As we discussed in our October 2018 article about the foreign dealer eToro (Europe) Ltd, Ontario Securities Commission (OSC) staff consider contracts for differences (CFDs) to be securities, so that offering CFDs to Ontario investors involves a “trade” and a “distribution” of a security. On July 25, the OSC approved settlements with two other foreign firms, Ava Trade Ltd. (Ava Trade) and International Capital Markets Pty Ltd. (IC Markets). Both firms operated online, CFD trading platforms that were accessed by Ontario investors for several years. In aggregate, the two firms agreed to pay more than $10 million to settle the enforcement actions.
In both cases, the alleged breaches of the registration and prospectus requirements appear to have resulted from some degree of inadvertent behavior and staff found no evidence of dishonest conduct. However, IC Markets was able to negotiate a no-contest settlement, meaning that it did not have to admit the truth of staff’s allegations. By contrast, the settlement with Ava Trade involved an acknowledgement that it had breached the registration and prospectus requirements. Given the similarities in the firms’ operations, the different enforcement outcomes provide some useful lessons on how a firm that breaches Ontario securities law can dig itself out of a deep hole. Two significant differences in the firms’ responses are as follows:
- Lost in the mail? Ava Trade did not respond to a 2014 letter from OSC staff inquiring about the firm’s potential breaches of securities laws and said that it wasn’t aware that the OSC had placed the firm on its Investor Warning List soon afterward.Staff reinitiated contact with Ava Trade in January 2018, but it wasn’t until August 2018 that the firm advised staff that it had no record of receiving correspondence from the OSC in 2014 and that it hadn’t known about the Investor Alert because it didn’t monitor the OSC’s website. (Prior to January 2018, however, it had already initiated a process to transfer Canadian clients to a Canadian investment dealer, which suggests that Ava Trade might have known before 2018 that its operations could be contravening Ontario securities laws.)
- Above and beyond:IC Markets responded very differently when OSC staff first informed the company that it might be conducting registrable activity in Ontario. The firm "immediately advised” that it was prepared to cease doing business in Ontario and pro-actively began taking steps to do so.It also pro-actively suggested several actions and followed through. For example, it volunteered to provide documents within a self-imposed, two week deadline, and it offered to put a notice on its website and a pop-up notice in its online account opening form indicating that it would not accept Ontario residents. It also advised OSC staff that it would retain external counsel to develop a comprehensive remediation plan, had senior officers personally address staff concerns, and responded to all additional requests for information in a timely manner. At one point, it took the initiative to retain an accounting firm to provide a "clear and fulsome” response to staff’s query about a component of IC Markets’ revenue. The information in the report "was beyond the scope of what Staff had requested and provided Staff with comfort regarding IC Markets’ representations.”