to the applicable securities regulatory authority the liquidity classification category of each investment held by the fund? Please explain.
24. If the answer to question 23 is yes, do you agree with a quarterly reporting frequency? Please explain.
25. Is there any other liquidity profile-related information that the CSA should require investment funds to report to securities regulatory authorities on a confidential and periodic basis? Please explain.
26. Should investment funds be required to publicly disclose the liquidity classification category of each investment held by the fund and if so, what would be the appropriate frequency and timing of such disclosure? Please explain.
27. Should investment funds that are not reporting issuers be subject to this periodic reporting requirement? Please explain.
28. Do you agree with requiring that investment funds promptly report to the applicable securities regulatory authority when the above liquidity-related events under "Confidential reporting to securities regulatory authorities" occur? Please explain.
29. Are there any other liquidity-related events for which the CSA should require prompt reporting to the applicable securities regulatory authority? Please explain.
30. Should the occurrence of any of the above liquidity-related events under "Confidential reporting to securities regulatory authorities" also require public disclosure beyond the current material change reporting requirements? Please explain.
31. Should investment funds that are not reporting issuers be subject to these liquidity-related event reporting requirements? Please explain.
{1} IOSCO, "Thematic Review on Liquidity Risk Recommendations: Final Report" (November 2022), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD721.pdf. See also "2022 IOSCO Thematic Reviews" in the Notice and Request for Comment.
{2} FSB, "Assessment of the Effectiveness of the FSB's 2017 Recommendations on Liquidity Mismatch in Open-Ended Funds" (December 14, 2022), https://www.fsb.org/wp-content/uploads/P141222.pdf.
{3} FSB, "Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds" (December 20, 2023), https://www.fsb.org/wp-content/uploads/P201223-1.pdf.
{4} In Canada, the responsible entity of an investment fund is the IFM.
{5} IOSCO, "Anti-dilution Liquidity Management Tools -- Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes: Final Report" (December 2023), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD756.pdf.
{6} IOSCO, "Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes: Final Report" (May 2025), https://www.iosco.org/library/?pubdocs/pdf/IOSCOPD798.pdf.
{7} Recommendation 3 of 2025 IOSCO Revised Recommendations.
{8} Recommendation 6 of 2025 IOSCO Revised Recommendations.
{9} Recommendation 7 of 2025 IOSCO Revised Recommendations.
{10} Recommendation 13 of 2025 IOSCO Revised Recommendations.
{11} Recommendation 16 of 2025 IOSCO Revised Recommendations.
{12} Recommendation 17 of 2025 IOSCO Revised Recommendations.
{13} International Monetary Fund, "Canada: Financial System Stability Assessment -- Press Release and Staff Report" (August 1, 2025), https://www.imf.org/en/?Publications/CR/Issues/2025/07/31/Canada-Financial-System-Stability-Assessment-Press-Release-and-Staff-Report-569167, pg. 24.
{14} See Multilateral CSA Notice of Amendments to National Instrument 81-105 Mutual Fund Sales Practices and Related Consequential Amendments relating to Prohibition of Deferred Sales Charges for Investment Funds and OSC Staff Notice 81-731 Next Steps on Deferred Sales Charges.
{15} Subsection 10.6(1) of NI 81-102 states the following:
An investment fund may suspend the right of securityholders to request that the investment fund redeem its securities for the whole or any part of a period during which either of the following occurs:
(a) normal trading is suspended on a stock exchange, options exchange or futures exchange within or outside Canada on which securities are listed and posted for trading, or on which specified derivatives are traded, if those securities or specified derivatives represent more than 50% by value, or underlying market exposure, of the total assets of the investment fund without allowance for liabilities and if those securities or specified derivatives are not traded on any other exchange that represents a reasonably practical alternative for the investment fund;
(b) in the case of a clone fund, the investment fund whose performance it tracks has suspended redemptions.
{16} See subsection 5.5(1) of NI 81-102.
{17} See s. 2.6 of NI 81-102.
{18} CSA, "Canadian securities regulators temporarily increase short-term borrowing limits for mutual funds investing in fixed income" (April 17, 2020), https://www.securities-administrators.ca/news/canadian-securities-regulators-temporarily-increase-short-term-borrowing-limits-for-mutual-funds-investing-in-fixed-income/.
{19} Recommendation 3 of 2023 FSB Revised Recommendations.
{20} Recommendation 3 of 2025 IOSCO Revised Recommendations.
{21} FSSA, pg. 24.
{22} See section 2.4 of NI 81-102.
{23} Recommendation 2 of 2023 FSB Revised Recommendations.
{24} Recommendation 7 of 2023 FSB Revised Recommendations.
{25} Guidance 6 of 2023 IOSCO Guidance.
{26} Recommendation 16 of 2025 IOSCO Revised Recommendations.
{27} Recommendation 17 of 2025 IOSCO Revised Recommendations.
{28} FSSA, pg. 24.
{29} FSSA, pg. 25.
{30} CSA, "Canadian Securities Administrators Propose Amendments to Modernize Continuous Disclosure Regime for Investment Funds" (September 19, 2024), https://www.securities-administrators.ca/news/canadian-securities-administrators-propose-amendments-to-modernize-continuous-disclosure-regime-for-investment-funds/.
{31} CSA, "Comment Letters for CSA Notice and Request for Comment -- Proposed Amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 81-102 Investment Funds, National Instrument 81-106 Investment Fund Continuous Disclosure, National Instrument 81-107 Independent Review Committee for Investment Funds; and Related Proposed Consequential Amendments and Changes; Modernization of the Continuous Disclosure Regime for Investment Funds", https://www.osc.ca/en/securities-law/instruments-rules-policies/8/81-101-81-101cp/csa-notice-and-request-comment-proposed-amendments-?national-instrument-81-101-mutual-fund/comment-letters.
The Ontario Securities Commission (the Commission or the OSC) is publishing this Annex to supplement the CSA Notice and Request for Comment (the Notice and Request for Comment) and to set out matters required to be addressed by the Securities Act (Ontario) (the Act).
The Canadian Securities Administrators (the CSA) are publishing for comment the proposed amendments (the Proposed Amendments) to National Instrument 81-102 Investment Funds (NI 81-102) and proposed changes (the Proposed CP Changes) to Companion Policy 81-102 Investment Funds as part of an effort to strengthen the liquidity risk management (LRM) framework of all investment funds.
Unless otherwise defined in this Annex, defined terms or expressions used in this Annex share the meanings provided in the Notice and Request for Comment. Please refer to the main body of the Notice and Request for Comment for additional details.
The Commission is not publishing for comment any proposed amendments to any rules, or proposed changes to any guidance, that are only in effect in Ontario.
In 2020, the CSA published SN 81-333,{1} which sets out guidance relating to LRM based on existing securities regulatory requirements.
In recent years, there has been significant international momentum in the area of LRM. In particular, IOSCO and FSB have published various recommendations and guidance for securities regulators in this area,{2} and regulators around the world are responding to these recommendations and guidance by building and strengthening their regulatory frameworks for LRM.
As discussed in SN 81-333, in 2022, IOSCO conducted a thematic review focused on the LRM regulatory framework of participating member jurisdictions and for 4 of the 10 recommendations, found Canada to be "broadly consistent". IOSCO had noted that the LRM regulatory framework in Canada is based on guidance that is not legally enforceable and that does not, in some respects, according to IOSCO, cover all relevant key elements of the recommendations.
In addition, as discussed in SN 81-333, the Bank of Canada has consistently noted the risk associated with liquidity mismatches potentially faced by fixed income and money market mutual funds in its annual Financial Stability Report.{3}
Therefore, while SN 81-333 provides useful guidance in this area, the CSA's view is that it would be appropriate to establish LRM-specific regulatory requirements at this time to strengthen our regulatory framework in this area, as well as to keep pace with international developments.
The Proposed Amendments and Proposed CP Changes are intended to strengthen the LRM practices of all investment funds. A robust LRM framework enables IFMs to appropriately manage the liquidity of an investment fund's portfolio to meet the redemption needs of its investors without disadvantaging investors that remain in the investment fund and other liquidity needs, such as from margin or collateral calls associated with derivatives and leveraged positions.
The Proposed Amendments include the following new requirements for all investment funds, including those that are not reporting issuers:
(i) LRM Framework
• An investment fund must establish and maintain an LRM framework.
• As part of the LRM framework, an investment fund must establish, maintain and apply policies and procedures that address all matters relating to LRM.
(ii) Operational Requirements
• For a newly established investment fund, prior to the launch of the investment fund, an IFM must ensure that the investment fund's investment objectives and investment strategies and permitted redemption frequency of its securities align with the nature of its expected portfolio assets and expected redemption activity of its securities.
• An investment fund must monitor, review and assess its liquidity profile and relevant market conditions on an ongoing basis using qualitative and quantitative metrics and, if necessary, adjust the composition of its portfolio assets.
• An investment fund must establish and maintain liquidity thresholds and targets to monitor, review and assess its liquidity profile.
• An investment fund must conduct stress tests of the liquidity of its portfolio assets to monitor, review and assess its liquidity profile, including the application to the stress tests of historical and hypothetical scenarios that are relevant to its liquidity profile.
• If market conditions are normal, an investment fund must conduct stress tests at least quarterly.
• If market conditions are stressed, an investment fund must increase the frequency of the stress tests until market conditions are normal.
• An investment fund must assess the impact of a portfolio transaction on its liquidity risk before making a decision in respect of entering into the transaction.
• An investment fund must establish and maintain contingency plans that address liquidity risk, including, for greater certainty, contingency plans that include the use of LRM tools.
• An investment fund must periodically test contingency plans to ensure that, to a reasonable person, the contingency plans are suitable for the adequate management of liquidity risk.
(iii) Oversight
• An investment fund must appoint a liquidity risk management supervisor (the LRM supervisor) or establish a liquidity risk management committee (the LRM committee).
• An investment fund that is required to appoint an LRM supervisor must appoint as the LRM supervisor one of the following:
• the chief compliance officer (CCO) of the IFM;
• an individual who reports directly to the CCO of the IFM;
• an individual who reports directly to the CCO of the IFM on LRM matters.
• An investment fund that is required to establish an LRM committee must appoint as a member of the LRM committee one of the following:
• the CCO of the IFM;
• an individual who reports directly to the CCO of the IFM.
• An investment fund must ensure that an LRM supervisor or each individual who is a member of an LRM committee, as applicable, has sufficient knowledge of LRM.
• An investment fund must ensure that the LRM supervisor or LRM committee performs all of the functions listed in subsection 6.1.3(5).
• An IFM must, as soon as reasonably possible, refer for review to the LRM supervisor or LRM committee, as applicable, a matter that would reasonably be expected to significantly impact the liquidity profile of the investment fund and provide, with the referral, the information set out in paragraphs 6.1.3(6)(a) and (b).
• An investment fund that is required to establish an LRM committee must ensure that the LRM committee meets as often as necessary to conduct the business of the committee and at least quarterly each consecutive 12-month period.
The Proposed CP Changes contain guidance explaining the Proposed Amendments.
The primary stakeholders that will be impacted by the Proposed Amendments are IFMs that are registered in Canada that manage any investment funds (including both investment funds that are reporting issuers and investment funds that are not reporting issuers) and all investors in such investment funds.
Most of the requirements in the Proposed Amendments are imposed on investment funds. However, our analysis of the impact of the Proposed Amendments reflects the fact that it is IFMs that direct the business operations and affairs of investment funds and that will therefore be impacted by the Proposed Amendments.
IFMs direct the business operations and affairs of an investment fund. The table below presents the number of IFMs registered in Ontario, categorized by the number of investment funds that they manage, based on records from 2024.
Table 1: Number of IFMs by number of investment funds, 2024
IFMs by number of investment funds |
Reporting issuer investment funds only or combination of reporting issuer & non-reporting issuer investment funds{4} |
Non-reporting issuer investment funds only |
|
||
Small (1 investment fund) |
11 |
121 |
|
||
Medium (2-10 investment funds) |
62 |
188 |
|
||
Large (11+ investment funds) |
68 |
32 |
|
||
Total |
141 |
341 |
Source: OSC Investment Fund Survey{5}
The table below presents the number of investment funds managed by an IFM registered in Ontario, based on records from 2023, categorized by reporting issuer status.
Table 2: Number of investment funds by reporting issuer status, 2024
Investment funds by reporting issuer status |
Fund count |
|
|
Reporting issuers |
4,447 |
|
|
Non-reporting issuers |
2,763 |
|
|
Total |
7,210 |
|
|
Source: OSC Investment Fund Survey
According to a 2024 survey conducted for the Securities and Investment Management Association, 61% of Canadian investors own mutual funds and 24% own ETFs.{6}
The OSC's mandate is to:
• provide protection to investors from unfair, improper or fraudulent practices;
• foster fair, efficient and competitive capital markets and confidence in the capital markets;
• foster capital formation, and
• contribute to the stability of the financial system and the reduction of systemic risk.
The Proposed Amendments will impact all four components of the OSC's mandate.
The Proposed Amendments will improve the ability of investors to access liquidity when redeeming their investment fund securities by helping investment funds strengthen their LRM frameworks so that they are able to meet investors' redemption requests. In addition, they would protect remaining investors in an investment fund by helping investment funds retain liquidity for remaining investors even after other investors have redeemed out of the investment fund.
The Proposed Amendments will ensure a level playing field for IFMs by requiring consistent LRM practices for all investment funds. In addition, the Proposed Amendments will help investment funds be able to meet investors' redemption requests and potentially minimize the negative impacts of runs on investments funds in stressed circumstances, if they should occur. They will also strengthen investor confidence in the ability of investment funds to meet investor redemption needs. The Proposed Amendments will therefore foster greater confidence in the capital markets.
The Proposed Amendments will facilitate capital formation by fostering investor confidence in the management of investment funds. This may have the effect of attracting investors to invest in all types of investment funds, including those that invest in Canadian companies, which would lead to capital formation.
Potential mismatch between fund liquidity and redemptions is a structural vulnerability in asset management. Unaddressed structural liquidity mismatch can contribute to greater market volatility, which can affect the functioning of markets in times of stress. The Proposed Amendments will contribute to the stability of the financial system and will reduce systemic risk by reducing the likelihood of contagion arising if investment funds are unable to meet redemptions in an orderly manner.
(i) IFMs
The primary benefit to IFMs of the Proposed Amendments will be an improvement in their ability to meet the redemption needs of investors in the investment funds that they manage in an orderly fashion. This will reduce the risk that they will be unable to meet redemption requests and in the worst-case scenario, need to terminate investment funds due to liquidity issues.
In addition, the Proposed Amendments set out clear regulatory expectations that would create a level-playing field for all IFMs.
While we are unable to quantify this benefit with meaningful precision, we believe that it will be proportionate to the anticipated costs.
(ii) Investors
We expect that investors would benefit from the Proposed Amendments, which aim to strengthen the LRM practices of investment funds so that they are better equipped to meet investors' redemption requests.
In addition to redeeming investors, the Proposed Amendments would help remaining investors in the investment fund. In particular, the Proposed Amendments would help ensure that an investment fund is able to retain liquidity for remaining investors even after other investors have redeemed out of the investment fund and maintain the confidence of remaining investors in the ability of the investment fund to meet their future redemption requests.
While we are unable to quantify these benefits with meaningful precision, we believe that they will be proportionate to the anticipated costs.
(i) IFMs
The following section estimates the compliance costs associated with the Proposed Amendments based on the standard cost model, which is an activity-based framework used to assess and quantify the impact of proposed rulemaking on regulated entities.
Methodology
The methodology considers the baseline (or current state of alignment with the guidance in SN 81-333) and assesses the incremental impact of the Proposed Amendments. The estimated compliance costs therefore take into account existing business-as-usual practices and processes that could be updated and modified to facilitate compliance with the Proposed Amendments.
The methodology also considers the impact of the Proposed Amendments on IFMs of different sizes. For the purposes of this analysis, we have grouped IFMs into three size categories based on the number of investment funds managed by the IFMs,{7} rather than assets under management (AUM). This is due to the fact that the impact of some of the Proposed Amendments are dependent on the number of investment funds managed by the IFM and therefore, AUM would not be an appropriate way to group IFMs. For example, the costs for each IFM associated with the proposed requirements to establish and maintain liquidity thresholds and targets and conduct stress testing during normal market conditions is dependent on the number of investment funds managed by the IFM, as liquidity thresholds and targets and stress testing would be tailored to individual investment funds.
Finally, the methodology reflects the differing starting states of current alignment with the guidance in SN 81-333 by IFMs that manage reporting issuers or a combination of reporting issuers and non-reporting issuers versus IFMs that manage non-reporting issuers.
Key assumptions
The estimated compliance costs are based on the following assumptions and observations:
• Our understanding from stakeholder consultations to inform the Proposed Amendments and Proposed CP Changes is that the vast majority of IFMs that manage only reporting issuer investment funds, IFMs that manage both reporting issuer and non-reporting issuer investment funds, and IFMs that manage large numbers of non-reporting issuer investment funds already manage their investment funds in a manner that is in alignment with the guidance in SN 81-333.
• We anticipate that the Proposed Amendments will have a greater impact on IFMs that manage small and medium numbers of only non-reporting issuer investment funds. These IFMs and their investment funds are starting from a lower state of alignment with SN 81-333.
• Compliance costs fall into three categories:
1. Fixed costs that are independent of the number of investment funds managed by an IFM (IFM-Level Costs). Examples include the time spent by all IFMs to review the final rule and conduct a gap analysis against current policies and procedures.
2. Variable costs that depend on the number of investment funds managed by an IFM (Fund-Level Costs). Examples include the costs associated with establishing and maintaining liquidity thresholds and targets and with conducting stress testing during normal conditions.
3. One-time costs that only arise when an IFM establishes a new investment fund. We have not included such costs in the cost estimates, as we cannot reasonably estimate how often an IFM launches a new investment fund. We anticipate that such one-time costs will be minimal. We assume that an IFM that establishes a new investment fund will have estimated that the marginal revenue resulting from the establishment of the new investment fund will exceed the marginal costs of establishing the investment fund.
• We do not anticipate any significant costs associated with information technology and systems modifications as a result of the Proposed Amendments.
• We assume that all compliance activities will be carried out by internal staff without significant reliance on external consultants. Key internal staff include Chief Compliance Officers, Compliance Managers, General Counsel and Portfolio Managers.{8}
• A representative IFM is one that manages the median number of investment funds in each size category. For the purposes of estimating the costs incurred by a representative small, medium and large IFM in Table 5 below, we use the median number of investment funds in each size category.
• We estimate total industry costs based on the total number of IFMs and total number of investment funds.
IFMs of only reporting issuer investment funds and IFMs of both reporting issuer and non-reporting issuer investment funds
For the purposes of this part of the analysis, we have grouped together all IFMs that only manage reporting issuer investment funds and all IFMs that manage both reporting and non-reporting issuer investment funds (RI and Mixed IFMs).
As outlined in the key assumptions above, we assume that the vast majority of RI and Mixed IFMs manage their investment funds in a manner that is already in alignment with the guidance in SN 81-333. As such, we anticipate that the investment funds managed by such IFMs will not incur any Fund-Level Costs and that the Proposed Amendments will have a minimal impact on IFM-Level Costs for such investment funds.
a. Initial costs
We estimate that each RI and Mixed IFM will spend approximately 37 hours{9} implementing the Proposed Amendments in the first year that the Proposed Amendments are implemented.
The initial compliance costs would include learning about the Proposed Amendments and establishing policies and procedures to comply with requirements in the Proposed Amendments that the IFM and its investment funds do not already comply with.
We estimate that each RI and Mixed IFM will incur approximately $5,000 in initial compliance costs, amounting to total industry costs of approximately $710,000 in the first year that the Proposed Amendments are implemented.{10}
b. Ongoing annual costs
We estimate that each RI and Mixed IFM will spend approximately 12 hours{11} complying with the Proposed Amendments annually on an ongoing basis.
The ongoing compliance costs would include maintaining policies and procedures and periodically testing contingency plans.
We estimate that each RI and Mixed IFM will incur approximately $1,300 in ongoing annual compliance costs, amounting to total industry costs of approximately $180,000 in ongoing annual compliance costs.{12}
IFMs of only non-reporting issuer investment funds
For the purposes of this part of the analysis, we are including IFMs that only manage non-reporting issuer investment funds (Non-RI IFMs).
As outlined in the key assumptions, we assume that Non-RI IFMs that manage a large number of investment funds do so in a manner that is already in alignment with the guidance in SN 81-333. We also assume that Non-RI IFMs that manage a large number of investment funds will not incur any Fund-Level Costs.
Non-RI IFMs that manage a small or medium number of investment funds will incur both IFM-Level Costs and Fund-Level Costs.
a. Initial costs
We estimate that, in the first year that the Proposed Amendments are implemented, a Non-RI IFM of a small or medium number of investment funds will spend approximately 82 hours at the IFM level{13} and 13 hours per investment fund{14} implementing the Proposed Amendments. A Non-RI IFM of a large number of investment funds will spend approximately 37 hours{15} implementing the Proposed Amendments.
The initial compliance costs would include, where applicable, learning about the Proposed Amendments, establishing an LRM framework, establishing policies and procedures to comply with the Proposed Amendments, designing the monitoring system in order to monitor, review and assess the liquidity profile of the investment fund and market conditions, establishing liquidity thresholds and targets, establishing contingency plans, and appointing an LRM supervisor or establishing an LRM committee.
Table 3: Estimated initial compliance costs for Non-RI IFMs in first year
Firm size |
Estimated IFM-Level Costs per Non-RI IFM |
Estimated Fund-Level Costs per investment fund |
Number of Non-RI IFMs |
Number of investment funds |
Total industry costs{16} |
|
|||||
Small |
$10,700 |
$1,500 |
121 |
121 |
$1,480,000 |
|
|||||
Medium |
$10,700 |
$1,500 |
188 |
769 |
$3,170,000 |
|
|||||
Large |
$5,000 |
$0 |
32 |
821 |
$160,000 |
|
|||||
Total |
|
|
341 |
1,711 |
$4,800,000 |
|
|||||
Source: OSC Investment Fund Survey and OSC staff estimates
We estimate that Non-RI IFMs will incur approximately $4.8M in initial compliance costs on an industry-wide basis in the first year that the Proposed Amendments are implemented.
b. Ongoing annual costs
We estimate that a Non-RI IFM of a small or medium number of investment funds will spend approximately 13 hours at the IFM level{17} and 11 hours per investment fund{18} complying with the Proposed Amendments on an ongoing annual basis. A Non-RI IFM of a large number of investment funds will spend approximately 12 hours{19} complying with the Proposed Amendments on an ongoing annual basis.
The ongoing compliance costs would include maintaining an LRM framework, maintaining policies and procedures, conducting the ongoing monitoring, review and assessment of the liquidity profile of the investment fund and market conditions, maintaining liquidity thresholds and targets, conducting stress testing on a quarterly basis, maintaining and periodically testing contingency plans, and having the LRM supervisor or LRM committee review matters that have been referred to them. As noted above, we assume that Non-RI IFMs that manage a large number of investment funds are already incurring the ongoing annual Fund-Level Costs and will not face any additional ongoing annual Fund-Level Costs from the Proposed Amendments.
Table 4: Estimated ongoing annual compliance costs for Non-RI IFMs
Firm size |
Estimated IFM-Level Costs per Non-RI IFM |
Estimated total Fund-Level Costs per investment fund |
Number of Non-RI IFMs |
Number of investment funds |
Total industry costs{20} |
|
|||||
Small |
$1,600 |
$1,300 |
121 |
121 |
$350,000 |
|
|||||
Medium |
$1,600 |
$1,300 |
188 |
769 |
$1,300,000 |
|
|||||
Large |
$1,300 |
$0 |
32 |
821 |
$40,000 |
|
|||||
Total |
|
|
341 |
1,711 |
$1,690,000 |
|
|||||
Source: OSC Investment Fund Survey and OSC staff estimates
We estimate that Non-RI IFMs will incur approximately $1.7M in ongoing annual compliance costs on an industry-wide basis.
c. Representative Non-RI IFM costs
Table 5 sets out the estimated initial and ongoing annual compliance costs incurred by a representative Non-RI IFM that manages small, medium and large numbers of investment funds. For the purpose of estimating Fund-Level Costs for a representative Non-RI IFM, we use the median number of investment funds in each size category.
Table 5: Estimated compliance costs per representative Non-RI IFM
Firm size |
Median number of investment funds |
Estimated initial compliance costs |
Estimated ongoing annual compliance costs |
|
|||
Small |
1 |
$12,200 |
$2,900 |
|
|||
Medium |
3 |
$15,200 |
$5,500 |
|
|||
Large |
23 |
$5,000 |
$1,300 |
|
|||
Source: OSC Investment Fund Survey and OSC staff estimates
(ii) Investors
Although IFMs will incur the above compliance costs, the costs are incremental and we do not believe that they will be passed on to investors. As such, we do not anticipate that investors will incur any costs as a result of the Proposed Amendments.
The benefits of the Proposed Amendments include an improved ability by IFMs to meet the redemption needs of investors and, consequently, investors will be better able to access liquidity as needed. While it is not possible to quantify these benefits, we consider them to be significant and proportionate to the anticipated costs.
Table 6: Total initial and ongoing annual compliance costs for industry
Type of IFM |
Total initial costs for industry |
Total ongoing annual costs for industry |
|
||
RI and Mixed IFMs |
$710,000 |
$180,000 |
|
||
Non-RI IFMs |
$4,800,000 |
$1,690,000 |
|
||
Total |
$5,510,000 |
$1,870,000 |
|
||
We estimate that IFMs will collectively incur approximately $5.5M in initial costs and $1.9M in ongoing annual costs{21} across the industry, and we note that these aggregate costs are relatively low compared to the total assets under management of this industry.
An alternative considered was to maintain the existing guidance in SN 81-333. We determined, however, that this approach would not achieve the purpose of the Proposed Amendments, which is to strengthen the LRM framework of all investment funds, as opposed to only reporting issuer funds. Unlike the Proposed Amendments, the guidance in SN 81-333 lacks enforceability. In addition, the existing guidance in SN 81-333 is based on broad requirements that are not specific to LRM, while the Proposed Amendments establish clearer LRM-specific requirements, especially in areas such as oversight and stress testing.
Another alternative that was considered was to update the guidance in SN 81-333. We determined that this approach would not address the issue of enforceability.
The following provision of the Act provides the Commission with authority to adopt the Proposed Amendments:
Paragraph 31 of subsection 143(1) of the Act authorizes the Commission to make rules in respect of regulating investment funds and the distribution and trading of the securities of investment funds.
The Commission is not relying on any unpublished study, report or other written material in proposing the Proposed Amendments and Proposed CP Changes.
We welcome feedback from IFMs on the estimated costs included in this Annex, including details on the extent to which they are already complying with the Proposed Amendments.
{1} CSA Staff Notice 81-333 Guidance on Effective Liquidity Risk Management for Investment Funds, https://www.osc.ca/en/securities-law/instruments-rules-policies/8/81-333/csa-staff-notice-81-333-guidance-effective-liquidity-risk-management-investment-funds.
{2} See "Background -- International Developments" in the Notice and Request for Comment for an overview of, and references to, the various IOSCO and FSB publications.
{3} See, for example, the Financial Stability Report 2024, https://www.bankofcanada.ca/2024/05/financial-stability-report-2024/.
{4} The OSC Investment Fund Survey (at https://www.osc.ca/en/industry/investment-funds/investment-fund-survey) uses the term "prospectus fund" to refer to reporting issuer investment funds and the term "exempt fund" to refer to non-reporting issuer investment funds.
{5} The data in the OSC Investment Fund Survey Dashboard (the Dashboard) (at https://www.osc.ca/en/industry/investment-funds-and-structured-products/investment-fund-survey/investment-fund-survey-data) may differ from the data included in this Annex, as the Dashboard only includes investment funds with positive net asset values that are domiciled in Canada, while the data in this Annex includes all investment funds managed by IFMs registered in Ontario.
{6} Securities and Investment Management Association (formerly the Investment Institute of Canada), Canadian Mutual Fund & Exchange-Traded Fund Investors Survey (2024), https://www.sima-amvi.ca/wp-content/themes/ific-new/util/downloads_new.php?id=29931&lang=en_CA.
{7} See Table 1.
{8} Hourly rates for compliance staff and portfolio managers are based on the Robert Half 2025 Canada Salary Guide. Hourly rates for in-house counsel are based on the Counselwell 2025 Canadian In-House Lawyer Salary Report.
{9} Chief Compliance Officer (28 hours); Compliance Manager (5 hours); Portfolio Manager (2 hours) and General Counsel (2 hours)
{10} $5,000 per IFM x 141 IFMs of only reporting issuer investment funds and IFMs of both reporting issuer and non-reporting issuer investment funds
{11} Chief Compliance Officer (3 hours); Compliance Manager (5 hours); Portfolio Manager (2 hours) and General Counsel (2 hours)
{12} $1,300 per IFM x 141 firms of only reporting issuer investment funds and IFMs of both reporting issuer and non-reporting issuer investment funds
{13} Chief Compliance Officer (37 hours); Compliance Manager (5 hours); Portfolio Manager (32 hours) and General Counsel (7 hours)
{14} Portfolio Manager (11 hours) and LRM Supervisor/Committee (2 hours)
{15} Chief Compliance Officer (28 hours); Compliance Manager (5 hours); Portfolio Manager (2 hours) and General Counsel (2 hours)
{16} Due to rounding, some totals may not equal the sum of the individual components.
{17} Chief Compliance Officer (3 hours); Compliance Manager (5 hours); Portfolio Manager (2 hours) and General Counsel (2 hours)
{18} Portfolio Manager (9 hours) and LRM Supervisor/Committee (2 hours)
{19} Chief Compliance Officer (3 hours); Compliance Manager (5 hours); Portfolio Manager (2 hours) and General Counsel (2 hours)
{20} Due to rounding, some totals may not equal the sum of the individual components.
{21} Over a 10-year horizon, the industry will incur a total of approximately $18.7M in ongoing annual costs.
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Promoter(s):
Filing #06177991
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06258518
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Issuer Name:
Type and Date:
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Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06289493
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06298253
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06321565
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06230218
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06230218
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Issuer Name:
Principal Regulator -- British Columbia
Type and Date:
Offering Price and Description:
Filing # 06361783
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Issuer Name:
Principal Regulator -- Alberta
Type and Date:
Offering Price and Description:
Filing # 06361798
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06299003
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06299003
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Issuer Name:
Principal Regulator -- British Columbia
Type and Date:
Offering Price and Description:
Filing # 06351319
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06362644
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Issuer Name:
Principal Regulator -- British Columbia
Type and Date:
Offering Price and Description:
Filing # 06361742
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Issuer Name:
Principal Regulator -- British Columbia
Type and Date:
Offering Price and Description:
Filing # 06361742
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06354584
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Issuer Name:
Principal Regulator -- Nova Scotia
Type and Date:
Offering Price and Description:
Filing # 06358282
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06363307
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Issuer Name:
Principal Regulator -- British Columbia
Type and Date:
Offering Price and Description:
Filing # 06360706
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06360041
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06360041
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Issuer Name:
Principal Regulator -- Alberta
Type and Date:
Offering Price and Description:
Filing # 06358973
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06358609
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06290214
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Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06290214
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Issuer Name:
Principal Regulator -- Alberta
Type and Date:
Offering Price and Description:
Filing # 06290214
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Type |
Company |
Category of Registration |
Effective Date |
|
|||
New Registration |
ASSETPLUS CAPITAL INC. |
Exempt Market Dealer and Mutual Fund Dealer |
November 19, 2025 |
|
|||
Name Change |
From: DELISLE ADVISORY GROUP INC. |
Portfolio Manager |
October 31, 2025 |
|
|||
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To: PORTAGE WEALTH LTD. |
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|
|||
Consent to Suspension (Pending Surrender) |
VirgoCX Inc. |
Restricted Dealer |
November 24, 2025 |
|
|||
New Registration |
NORTHBRIDGE SECURITIES INC. |
Exempt Market Dealer |
November 24, 2025 |
|
|||
Change Registration Category |
FENGATE CAPITAL MANAGEMENT LTD. |
From: Investment Fund Manager, Portfolio Manager and Exempt Market Dealer |
November 19, 2025 |
|
|||
|
|
To: Investment Fund Manager and Exempt Market Dealer |
|
Canadian Investment Regulatory Organization (CIRO) -- Amendments to UMIR Respecting Contingent Derivative Orders -- Notice of Commission Approval
The Ontario Securities Commission has approved CIRO's proposed amendments to the Universal Market Integrity Rules (UMIR) that facilitate the execution of an order for a listed security or quoted security that is contingent on the execution of one or more trades in a listed derivative that is also a related derivative (Amendments).
The Amendments:
• add a definition of a "Contingent Derivative Order" in UMIR 1.1,
• add a designation for a "Contingent Derivative Order" in UMIR 6.2, and
• amend various definitions and provisions of UMIR to reflect the introduction of a "Contingent Derivative Order".
CIRO published the Amendments for comment on February 27, 2025. Two comment letters were received. No changes were made to the Amendments in response to the comments received. A summary of the public comments and CIRO's responses to those comments, as well as the CIRO Implementation Bulletin including text of the Amendments, can be found at www.osc.ca.
The Amendments will be effective on December 22, 2025.
In addition, the Alberta Securities Commission; the Autorité des marchés financiers; the British Columbia Securities Commission; the Financial and Consumer Affairs Authority of Saskatchewan; the Financial and Consumer Services Commission of New Brunswick; the Manitoba Securities Commission; the Northwest Territories Office of the Superintendent of Securities; the Nova Scotia Securities Commission; the Nunavut Office of the Superintendent of Securities; the Office of the Superintendent of Securities, Digital Government and Services, Newfoundland and Labrador; the Office of the Yukon Superintendent of Securities; and the Prince Edward Island Office of the Superintendent of Securities have either not objected to or have approved the Amendments.
LeveL Markets, LLC -- Application for an Exemption from the Marketplace Rules -- Notice and Request for Comment
LeveL Markets, LLC (LeveL) has applied for an exemption from National Instrument 21-101 Marketplace Operation (NI 21-101), National Instrument 23-101 Trading Rules (NI 23-101), and National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103 and, together with NI 21-101 and NI 23-101, the Marketplace Rules), in their entirety.
LeveL is a registered broker-dealer with the Securities and Exchange Commission and is a member of the Financial Industry Regulatory Authority in the U.S. It operates alternative trading systems known as Luminex ATS and LeveL ATS.
LeveL intends to provide access to trading on Luminex ATS and a certain feature on LeveL ATS to eligible participants in Canada that are "permitted clients" as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
LeveL facilitates trading in National Market System equity securities (NMS Securities), which are exchange-listed and trade in the U.S. The draft exemption decision would prohibit LeveL from offering Canadian subscribers access to trade NMS Securities that are listed on a Canadian stock exchange. If approved, LeveL would be the first foreign exempt alternative trading system to allow Canada subscribers to trade non-Canadian equity securities, which would be an expansion of the framework for foreign ATSs operating in Canada on an exemptive basis set out in CSA Staff Notice 21-328 Regulatory Approach to Foreign Marketplaces Trading Fixed-Income Securities (SN 21-328).
Similar to the approach taken in SN 21-328, Staff believe that foreign ATSs wishing to offer access to equity securities to Canadian participants may choose not to do so for various reasons, such as concerns that the anticipated volume and size of activity in Canada may not be large enough to justify the business and regulatory costs of complying with the regulatory costs of complying with the requirements to operate a marketplace. As LeveL will not be trading securities that are listed on a Canadian stock exchange, staff do not believe that LeveL will compete directly with domestic marketplaces that are required to comply with the Marketplace Rules.
In its application, LeveL has described its operations and the details of the exemptive relief requested, including changes to its market model to comply with Canadian regulatory requirements. The application and draft exemption decision with terms and conditions are attached as Appendices A and B of this Notice.
The Commission is publishing for public comment on LeveL's application and draft exemption decision. We are seeking comment on all aspects of the application and draft exemption decision, including allowing Canadian subscribers to trade certain NMS Securities.
Please provide your comments in writing, via email, on or before January 5, 2026 to the attention of:
The confidentiality of submissions cannot be maintained as the comment letters and a summary of written comments received during the comment period will be published.
Questions may be referred to:
Julie Mansi |
Borden Ladner Gervais LLP |
T 416.367.6224 |
Bay Adelaide Centre, East Tower |
E jmansi@blg.com |
22 Adelaide Street West |
Carol E. Derk |
Toronto, ON, Canada M5H 4E3 |
T 416.367.6181 |
T 416.367.6000 |
E cderk@blg.com |
F 416.367.6749 |
blg.com |
September 10, 2024, as amended and restated as of November 12, 2025
Ontario Securities Commission |
British Columbia Securities Commission |
20 Queen Street West, Suite 1903 |
701 West Georgia Street, Pacific Centre |
Toronto, Ontario M5H 3S8 |
Vancouver, BC V7Y 1L2 |
Alberta Securities Commission |
Autorité des marchés financiers |
Suite 600, 250-5th St. SW |
Place de la Cité, tour Cominar |
Calgary, Alberta T2P 0R4 |
2640, boulevard Laurier, bureau 400 |
Québec, Québec G1V 5C1 |
|
Nova Scotia Securities Commission |
Financial and Consumer Affairs Authority |
Ste. 400, Duke Tower, 5251 Duke St. |
Suite 601, 1919 Saskatchewan Drive |
Halifax, NS B3J 1P3 |
Regina, Saskatchewan S4P4H2 |
Manitoba Securities Commission |
Financial and Consumer Services Commission |
400 St Mary Ave |
85 Charlotte St Suite 300 |
Winnipeg, MB R3C 4K5 |
Saint John, NB E2L 2J2 |
Office of the Superintendent of Securities, |
Office of the Superintendent of Securities, |
Newfoundland and Labrador |
Consumer, Corporate and Financial Services Division |
St. John's, NL A1B 4J6 |
95 Rochford Street |
P.O. Box 2000 |
|
Charlottetown, PEI C1A 7N8 |
|
Office of the Superintendent of Securities |
Office of the Superintendent of Securities |
Department of Justice |
Nunavut |
Government of the Northwest Territories |
1st Floor, Brown Building |
Yellowknife, NT X1A 2L9 |
Iqaluit, NU X0A 0H0 |
Office of the Yukon Superintendent of Securities |
|
307 Black Street, 1st Floor |
|
Whitehorse, Yukon Y1A 2N1 |
|
Dear Sirs/Mesdames:
Re: |
LeveL Markets, LLC (LeveL Markets or the Filer) -- Coordinated Review Application by LeveL Markets for an exemption in the Jurisdictions (defined below) pursuant to section 15.1 of National Instrument 21-101 Marketplace Operation (NI 21-101), section 12.1 of National Instrument 23-101 Trading Rules (NI 23-101), and section 10 of National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103) and the securities legislation of each Jurisdiction except Ontario, from the whole of each of NI 21-101, NI 23-101 and NI 23-103 (collectively, the Marketplace Rules) in accordance with the coordinated review application requirements of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203) (the Application) |
We are counsel to, and are filing this Application on behalf of, LeveL Markets, which operates one trading platform that carries on business as Luminex Alternative Trading System (the Luminex ATS) and a second trading platform that carries on business as LeveL Alternative Trading System (the LeveL ATS and, together with the Luminex ATS, the ATSs), pursuant to Section 3.4 of NP 11-203. The exemption from the Marketplace Rules is sought in each of the provinces and territories of Canada (collectively, the Jurisdictions).
In accordance with the guidelines set out in section 3.6 of NP 11-203, the Ontario Securities Commission (OSC) has been selected as the principal regulator for the purposes of this Application on the basis that LeveL Markets has the most significant connection to Ontario. In accordance with section 5.2(3) of NP 11-203, this Application is being filed with each of the securities regulatory authorities in each of the Jurisdictions (the Decision Makers) for relief from the Marketplace Rules under the securities legislation of each of those Jurisdictions (the Legislation).
On behalf of LeveL Markets, we hereby request that the Decision Makers grant a decision under the Legislation for an exemption from the Marketplace Rules (the Requested Relief).
LeveL Markets is not in default of securities legislation in any of the Jurisdictions nor in its home jurisdiction, the United States of America (U.S.). The Requested Relief is novel and, to our knowledge, has not been previously granted.
1. LeveL Markets is a limited liability company organized under Delaware law. LeveL Markets is a wholly-owned subsidiary of LeveL Holdings, LLC (LeveL Holdings). A consortium of leading capital market participants, including FMR Sakura Holdings LLC (FMR Sakura), Fidelity Global Brokerage Group, Inc. (FGBG), Nasdaq Inc. (Nasdaq), Citigroup and Bank of America, each owns a minority interest in the securities of LeveL Holdings. FMR Sakura and FGBG are wholly-owned subsidiaries of FMR LLC, which operates a number of businesses under the trade name Fidelity Investments (Fidelity).
2. LeveL Markets is registered as a broker-dealer with the United States Securities and Exchange Commission (SEC) in the U.S. and is a member of the Financial Industry Regulatory Authority, Inc. (FINRA) and the Securities Investor Protection Corporation. It is the operator of the ATSs. LeveL Markets is not registered in any capacity in Canada and does not carry out any registrable activities in Canada. None of LeveL Markets, the ATSs nor any other affiliated marketplace has any Canadian client or subscriber. If the Requested Relief is granted, LeveL Markets expects to take all necessary steps to be able to rely on the international dealer exemption.
3. The Luminex ATS commenced operations in 2015 and the LeveL ATS commenced operations in 2006. Each ATS is registered as an alternative trading system (ATS) with the SEC and is operated by LeveL Markets.
4. LeveL Markets is seeking the Requested Relief in respect of the Luminex ATS because it wishes to permit Canadian "permitted clients" (as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103)) to become subscribers on, and trade on, the Luminex ATS. LeveL Markets is also seeking the Requested Relief in respect of the LeveL ATS because, in very limited circumstances, a Canadian subscriber on the Luminex ATS may transfer its order to the LeveL ATS through LeveL Markets' "LeveLUp" feature, which is described in greater detail below.
Arrangements with Minority Owners in LeveL Holdings
5. Nasdaq -- LeveL Markets and Nasdaq each have information barriers, controls and related policies that prohibit the sharing of non-public confidential trading information between LeveL Markets, on the one hand, and Nasdaq and its affiliates (collectively, the Nasdaq Entities), including, for clarity, the sharing of any non-public trading information of any securities exchange operated by a Nasdaq Entity (the Nasdaq Securities Exchanges) with LeveL Markets.
LeveL Markets personnel and Nasdaq Entity personnel are subject to policies and procedures that are designed to preserve the independent governance and operation of each ATS and the Nasdaq Securities Exchanges. The Nasdaq Securities Exchanges and the ATSs use wholly separate technology and systems. Nasdaq Entity personnel do not have access to the ATSs' systems, and LeveL Markets personnel do not have access to the systems used in the operation of the Nasdaq Securities Exchanges. LeveL Markets does not share any office space with any Nasdaq Entity. LeveL Markets policies and procedures treat Nasdaq Entity personnel in the same manner as personnel of any unaffiliated third party. Accordingly, Nasdaq Entity personnel are restricted from accessing LeveL Markets' premises and systems, and from obtaining order, execution and other system data relating to the operations of the ATSs.
No Nasdaq Entity is eligible to become a subscriber on the Luminex ATS or the LeveL ATS or to otherwise use the services of either ATS.
Nasdaq services the operations of the FINRA/Nasdaq -- Trade Reporting Facility (TRF) Carteret, and the Nasdaq Securities Exchanges are participants in the committees that operate each Securities Information Processor (SIP) feed. LeveL Markets reports transactions effected on each ATS to the FINRA/Nasdaq TRF Carteret and uses market data disseminated by the SIP feed in determining the relevant national best bid and offer (NBBO) for each transaction effected on each ATS.
6. Fidelity -- Fidelity's asset management entity, Fidelity Management & Research Company (FMR Co.), is a Subscriber to the Luminex ATS. In that regard, FMR Co. enters trading interest and orders and executes transactions on the Luminex ATS. It has no special access to, or privileges in respect of, the Luminex ATS beyond what any other Luminex ATS Subscriber can have.
Fidelity offers a routing tool to institutional customers called Fidelity Service Bureau (FSB), which is operated by a non-broker-dealer Fidelity entity. Certain Buyside Subscribers' traders, including but not limited to those of FMR Co., use FSB to route orders and trading interest to the Luminex ATS for handling and execution. As it does with other order entry systems, LeveL Markets pays FSB a monthly fee for connectivity of the Buyside Subscribers and traders that use FSB to access the Luminex ATS. LeveL Markets is not a party to any agreement between Buyside Subscribers and FSB, and users of FSB are not treated any differently in the Luminex ATS than non-users of FSB.
Pursuant to a fully-disclosed clearing agreement between LeveL Markets and National Financial Services LLC (NFS), a Fidelity-related entity, NFS clears and settles all transactions executed on the Luminex ATS. Additionally, NFS maintains a proprietary account on behalf of LeveL Markets and provides LeveL Markets order-routing and execution services. This account is solely used by LeveL Markets to effect proprietary transactions in connection with bona fide errors and occasional and infrequent accommodations. All such proprietary transactions are effected on market centers other than the Luminex ATS. NFS is also a subscriber to the LeveL ATS.
Arrangements with LeveL Holdings
7. LeveL Holdings provides technology support and development for each ATS. As a result, personnel in LeveL Holdings' technology and operations departments who provide technology, maintenance support, and regulatory reporting services may have access to confidential trading information on both ATSs. In addition, members of LeveL Markets' Compliance and Legal staff, who support both ATSs, may obtain access to confidential trading information of both ATSs to respond to, among other things, regulatory inquiries.
Other Service Providers
8. Data center facilities are leased from Equinix Inc. in Secaucus, New Jersey. LeveL Markets licenses a FIX engine from Itiviti Group AB (f/k/a CameronTec Group). The FIX engine provides connectivity with Subscribers' (as defined below) order-originating systems and transformation of FIX messages to/from internal data structures. The LeveL ATS also requires that orders be submitted to it via the FIX protocol. Each ATS receives market data from Options-IT, a vendor that handles market data feeds from various market data providers and is also LeveL Markets' managed security services provider.
The Luminex ATS Subscribers
9. The Luminex ATS is a buy-side (asset management) focused ATS. Its subscribers are primarily buy-side asset management institutions that trade National Market System (NMS) equity securities, which are equity securities that are listed on U.S registered exchanges and trade both on-exchange and off-exchange in the U.S. The following are the entities (Subscribers) that are permitted to be participants on the Luminex ATS:
(i) Buyside Subscriber -- an asset management (buy-side) entity including, but not limited to, investment advisors, pension funds, hedge funds, and other investment entities that are not broker-dealers. Buyside Subscribers must complete written subscriber agreements and other required documents to become customers of LeveL Markets, in its capacity as the broker-dealer operator of the Luminex ATS.
(ii) Sponsored Buyside Subscriber -- an asset management or other buy-side investment entity that is a customer of another broker-dealer and is not a customer of LeveL Markets. Sponsored Buyside Subscribers can only access the Luminex ATS if specifically permitted to do so by LeveL Markets and only via an Admitted Broker-Dealer (see below).
(iii) Admitted Broker-Dealer -- a registered broker-dealer subscriber that has been approved by LeveL Markets to access the Luminex ATS for the purpose of routing orders and trading interest of investment entities (including Buyside Subscribers and Sponsored Buyside Entities) to the Luminex ATS for handling and execution. Admitted Broker-Dealers may trade on behalf of existing Luminex Buyside Subscribers, may engage in transition management services for investment entities, may perform outsourced trading services for third parties that have been retained by investment entities to perform trading services on their behalf, or may function as broker-dealer routers for Buyside Subscribers and Sponsored Buyside Subscribers. Sponsored access brokers, who are broker-dealers that are designated by an existing Buyside Subscriber as a "sponsor" for orders or trading interests entered by that Buyside Subscriber, are also Admitted Broker-Dealers.
Eligibility for the Luminex ATS Services
10. Prospective subscribers to the Luminex ATS must comply with LeveL Markets' regulatory due diligence and account documentation requirements before being approved as a Subscriber.
11. For Buyside Subscribers, these due diligence requirements generally include the satisfactory completion of a written Subscriber Agreement, the submission of a U.S. Internal Revenue Service (IRS) Form W-9 or equivalent, written Subscriber requests on preferences for the receipt of paper account statements (if applicable), a written Prime Brokerage Clearance Services Agreement (if applicable), the satisfactory completion of an Office of Foreign Asset Control (OFAC) review, and other customer identification requirements, such as the receipt and review of the Subscriber's Form ADV (if applicable) and verification of other information of the Subscriber, such as its authorized contact persons and authorized traders.
12. Sponsored Buyside Subscribers must be known to and approved by LeveL Markets prior to being able to submit orders or trading interest to the Luminex ATS. LeveL Markets, in its sole discretion, may disallow Sponsored Buyside Subscribers to access the Luminex ATS due to legal, credit, or other concerns, including, but not limited to, negative publicity regarding such Sponsored Buyside Subscriber or regulatory issues.
13. Prospective broker-dealer users on the Luminex ATS must complete a new account form, provide all required supporting documentation (e.g., formation documents, Form BD), submit an account application listing key management and beneficial owners, and execute a Subscriber Agreement and any other relevant agreement applicable to the services provided to that prospective subscriber.
14. LeveL Markets does not admit natural persons as Subscribers or participants in the Luminex ATS. LeveL Markets, in its sole discretion, may restrict a prospective subscriber from accessing the Luminex ATS due to legal, credit, or other concerns, including, without limitation, a suspension or expulsion from an SRO, credit risk, existence of regulatory settlements, and negative news reports relating to the prospective subscriber.
Excluded Subscribers
15. If a Subscriber's trading activities appear to be having a deleterious impact on the Luminex ATS, that entity may be excluded from being able to interact in the Luminex ATS. Examples of when LeveL Markets may exercise its judgment to exclude a Subscriber from the Luminex ATS include if:
(i) a Subscriber demonstrates repeated and prolonged patterns of declining to trade when presented with matching opportunities;
(ii) a Subscriber begins to engage in short-term (such as intraday) trading on the Luminex ATS;
(iii) a Subscriber fails to meet financial or other due diligence requirements;
(iv) a Subscriber is accused of committing, or was found to have committed, regulatory violations that could pose regulatory or reputational risk to the Luminex ATS, LeveL Markets or its other users, in LeveL Markets' judgment;
(v) a Subscriber appears to be encountering financial difficulties (as evidenced by publicly available financial reports, via self-reporting by the Subscriber or another Luminex ATS user or via inquiry by LeveL Markets, via a material drop in the Subscriber's assets under management due to redemptions, or other factors as determined by LeveL Markets); or
(vi) in the case of an Admitted Broker-Dealer engaging in transition management services, the Subscriber enters orders or trading interests into the Luminex ATS that do not represent order flow from transition management clients of that broker.
Other Information About the Luminex ATS
Hours of Operation
16. The Luminex ATS accepts orders and trading interest from 7:15 a.m. to 4:00 p.m. on days that the New York Stock Exchange (NYSE) is open and observes NYSE's holiday and early close schedule. The Luminex ATS executes orders during regular trading hours, from 9:30 a.m. to 4:00 p.m. Eastern Time, with trading in individual securities commencing when the security's primary listing exchange has commenced trading in that security (excluding any pre-market trading on the relevant exchange). The Luminex ATS ceases executing orders at 4:00 p.m. Eastern Time or such earlier time as designated by the NYSE's holiday or early close schedule. Additionally, the Luminex ATS may not accept orders or trading interest if there are system issues or market disruptions that warrant a cessation of trading. The Luminex ATS does not offer an opening or a closing auction.
Placing of Orders and Trading Interest
17. All orders and trading interest are submitted to the Luminex ATS via FIX, version 4.2. Most order management and execution management systems vendors used by Subscribers send order and trading interest messages that are in, or are converted by LeveL Markets to, standard FIX. There are some vendors that use a "drop" FIX protocol in which "drop copy" messages are sent by the Luminex ATS back to the Subscriber's vendor upon a match in the Luminex ATS to confirm that the needed shares are still available in order to potentially consummate a match. The Luminex ATS does not accept or have the ability to accept manual orders or trading interest.
18. Subscribers may also use a third-party technology provider or an Admitted Broker-Dealer's smart order router to submit order and trading interest as long as the orders or trading interest are sent to the Luminex ATS directly from or on behalf of the Buyside Subscriber or the Sponsored Buyside Subscriber. Sponsored Buyside Subscribers can only access the Luminex ATS via broker-dealer routers of Admitted Broker-Dealers. While orders and trading interests submitted through third-party or broker-dealer routers require less processing, time of order receipt is the least important factor in order priority, which lessens the importance of any routing latency difference that may exist between third party or broker-dealer routers and other means of order and trading interest submission. LeveL Markets may also integrate the Luminex ATS with other technology providers at any time at its discretion or at the request of its Subscribers.
Order Types and Attributes
19. There are two types of order that can be place on the Luminex ATS:
(i) Firm Order -- In a Firm Order context, a Subscriber designates a quantity. The minimum quantity is the Luminex ATS's minimum order and trade size of 5,000 shares. Provided that this minimum requirement is satisfied, mixed lot orders may be entered. A Firm Order is a fully executable order that can execute in full at the entered quantity upon a match if the contra-side order is another Firm Order or if the contra-side Subscriber firms up on a Conditional. For Firm Orders, Subscribers may specify a minimum quantity at which they are willing to trade (MinQ) on an order-by-order basis, which must be equal to or greater than 5,000 shares. Contra-side orders may not be aggregated to satisfy an order's MinQ requirement. All unexecuted Firm Orders may be cancelled prior to matching by submitting cancellation instructions.
(ii) Conditionals -- A Conditional is a representation of potential trading interest by a Subscriber in a particular security. Upon a match, an invitation is sent to a Subscriber that entered a Conditional subject to a match for that Subscriber to firm-up the Conditional with a specific share amount at which the Subscriber is willing to trade. Subscribers who enter Conditionals are presented with the opportunity to trade, but not an obligation to do so. The minimum trade and order size for Conditionals is also 5,000 shares, and there is no maximum quantity, although each order is bound by applicable pre-trade market access limits established by LeveL Markets. As is the case with Firm Orders, provided that the minimum requirement is satisfied, mixed lot orders may be entered. Subscribers that enter a Conditional may also enter a MinQ, which specifies the minimum size of a contra-side order with which the Subscriber is willing to potentially trade. The MinQ for Conditionals must be greater than 5,000 shares. If a Subscriber enters a MinQ on a Conditional and elects to firm-up, the Subscriber must firm-up for at least the MinQ amount. To prevent potential information leakage, there is maximum size for the MinQ for Firm Orders and Conditionals.
Subscribers entering Conditionals may use limit prices. Upon a match, the Luminex ATS recalls the entered limit price and routes that limit price with the Subscriber's firm-up (if any) to the Luminex ATS.
20. All orders or trading interest entered into the Luminex ATS are pegged, for order matching purposes, to the midpoint of the NBBO, with the reference price calculation excluding (i) any manual quotations that have crossed the market and (ii) the quotations of any automated trading center with respect to which LeveL Markets has declared self-help. All orders are either executed in the system or cancelled.
21. Firm Orders may be modified while resting on the Luminex ATS via cancel/replace, and also during a negotiation period. For Conditionals that receive a match, the Luminex ATS allows the Subscriber to firm up the same shares as, more shares than, or fewer shares than the original Conditional submission at the Subscriber's option. Subject to certain exceptions, reducing the share quantity to less than the 5,000 share minimum (or the Subscriber's selected MinQ) results in a rejection. In addition, if a Conditional is entered with a limit, that limit price may be modified following a match.
22. Assuming that orders and trading interest are marketable, the Luminex ATS prioritizes orders and trading interest based on the following factors, in the following order: (i) the higher quantity (between two Firm Orders); (ii) Firm Orders over Conditionals; (iii) top quantity, being the maximum number of shares that the entering Subscriber indicates that it may be willing to trade upon a match (between two Conditionals); and (4) time of order entry or entry of the trading interest. Orders or Conditionals that are subject to a cancel/replace lose their priority, with the "replace" being treated as a new order or Conditional for prioritization purposes.
23. In the event of an error, such as an execution at a price based upon outdated or erroneous market data, LeveL Markets contacts the Subscriber who may have been disadvantaged through the error to ask if the Subscriber wishes to have its execution priced at the corrected price as determined by LeveL Markets using updated market data. If the Subscriber wants the corrected execution price, LeveL Markets adjusts the price on that Subscriber's execution, assuming the money difference in LeveL Markets' error account. If the disadvantaged Subscriber decides that it does not want the erroneous execution at all, even if adjusted to the correct price, and the contra-side to the execution does not want to bust the trade, then LeveL Markets assumes the position resulting from the error and trades out of that position outside of the Luminex ATS.
24. Generally, LeveL Markets does not execute any principal orders in the Luminex ATS. However, in limited circumstances and in its sole discretion, LeveL Markets may grant accommodations to Subscribers due to unusual execution scenarios that are not the result of an error. LeveL Markets maintains a separate facilitation account for handling these scenarios.
Segmentation
25. The preferred manner of trading on the Luminex ATS discourages fall downs, which occur when a trader is presented with a match and either actively declines the opportunity to trade or allows the invitation to timeout without accepting the opportunity to trade. In order to encourage the preferred manner of trading, LeveL Markets offers traders that have exhibited the most beneficial trading patterns (e.g., traders who consistently firm-up Conditionals or who enter Firm Orders) and who are not subject to special circumstances, such as regulatory prohibitions, the ability to avoid trading with traders that exhibit the least beneficial trading patterns (e.g., traders who frequently fall down when presented with matching opportunities). LeveL Markets accomplishes this by tiering its eligible Subscribers' traders based on those traders' individual trading activities. The analysis of trading behaviours focuses on activity at the individual trader level, as a Subscriber may have multiple traders each with separate access to the Luminex ATS. Because of the regulatory requirements in Canada for fair access, the traders of Canadian Subscribers (as defined below) will not participate in this segmentation. Instead, Canadian Subscribers' traders will always have access to the full market.
Contra-Side Selection
26. Buyside Subscribers that are not Canadian Subscribers may opt out of interacting with certain types of Subscribers or with all broker-dealer order flow, other than with Canadian Subscribers and their traders. In addition, pursuant to the tiering process described above, traders who have exhibited the most beneficial trading behavior in the Luminex ATS may elect not to match against those traders with the least beneficial trading behaviour, although this election cannot be made by the traders of Canadian Subscribers. Instead, Canadian Subscribers' traders will be subject to a real-time (intraday) surveillance mechanism, so that if they fail to firm up a certain number of times in a single name on a given day, they will not be able to submit orders for that symbol for the balance of that day unless the prohibition is manually overridden by LeveL Markets. The Luminex ATS is set up by default to prevent matches between orders of the same Buyside Subscriber entered via the same order entry method.
Display of Orders and Trading Interest
27. Subscriber orders and trading interest bound for or resting in the Luminex ATS are not displayed inside or outside the Luminex ATS and are made known to other Subscribers only in limited circumstances. When a marketable buy order and a marketable sell order match, invitations are sent to both the buyer and seller to firm-up their respective orders for Conditionals. Upon a match, the fact that a contra-side order in a specific security exists in the Luminex ATS is then made known to the Subscriber that is a party to the match, although the specific terms of the contra-side order are not disclosed. No other information about the contra-side order or trading interest is disclosed upon a match. If a transaction is entered into, each side will not know whether there is any remaining interest in the security in the Luminex ATS unless there is a subsequent match in that security involving either of the two parties. Similarly, if a Firm Order matches with another Firm Order, or if a Firm Order matches with a Conditional, each side of the potential transaction becomes aware that there is contra-side trading interest in that specific security.
Closing of Trading
28. During the trading day and until 15:59:40, standard negotiations can last for up to twenty seconds. The Luminex ATS requires that all negotiations end by the end of regular trading hours (16:00:00 on regular trading days, or the end of regular trading on any trading day with an early close pursuant to NYSE's holiday schedule). Between 15:59:40 and 16:00:00, the Luminex ATS permits standard negotiation periods of less than twenty seconds, the duration of which is the maximum amount of time remaining in the trading day. The shortest permissible standard negotiation period during this window is two seconds. Orders may not enter into a negotiation after 15:59:58. Conditionals that do not receive a match by 15:59:58 or that are received by the system after 15:59:58 cannot execute before the close of trading. In the event of a shortened trading day, such as a holiday, the same protocols would apply during the last 20 seconds of the shortened trading day.
Fees
29. LeveL Markets' execution rate for the Luminex ATS ranges from a low of 25 mills ($0.0025) per executed share to a high of 500 mills ($0.05) per executed share. Certain Subscribers pay commissions in basis points, ranging from a low of one basis point to a high of six basis points. Each basis point equates to one hundredth of one percent of the notional value of the transaction. Execution rates are negotiated between LeveL Markets and the relevant Subscriber and may be impacted by a number of factors, including connectivity or integration costs and the type of order flow from the particular Subscriber.
30. Depending on the provider, LeveL Markets may pass through certain fees that it is charged by certain service bureau routers or order management and execution management system entities. These pass-through fees are fully disclosed to the applicable Subscribers and typically range from a high of 15 mills ($0.0015) to a low of zero mills per executed share. In some cases, Subscribers may elect to pay a rate higher than the base execution rate, and they can also apply additional commission as part of a commission sharing arrangement (CSA). This amount above the base commission rate to be attributed to the CSA program is determined solely by the Subscriber, pursuant to a written agreement with LeveL Markets.
Suspension of Trading
31. All of the Luminex ATS's primary servers are in the NY4 data center in Secaucus, New Jersey. The Luminex ATS has intrasite redundancy on separate servers that are also located in the NY4 data center in the event the primary servers become unavailable. If the primary and back-up servers become unavailable, the Luminex ATS will suspend trading and cease operations until its servers resume normal functionality.
32. If LeveL Markets determines that it does not have a reliable SIP feed for the pricing of orders, it will halt executions on the Luminex ATS until such time that it determines that Luminex ATS has access to a reliable SIP feed. Any open negotiation involving any order type is cancelled, and any order in the relevant securities is cancelled and returned to the entering Subscriber. Such orders or trading interest need to be re-entered by the Subscriber following the resumption of trading in the respective securities. Additionally, the Luminex ATS may not accept orders or trading interest if there are system issues or market disruptions that warrant a cessation of trading. The Luminex ATS also halts trading pursuant to regulatory halts declared by U.S. national securities exchanges, FINRA, and, if applicable, the SEC.
33. LeveL Markets will cease accepting orders or trading interest in any stock for at least one calendar month, and will not permit or facilitate any execution in any such stock for that time period, if the Luminex ATS meets the trading thresholds referred to in the fair access requirements of the SEC in that stock in three of the preceding five months. Once this period of time elapses, LeveL Markets will resume allowing orders or trading interest to be submitted to the Luminex ATS in that stock and will permit executions in that stock pursuant to the execution methodologies of the Luminex ATS.
Trade Reporting
34. LeveL Markets reports its transactions immediately upon execution to the FINRA/Nasdaq Carteret Trade Reporting Facility (Carteret TRF). In the event that the Carteret TRF is unavailable, LeveL Markets will report its transactions to the FINRA/Nasdaq Chicago TRF.
Clearance and Settlement
35. The Luminex ATS electronically creates and timestamps a record of each order or trading interest receipt, execution, modification, and cancellation. The record indicates the security, direction, size and order type, as well as the identity of the entering Subscriber. When a transaction is executed, the Luminex ATS transmits the execution information to LeveL Markets' back-office system and notifies the parties to the trade of the execution. All transactions executed on the Luminex ATS, except for sponsored access- and broker-dealer-router-related transactions, are cleared and settled via the National Securities Clearing Corporation (NSCC) and Depository Trust Corporation (DTC) by National Financial Services, LLC (NFS) pursuant to a fully-disclosed clearing arrangement between LeveL Markets and NFS. A Buyside Subscriber settles a transaction in the Luminex ATS against LeveL Markets via its clearing firm (NFS) and not against the other Subscriber that is a party to the match. The identity of one party to a transaction is never identified to the other side of that transaction. Upon instructions received from a Buyside Subscriber, transactions may also be cleared and settled via prime brokerage arrangements, via the Buyside Subscriber's custody bank, or via other settlement instructions provided to LeveL Markets by the Buyside Subscriber. In the case of sponsored access- and broker-dealer-routed orders, if these broker-dealers clear through NFS, then transactions are cleared and settled via NSCC and DTC by NFS. For broker-dealers that do not clear through NFS, transactions are submitted on behalf of both LeveL Markets and the broker-dealer to NSCC via an NSCC QSR (Qualified Service Representative) Agreement or a Nasdaq AGU (Automated Confirmation Transaction (ACT) Give Up) Agreement.
Market Data
36. LeveL Markets receives the SIP market data feed from Options-IT, a vendor that handles market data feeds from various market data providers. The Luminex ATS uses the market data (NBBO and last sale price data) to provide pricing data to its Subscribers that use the Luminex user interface, and to determine the execution price with respect to transactions. The Luminex ATS also uses the market data to determine whether the resulting execution price is within or outside of the NBBO at the time of execution. The Luminex ATS does not prioritize orders based on price, nor does it display orders or trading interest to parties inside or outside of the Luminex ATS. Price-related market data is also used to determine whether Subscriber limit orders are marketable and eligible for a potential match.
37. Buyside Subscribers and Admitted Broker-Dealers that engage in transition management services or outsourced trading services (collectively, the Eligible Participants) have access to a feature of the Luminex ATS called "LeveLUp". The LeveLUp feature allows Eligible Participants to direct that their Firm Orders or Conditionals (in whole or in part) be routed by LeveL Markets, as broker-dealer operator, from the Luminex ATS to the LeveL ATS. The handling of such routed orders is governed by the rules and policies of the LeveL ATS once the order is entered into the LeveL ATS. This LeveLUp order routing arrangement is not reciprocal; the LeveL ATS cannot route orders from LeveL ATS subscribers to the Luminex ATS.
38. As part of LeveLUp, LeveL Markets "mirrors" the Eligible Participant's Conditional Orders in the LeveL ATS. Eligible Participants may opt out of this mirroring feature by an oral or written (including electronic) request.
39. The features and order parameters of the LeveL ATS that LeveL Markets offers to Eligible Participants that use the LeveLUp feature are described below.
40. Eligible Participants are segmented into one or more channels, which impact the LeveL ATS subscribers that they may interact with. However, all Eligible Participants who are Canadian Subscribers will be placed into a channel that will permit them to interact with all LeveL ATS subscribers. In the future, LeveL ATS subscribers, including Eligible Participants, will be able to request that LeveL Markets carry out an anonymous contra-party exclusion analysis on their behalf in which contra-parties are deselected on the basis of one or more performance metrics defined by the subscribers. At this time, LeveL Markets only supports "Day" orders for LeveLUp, even though other order types are available on the LeveL ATS.
41. Eligible Participants can set system parameters, such that all of their Firm Orders or Conditionals sent to the Luminex ATS are: (i) immediately routed in full either as Firm Orders or Conditionals to the LeveL ATS without interacting with the Luminex ATS; (ii) routed to the LeveL ATS after resting first at the Luminex ATS (Conditionals only) for a configurable time period if the order does not receive an execution on the Luminex ATS; or (iii) routed to the LeveL ATS following a partial execution at the Luminex ATS.
42. By default, any Conditionals submitted to the Luminex ATS by an Eligible Participant are "mirrored" in the LeveL ATS through a simultaneous route by LeveL Markets of an identical Conditional to the LeveL ATS, resulting in Conditionals resting in both the Luminex ATS and the LeveL ATS simultaneously. LeveLUp Conditionals by default are able to match in the LeveL ATS against Conditionals (including firm-up orders) only, but once firmed up are able to execute against Conditionals and firmed-up orders, as well as resting firm orders. Eligible Participants may allow their Conditionals to match in the LeveL ATS against Firm Orders at the request (by phone, or in writing, including electronically) of the Eligible Participant. Upon a match in the LeveL ATS of a Conditional routed by an Eligible Participant with an order in the LeveL ATS, the Eligible Participant receives a "pop up" notification in the Luminex User Interface indicating that they have received a match in the LeveL ATS, with the same invitation and response process as that of matches within the Luminex ATS.
43. If the Eligible Participant elects to firm up in response to an invitation to do so, the resulting firm-up order is routed to the LeveL ATS and the "mirrored" resting Conditional in the Luminex ATS is paused. Firmed up LeveLUp Conditionals are eligible to interact with resting firm orders and firmed-up orders in the LeveL ATS, as well as to invite additional conditional orders in the LeveL ATS. The firmed-up LeveLUp Conditional rests for a configurable period of time, which commences upon the firm-up via the Luminex User Interface. The minimum resting period is one (1) second and the maximum resting period is to the end of that trading day. The default resting period is five (5) seconds. This resting period can be modified by LeveL Markets upon the Eligible Participant's request orally or in writing (however made). The firmed-up LeveLUp Conditional continues to rest on the LeveL ATS and, in the event of an execution, the Eligible Subscriber can set a configurable basis point price buffer that is tied to the NBBO midpoint at the time of the firm-up so that subsequent executions are capped at the calculated limit price based on the criteria entered by the Eligible Participant. If the Eligible Participant elected not to use the basis point buffer, then the initial execution price becomes a limit price for any subsequent executions against that firmed-up order. All such subsequent executions, if any, will be against the "leaves quantity" remaining, if any, after the initial execution and must be at the limit price or better or no execution occurs. If the initial execution is for the full amount of the firmed-up order quantity and there is no balance remaining on the order, then the order terminates. The firmed-up LeveLUp Conditional is eligible for additional execution until the conclusion of the specified resting period for that order (either the default of five (5) seconds or a different period if specified by the Eligible Participant) or until the leaves quantity on the order is exhausted. All Eligible Participants that use LeveLUp Conditionals are eligible for this functionality but may opt out of it via an oral or written (including electronic) request.
44. For example, if an Eligible Participant submits a LeveLUp Conditional to buy 100,000 shares of a security, that Conditional posts to the Luminex ATS and will simultaneously be mirrored in the LeveL ATS. If that LeveLUp Conditional receives a match in the LeveL ATS and the Eligible Participant elects to firm-up for 100,000 shares following an invitation to do so, the Conditional resting on the Luminex ATS is paused. If the initial execution of the LeveLUp Conditional on the LeveL ATS is for 10,000 shares, there will be 90,000 firm shares remaining as "active" from the original firm-up, eligible to match against other LeveL firm orders and firm-up orders. If the Eligible Participant adds a basis point price buffer, then any potential executions will be at or below (in the case of a buy order) or above (in the case of a sell order) that calculated limit price, otherwise the executions will not occur. If the Eligible Participant does not elect to set a price buffer and the initial 10,000 share purchase is at a price of $10.00 per share, any subsequent execution must be for $10.00 or better. If a resulting execution price from a subsequent match is for more than $10.00 per share, there will be no execution. As noted above, the firmed-up LeveLUp Conditional is eligible for multiple executions starting at the time of the firm-up until the conclusion of the specified resting period for that order (either the default of five (5) seconds or a different period if specified by the Eligible Participant) or until the leaves quantity on the order is exhausted. At the conclusion of the resting time period, any balance remaining on that order is cancelled back to the Eligible Participant or is handled pursuant to the Eligible Participant's leaves handling instructions.
45. In the event there is a match of an Eligible Participant's Conditional in both ATSs, the match in the Luminex ATS takes priority and no invitation is sent with respect to the potential LeveL ATS match. When a LeveLUp Conditional matches one or more contra-side orders in the LeveL ATS, the Conditional resting on the LeveL ATS is cancelled and an invitation is sent to the Eligible Participant. In such a circumstance, the Conditional resting on the Luminex ATS will be paused during the negotiation relating to the LeveLUp match. Following the conclusion of the negotiation on the LeveL ATS, the Luminex ATS Conditional could remain as an active order or remain paused, depending upon the configuration instructions for the particular trader. The firmed-up order from the Eligible Participant can match against any eligible contra-side orders in the LeveL ATS. To avoid the issue of potentially receiving duplicate executions from the same order, Eligible Participants can enter Firm Orders that are sent to either the Luminex ATS or to the LeveL ATS (via a route by LeveL Markets), but cannot have a Firm Order routed to both ATSs at the same time.
46. Eligible Participants may also select orders for routing to the LeveL ATS on an order-by-order basis, the parameters for which are determined by the Eligible Participant on each order. This functionality involves the routing of a Firm Order or Conditional to the LeveL ATS with certain criteria selected by the Eligible Participant. If the Eligible Participant chooses to have their Conditionals rest on the Luminex ATS before being routed by LeveL Markets to the LeveL ATS, the Eligible Participant can set a "LeveLUp Wait Time," which is the amount of time that a Conditional will rest at the Luminex ATS before a Firm Order or Conditional is sent by LeveL Markets to the LeveL ATS. Eligible Participants can also set a share amount or a quantity percentage amount of their Firm Order or Conditional to be routed to the LeveL ATS. LeveL Markets selects the lesser of the two quantities if both are selected. Eligible Participants can select a minimum required quantity for executions of their orders on the LeveL ATS, can set a limit, select a LeveL ATS order type (primary peg, midpoint peg, or market peg), and a "reload after completion" time, which is a configurable period of time after an execution on the LeveL ATS before the system will request more shares from the Eligible Participant's resting Firm Order or Conditional on the Luminex ATS (if any) to be routed to the LeveL ATS. If at least 5,000 shares remain resting at the Luminex ATS relating to an order routed to the LeveL ATS, Eligible Participants who receive a match on the resting shares at the Luminex ATS have the ability to firm up for the total unexecuted quantities at both venues relating to that Eligible Participant's original Firm Order or Conditional. If the leaves quantity on a LeveLUp order following an execution is less than the Eligible Participant's entered minimum quantity, the Eligible Participant's minimum quantity is reduced to match the leaves quantity.
47. Eligible Participants may cancel their LeveLUp orders via their OMS, EMS, or router or via the Luminex User Interface. LeveL Markets only cancels the Eligible Participant's order that had been routed to the LeveL ATS if required to do so, either because the Eligible Participant wishes to include the shares in a firm-up on the Luminex ATS or if the Eligible Participant's OMS or EMS requires it.
48. LeveL Markets, in its capacity as a broker-dealer and the broker-dealer operator of the Luminex ATS, is the subscriber to the LeveL ATS for the purposes of LeveLUp and the Eligible Participant is not. At the LeveL ATS, LeveLUp orders can be Firm Orders or Conditionals. LeveLUp orders intended to rest first on the Luminex ATS must be for 5,000 shares or more, the Luminex ATS minimum order size. LeveLUp orders intended to be routed directly through LeveL Markets to the LeveL ATS can be for less than 5,000 shares and must comply with the LeveL ATS order size requirements. If an Eligible Participant receives a LeveLUp-related execution in the Luminex ATS that leaves less than 5,000 shares on the applicable order, LeveL Markets can route that order to the LeveL ATS even though it is for less than the Luminex ATS minimum. Eligible Participants interested in this "clean-up" functionality are required to elect to enable this feature and the Eligible Participant's OMS or EMS must be configured to re-send orders or trading interest to the Luminex ATS if the quantity falls below the Luminex ATS minimum order size. In addition, so long as an Eligible Participant has a Conditional of 5,000 shares or more resting on the Luminex ATS in addition to an order routed through to the LeveL ATS, that Eligible Participant is able to size up on a match at the Luminex ATS to the total shares represented for that Eligible Participant in both venues.
49. The LeveLUp order routing feature is not reciprocal; the LeveL ATS cannot route orders from its customers to the Luminex ATS. The use or non-use of LeveLUp itself by any Eligible Participant has no impact on the order priority or execution logic within the Luminex ATS. There are certain cases where certain LeveLUp activity could impact related order priority within the Luminex ATS. For example, an Eligible Participant may, prior to LeveL Markets sending a Firm LeveLUp order, reduce the quantity of a parent Conditional with the Luminex ATS by the intended quantity of the Firm LeveLUp order via the cancel/replace functionality. In that case, the new "replace" Conditional on the Luminex ATS would have a new lower priority rank than the original Conditional. Similarly, if an Eligible Participant cancels a Firm Order that had been routed by LeveL Markets to the LeveL ATS and cancels/replaces the original Conditional on the Luminex ATS back to its original quantity, that new "replace" Conditional on the Luminex ATS would also have a new lower priority rank than the original Conditional. This rank adjustment occurs with the cancel/replace functionality whether a Subscriber uses LeveLUp or not. LeveLUp-related execution reports are sent from the LeveL ATS back to LeveL Markets for clearance and settlement pursuant to normal LeveL Markets processes. Eligible Participants that are automatically enabled for this LeveLUp Conditional Order "mirroring" function may "opt out" of the feature by contacting LeveL Markets by phone or in writing (including electronically).
50. The fees paid by Eligible Participants for orders executed via LeveLUp are the same that such Eligible Participants pay for executions on the Luminex ATS. LeveL Markets pays a fee to the LeveL ATS of 5 mills per executed share for facilitating transactions involving firm orders and 50 mills per executed share for conditional orders routed to it via LeveLUp.
51. Other details about the operations of the LeveL ATS are set out in the LeveL ATS' Form ATS-N.
General
52. An ATS is required by section 6.1 of NI 21-101 to be registered as an investment dealer and be a member of the Canadian Investment Regulatory Organization (CIRO) in order to operate a business as an ATS in each of the Jurisdictions. LeveL Markets is seeking an exemption for each ATS from the Marketplace Rules that would allow institutional accounts in any Canadian province or territory to become Subscribers to the Luminex ATS (Canadian Subscribers), in order to enter orders directly onto the Luminex ATS to trade U.S. NMS equity securities, and that would allow those Canadian Subscribers that qualify as Eligible Participants to trade on the LeveL ATS through the LeveLUp feature of the Luminex ATS.
53. An ATS is also subject to registration requirements under applicable Canadian securities law when engaging in the business of trading. Similarly, in the U.S., all broker-dealers and their associated persons must be registered with the SEC pursuant to section 15 of the Securities Exchange Act of 1934 (the Exchange Act) and are subject to its regulations. They must also be a member of at least one securities self-regulatory organization (SRO), which is further delegated significant regulatory authority. Most broker-dealers in the U.S. are members of FINRA.
54. On December 26, 2014, LeveL Markets (then known as Luminex Trading & Analytics LLC) was approved by the SEC and by FINRA as a broker-dealer. The Luminex ATS, operated by LeveL Markets, commenced operations as an SEC-registered ATS in 2015. The LeveL ATS, also operated by LeveL Markets, commenced operations as an SEC-registered ATS in 2006.
55. LeveL Markets is subject to a comprehensive regulatory regime in the U.S., both as a registered broker-dealer and as the operator of each ATS. In such capacity, LeveL Markets is registered with the SEC and FINRA and is also subject to regulation by state regulators under state securities rules and regulations (collectively, the U.S. Regulators). The U.S. Regulators set rules, conduct compliance reviews and perform surveillance and enforcement. The U.S. regulatory structure for broker-dealers, such as LeveL Markets, includes financial and other fitness criteria for subscribers, reporting and record-keeping requirements, procedures governing the treatment of customer funds and property and business conduct standards, provisions designed to protect the integrity of the markets, and statutory prohibitions on fraud, abuse, and market manipulation.
56. In the U.S., broker-dealers are primarily governed by the Exchange Act, and the rules and regulations promulgated thereunder. Section 4 of the Exchange Act provides for the creation of the SEC, which was established in 1934. The Exchange Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as U.S. SROs, including FINRA. The Exchange Act also identifies and prohibits certain types of conduct in the markets and provides the SEC with examination and disciplinary powers over regulated entities and persons associated with them. As an SRO, FINRA has significant authority over broker-dealers, delegated to them by the SEC and consented to by their members, to adopt and enforce rules; impose fines and other sanctions; and conduct examinations and investigations.
57. In the U.S., investors are protected by comprehensive regulation that governs the conduct of broker-dealers, including LeveL Markets, and other market participants. These regulatory frameworks include, but are not limited to, the Securities Act of 1933 (the Securities Act), the Exchange Act (including Regulation ATS, as set forth in greater detail below) the anti-money laundering and know-your-customer rules and regulations of the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN), and state securities rules and regulations.
58. With respect to the agencies and organizations that regulate broker- dealers and ATSs, the SEC and FINRA share common goals of protecting investors and other market participants, maintaining fair, orderly, and efficient markets, and facilitating capital formation. Of these goals, investor protection is the primary focus.
Authority of SEC and FINRA as Foreign Regulators
59. The SEC and FINRA have the appropriate authority and procedures for ensuring that ATSs, such as the Luminex ATS and the LeveL ATS, continue to comply with their regulatory requirements. FINRA and the SEC have the power to direct any ATS or ATS operator that is failing, or has failed, to comply with the any applicable rules or regulations to take action to remedy such non-compliance. It also has the power to revoke or suspend the registration of any ATS that fails to meet its regulatory requirements.
Scope of Authority and Authorizing Statutes
60. The SEC has delegated certain of its day-to-day regulatory oversight responsibility of broker-dealers to FINRA. FINRA's rules, which are approved by the SEC, allow for disciplining member firms, including LeveL Markets, for improper conduct and for establishing measures to ensure market integrity and investor protection.
61. As set forth in greater detail below, broker-dealers in the U.S. are subject to routine and for-cause examinations by the SEC and FINRA. Broker-dealers are also subject to periodic financial and operational reporting (quarterly and annually) through the filing of Financial and Operational Combined Uniform Single (FOCUS) Reports, which are filed with FINRA.
62. Further, a broker-dealer is subject to a number of self-reporting obligations imposed by the SEC and FINRA, including the requirement to self-report certain events, such as certain criminal charges or convictions on Form U4 and Form U5.
63. In addition to the above, broker-dealers that operate an NMS Stock ATS (i.e., an ATS that trades U.S. NMS (exchange-listed) equity securities, such as LeveL Markets as operator of each ATS, are subject to additional oversight and reporting under Regulation ATS (as discussed in greater detail below), including the requirements to file and keep current Form ATS-N. In addition, the SEC and the securities regulatory authorities in the Jurisdictions are parties to a memorandum of understanding related to securities market oversight and enforcement. In addition, certain of the Jurisdictions are parties to memoranda of understanding with FINRA related to securities market oversight and enforcement.
64. Pursuant to Section 15(a) of the Exchange Act, subject to certain exceptions, all persons that use the mails or any means or instrumentality of interstate commerce to effect securities transactions must register with the SEC and become members of a national securities association, of which there is only one, FINRA. ATS status and registration is a supplement to broker-dealer registration; in other words, an ATS can only be operated by a registered broker-dealer. Therefore, as an ATS, each ATS is subject to all applicable rules and regulations to which broker-dealers are subject, as well as specific rules and regulations applicable to the operation of an ATS.
65. ATSs are subject to a comprehensive regulatory framework in the U.S. First, subject to certain limited exceptions, all U.S. ATS operators must be registered with the SEC as a broker-dealer and be a member of FINRA. In this regard, ATSs are subject to extensive regulation and oversight by the SEC and FINRA, not only with respect to ATS operation, but also with respect to the broker-dealer's operations as a whole. Further, in becoming a member of FINRA, each broker-dealer must enter into a membership agreement that sets forth the parameters of the broker-dealer's operations, not only with respect to business lines, but also with respect to minimum net capital requirements, number of offices, and number of client-facing registered representative that the broker-dealer may employ.
66. In addition to the foregoing, to acquire and maintain its status as an ATS, LeveL Markets and each of its ATSs must satisfy several statutorily prescribed requirements set out in Regulation ATS (17 C.F.R. § 242.300 et seq.) (Regulation ATS), which sets forth additional guidelines and requirements with respect to: (i) broker-dealer registration; (ii) notice; (iii) order display and execution access; (iv) fees; (v) fair access; (vi) capacity, integrity, and security of automated systems; (vii) recordkeeping; (viii) reporting obligations; and (ix) compliance and controls. Since each ATS is an NMS Stock ATS, it must comply with the even more stringent disclosure and other requirements in 17 C.F.R. § 242.304 et seq.
67. Broker-Dealer Registration. As noted above, pursuant to Exchange Act Rule 301(b)(1), an ATS operator shall be registered as a broker-dealer under Section 15 of the Exchange Act. When the SEC adopted Regulation ATS in 1998 it revised the definition of "exchange" to clarify that electronic communication networks (ECNs) were deemed to be exchanges. The SEC then permitted ECNs to be regulated as a broker-dealer rather than as a traditional stock exchange.
68. Notice. Form ATS-N requires LeveL Markets, as operator of each ATS, to provide the SEC with details relating to the operation of each ATS, including (but not limited to): (i) the type of Subscribers (e.g. retail, broker-dealers, institutional clients, etc.) that will be permitted to access the ATS, and any differences in access that will be offered by the ATS to the different groups of Subscribers, if applicable; (ii) a list of the types of securities the ATS trades and whether such securities will not be registered under Section 12(a) of the Exchange Act; (iii) a list of the securities (as opposed to the "types") the ATS trades; (iv) the manner of operation of the ATS, procedures governing orders, means of access, procedures governing execution, reporting, clearing and settlement of securities transactions effected through the ATS; (v) system guidelines, and any other manuals or other materials provided to the Subscriber relating to the ATS; and (vi) the ATS's procedures for reviewing systems capacity, security and contingency planning.
69. Rule 304(a)(2)(i)(A) requires an amendment to Form ATS-N be filed with the SEC at least 30 days prior to implementing a material change to the operation of an ATS.
70. Rule 304(a)(2)(i)(B) requires a filing be made with the SEC within 30 days of the end of each calendar quarter in the event that any information previously provided pursuant to paragraphs (a)(2)(i)(A), (C), or (D) of Rule 304 has become inaccurate or incomplete for any reason.
71. Rule 304(a)(2)(i)(C) requires that a filing be made with the SEC promptly in order to correct information previously reported on Form ATS-N that becomes inaccurate.
72. Rule 304(a)(3) requires that a filing be made with SEC promptly in the event that an ATS ceases operations. Such filing is to be made at least 10 business days prior to the cessation date.
73. Section 10.1 of NI 21-101 requires disclosure by a marketplace (including an exchange and an ATS) on its website of certain information reasonably necessary to enable a person or company to understand the marketplace's operations or services it provides, including information related to the system's protocols and rulebook. All such information for each ATS, as an NMS Stock ATS, is required to be disclosed via Form ATS-N, which is then disseminated by the SEC once the filing is deemed effective via an SEC website (https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm). LeveL Markets, as the operator of an NMS Stock ATS, is required to put a link to this SEC web page on its public website.
74. Rule 301(b)(3) of Regulation ATS in the U.S. imposes similar market transparency requirements. The rule requires ATSs with five percent or more of trading volume in any NMS Stock during at least four of the preceding six months to publicly disseminate their best priced orders in those securities if that ATS displays subscriber orders to any person other than ATS employees. The ATSs do not display their Subscribers' orders to any person other than LeveL Markets employees that support the ATSs.
75. Fees. Exchange Act Rule 301(b)(4) is generally inapplicable to each ATS. In practice, LeveL Markets is required to comply with the rules or standards of practice governing fees established by FINRA, including FINRA Rule 2010 (Standards of Commercial Honor and Just and Equitable Principles of Trade) and FINRA Rule 2121 (Fair Prices and Commissions (generally and informally referred to as the 5% Rule). While neither rule prescribes a specific limitation on the amount of fees that may be charged to a client with respect to effecting a securities transaction either as agent or principal, each rule requires that LeveL Markets implement its fees in a manner that is fair and reasonable under the circumstances. Each ATS's fees are negotiated individually with each Subscriber and the range of such fees is disclosed on the Form ATS-N.
76. Fair Access. While the ATSs are not currently required to comply with the "Fair Access" requirements of Exchange Act Rule 301(b)(5), LeveL Markets monitors on an ongoing basis the level of trading activity that occurs on each ATS to ensure that it complies with the relevant rules relating to "Fair Access." More specifically, Exchange Act Rule 301(b)(5) requires an ATS that meets the trading volume thresholds (which neither ATS does) to establish written standards for granting access to its system and apply those standards fair and non-discriminatory manner. Even if the Luminex ATS or the LeveL ATS met the volume threshold as outlined in the rule, that ATS is not required to comply with the Fair Access provisions pursuant to an exception found in Rule 301(b)(5)(iii) because the ATS matches customer orders with other customer orders (subpart (A)), does not display customer orders to any person other than employees that operate the ATS (subpart (B)), and executes such orders at a price disseminated by or derived from prices of an effective transaction reporting plan (subpart (C)).
77. Without the exception noted in the preceding paragraph, the "Fair Access" requirements would be triggered if during at least 4 of the preceding 6 calendar months, either the Luminex ATS or the LeveL ATS had with respect to NMS Stocks 5 percent or more of the average daily trading volume traded in the U.S. Once those volume thresholds are met, the ATS, pursuant to Exchange Act Rule 301(b)(5)(C), would be, but for the exception noted above, required to make and keep records of all grants and denials of access, including for all Subscribers, the reason for granting or denying such access to the ATS. Such information is required to be filed with the SEC on a quarterly basis on Form ATS-R. Since each ATS meets the exception codified in Rule 301(b)(5)(iii), this requirement is not applicable.
78. Capacity, Integrity, and Security of Automated Systems. Exchange Act Rule 301(b)(6) is triggered by a trading volume threshold with respect to municipal or corporate debt securities. Since each ATS trades NMS equity securities, this rule does not apply.
79. Recordkeeping. Pursuant to Exchange Act Rule 301(b)(8) as an ATS operator, LeveL Markets shall make, keep and preserve certain records relating to the operation of its ATSs, including those records required to be maintained pursuant to Exchange Act Rule 302 and in the manner provided in Exchange Rule 303. Further, as a registered broker-dealer, LeveL Markets is required pursuant to Section 17(a)(1) to make, keep, furnish and disseminate records and reports as prescribed by the SEC. The SEC's books and records rules applicable to broker-dealers, Exchange Act Rules 17a-3 and 17a-4, specify minimum requirements with respect to the records that broker-dealers must make, how long those records and other documents relating to a broker-dealer's business must be kept and in what format they may be kept. The SEC requires that broker-dealers create and maintain certain records so that, among other things, the SEC and self-regulatory organizations can use such records in the conduct of their examinations.
80. Reporting Obligations. Pursuant to Exchange Act Rule 301(b)(9), an ATS is required to file with the SEC on a quarterly basis the information required by Form ATS-R.
81. Form ATS-R (Quarterly Report of Platform Activities) requires the submitter to provide the SEC with details relating to the operation of the ATS during the previous calendar quarter, including (but not limited to): (i) the total unit and dollar volume of transaction in various categories of securities; and (ii) a list of all persons granted, denied, or limited access to the ATS during the period covered by the report, if required to maintain such information.
82. Written Procedures to Protect Confidential Trading Information. Pursuant to Exchange Act Rule 301(b)(10) as an ATS operator, LeveL Markets is required to establish adequate written safeguards and written procedures to protect Subscribers' confidential trading information. Such written safeguards and written procedures must include: (i) limiting access to the confidential trading information of Subscribers to those employees of the ATS who are operating the system or responsible for its compliance with these or any other applicable rules; (ii) implementing standards controlling employees of the ATS trading for their own accounts; and (iii) adopting and implementing adequate written oversight procedures to ensure that the written safeguards and procedures established are followed.
83. Compliance and Controls. Finally, broker-dealers and ATSs that provide market access, including LeveL Markets, are subject to an additional layer of regulatory oversight under Exchange Act Rule 15c3-5 (17 C.F.R. 240.15c3-5) (the Market Access Rule), which imposes additional financial and regulatory risk management controls and supervisory procedure requirements on the ATS or broker-dealer. This includes the requirement for LeveL Markets to establish, maintain and ensure compliance with risk management and supervisory controls, policies, and procedures that are reasonably designed to manage, in accordance with prudent business practices, the financial, regulatory and other risks associated with market access or providing clients with market access. These risk management and supervisory controls, policies and procedures are required to be reasonably designed to ensure that all orders are monitored and include pre-trade controls and regular post-trade review. Under the Market Access Rule, a broker-dealer must preserve a copy of its supervisory procedures and a written description of its risk management controls as part of its books and records obligations under SEC Rule 17a-4.
84. Additionally, the risk management controls and supervisory procedures required pursuant to the Market Access Rule must be reasonably designed to systematically limit the financial exposure of the broker-dealer (e.g., preventing the entry of one or more orders that exceed pre-determined price or size parameters), to ensure compliance with the broker-dealer's regulatory obligations (e.g., restricting access to trading systems and technology that provide market access to persons and accounts pre-approved and authorized by the broker-dealer), and to ensure that the entry of orders does not interfere with fair and orderly markets.
85. A broker-dealer's risk management controls and supervisory procedures should be reasonably designed to: (i) prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds in the aggregate for each customer and the broker or dealer and, where appropriate, more finely-tuned by sector, security, or otherwise by rejecting orders if such orders would exceed the applicable credit or capital thresholds; and (ii) prevent the entry of erroneous orders, by rejecting orders that exceed appropriate price or size parameters, on an order by-order basis or over a short period of time, or that indicate duplicative orders.
86. Under the Market Access Rule, a broker-dealer must: (i) regularly assess and document the adequacy and effectiveness of its risk management and supervisory controls, policies and procedures; and (ii) document any material deficiencies in the adequacy or effectiveness of a risk management or supervisory control, policy or procedure and promptly remedy these deficiencies.
87. Broker-dealers are also subject to the general supervision and monitoring requirements of FINRA Rule 3110, which requires broker-dealers to establish and maintain a system to supervise the broker-dealer's business and the activities of each associated person employed by the broker-dealer that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.
88. LeveL Markets must continue to fulfill these obligations to maintain its registration and ability to operate each ATS. LeveL Markets is required to: (i) have systems and controls in place to monitor transactions on each ATS; (ii) retain sufficient financial resources for the performance of its functions as the operator of each ATS; (iii) operate each ATS with due heed to the protection of investors; (iv) ensure that trading is conducted in an orderly and fair manner; (v) monitor compliance with the SEC, FINRA, and the rules of each ATS; (vi) investigate complaints with respect to its business; (vii) maintain high standards of integrity and fair dealing; and (viii) prevent abuse.
89. Regulation ATS was most recently amended in 2018, such amendment being a significant tightening of the regulation and a signal from the SEC that strict ATS regulation is among the SEC's regulatory priorities.
Rules and Policy Statements
90. As noted above, the primary regulatory frameworks governing broker-dealer activity in the U.S. include the Securities Act and the Exchange Act (and the rules and regulations promulgated thereunder, including Regulation ATS), FINRA and Municipal Securities Rulemaking Board (MSRB) rules, FinCEN anti-money laundering and know-your-customer rules and regulations, and state securities rules and regulations. SEC and FINRA also publish guidance and regulatory interpretations, including through SEC no-action letters, and FINRA regulatory notices.
Financial Protections Afforded to Customer Funds
91. None of LeveL Markets, the Luminex ATS nor the LeveL ATS holds customer funds or securities.
Authorization, Licensure or Registration of ATSs
92. As noted above, ATSs, including their broker-dealer operators, are subject to a comprehensive regulatory framework in the U.S. Subject to certain limited exceptions, all U.S. ATSs must be registered with the SEC and their broker-dealer operations must be a member of FINRA. In this regard, ATSs are subject to extensive regulation and oversight by the SEC and FINRA, not only with respect to ATS operation, but also with respect to the broker-dealer's operations as a whole. Failure to comply with the obligations pursuant to this regulatory framework can lead to suspension, fines, and other sanctions, including the cessation of the operations of an ATS operated by a broker-dealer.
93. As set forth in greater detail herein, broker-dealers in the U.S. are subject to routine and for-cause examinations by the SEC and FINRA. Broker-dealers are also subject to periodic financial and operational reporting (monthly and annually) through the filing of FOCUS Reports, which are filed with FINRA. Further, a broker-dealer is subject to a number of self-reporting obligations imposed by the SEC and FINRA, including the requirement to self-report certain events pursuant to FINRA Rule 4530 (as discussed in greater detail below) and file and keep current certain information with respect to the broker-dealer's business and operations on Form BD and Form ATS-N. In addition, pursuant to FINRA Rule 3110 and 3130, a broker-dealer's chief executive officer (or equivalent officer) must certify annually that the broker-dealer has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable FINRA rules and federal securities laws and regulations. This report must be supported by an underlying report and discussion with the broker-dealer's chief compliance officer with respect to the same. FINRA Rule 3130 also requires the compliance report underlying this certification be submitted to the broker-dealer's board of directors and audit committee, if applicable.
Detection and Deterrence of Abusive Trading Practices, Market Manipulation and Other Unfair Trading Practices or Disruptions of the Market
94. Pursuant to FinCEN rules and regulations, broker-dealers are required to file with FinCEN, a Suspicious Activity Report (SAR) to report any suspicious transaction or pattern of transactions relevant to a possible violation of law or regulation, including, but not limited to, transactions involving money laundering, market manipulation, wash trading, or insider trading.
95. Additionally, broker-dealers and market participants are subject to a number of rules and regulations with respect to securities fraud, market manipulation, and abusive trading practices. Section 10(b) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder prohibits any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Applicable Laws that Govern the Authorization and Ongoing Supervision and Oversight of Market Intermediaries in the U.S.
96. The U.S. has a comprehensive financial services regime. The laws, rules, regulations and policies that govern the authorization and ongoing supervision and oversight of market intermediaries, include, but are not limited to, the Securities Act and the Exchange Act (and the rules and regulations promulgated thereunder), the Investment Company Act of 1940, the Investment Advisers Act of 1940, the rules of FINRA, the MSRB, and the National Futures Association (NFA), FinCEN anti-money laundering and know-your-customer rules and regulations, and state securities rules and regulations.
97. Most current Subscribers on the Luminex ATS are incorporated in the U.S.
Procedures for Dealing with Failure of Market Intermediary to Minimize Damage and Loss to Investors and to Contain Systemic Risk for Market Intermediaries that deal with Members and Other Participants Located in Canada
98. FINRA members, such as LeveL Markets, are required to maintain membership with the Securities Investor Protection Corporation (SIPC). SIPC was created under the Securities Investor Protection Act of 1970 (SIPA) as a nonprofit membership corporation. SIPC oversees the liquidation of member firms that close when the firm is bankrupt or in financial trouble, and customer assets are missing. In a liquidation under the SIPA, SIPC and a court-appointed trustee work to return customers' funds and securities as quickly as possible.
Examination and Reporting Requirements
99. As set forth above, the SEC and FINRA exercise their supervisory responsibility by conducting examinations of whether LeveL Markets' rules, procedures and practices are adequate for the protection of investors and for the maintenance of an orderly market.
100. Broker-dealers in the U.S., including LeveL Markets, are subject to periodic examinations by FINRA and the SEC. Types of examinations include: (i) cause examinations, which are initiated in order to investigate some particular issue or event; (ii) sweep examinations, in which multiple firms receive, and must respond to, written inquiries regarding a particular issue; and (iii) cycle examinations, which occur periodically over the life of the broker-dealer. Both FINRA and the SEC conduct examinations of these kinds, and both have considerable resources, and staff, to conduct such examinations.
101. During examinations, the examination staff seek to determine whether the entity being examined is: conducting its activities in accordance with the federal securities laws and rules adopted under these laws, as well as the rules of self-regulatory organizations, such as FINRA; adhering to the disclosures it has made to its clients, customers, the general public and/or the SEC and FINRA; and implementing supervisory systems and/or compliance policies and procedures that are reasonably designed to ensure that the entity's operations are in compliance with applicable legal requirements.
102. In addition, as described above, pursuant to Regulation ATS, each NMS Stock ATS, including each ATS, must file an initial operation report with the SEC on Form ATS-N, prior to commencing operations. Form ATS-N requires detailed disclosures regarding a wide range of information concerning the ATS, its owners, its businesses, and its operating procedures, including disclosure to the applicable regulators (FINRA and the SEC) of the Subscriber terms (and/or user guide(s)). Form ATS-N serves as a supplement to Form BD, which is filed by firms seeking registration with the SEC as broker-dealers, and the new membership application process, which is required for broker-dealers to become members of FINRA. Information required to be provided in these forms and applications include ownership and corporate governance information, affiliate information, details regarding the manner of operation of the ATS and its associated functions, including the structure, means of access, description of trade reporting procedures, contingency planning, and marketplace participants, similar to the information that is required to be provided to the Canadian securities regulators in a Form 21-101F2.
103. Form ATS-N and Form BD must be amended, as necessary, to correct any previously provided information that becomes inaccurate for any reason. Amendments include changes to information regarding LeveL Markets' ownership, corporate governance information, affiliate information, details regarding the manner of operation of each ATS and its associated functions, including the structure, means of access, description of trade reporting procedures, contingency planning and marketplace participants, similar to the information that is required to be provided to the Canadian securities regulators in a Form 21-101F2.
104. In addition, as noted above, pursuant to FINRA Rule 3110 and 3130, a broker-dealer's chief executive officer (or equivalent officer) must certify annually that the broker-dealer has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules, and federal securities laws and regulations. This report must be supported by an underlying report and discussion with the broker-dealer's chief compliance officer with respect to the same. FINRA Rule 3130 also requires the compliance report underlying this certification be submitted to the broker-dealer's board of directors and audit committee, as applicable.
105. Pursuant to SEC and FINRA rules, broker-dealers are subject to periodic financial and operational reporting (monthly and annually) through the filing of FOCUS Reports, which are filed with FINRA. The net capital rule, Exchange Act Rule 15c3-1 (17 C.F.R. §240.15c3-1), is the principal rule by which the financial health of U.S. broker-dealers, including LeveL Markets, are regulated and monitored. The net capital rule requires U.S. broker-dealers to maintain "net capital" (i.e., capital in excess of liabilities) in specified amounts that are determined by the types of business conducted by the broker-dealer. The net capital rule requires broker-dealers to compute net worth based on U.S. generally accepted accounting principles (GAAP), as modified by the various provisions and interpretations of the rule.
106. Regulation ATS also requires LeveL Markets, as an ATS operator, to permit the examination and inspection of its premises, systems, and records, and cooperate with the examination, inspection, or investigation of Subscribers, whether such examination is being conducted by the SEC or by a self-regulatory organization of which such Subscriber is a member.
107. Regulation ATS also requires that LeveL Markets, as an ATS operator, report information regarding marketplace activity on a quarterly basis on Form ATS-R, including for example, general trading activity, similar to certain information a Canadian ATS is required to provide in Form 21-101F3 Quarterly Report of Marketplace Activities.
108. Finally, a FINRA-member broker-dealer is required under FINRA Rule 4530 to report to FINRA certain specified events, including the broker-dealer's conclusion that it has discovered significant, widespread, or systemic violations of securities and investment related laws by the broker-dealer or any of its associated persons. Rule 4530 not only requires self-reporting of violations of securities law and regulation, but also of specified events, such as certain criminal convictions, certain customer complaints, and ongoing regulatory actions. Finally, the self-reporting and reporting rule also requires that a broker-dealer report to FINRA certain statistical and summary information regarding written customer complaints on a quarterly-basis.
109. Regulation ATS requires that an operator of an NMS Stock ATS, including LeveL Markets, that intends to cease carrying on business as an ATS must file a Notice of Cessation with the SEC at least 10 business days prior to the date that the NMS Stock ATS will cease to operate as an ATS. This requirement is similar to the requirement for a Canadian ATS to provide prior notice to the regulator of an intention to cease carrying on business as an ATS and the requirement to file a Form 21-101F4 Cessation of Operations Report for Platform.
Protection of Customer Funds and Securities by Market Intermediaries who may Deal with Canadian Subscribers
110. The Exchange Act Rule 15c3-3, which is commonly known as the "customer protection rule," is intended to protect customers' funds held by their broker-dealers and prohibit broker-dealers from using customer funds and securities to finance any part of their business that is unrelated to servicing securities customers. LeveL Markets does not hold customer funds.
Governance
111. LeveL Markets is a wholly-owned subsidiary of LeveL Holdings. LeveL Holdings is a holding company. The LeveL Holdings Management Committee (similar to a board) consists of 7 members, including the LeveL Markets chief executive officer. The Management Committee generally meets on a quarterly basis. During the meetings, the CEO updates the Management Committee on the current state of the business. The Management Committee also reviews and discusses all ongoing business, assesses potential new business activities, analyzes existing and potential risks and reviews updated financials. The Management Committee may also hold ad hoc meetings as necessary for time sensitive matters.
Appropriate Provisions for Directors and Officers
112. LeveL Markets has policies and procedures in place to recruit, hire and onboard new employees. Its policies ensure that all staff are qualified for their roles and receive security awareness, compliance and job-specific training. LeveL Markets' Chief Compliance Officer conducts annual security awareness training, reviews training compliance and confirms that all staff complete training appropriately. In the event that an employee termination occurs, robust off-boarding procedures are followed to secure access to accounts and physical hardware.
113. LeveL Markets has established, maintains and reviews compliance with policies and procedures that identify and manage any conflicts of interest arising from the operation of the marketplace or the services it provides. LeveL Markets conducts its business with the highest standards of commercial honour and just and equitable principles of trade. LeveL Markets' supervisory policies and procedures provide guidance to designated supervisors in their oversight of LeveL Markets' business. LeveL Markets recognizes that compliance is not a static event. The supervisory policies and procedures are updated as necessary.
114. To ensure compliance with FINRA Rules 3110 and 3310, LeveL Markets has implemented compliance policies and procedures outlining its regulatory obligations and written supervisory procedures and designed to achieve compliance with applicable securities laws and regulations. As a broker-dealer, LeveL Markets has an obligation to identify and respond to existing conflicts of interest and any potential conflicts of interest it expects to arise between LeveL Markets, including each individual acting on LeveL Markets' behalf, and a Subscriber or other party and resolve the actual or potential conflict of interest by putting the customer's interest before its own. Further, LeveL Markets must design its organizational structures, lines of reporting and physical locations to control conflicts of interest. LeveL Markets must ensure that before or at the time it provides a service that gives rise to a conflict, that it discloses the conflict.
115. Additionally, LeveL Markets relies on its employees to adhere to written standards of conduct. The written supervisory manual outlines the rules and principles by which LeveL Markets operates, which include but are not limited to its core competencies, protecting confidential information and conflicts of interest. A conflict of interest is a situation where an opportunity for personal gain conflicts with LeveL Markets' best interests. While it is LeveL Markets' preference to avoid conflicts of interest, if a conflict of interest cannot be avoided, or an employee cannot determine whether a given situation presents a conflict, it is LeveL Markets' policy for the conflict or the potential conflict to be immediately discussed with a manager to determine the appropriate course of action. Further, to avoid potential conflicts of interest, it is LeveL Markets' policy that work performed or positions held by LeveL Markets employees outside of working at LeveL Markets must not interfere with employees' duties at LeveL Markets, and outside business activities generally are required to be approved by LeveL Markets. LeveL Markets has adopted policies that require employees to proactively address potential conflicts of interest related to an employee's family member or other person with whom an employee has a close personal relationship. Conflicts regarding a financial interest in a customer, competitor or supplier as well as conflicts relating to business gift, meal and entertainment conflicts of interest policies are also addressed in LeveL Markets' policies.
116. LeveL Markets has appropriate conflict of interest provisions for all directors, officers and employees. LeveL Markets has implemented reasonable safeguards and procedures to protect its Subscriber's order and trade information, including limiting access to order or trade information on Subscribers to employees of LeveL Markets and implementing standards controlling trading by employees of LeveL Markets for their own accounts. LeveL Markets has implemented effective oversight procedures to ensure that the safeguards and procedures established by it are followed.
117. Each ATS facilitates trading only in U.S. exchange-listed NMS securities. Neither ATS is registered for, or permits trading in, fixed income securities, options, currency, or any other investment product except U.S. exchange-listed NMS securities. For greater certainty, the only securities that will be available on the Luminex ATS, including through the LeveLUp feature, if applicable, to Canadian Subscribers will be U.S. exchange-listed NMS securities as defined in SEC Rule 600(b)(55) that are not listed on a Canadian stock exchange. No derivative products will be offered to Canadian Subscribers by the Luminex ATS or by LeveL Markets. To the extent that one or both ATSs launch another product, this product will not be offered to Canadian Subscribers without the prior consent of the applicable securities regulatory authorities.
118. The requirements of each ATS relating to access to the facilities of the ATS change are fair, transparent and reasonable.
Details of Access Criteria
119. Each ATS: (i) has written standards for granting access to trading on its facilities to ensure users have appropriate integrity and fitness; (ii) has financial standards for those persons who enter orders for execution on the system, including, the need for pre-existing written agreement with each Subscriber or LeveL ATS subscriber, as the case may be; (iii) does not unreasonably prohibit or limit access by a person or company to services offered by it; (iv) keeps records of each grant and denial or limitation of access, including reasons for granting, denying or limiting access, if applicable; and (v) restricts access to adequately trained system users who have demonstrated competence in the functions that they perform.
120. LeveL Markets has established written standards for granting access to each of its services to ensure Subscribers and LeveL ATS subscribers, as the case may be, are appropriately eligible to access the applicable ATS, as described above. LeveL Markets keeps records of each grant of access, including the reasons for granting access to an applicant.
121. In addition, Regulation ATS sets forth certain fair access requirements for ATSs that do not apply to LeveL Markets because LeveL Markets meets all three prongs of the exception to the Fair Access provisions of Reg ATS.
122. If any of the volume requirements are met, and if LeveL Markets does not meet each prong of the exceptions, each ATS would be required to: (i) establish written standards for granting access to trading on its system; (ii) not unreasonably prohibit or limit any person in respect to access to services offered by such alternative trading system by applying the written standards required above in an unfair or discriminatory manner; (iii) make and keep records of: (a) all grants of access including, for all Subscribers, the reasons for granting such access; and (b) all denials or limitations of access and reasons, for each applicant, for denying or limiting access; and (iv) report the information required on SEC Form ATS-R regarding grants, denials, and limitations of access.
123. These access requirements are similar to the required access requirements for ATSs in Canada.
Due Diligence and Ongoing Supervision
124. To satisfy its regulatory requirements under SEC and FINRA rules, LeveL Markets conducts due diligence on Subscribers and LeveL ATS subscribers, as applicable, prior to permitting a Subscriber or LeveL ATS subscriber, as the case may be, to access the applicable ATS to ensure that such Subscriber or LeveL ATS subscriber meets the eligibility criteria required pursuant to U.S. Regulators and to protect the integrity of the ATS and the orderliness of its trading.
125. Access to the Luminex ATS will be limited to Canadian Subscribers who must meet LeveL Markets' eligibility criteria. Subscribers generally fall into the following categories that are described in detail in paragraph 11: Buyside Subscribers, Sponsored Buyside Subscribers, and Admitted Broker-Dealers. Before being provided direct access to the Luminex ATS, each Canadian Subscriber will be required to confirm that it is a "permitted client" as that term is defined in NI 31-103. Retail customers are not provided access to the Luminex ATS.
126. Once a Canadian Subscriber demonstrates that it satisfies the eligibility criteria, the Canadian Subscriber must be and remain at all times either an (i) "institutional account" as defined in FINRA Rule 4512, or (ii) a broker-dealer registered pursuant to Section 15 of the Exchange Act.
127. Each Canadian Subscriber will be required to confirm that it continues to satisfy the eligibility criteria for access to the Luminex ATS on an ongoing basis. Specifically, LeveL Markets will reach out at least every two years to each Canadian Subscriber to confirm that the Canadian Subscriber continues to satisfy the eligibility requirements for access to the Luminex ATS. A Canadian Subscriber will be required to provide prompt notification to LeveL Markets if it no longer qualifies as a "permitted client."
128. LeveL Markets is required to comply with the existing rules imposed by U.S. Regulators on an ongoing basis.
129. LeveL Markets will maintain the following updated information and submit such information in a manner and form acceptable to the Decision Makers on a semi-annual basis (within 30 days of the end of each six-month period), and at any time promptly upon the request of the Decision Makers: (i) a current list of all Canadian Subscribers on a per province basis, specifically identifying for each Canadian Subscriber the basis upon which it represented to LeveL Markets that it could be provided with direct access to the Luminex ATS; (ii) a list of all Canadian applicants for status as a Canadian Subscriber on a per province basis who were denied such status or access or who had such status or access revoked during the period; (iii) for those Canadian Subscribers who had their status revoked, an explanation as to why their status was revoked; (iv) for each product: (a) the total trading volume and value originating from Canadian Subscribers, presented on a per province Canadian Subscriber basis and (b) the proportion of worldwide trading volume and value on the Luminex ATS, including through the LeveLUp feature, conducted by Canadian Subscribers, presented in the aggregate per province for such Canadian Subscribers; and (v) a list of any system outages that occurred for any system impacting Canadian Subscribers' trading activity on the Luminex ATS that were reported to the regulator in the home jurisdiction, if any.
130. As required under the Bank Secrecy Act (BSA) and its implementing regulations, LeveL Markets is required to have anti-money laundering policies and procedures (collectively, an AML Policy) that prohibits and actively prevents money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities. Contained in its AML Policy is LeveL Markets' Customer Identification Program that complies with the requirements of the BSA and applicable regulations. Additionally, as a U.S. entity, LeveL Markets complies with the requirements outlined by the Office of Foreign Assets Control.
131. Regulation -- The alternative trading system has the authority, resources, capabilities, systems and processes to set requirements governing the conduct of its participants, monitoring their conduct, and appropriately disciplining them by exclusion from participation in the marketplace.
Members and Other Participants are Required to Demonstrate Compliance with Requirements
132. Each of FINRA and the SEC maintain appropriate systems and resources for conducting market surveillance and regulation, for evaluating compliance with ATS, FINRA and SEC requirements, and for disciplining participants. LeveL Markets also maintains appropriate systems and resources to monitor the trading on the Luminex ATS, including through the LeveLUp feature, to evaluate compliance with its terms of use, with FINRA and SEC requirements, and to potentially remove Subscribers' access to the Luminex ATS if it deems appropriate.
133. Subscribers to an ATS are subject to the SEC rules and regulations applicable to securities transactions generally, and the SEC has investigation, examination, and enforcement power with respect to subscribers who violate these rules and regulations. In addition, subscribers that are FINRA-member broker-dealers are subject to FINRA rules, with FINRA having investigation, examination, and enforcement power with respect subscribers who violate applicable FINRA rules.
The ATSs' Operating Procedures
134. Each ATS provides other controls, such as a protocol for dealing with "fat finger" errors.
135. As noted above, broker-dealers, including those that operate an ATS, are subject to market surveillance by the SEC and FINRA, which is largely accomplished through various trade-reporting forms and systems, including TRACE, TRF, CAT, and SEC Form 13H. Regulation ATS also requires ATSs to report certain information to the SEC regarding marketplace activity on a quarterly basis on Form ATS-R.
136. A characteristic of an ATS that distinguishes it from that of an exchange in the U.S. is that an ATS is not permitted to "[s]et rules governing the conduct of subscribers other than the conduct of such subscribers' trading on the system; or (ii) discipline subscribers other than by exclusion from trading." To the extent that a Subscriber breaches the Luminex ATS's terms and conditions, LeveL Markets is limited to either suspending or terminating their access. If the Subscriber's acts are thought to be violation of law, LeveL Markets will refer the Subscriber to FINRA or the SEC.
137. Clearing and Settlement. All transactions executed on the Luminex ATS except for sponsored access and broker-dealer router-related transactions are cleared and settled via NSCC and DTC by NFS pursuant to a fully-disclosed clearing arrangement between LeveL Markets and NFS. A Buyside Subscriber settles a transaction in the Luminex ATS against LeveL Markets via its clearing firm (NFS) and not against the other Luminex ATS Subscriber that is a party to the match. Upon instructions received from a Buyside Subscriber, transactions in the Luminex ATS may also be cleared and settled via prime brokerage arrangements, via the Buyside Subscriber's custody bank, or via other settlement instructions provided to LeveL Markets by the Buyside Subscriber. In the case of sponsored access- and broker-dealer-routed orders, if these broker-dealers clear through NFS, then transactions are cleared and settled via NSCC and DTC by NFS. For broker-dealers that do not clear through NFS, transactions are submitted on behalf of both LeveL Markets and the broker-dealer to NSCC via an NSCC QSR (Qualified Service Representative) Agreement or a Nasdaq AGU (Automated Confirmation Transaction (ACT) Give Up) Agreement. Any transaction executed on the LeveL ATS pursuant to LeveLUp is effectively passed back to the Luminex ATS and is cleared and settled as set out above.
Systems and Technology
138. LeveL Markets' critical systems provide for the continuing function of the overall application presented to customers. This application enables the handling of orders and the execution of transactions between Subscribers and LeveL ATS subscribers, as the case may be, and the applicable ATS.
Infrastructure -- Data Center Redundancy, External Connectivity and Security/Protection
139. Data center facilities for both ATSs are leased from Equinix Inc. in Secaucus, NJ. LeveL Markets licenses a FIX engine from Itiviti Group AB (f/k/a CameronTec Group) for use with the Luminex ATS. The FIX engine provides connectivity with Subscribers' order-originating systems and transformation of FIX messages to/from internal data structures. The Luminex ATS receives market data from a vendor that handles market data feeds from various market data providers and is also LeveL Markets' managed security services provider.
140. The New Jersey site contains self-contained infrastructure which can handle all traffic if necessary. The datacenter site contains various intra-site redundancy features at both the hardware level, as well as the software level.
141. All orders and trading interest must be submitted to the Luminex ATS via FIX version 4.2. Most order management vendors used by Subscribers send order and trading interest messages that are in, or are converted by LeveL Markets to, standard FIX. There are other vendors that use a "drop" FIX protocol in which "drop copy" messages are sent by the Luminex ATS back to the Subscriber's order management system upon a match in the Luminex ATS to confirm that the needed shares are still available in order to potentially consummate a match. The Luminex ATS does not accept, and does not have the ability to accept, manual orders or trading interest.
142. The LeveL ATS also requires that its subscribers use the FIX protocol to interact with the LeveL ATS. The LeveL ATS receives and uses market data disseminated by the U.S. SIP feed. The LeveL ATS does not accept, and does not have the ability to accept, manual orders or trading interest.
Financial Viability and Reporting
143. Financial viability -- LeveL Markets has sufficient financial resources for the proper performance of its functions and to meet its responsibilities.
144. Pursuant to Exchange Act Rule 15c3-1, LeveL Markets must have financial resources sufficient for the proper performance of its functions as an ATS operator. LeveL Markets maintains the current minimum capital amounts needed, and will maintain any future minimum capital amounts needed to meet SEC and FINRA requirements.
Recordkeeping
145. LeveL Markets has and maintains adequate systems in place for the keeping of books and records, including, but not limited to, those concerning the operations of each ATS, audit trail information on all trades, and compliance with, and/or violations of the ATS requirements.
146. LeveL Markets keeps books, records and other documents as are reasonably necessary for the proper recording of its business in electronic form. This includes a record of all Subscribers and LeveL ATS subscribers, as the case may be, who have been granted access to the applicable ATS, daily transaction volumes, correspondence, agreements, detailed order records and ATS report details of orders, as applicable. Records are kept in electronic form and are readily accessible.
147. LeveL Markets' written supervisory procedures refer to LeveL Markets' record retention policy that details how all relevant records must be kept, and for how long. This is maintained by the LeveL Markets CCO and ensures that LeveL Markets remains in compliance with all relevant regulatory requirements, which include SEC and FINRA rules. LeveL Markets has implemented a policy, which outlines its regulatory requirements under Exchange Act Rules 15c3-1, 17a-3 17a4, 17a-5, 17a-8, 17a-11,17f-2, Regulation ATS, FINRA Rules 1250, 2210, 2111, 2232, 3010, 3110, 3170, 3270, 3280, 3310 4511, 4512, 4513, 4515, 4517, and 4530, as applicable.
148. Regulation ATS, SEC Rules 17a-3 and 17a-4, and FINRA Rule 4511 set forth record keeping requirements that detail the types of information that must be retained by broker-dealers, as well as the duration for which these records must be maintained. The types of information include business records and other records, including, but not limited to, those Subscribers and LeveL ATS subscribers who have been granted access to the applicable ATS, daily trading summaries for the applicable ATS, and records of each order. The SEC and FINRA have mechanisms in place to ensure that the information necessary to conduct adequate surveillance of ATSs for supervisory and enforcement purposes is available to the U.S. Regulators on a timely basis.
149. The SEC and FINRA conduct periodic compliance reviews and examinations and require that records comply with SEC and FINRA rules and are readily accessible, on an ongoing basis. The record preservation requirements for ATSs are set forth in Section 303 of Regulation ATS and SEC Rule 17a-4. These rules and regulations establish the time period, which varies depending on the record being retained, for which certain books and records are to be retained and preserved.
Outsourcing
150. Where the ATS has outsourced any of its key services or systems to a service provider, it has appropriate and formal arrangements and processes in place that permit it to meet its obligations, and that are in accordance with industry best practices.
151. Each ATS is hosted on infrastructure managed by LeveL Markets staff, hosted within a facility managed by a third-party vendor. The vendor does not have logical access to LeveL Markets' or the ATS's devices or data. The vendor provides LeveL Markets with space, power, interconnectivity, and cooling within a SOC2 Type 2 certified secure facility. LeveL Markets has chosen to co-locate in facilities with direct access to market participants in order to support private network connectivity.
152. Market data vendors provide securities reference data and securities pricing services.
153. Pursuant to FINRA Rule 3110, each broker-dealer must establish, maintain, and enforce written procedures to supervise the activities of its registered representatives and associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable FINRA rules.
154. If a broker-dealer, as part of its business structure, outsources certain covered activities (e.g. data center services), the broker-dealer's supervisory system and written supervisory procedures must include procedures regarding its outsourcing practices to ensure compliance with applicable securities laws and regulations and FINRA rules. The broker-dealer's procedures should include, without limitation, a due diligence analysis of all of its current or prospective third-party service providers to determine whether they are capable of performing the outsourced activities. In addition, when a broker-dealer outsources covered activities to a third-party, the broker-dealer has a continuing responsibility to oversee, supervise, and monitor the service provider's performance of covered activities. This requires the broker-dealer to have in place specific policies and procedures that will monitor the service providers' compliance with the terms of any agreements and assess the service provider's continued fitness and ability to perform the covered activities being outsourced. LeveL Markets satisfies the foregoing regulatory requirements as outlined in LeveL Markets' written supervisory procedures, created to ensure compliance with applicable regulations. As required under FINRA Rule 3110, LeveL Markets has implemented policies and procedures in connection with its use of third-party services providers. When entering into an outsourcing agreement, LeveL Markets' policies require that LeveL Markets has a written contract with the service provider that includes the expectations of LeveL Markets and the other party to the services agreement. LeveL Markets is required to follow prudent business practices and conduct a due diligence analysis of prospective service providers, including an assessment of its reputation, financial stability, capability to deliver the services and have adequate confidentiality safeguards. On a regular and as necessary basis, LeveL Markets reviews certain third-party service providers to determine the quality of services provided, whether such third-party service providers are providing the services in a satisfactory manner consistent with the requirements outlined in such third-party service provider's contract.
Fees
155. Each ATS's process for setting fees is fair, transparent and appropriate. Any and all fees imposed by the ATS on its subscribers are equitably allocated, do not have the effect of creating barriers to access and are balanced with the criterion that the ATS has sufficient revenues to satisfy its responsibilities.
Information Sharing and Oversight Arrangements
156. Information sharing and regulatory cooperation -- Each ATS has mechanisms in place to enable it to share information and otherwise cooperate with the securities regulatory authorities in the Jurisdictions, self-regulatory organizations, other exchanges, clearing agencies, investor protection funds, and other appropriate regulatory bodies.
157. The CCO of LeveL Markets undertakes to notify staff of the securities regulators in each of the Jurisdictions promptly if any of the representations made in connection with or related to this application cease to be true or correct in any material respect or become incomplete or misleading.
158. Oversight Arrangements -- Satisfactory information-sharing and oversight agreements exist between the securities regulatory authorities in the Jurisdictions and the Foreign Regulators.
159. As noted above, the SEC and the securities regulatory authorities in the Jurisdictions are parties to a memorandum of understanding related to securities market oversight and enforcement. In addition, the Alberta, Québec and Ontario securities regulatory authorities are parties to memoranda of understanding with FINRA related to securities market oversight and enforcement.
160. LeveL Markets is regulated and operates in the U.S. as an ATS operator and, therefore, each ATS may be considered an "alternative trading system" as defined in section 1.1 of NI 21-101 and is prohibited from carrying on business in the Jurisdictions unless it (i) is registered as a dealer, (ii) is a member of a self-regulatory entity and (iii) complies with the provisions of the Marketplace Rules. LeveL Markets seeks to provide Canadian Subscribers with access to the Luminex ATS, including Canadian Subscribers who use the LeveLUp feature, and, therefore, may be considered to be engaging in the business of trading in the Jurisdictions. LeveL Markets is not registered with the Decision Makers in the Jurisdictions as an investment dealer and is not a member of any Canadian self-regulatory entity.
161. LeveL Markets is registered with the SEC as a broker-dealer and an ATS operator and is a member of FINRA, a self-regulatory organization in the U.S. with a mandate similar to that of CIRO in Canada. LeveL Markets satisfies all of the criteria for registration with the SEC as a broker-dealer and continues to satisfy the requirements under Regulation ATS. For additional information with respect to broker-dealer obligations with respect to third-party service providers, please see FINRA (formerly, NASD) Notice to Members 05-48 -- Members' Responsibilities When Outsourcing Activities to Third-Party Service Providers, available at https://www.finra.org/rules-guidance/notices/05-48. It is LeveL Markets' position that as described in above, LeveL Markets and each ATS are subject to a substantially similar regulatory regime in the U.S. to that in Canada.
162. In CSA Staff Notice 21-328 Regulatory Approach to Foreign Marketplaces Trading Fixed Income Securities (Notice 21-328), CSA staff provide an exemption model where foreign ATSs may be permitted to offer direct access to Canadian participants without having to establish a Canada-based affiliate provided they meet certain terms and conditions, including a requirement that they comply with the applicable regulations in their home jurisdiction. In Notice 21-328, CSA Staff state that to offer direct access to Canadian participants, a foreign ATS would need to apply for an exemption from the Marketplace Rules and provide details of the application process, exemption criteria, and sample terms and conditions that may be included in a foreign ATS's exemption order. A foreign ATS may be exempt from the Marketplace Rules provided that certain conditions of the CSA's proposed exemption and regulatory framework are met, including maintaining regulatory compliance in its home jurisdiction, providing the appropriate CSA jurisdictions with ongoing information about its operations and trading activity in Canada and ensuring that there is sufficient transparency for participants of the regulatory structure, specifically the substitute compliance model. Although the proposed exemption would grant foreign ATSs relief from the Marketplace Rules, depending on their model of operations, foreign ATSs or their participants may, as discussed below, still be subject to the dealer registration requirements under applicable Canadian securities legislation for engaging in the business of trading.
163. While Notice 21-328 provides a possible exemption model for foreign ATSs that trade fixed income securities, LeveL Markets submits that the criteria and the exemption model set in Notice 21-328 should apply equally to foreign ATSs that trade exchange-traded NMS equity securities. The regulatory compliance regime for these foreign ATSs in the U.S. is substantial and does not differ significantly from the regime that applies to ATSs in the U.S. that trade fixed income securities. LeveL Markets respectfully submits that there is no regulatory reason to treat foreign NMS Stock ATSs differently from foreign fixed income securities ATSs.
164. LeveL Markets submits that it satisfies the criteria in the exemption model for foreign ATSs to offer direct access to Canadian participants without having to establish a Canada-based affiliate, as set out in Notice 21-328. Accordingly, LeveL Markets has submitted this Application for an exemption from the Marketplace Rules and has provided details demonstrating how it meets the criteria set out in Notice 21-328, including maintaining regulatory compliance in its home jurisdiction, providing the Jurisdictions with ongoing information about its operations and trading activity in Canada and ensuring that there is sufficient transparency for participants of the regulatory structure, specifically the substitute compliance model.
165. Under section 6.1 of NI 21-101, registration exemptions are denied for marketplaces. Notice 21-328 does not purport to alter the registration regime for marketplaces, and states: "We note that although the proposed exemption would grant foreign ATSs relief from the Marketplace Rules, depending on their model of operations, foreign ATSs or their participants may still be subject to registration under applicable securities legislation. Foreign ATSs may trigger registration requirements under applicable Canadian securities laws because they may engage in the business of trading. A common exemption available in these cases would be the International Dealer Exemption (IDE). The IDE may be available where the foreign ATS offers trading in foreign securities. Foreign ATSs should consider the registration requirement and available exemptions when determining which securities to offer for trading. In the case of participants on foreign ATSs, they may also need to be registered where they are dealing with Canadian participants. For example, in the case of a request-for-quote system that results in agreements to trade where a foreign participant is interacting directly with Canadian participants, the foreign participant may need to be registered as a dealer or rely on a registration exemption."
166. By its terms, Notice 21-328 was designed for foreign ATS platforms trading non-Canadian fixed income products. Prior decisions have involved platforms trading non-Canadian fixed income instruments. Based on LeveL Markets' model of operations for each ATS and the limitations described in this Application that LeveL Markets intends to impose on the trading activities of Canadian Subscribers, Canadian Subscribers will only be using LeveL Markets to trade in securities that are not listed on a Canadian stock exchange. LeveL Markets will implement operational controls to ensure that Canadian Subscribers will not be permitted to trade in securities that are listed on a Canadian stock exchange.
167. The robust U.S. regulatory regime governing ATSs provides adequate investor protection and oversight and supervision of LeveL Markets and each ATS. It is appropriate for LeveL Markets to rely on the regulatory regime in the U.S. as a substitute for the regulatory regime in Canada, as the oversight, supervision and regulatory requirements are sufficiently similar to that of the Canadian regulatory regime applicable to ATSs.
168. By complying with the regulatory regime applicable to ATSs in the U.S., LeveL Markets considers that it will be complying with the substantially similar requirements of the Canadian regulatory regime. Access to the Luminex ATS, including the LeveLUp feature, will be limited to Canadian Subscribers who must meet LeveL Markets' eligibility criteria. Before being provided direct access to the Luminex ATS, LeveL Markets will confirm that each Canadian Subscriber is a "permitted client" as that term is defined in NI 31-103. A Canadian Subscriber will be required to confirm that it continues to satisfy the eligibility criteria for access to the Luminex ATS on an ongoing basis. A Canadian Subscriber who wishes to use the LeveLUp feature of the Luminex ATS must also satisfy LeveL Markets, on an ongoing basis, that it is an Eligible Participant.
169. Canadian permitted clients that trade U.S. NMS stocks would benefit from the ability to trade on the Luminex ATS, including through the LeveLUp feature, if applicable, as they would have access to a range of non-Canadian equity securities. LeveL Markets would offer Luminex ATS subscribers resident in the Jurisdictions a transparent, efficient market to engage in transactions in U.S. NMS equity securities. LeveL Markets uses sophisticated information systems and has adopted rules and compliance functions that will ensure that Canadian subscribers are adequately protected. LeveL Markets therefore submits that it would not be prejudicial to the public interest to grant the Requested Relief.
170. The Canadian rules as to post-trade transparency are somewhat different than in the U.S. Section 7.4 of NI 21-101 imposes post-trade transparency requirements for exchange-traded securities and foreign exchange-traded securities and subsection 8.2(3) of NI 21-101 imposes post-trade transparency requirements for government debt securities and corporate debt securities. FINRA rules impose similar, extensive post-trade transparency requirements for transactions in NMS securities effected otherwise than on an exchange. All such transactions must be reported immediately upon execution, but by no later than ten seconds after execution and such transactions are reported on a real-time basis to the public, identifying the trading symbol, share quantity, and price. The identity of the reporting firm and the Subscribers to such transactions are not publicly disclosed, but are reported to FINRA via trade reports or via the U.S. SROs' Consolidated Audit Trail system. FINRA also discloses aggregate trading information for ATSs on its OTC Transparency website on a delayed basis pursuant to FINRA Rule 6110.
171. For the reasons provided above, LeveL Markets submits that it would not be prejudicial to the public interest to grant the Requested Relief.
In support of this Application, we enclose the following:
(a) a draft decision document;
(b) the applicable fees; and
(c) a verification from LeveL Markets confirming our authority to prepare and file this Application and confirming the truth of the facts contained herein.
If you have any questions or require anything further, please do not hesitate to contact us.
Thank you for your assistance.
Sincerely,
The securities regulatory authority or regulator in each of the provinces and territories of Canada (collectively, the Jurisdictions) (the Decision Makers) has received an application from the Filer as operator of each of the Luminex Alternative Trading System (Luminex ATS) and the LeveL Alternative Trading System (the LeveL ATS and, together with the Luminex ATS, the ATSs) (the Application) for a decision under the securities legislation of the Jurisdictions (the Legislation) that the Filer and each ATS, as applicable, be exempt pursuant to:
(a) subsection 15.1 of National Instrument 21-101 Marketplace Operation (NI 21-101) from NI 21-101 as a whole;
(b) subsection 12.1 of National Instrument 23-101 Trading Rules (NI 23-101) from NI 23-101 in whole; and
(c) subsection 10(1) of National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103) from NI 23-103 in whole
(the relief mentioned in paragraphs (a) to (c) being collectively referred to herein as the Requested Relief). NI 21-101, NI 23-101 and NI 23-103 are collectively referred to herein as the Marketplace Rules).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203) (for a coordinated review application):
(a) the Ontario Securities Commission is the principal regulator (the Principal Regulator) for the Application; and
(b) in accordance with section 5.2(3) of NP 11-203 the Filer has filed the Application with the securities regulatory authorities in each of the Jurisdictions.
Terms defined in 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:
1. LeveL Markets is a limited liability company organized under Delaware law. LeveL Markets is a wholly-owned subsidiary of LeveL Holdings, LLC. (LeveL Holdings). A consortium of leading capital market participants, including FMR Sakura Holdings LLC (FMR Sakura), Fidelity Global Brokerage Group, Inc. (FGBG), Nasdaq Inc., Citigroup and Bank of America, each owns a minority interest in the securities of LeveL Holdings. FMR Sakura and FGBG are wholly-owned subsidiaries of FMR LLC, which operates a number of businesses under the trade name Fidelity Investments.
2. LeveL Markets is registered as a broker-dealer with the United States Securities and Exchange Commission (SEC) in the U.S. and is a member of the Financial Industry Regulatory Authority, Inc. (FINRA) and the Securities Investor Protection Corporation. It is the operator of the ATSs. LeveL Markets is not registered in any capacity in Canada and does not carry out any registrable activities in Canada. None of LeveL Markets, the ATSs nor any other affiliated marketplace has any Canadian client or subscriber. To the extent necessary, LeveL Markets relies or will rely on the international dealer exemption.
3. The Luminex ATS commenced operations in 2015 and the LeveL ATS commenced operations in 2006. Each ATS is registered as an alternative trading system (ATS) with the SEC and is operated by LeveL Markets.
4. LeveL Markets requires the Requested Relief in respect of the Luminex ATS because it wishes to permit Canadian "permitted clients" (as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103)) to become subscribers on, and trade on, the Luminex ATS (Canadian Subscribers).
5. Certain Canadian Subscribers (Eligible Participants) that meet LeveL Markets' eligibility criteria will have access to a feature of the Luminex ATS called "LeveLUp". The LeveLUp feature allows Eligible Participants to direct that their orders (in whole or in part) be routed by LeveL Markets, as broker-dealer operator, from the Luminex ATS to the LeveL ATS. The handling of such routed orders is governed by the rules and policies of the LeveL ATS once the order is entered into the LeveL ATS. This LeveLUp order routing arrangement is not reciprocal; the LeveL ATS cannot route orders from LeveL ATS subscribers to the Luminex ATS. LeveL Markets also requires the Requested Relief in respect of the LeveL ATS because, in limited circumstances, Eligible Participants may transfer their orders to the LeveL ATS through LeveL Markets' LevelUp feature.
6. LeveL Markets is subject to a comprehensive regulatory regime in the U.S., both as a registered broker-dealer and the operator of each ATS. Each ATS operates as an ATS and is regulated by the SEC. LeveL Markets is a broker-dealer registered with the SEC and is a member of FINRA. The SEC and FINRA fulfill their regulatory responsibilities with the framework established by the Securities Exchange Act of 1934 (the Exchange Act) and FINRA member rules.
7. Pursuant to Section 15(a) of the Exchange Act, subject to certain exceptions, all persons that use the mails or any means or instrumentality of interstate commerce to effect securities transactions must register with the SEC and become members of a national securities association, of which there is only one, FINRA. ATS status and registration is a supplement to broker-dealer registration; in other words, an ATS can only be operated by a registered broker-dealer. Therefore, as an ATS, each ATS is subject to all applicable rules and regulations to which broker-dealers are subject, as well as specific rules and regulations applicable to the operation of an ATS.
8. ATSs are subject to a comprehensive regulatory framework in the U.S. First, subject to certain limited exceptions, all U.S. ATS operators must be registered with the SEC as a broker-dealer and be a member of FINRA. In this regard, ATSs are subject to extensive regulation and oversight by the SEC and FINRA, not only with respect to ATS operation, but also with respect to the broker-dealer's operations as a whole. Further, in becoming a member of FINRA, each broker-dealer must enter into a membership agreement that sets forth the parameters of the broker-dealer's operations, not only with respect to business lines, but also with respect to minimum net capital requirements, number of offices, and number of client-facing registered representative that the broker-dealer may employ.
9. In addition to the foregoing, to acquire and maintain its status as an ATS, LeveL Markets and each ATS must satisfy several statutorily prescribed requirements set out in Regulation ATS (Regulation ATS), which sets forth additional guidelines and requirements with respect to: (i) broker-dealer registration; (ii) notice; (iii) order display and execution access; (iv) fees; (v) fair access; (vi) capacity, integrity, and security of automated systems; (vii) recordkeeping; (viii) reporting obligations; and (ix) compliance and controls.
10. Each ATS is an NMS Stock ATS, which means that it makes available for trading only National Market System (NMS) equity securities, which are equity securities that are exchange-listed and that trade in the U.S. As such, it must comply with the even more stringent disclosure and other requirements that NMS Stock ATSs are subject to.
11. The regulatory regime in the U.S. that each ATS and LeveL Markets are subject to is substantially similar to the regulatory regime in Canada under the Marketplace Rules.
12. By complying with the regulatory regime applicable to ATSs in the U.S., LeveL Markets considers that it will be complying with the substantially similar requirements of the Canadian regulatory regime.
13. Access to the Luminex ATS will be limited to Canadian subscribers who must meet LeveL Markets' eligibility criteria. Before being provided direct access to the Luminex ATS, including, if applicable, the LeveLUp feature, LeveL Markets will confirm that each Canadian Subscriber is a "permitted client" as that term is defined in NI 31-103. Retail customers will not be provided access to either ATS.
14. Once a Canadian Subscriber demonstrates that it satisfies the eligibility criteria, the Canadian Subscriber must be and remain at all times either an (i) "institutional account" as defined in FINRA Rule 4512, or (ii) a broker-dealer registered pursuant to Section 15 of the Exchange Act.
15. Each Canadian Subscriber will be required to confirm that it continues to satisfy the eligibility criteria for access to the Luminex ATS on an ongoing basis. Specifically, LeveL Markets will reach out at least every two years to each Canadian Subscriber to confirm that the Canadian Subscriber continues to satisfy the eligibility requirements for access to the Luminex ATS. A Canadian Subscriber will be required to provide prompt notification to LeveL Markets if it no longer qualifies as a "permitted client."
16. Each Canadian Subscriber that wishes to access the LeveLUp feature of the Luminex ATS will be required to confirm that it satisfies, and continues to satisfy, the eligibility requirement in order to be treated as an Eligible Participant. Specifically, LeveL Markets will reach out at least every two years to each Canadian Eligible Participant to confirm that the Canadian Subscriber continues to satisfy the eligibility requirements for access to the LeveLUp feature of the Luminex ATS. A Canadian Eligible Participant will be required to provide prompt notification to LeveL Markets if it no longer qualifies to be treated as an Eligible Participant.
17. The only securities that will be available on each ATS to Canadian Subscribers will be U.S. exchange-listed NMS securities as defined in SEC Rule 600(b)(55) that are not listed on a Canadian stock exchange. No derivative products will be offered to Canadian Subscribers by either ATS or by LeveL Markets.
18. LeveL Markets reports its transactions immediately upon execution to the FINRA/Nasdaq Carteret Trade Reporting Facility (Carteret TRF). In the event that the Carteret TRF is unavailable, LeveL Markets will report its transactions to the FINRA/Nasdaq Chicago TRF.
19. LeveL Markets has determined that it may be subject to dealer registration under applicable Canadian securities legislation and so it proposes to rely on the "international dealer exemption" under section 8.18 of NI 31-103 in the Jurisdictions.
20. Neither the ATSs nor LeveL Markets is in default of securities legislation of any Jurisdiction.
21. For the reasons specified above, the Filer submits that it is not prejudicial to the public interest to grant the Requested Relief.
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 Requested Relief is granted in respect of each ATS, including any successor pursuant to any business plan disclosed previously to the Decision Makers, provided that the Filer complies with the following terms and conditions:
Regulation and Oversight of the Marketplace
A. The Filer and the ATSs will continue to be subject to the regulatory oversight of the regulator of its home jurisdiction.
B. The Filer will either be registered in an appropriate category or rely on an exemption from registration under Canadian securities laws.
C. The Filer will promptly notify the Decision Makers if its status in its home jurisdiction has been revoked, suspended, or amended, or the basis on which its status has significantly changed.
Access
D. The Filer will not provide direct access to either ATS to a Canadian Subscriber unless the Canadian Subscriber is a "permitted client" as that term is defined in NI 31-103.
E. The Filer will require Canadian Subscribers to provide prompt notification to the Filer if they no longer qualify as "permitted clients".
F. The Filer must make available to Canadian Subscribers appropriate training for each person who has access to trade on the Luminex ATS.
G. Except as set out below the Filer will ensure that the traders of Canadian Subscribers will have access to full markets. However, to avoid low firm-up percentages, Canadian Subscribers' traders will be subject to a real-time (intraday) surveillance mechanism, so that if they fail to firm up a certain number of times in a single name on a given day, they will not be able to submit orders for that symbol for the balance of that day unless the prohibition is manually overridden by LeveL Markets.
Trading by Canadian Subscribers
H. The Filer will only offer to Canadian Subscribers on the ATSs U.S. exchange-listed NMS equity securities that are not listed on a Canadian stock exchange.
I. All transactions executed on the Luminex ATS, except for sponsored access- and broker-dealer-router-related transactions, are cleared and settled via the National Securities Clearing Corporation (NSCC) and Depository Trust Corporation (DTC) by National Financial Services, LLC (NFS) pursuant to a fully-disclosed clearing arrangement between LeveL Markets and NFS. A Canadian Subscriber that is a Buyside Subscriber will settle a transaction in the Luminex ATS against LeveL Markets via its clearing firm (NFS) and not against the other Luminex ATS subscriber that is a party to the match. Upon instructions received from a Canadian Subscriber that is a Buyside Subscriber, transactions may also be cleared and settled via prime brokerage arrangements, via the Canadian Subscriber's custody bank, or via other settlement instructions provided to LeveL Markets by the Canadian Subscriber. In the case of sponsored access- and broker-dealer-routed orders by Canadian Subscribers, if these broker-dealers clear through NFS, then transactions are cleared and settled via NSCC and DTC by NFS. For Canadian Subscriber broker-dealers that do not clear through NFS, transactions will be submitted on behalf of both LeveL Markets and the broker-dealer to NSCC via an NSCC QSR (Qualified Service Representative) Agreement or a Nasdaq AGU (Automated Confirmation Transaction (ACT) Give Up) Agreement. Any transaction executed on the LeveL ATS pursuant to LeveLUp is effectively passed back to the Luminex ATS and is cleared and settled as set out above.
J. Subject to conditions G and H, the Filer will only permit Canadian Subscribers to trade those securities that are permitted to be traded in the United States under applicable securities laws and regulations.
Reporting
K. The Filer will promptly notify staff of the Decision Makers of any of the following:
(a) any material change to the Filer's business or operations as it relates to the ATSs or the information provided in the Application, including, but not limited to:
(i) changes to its regulatory oversight;
(ii) the access model to the Luminex ATS, including eligibility criteria, for Canadian Subscribers;
(iii) systems and technology; and
(iv) its clearing and settlement arrangements for the ATSs;
(b) any material change in the Filer's regulations or the laws, rules, and regulations in the home jurisdiction relevant to the products traded on the ATSs;
(c) any known investigation of, or regulatory action against, the Filer or either ATS by the regulator in the home jurisdiction or any other regulatory authority to which the Filer or either ATS is subject;
(d) any matter known to the Filer that may affect the Filer's or either ATS' financial or operational viability, including, but not limited to, any significant system failure or interruption; and
(e) any default, insolvency, or bankruptcy of any subscriber to the Luminex ATS known to the Filer or its representatives that may have a material, adverse impact upon the Luminex ATS or any Canadian Subscriber.
L. The Filer will maintain the following updated information and submit such information in a manner and form acceptable to staff of the Decision Makers on a semi-annual basis (within 30 days of the end of each six-month period), and at any time promptly upon the request of staff of the Decision Makers:
(a) a current list of all Canadian Subscribers on a per Jurisdiction basis, specifically identifying for each Canadian Subscriber the basis upon which it represented to the Filer that it could be provided with direct access to the Luminex ATS;
(b) a list of all Canadian applicants for status as a Canadian Subscriber on a per Jurisdiction basis who were denied such status or access or who had such status or access revoked during the period and for those Canadian Subscribers who had their status revoked, an explanation as to why their status was revoked;
(c) for each applicable NMS security:
(i) the total trading volume and value originating from Canadian Subscribers on either ATS, presented on a per Jurisdiction Canadian Subscriber basis; and
(ii) the proportion of worldwide trading volume and value on either ATS conducted by Canadian Subscribers, presented in the aggregate per Jurisdiction for such Canadian Subscribers; and
(d) a list of any system outages that occurred for any system impacting Canadian Subscribers' trading activity on either ATS that were reported to the regulator in the home jurisdiction.
Disclosure
M. The Filer will provide to the Canadian Subscribers disclosure that states that:
(a) rights and remedies against it, the Luminex ATS and, if a Canadian Subscriber uses the LeveLUp feature, the LeveL ATS may only be governed by the laws of the home jurisdiction, rather than the laws of Canada, and may be required to be pursued in the home jurisdiction rather than in Canada;
(b) the rules applicable to trading on the Luminex ATS and, if a Canadian Subscriber uses the LeveLUp feature, the LeveL ATS may be governed by the laws of the home jurisdiction, rather than the laws of Canada; and
(c) the ATSs are regulated by the regulator in the home jurisdiction, rather than the Decision Makers.
Submission to Jurisdiction and Agent for Service
N. With respect to a proceeding brought by the Decision Makers, staff of the Decision Makers or another applicable securities regulatory authority in Canada arising out of, related to, concerning or in any other manner connected with such regulatory authority's regulation and oversight of the activities of the Filer in Canada, the Filer will submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Canada, and (ii) an administrative proceeding in Canada.
O. The Filer will file with the Decision Makers a valid and binding appointment of an agent for service in Canada upon which the Decision Makers or other applicable regulatory authority in Canada may serve a notice, pleading, subpoena, summons, or other process in any action, investigation, or administrative, criminal, quasi-criminal, penal, or other proceeding arising out of or relating to or concerning the regulation and oversight of the Filer or the Filer's activities in Canada.
Information Sharing
P. The Filer must, and must cause its affiliated entities, if any, to promptly provide to the Decision Makers, on request and on a confidential basis, any and all data, information, and analyses in the custody or control of the Filer, or any of its affiliated entities, without limitations, redactions, restrictions or conditions, including, without limiting the generality of the foregoing:
(a) data, information, and analyses relating to all of its or their businesses; and
(b) data, information, and analyses of third parties in its or their custody or control.
Q. The Filer must share information and otherwise cooperate with other recognized or exempt exchanges, recognized self-regulatory organizations, investor protection funds and other appropriate legal and regulatory bodies.
Date: , 2026
__________________________________
TSX Inc. -- Proposed Amendments -- Notice of Approval
(NOVEMBER 27, 2025)
In accordance with the "Process for the Review and Approval of Rules and the Information Contained in Form 21-101F1 and the Exhibits Thereto" for recognized exchanges, TSX Inc. ("TSX", the "Exchange" or "we") has adopted, and the Ontario Securities Commission has approved, the proposed introduction of a new ultra-low latency 10 Gigabit co-location network connectivity option and certain related fee changes, as set out in the Request for Comments (as defined below) (the "Amendments").
Capitalized terms used and not otherwise defined in the Notice of Approval shall have the meaning ascribed to them in the Request for Comments.
A copy of the Amendments can be found here.
On September 11, 2025, TSX published a Notice of Proposed Amendments and Request for Comments (the "Request for Comments") for a 30-day period, and four comment letters were received. A summary of the comments submitted, together with the Exchange's responses, is attached at Appendix A. The Exchange thanks all commenters for their feedback and suggestions.
The Amendments will be implemented on January 26, 2025.
List of Commenters:
• Anonymous
• Benoit Dufresne ("BD")
• Canadian Independent Finance and Innovation Counsel ("CIFIC")
• Canadian Forum for Financial Markets ("CFFiM")
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Summarized Comments Received |
The Exchange's Response |
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One commenter expressed support for the introduction of the TMX Ultra 10Gb Connectivity, describing TMX Ultra as a great product, and a significant and positive development within the Canadian equities market. The Commenter was of the view that TMX Ultra benefits the market for those who require the fastest path for market data ingestion and order entry, while taking into account that others may not have the same requirements. (Anonymous) |
The Exchange thanks the commenter for its feedback. |
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Two commenters were unsupportive of the TMX Ultra 10Gb Connectivity and were of the following views: |
The Exchange thanks the commenters for their feedback but disagrees with these characterizations of the TMX Ultra 10Gb Connectivity. Offering premium, optional services such as this is essential for the Exchange to drive innovation and ensure that Canadian capital markets remain globally competitive. The pricing of the service is designed to cover the significant investment in advanced infrastructure required to deliver ultra-low latency. The service is a voluntary one designed to meet specialized demands, not an unfair "pay-to-win" system that negatively impacts the market. |
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The TMX Ultra 10Gb Connectivity is a more expensive and faster tier that would negatively impact market participants and fairness. (BD) |
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The new offering is a "significant barrier to entry" that guarantees no chance of success for lower-tier subscribers, thereby consolidating power to those already at the "top of the game". (BD) |
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The new service is a "pay-to-win" system that is unfair. (BD) |
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There has been little indication of trader support, and latency-sensitive firms will feel compelled to adopt the new offering to remain competitive. (CIFIC) |
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The new offering is more likely to add costs for participants than provide meaningful improvements to market quality. (CIFIC) |
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We disagree with the view that the offering is a "significant barrier to entry" or a source of unfairness. The service is an offering catering to the most latency-sensitive strategies, not a requirement for success across the broader market. The existing standard connectivity options remain in place and are sufficient for many participants, as indicated in our pre-consultations with clients. Furthermore, participants who do not choose the new service are still able to achieve comparable or superior latency improvements by optimizing the technology architecture within their own co-location cabinets. The decision to pursue a latency-sensitive strategy is a commercial one that already involves substantial investments in talent, research, proprietary hardware, and software. These operational costs are the primary barrier to entry in this specialized field, not the incremental cost of a connectivity upgrade. TMX Ultra 10Gb Connectivity is an optional tool designed for participants who have already made this strategic commitment. For firms already using the Current 10Gb Connectivity, the incremental monthly cost is not a determinative barrier when contextualized within the significant total operating costs of a latency-sensitive trading business. |
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Our pre-consultations with a diverse array of clients indicated broad support for the initiative and confirmed that not all participants require this service for their business model, underscoring its optional nature. The Exchange believes that introducing this ultra-low latency connection is an investment in the quality of Canada's capital markets. By providing enhanced tools to liquidity providers, this service fosters deeper liquidity and tighter spreads, which are market-wide benefits that serve all investors. Designed to deepen the order book and improve price discovery for all participants, such enhancements are a core component of our mandate to operate fair, efficient, and globally competitive markets. |
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3. |
One commenter suggested that the Exchange focuses on measures that enhance fairness, accessibility, and overall market efficiency and that the Exchange should explore innovations that reduce latency gaps across participants, improve resiliency, or increase transparency. The commenter was of the view that this would better serve the long-term interests of both market participants and investors. (CIFIC) |
The Exchange is continually committed to measures that enhance fairness, accessibility, and overall market efficiency, including innovations in resiliency and transparency across all our trading platforms. The proposed connectivity upgrade is one component of our broader strategy to improve trading performance and meet diverse client needs, and it does not preclude ongoing efforts to reduce latency for the wider client base. |
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One commenter was of the view that TMX Ultra 10Gb Connectivity raises concerns regarding competition, fairness, and overall market balance, particularly for less liquid securities (Tier 2 and 3) and that this focus on speed may not benefit Canada's broader market or the liquidity needs of its less liquid securities, thus potentially harming domestic competitiveness. (CFFiM) |
The Exchange is of the view that TMX Ultra is a necessary innovation designed to maintain the global competitiveness of Canadian markets. We believe that providing advanced tools for sophisticated liquidity providers helps attract and retain critical order flow, which fosters deeper liquidity and tighter spreads across all security tiers. We respectfully disagree that enhanced liquidity in top-tier securities detracts from lower-tier securities, or that TMX Ultra 10Gb Connectivity would attract liquidity disproportionately towards Tier 1 securities. We believe both assertions are unsubstantiated in this context. |
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One commenter requested confirmation and audit of equidistant cabling and enhanced transparency, including an architectural diagram and disclosure of latency variance and hardware specifics, to provide continuous assurance of fairness. (CFFiM) |
The Exchange operates on a foundational principle of fair access, in compliance with our regulatory obligations under National Instrument 21-101. We affirm our commitment to ensuring practical equity in access. The TMX Ultra 10Gb connections are engineered for equalized latency profiles, utilizing uniform hardware and certified equalized cabling, which ensures equitable access for all subscribers to this service. |
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The Exchange is of the view that the level of technical disclosure provided is considered sufficient for market participants to evaluate the service. Detailed information, such as proprietary network diagrams, specific third-party vendor names, or in-depth historical messaging data, is commercially sensitive and proprietary. |
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One commenter requested certain historical quantitative evidence from previous upgrades (introduction of colocation, 10GB) to assess competitive impact (e.g., spreads, market share shifts) and raised a concern regarding the diversity of the consulted client group. (CFFiM) |
While we acknowledge the importance of historical analysis, compiling this level of detail extends beyond the scope of this product filing. |
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Our client pre-consultation was robust, engaging with a broad spectrum of business models, including participants with varying degrees of latency sensitivity, including clients who indicated the microsecond-scale benefits of TMX 10G Ultra is not meaningful to them. This informal client consultation process was supplemented by the formal 30-day public comment period, which is the prescribed regulatory mechanism for gathering comprehensive stakeholder input and is open to all affected stakeholders. |
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One commenter suggested replacing the proposed fixed-fee structure with a variable pricing model (per message or volume) to encourage smaller participants to compete profitably. (CFFiM) |
The Exchange is of the view that the proposed fixed model is more appropriate and operationally consistent with an offering of this nature and that it remains the global industry standard for dedicated, physical connectivity. This model offers clients cost certainty and is designed to appropriately cover significant infrastructure investment and ongoing operational costs. This optional service is primarily designed for latency-sensitive firms, for whom we believe the fixed fee is not considered a material barrier. |
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Lombard Street Capital Corp. -- s. 21(b) of Ont. Reg. 398/21 of the OBCA
Consent given to an offering corporation under the Business Corporations Act (Ontario) to continue under the Companies Act (2025 Revision) of the Cayman Islands.
Business Corporations Act, R.S.O. 1990, c. B.16, as am., s. 181.
Securities Act, R.S.O. 1990, c. S.5, as am.
Regulation made under the Business Corporations Act, Ont. Reg. 398/21, s. 21(b).
(Subsection 21(b) of the Regulation)
UPON the application (the "Application") of Lombard Street Capital Corp. (the "Applicant") to the Ontario Securities Commission (the "Commission") requesting the Commission's consent to the Applicant continuing in another jurisdiction pursuant to Section 181 of the OBCA (the "Continuance");
AND UPON considering the Application and the recommendation of the staff of the Commission;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is an offering corporation under the OBCA.
2. The Applicant is a capital pool company in accordance with the policies of the TSX Venture Exchange ("TSXV") that completed its initial public offering on November 28, 2024.
3. The authorized capital of the Applicant consists of an unlimited number of common shares (the "Common Shares"). As of November 10, 2025, 50,421,053 Common Shares were issued and outstanding. All of the issued and outstanding Common Shares of the Applicant are listed for trading on the TSXV under the symbol "LSC.P".
4. The Applicant intends to apply to the Director, as such term is defined under the OBCA, pursuant to Section 181 of the OBCA for authorization (the Authorization) to continue into the Cayman Islands under the Companies Act (2025 Revision), as amended, of the Cayman Islands (the "Companies Act").
5. On July 25, 2025, the Applicant announced that it had entered into a business combination agreement with Lithium Africa Resources Corp. ("LARC") dated July 24, 2025 (the "Business Combination Agreement"). Pursuant to the terms of the Business Combination Agreement, the Applicant will acquire LARC by way of a merger of LARC and a wholly-owned subsidiary of the Applicant pursuant to Section 233 of the Companies Act. The transaction contemplated by the Business Combination Agreement will constitute the Applicant's qualifying transaction, as defined in Policy 2.4 of the TSXV (the "Qualifying Transaction"). Upon the closing of the Qualifying Transaction, the Applicant and LARC will ultimately form the resulting issuer (the "Resulting Issuer") that will continue on the business of LARC. It is a condition precedent to the Qualifying Transaction that the Applicant be continued under the Companies Act.
6. The board of directors of the Applicant (the "Board") has submitted that the principal reason for the Continuance is that the amalgamating party, LARC is incorporated in the Cayman Islands, and the Continuance to the Cayman Islands would harmonize the legal and financial infrastructure of the Resulting Issuer. Further, the Board believes that the Continuance complements LARC and the Resulting Issuer's business plan of seeking diverse investment opportunities across many geographies, including emerging markets. As these opportunities may not involve any material connections to Canada and could involve an expansion of the Applicant's activities in scope and geography, the Board believes that the Continuance would provide the Resulting Issuer the flexibility to structure activities outside Canada with the benefit of an international corporate structure, and that being organized under the laws of the Cayman Islands may facilitate the Applicant's access to international financial sources.
7. In connection with the Qualifying Transaction, prior to the Continuance, the Applicant intends: (i) to consolidate its issued and outstanding shares on the basis of 24 pre-consolidation shares of the Applicant for one post-consolidation share of the Applicant (the "Consolidation"); and (ii) effect a name change through an amendment of its articles from "Lombard Street Capital Corp." to "Lithium Africa Corp." (the "Name Change").
8. A summary of the material provisions respecting the Continuance, the Consolidation and the Name Change was provided to the shareholders of the Applicant in the management information circular of the Applicant dated August 26, 2025 (the "Circular") in respect of the Applicant's annual and special meeting of September 30, 2025 (the "Meeting"). The Circular was mailed to shareholders of record at the close of business on September 8, 2025, and was filed on SEDAR+ on September 9, 2025.
9. The Circular included the reasons for the Continuance and its implications. The Circular also disclosed full particulars of the dissent rights of the Applicant's shareholders under section 185 of the OBCA.
10. The Applicant's shareholders authorized the Continuance at the Meeting by a special resolution that was approved by 100% of the votes cast. No shareholder exercised dissent rights pursuant to section 185 of the OBCA.
11. The Applicant is a reporting issuer under the Securities Act (Ontario), R.S.O. 1990, c. S.5, as amended (the "Act") and the securities legislation in British Columbia, Alberta and Quebec (together with the Act, the "Legislation"). Following the Continuance, the Applicant will remain a reporting issuer in Ontario and in each of the other jurisdictions where it is currently a reporting issuer.
12. The Applicant is not in default of any of the provisions of the OBCA or the Legislation, including the regulations made thereunder.
13. The Applicant is not in default of any provisions of the rules, regulations or policies of the TSXV.
14. The Applicant is not subject to any proceeding under the OBCA or the Legislation.
15. The Commission is the principal regulator of the Applicant and will remain the Applicant's principal regulator following the Continuance.
16. The common shares of the Applicant will continue to be listed on the TSXV following the Continuance.
17. The material rights, duties and obligations of a corporation governed by the Companies Act are substantially similar to those of a corporation governed by the OBCA.
18. Upon receipt of the Authorization and receipt of conditional acceptance, as defined in Policy 2.4 of the TSXV, of the Qualifying Transaction, the Applicant will apply to the Registrar of Companies in the Cayman Islands to continue under the Companies Act, with a planned effective date of one business day prior to the completion of the Qualifying Transaction (the "Effective Date").
19. Following the Effective Date, the Resulting Issuer's head office and registered office will be located in Grand Cayman, Cayman Islands, and the Resulting Issuer does not intend to maintain a corporate office in Canada. As such, the Applicant has provided an undertaking (the "Undertaking") to the Commission that it will complete and file an "Issuer Form of Submission to Jurisdiction and Appointment of Agent for Service of Process" in the form of Exhibit "A" thereto (the "Submission to Jurisdiction Form") with the Commission through SEDAR+ promptly following the Effective Date. The Undertaking also provides that the Applicant will maintain and update the information contained in the Submission to Jurisdiction Form, or furnish a new Submission to Jurisdiction Form, in accordance with the provisions contained therein. Following the completion of the Qualifying Transaction, the Undertaking will continue to apply to the Resulting Issuer. The form of Undertaking provided to the Commission is attached as Appendix "A".
20. Subsection 21(b) of the Regulation requires the Application for Continuance to be accompanied by a consent from the Commission.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
THE COMMISSION CONSENTS to the Continuance of the Applicant under the Companies Act.
DATED at Toronto, Ontario this 11th day of November, 2025.
OSC File #: 2025/0554
TO: Ontario Securities Commission
RE: Undertaking of Lombard Capital Street Corp. (the "Corporation") in connection with the continuance of the Corporation from Ontario to the Cayman Islands (the "Continuance")
DATE: November •, 2025
The Corporation undertakes that it will complete and file an "Issuer Form of Submission to Jurisdiction and Appointment of Agent for Service of Process" (the "Form") substantially in the form of Exhibit "A" attached hereto with the Commission through SEDAR+ promptly following the Continuance. The Corporation further undertakes that it will maintain and update the information contained in the Form, or furnish a new Form, in accordance with the provisions contained therein. Following the completion of the qualifying transaction of the Corporation, this undertaking will continue to apply to the resulting issuer, Lithium Africa Corp.
1. Name of issuer (the "Issuer"):
Lithium Africa Corp. (formerly Lombard Street Capital Corp.)
2. Jurisdiction of incorporation of Issuer:
The Cayman Islands
3. Address of principal place of business of Issuer:
Cricket Square, Hutchins Drive, PO Box 2681
Grand Cayman KY1-1111, Cayman Islands
4. Description of securities (the "Securities"):
Common Shares
5. Name of agent (the "Agent"):
McMillan LLP
6. Address for service of process of Agent in Canada:
Brookfield Place, 181 Bay St. Suite 4400, Toronto, ON M5J 2T3
7. The Issuer designates and appoints the Agent at the address of the Agent stated above as its agent upon whom may be served any notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal, penal or other proceeding (the "Proceeding") arising out of, relating to or concerning the obligations of the Issuer as a reporting issuer, and irrevocably waives any right to raise as a defence in any such Proceeding any alleged lack of jurisdiction to bring the Proceeding.
8. The Issuer irrevocably and unconditionally submits to the non-exclusive jurisdiction of
(a) the judicial, quasi-judicial and administrative tribunals of each of the provinces and territories of Canada in which the Securities have been distributed; and
(b) any administrative proceeding in any such province or territory,
in any Proceeding arising out of or related to or concerning the obligations of the Issuer as a reporting issuer.
9. Until six years after it has ceased to be a reporting issuer in any Canadian province or territory, the Issuer will file a new submission to jurisdiction and appointment of agent for service of process in this form at least 30 days before termination of this submission to jurisdiction and appointment of agent for service of process.
10. Until six years after it has ceased to be a reporting issuer in any Canadian province or territory, the Issuer will file an amended submission to jurisdiction and appointment of agent for service of process at least 30 days before any change in the name or above address of the Agent.
11. This submission to jurisdiction and appointment of agent for service of process will be governed by and construed in accordance with the laws of Ontario.
Dated: _________, 2025.
The undersigned accepts the appointment as agent for service of process of Lombard Street Capital Corp. under the terms and conditions of the appointment of agent for service of process stated above.
Dated: ________, 2025.