Securities Law

BCN 2003/46 - Direct Access for BC registered dealers to The NASDAQ Stock Market, Inc. [BCN - Rescinded]

Published Date: 2003-11-12
Effective Date: 2003-11-12

The Commission has decided to give investment dealers direct access from British Columbia to the trading facilities of The NASDAQ Stock Market, Inc. (NASDAQ US). This includes its NASDAQ Stock Market and SmallCap markets and Over-the-Counter Bulletin Board quotation service.

Background and purpose
Canadian dealers currently transmit orders to NASDAQ US indirectly through intermediaries - electronic communications networks, their own US-based broker-dealer affiliates or other US broker-dealers - which in turn transmit them directly to NASDAQ US. Through these arrangements, Canadian dealers have indirect access to NASDAQ US’s execution facilities. It is impractical for Canadian dealers to register in the US, and gain direct access to NASDAQ, because of incompatible regulatory and self-regulatory requirements.

On June 20, 2003, the Commission published for comment a proposal presented by NASDAQ Canada Inc. (NASDAQ Canada) and NASDAQ US to allow registered BC dealers more direct access to NASDAQ US’s trading facilities. Specifically, a BC dealer would be permitted to have an affiliate in BC, through which orders could be transmitted directly to NASDAQ US. The affiliate would be registered as a broker-dealer in the US and a member of the National Association of Securities Dealers and would be exempt from registration in BC. We received 12 comment letters on the proposal, which we have now had an opportunity to consider.

Changes based on comments received
Based on the comments received, the Commission has made three significant changes from the proposal as published in June.

1. Clients of the NASD affiliate
As originally published, the proposal would have allowed the NASD affiliate to deal directly with accredited investors. Some commenters raised concerns about this possibility and, on further consideration, we concluded that it would create regulatory risks and provide few benefits. Under the policy adopted by the Commission, the only clients the NASD affiliate can have in British Columbia are registered investment dealers in British Columbia (either their related dealer or another dealer).

2. Exemption from recognition as an exchange
Under section 25 of the Securities Act, a person must not carry on business as an exchange in British Columbia unless it is recognized as an exchange. When we published the proposal, we considered that, as neither NASDAQ Canada nor NASDAQ US would have any physical presence in BC, they would not be carrying on business as an exchange in British Columbia. Upon further consideration, the Commission has decided to exempt NASDAQ US from recognition as an exchange in British Columbia and from certain requirements of National Instrument 21-101 Marketplace Operation and National Instrument 23-101 Trading Rules.

An issuer whose securities are listed or quoted on NASDAQ US, (and is not otherwise a reporting issuer), will not become a reporting issuer in British Columbia solely as a result of that listing or quotation.

3. Registration exemption for NASD affiliates
In the June proposal, the Commission contemplated providing blanket relief from the registration requirement for NASD affiliates, subject to certain conditions. However, to provide flexibility to deal with the varying circumstances of BC dealers, the Commission now proposes to grant relief individually to registrants who apply for it. This is discussed in more detail below.

Discretionary exemption for NASD affiliates of B.C. dealers
To trade directly through NASDAQ US, a participant must be a member of the NASD. A dealer that is registered in British Columbia and is a member of the IDA (a BC dealer) may establish a NASD affiliate co-located with a BC office of the BC dealer and use dually-engaged employees. The BC dealer and the NASD affiliate must apply for an exemption from the registration requirement for the NASD affiliate.

While each application will be considered on its own merits, the exemption would likely be subject to some or all of these conditions:

(a) the NASD affiliate is affiliated with the BC dealer,
(b) the NASD affiliate complies with the registration and other requirements of the applicable securities legislation in the United States, including applicable NASD requirements,
(c) the NASD affiliate does not have any clients in British Columbia other than the BC dealer or other investment dealers registered in British Columbia,
(d) the NASD affiliate trades securities only through markets in the United States,
(e) the NASD affiliate consents to jurisdiction in any action or proceeding before any court or securities regulatory authority in British Columbia, and agrees to provide access to and inspection rights to the Commission, and
(f) before the first trade by a client that is executed through the NASD affiliate, the BC dealer provides to that client information relating to the client’s rights and remedies and advises that the NASD affiliate is regulated by the NASD and the U.S. Securities and Exchange Commission, rather than the Commission.

Questions
You may refer questions to:

L.E. Evans, C.A.,
Director
Capital Markets Regulation
British Columbia Securities Commission
(604) 899-6620 or (800) 373-6393 (in BC and Alberta)
e-mail: levans@bcsc.bc.ca

or

Denise Duifhuis
Senior Legal Counsel
Legal and Market Initiatives
British Columbia Securities Commission
(604) 899-6792 or (800) 373-6393 (in BC and Alberta)
e-mail: dduifhuis@bcsc.bc.ca

November 12, 2003

 


Brent W. Aitken
Vice Chair


This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.

 

 

 
2003 BCSECCOM 744

 

Headnote
Exemption from recognition as an exchange for NASDAQ US and the NASD - relief from some requirements of NI 21-101 and NI 23-101


Exemption Order

The NASDAQ Stock Market, Inc. (NASDAQ US)
and NASDAQ Canada Inc. (NASDAQ Canada)

Section 33(1) of the Securities Act, R.S.B.C. 1996, c. 418, Section 15.1 of National Instrument 21-101 Marketplace Operation and
Section 12.1 of National Instrument 23-101 Trading Rules

Background
¶ 1 NASDAQ US and NASDAQ Canada applied for an exemption from the requirement to be recognized as an exchange in section 25 of the Act (the recognition requirement) and from some requirements of National Instrument 21-101 Marketplace Operation (NI 21-101) and National Instrument 23-101 Trading Rules (NI 23-101).

Representations
¶ 2 NASDAQ US and NASDAQ Canada represent that:
1. The National Association of Securities Dealers, Inc. (NASD) is the parent company of NASDAQ US and is a registered securities association under section 15A of the United States Securities Exchange Act of 1934;
2. the NASD is also the parent company of NASD Regulation, Inc. (NASDR);
3. NASDR provides regulation services to NASDAQ US;
4. NASDAQ US is a corporation incorporated under the law of Delaware and operates under a Plan of Allocation and Delegation of Functions by the NASD to its subsidiaries, as approved by the United States Securities and Exchange Commission (SEC);
5. under the Plan of Allocation and Delegation of Functions, the NASD has delegated certain authority and functions to NASDAQ US;
6. NASDAQ US actions taken under the delegated authority remain subject to review, ratification or rejection by the NASD board;
7. NASDAQ US is a registered securities information processor under United States securities law and has applied to the SEC to become a national securities exchange in the United States;
8. NASDAQ Canada is a corporation incorporated under the Canada Business Corporations Act and is a subsidiary of NASDAQ US with no independent trading or marketplace operations;
9. NASDAQ US is subject to NI 21-101 and NI 23-101;
10. the United States securities regulatory structure to which the NASD and NASDAQ US are subject is consistent with IOSCO principles.

Order
¶ 3 Because it is not prejudicial to the public interest, the Commission orders:

1. under section 33(1) of the Act, NASDAQ US and the NASD are exempt from the recognition requirement;

2. under section 15.1 of NI 21-101, NASDAQ US and the NASD are exempt from sections 11.2, 11.3, 11.4 and 11.5 and from Parts 7 and 12 of NI 21-101; and

3. under section 12.1 of NI 23-101, NASDAQ US and the NASD are exempt from Parts 5 and 6 of NI 23-101,

provided that NASDAQ US and NASDAQ Canada comply with the applicable terms and conditions set out in Schedule A.

¶ 4 November 12, 2003

Brent W. Aitken
Vice Chair

 


Schedule A

Terms and Conditions

General
1. NASDAQ US is subject to the oversight of the SEC and complies with all applicable US securities regulatory requirements.
2. NASDAQ US attorns to the jurisdiction of the Commission.
3. Without the Commission’s prior consent, neither NASDAQ US nor NASDAQ Canada will trade Canadian securities in Canadian dollars.
4. NASDAQ US will advise the Commission if it or NASDAQ Canada intends to have an office in British Columbia.

Filing requirements
5. Within 10 days after the end of each quarter, NASDAQ US or NASDAQ Canada will file with the Commission a list of any NASD affiliate of an investment dealer registered in BC (BC NASD member):
(a) against whom public disciplinary action has been taken; or
(b) who has been denied access by NASDAQ US in that quarter.

Access
6. NASDAQ US will not provide access to BC NASD members unless they are registered or exempted from registration under the Act.

7. On request from the Commission, NASDAQ US will advise the Commission and Market Regulation Services Inc. (RS) of its reasons for differences in actions taken by it and RS relating to the interruption of trading of securities that are both listed on an exchange in Canada and quoted on a NASDAQ US marketplace.

8. NASDAQ US and NASDAQ Canada provide the Commission, when requested, with information about:
(a) any bylaw, rule or other regulatory instrument or policy, or direction, decision, order or ruling made under a bylaw, rule or other regulatory instrument or policy of NASDAQ US, NASDAQ Canada or the NASD;
(b) the procedures or practices of NASDAQ US or NASDAQ Canada;
(c) the manner in which NASDAQ US carries on business;
(d) the trading of securities on or through NASDAQ US; and
(e) issuers, whose securities are listed or quoted on NASDAQ US.