Shorcan Brokers Limited

Headnote

Application for a ruling pursuant to section 38 of the Commodity Futures Act -- relief from the dealer registration requirement -- Filer is an inter-dealer bond broker seeking to broker trades in futures contracts on fixed income securities which are standardized derivatives traded through the Montreal Exchange -- relief subject to sunset clause.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22, 32, and 38.

National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations, ss. 8.5, 13.2(5) and 13.3(3).

June 12, 2025

IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, c. C.20, AS AMENDED
(the CFA)

AND

IN THE MATTER OF
SHORCAN BROKERS LIMITED
(the Filer)

RULING

Background

The Ontario Securities Commission (OSC) has received an application from the Filer for a ruling under the CFA pursuant to subsection 38(1) of the CFA (the Ruling) exempting the Filer from the derivatives dealer registration requirement of section 22(1) of the CFA in respect of the facilitation of trades in futures contracts on fixed income securities which are standardized derivatives traded through the Montreal Exchange (Contracts) between investment dealers that are registered derivatives dealers under the Derivatives Act (Quebec) (the QDA), or if the dealer has clients in Ontario, as both a derivatives dealer under the QDA and a future commission merchant (FCMs) under the CFA (the Exemption Sought). The Filer has also submitted an application to the Autorité des marchés financiers (AMF) requesting relief similar to the Exemption Sought in this Ruling.

Interpretation

Terms that are defined in the Securities Act (Ontario), and not otherwise defined in this Ruling or in the CFA, shall have the same meaning as in the Securities Act (Ontario), unless the context otherwise requires.

Representations

This Ruling is based on the following representations made by the Filer:

1. The Filer is a company with its headquarters in Toronto, Ontario.

2. The Filer is a wholly owned subsidiary of TMX Group Limited and is registered as an exempt market dealer (EMD) in Alberta, Ontario, Québec and Nova Scotia. The Filer's principal regulator is the Ontario Securities Commission (OSC).

3. The Filer is an inter-dealer bond broker (IDBB) approved by the Canadian Investment Regulatory Organization (CIRO).

4. As an IDBB, the Filer brokers fixed income securities trades (government and corporate bonds) through CIRO registered investment dealers by offering a hybrid voice and electronic brokerage service (the Service) to its customers in a unified Central Limit Order Book (CLOB), pursuant to the Filer's Procedures and Guidelines (the P&G). The P&G set out the obligations of the Filer's customers as principals in the transactions brokered by the Filer, and the responsibilities of the Filer, which acts as the agent for both the buying and selling customers in all trades carried out using the Filer's Service.

5. The Filer provides its customers access to the CLOB through its electronic proprietary trading platform, Shorcan HTX. Customers can view the bond markets, post bid and offer prices, as well as execute trades by speaking to a registered dealing representative or transacting electronically via Shorcan HTX. Quotes are binding until and unless withdrawn, and all quotes are anonymous to the customers.

6. The CLOB matches buyers and sellers while ensuring anonymity, even post trade. Whether via voice or electronic brokering, the Filer charges a fee per transaction for the Service. As per IDBB rules, the Filer takes no principal position at any time for trades completed using Shorcan HTX, and the Filer is never a counterparty to a transaction.

7. The Filer is not in default of any requirements of securities, commodity futures or derivatives legislation in any jurisdiction of Canada.

8. The Filer proposes to extend the Service it offers its customers to include facilitating a financial strategy commonly known as basis trading, to the extent such customers are also approved participants of the Montreal Exchange (MX). Basis trading involves profiting from the price difference between the spot price of an asset (such as a bond) and its futures price (under a futures contract) by taking opposing positions in the spot and futures market.

9. The Filer currently brokers the bond (cash) portion of a basis transaction, and is proposing to broker the Contracts relating to the futures portion of this trading strategy using the same Service in connection with the brokerage of the bond trade. Similar to the bond portion, the Filer will not take a principal position at any time for basis trades on the Contracts, and the Filer will not be a counterparty to a basis transaction on the Contracts.

10. The Filer will only grant access to trade basis transactions on the Contracts to customers that are approved participants of the MX that are trading the relevant bond and are duly registered as required either as derivatives dealers under the QDA, or if the dealer has clients in Ontario, as both a derivatives dealer under the QDA and an FCM under the CFA.

11. To the extent that the Filer has clients outside of Canada that will engage in basis trading through the Filer, the Filer will have documentation that includes disclosure regarding the Contracts, as required per Investment Dealer and Partially Consolidated Rule (IDPC) Rule 7305(7).

12. The Filer will modify its commission schedule, operating policies and procedures manual and daily reporting to include information regarding the Contracts, as required per IDPC Rules 7305(8)-(10).

Ruling

The OSC is satisfied that it would not be prejudicial to the public interest to make the Ruling. It is ruled that Exemption Sought is granted provided that, and for so long as:

A. The subject matter of the trades on Contracts is futures on the fixed income securities the Filer already brokers.

B. The trades on Contracts are made on the MX.

C. The Filer will only broker the trades on Contracts between dealers that are each

a. registered as

i. a derivatives dealer under the QDA, and

ii. if the dealer has clients in Ontario, both a derivatives dealer under the QDA and an FCM under the CFA; and

b. an approved participant of the MX.

D. The Filer will never be a counterparty, and hence will never take a principal position, to a basis trade on the Contracts.

E. The Filer will maintain its registration as an EMD in each jurisdiction of Canada where it is required and its approval as an IDBB, in each case in good standing.

F. The Filer will notify the OSC promptly of:

a. any restrictions or conditions placed on its registration as an EMD with a securities regulatory authority or regulator in any jurisdiction of Canada or on its approval as an IDBB by CIRO; and

b. any sanctions imposed on it in connection with its activities as a EMD or IDBB

under a settlement agreement entered into with, pursuant to an order issued by, or otherwise required by a securities regulatory authority or regulator in any jurisdiction of Canada or CIRO.

G. This Ruling will expire on June 12, 2030.

For the Ontario Securities Commission: