Two subsidiaries of Bloomberg LP have agreed to pay $3.1-million in penalties to settle allegations they allowed Canadian institutional investors to make more than $230-billion in fixed-income trades without the proper authorization.
Bloomberg Trading Facility Ltd., which is based in Britain and operates an electronic platform for buying and selling financial instruments, had been permitted in 2017 by the Ontario Securities Commission to allow Ontario users to trade, on the condition that such trading was limited to swaps, and not in fixed-income securities.
But in October, 2018, Bloomberg discovered a gap in the company’s technological controls that had allowed traders physically located in Ontario to engage in sell-side fixed-income trading and alerted the Ontario regulator, an OSC panel heard on Friday. In total, the platform had facilitated $228-billion in fixed-income trades.
Bloomberg Trading Facility BV, another Bloomberg subsidiary based in the Netherlands, also allowed $4.4-billion in fixed-income trades by Ontario users from 2019 until this year, the panel heard. The OSC found that both companies had “onboarded” Ontario clients before they had received any authorization from the commission to do so – facts that were omitted from their disclosures to the regulator.
As part of its settlement, the companies agreed to pay back $663,305.20 in fees generated by the trades, as well as pay a penalty of $2.5-million. The settlement agreement emphasizes that, although neither Bloomberg company is domiciled in Ontario, they needed to obtain authorization before permitting Ontario users to trade.
The settlement states that foreign trading platforms such as those offered by Bloomberg “must provide candid, accurate and complete information” when they apply for permission to host Ontario traders.
Bloomberg co-operated with the OSC and launched an internal investigation when the improper trading was brought to its attention, the settlement agreement states. The company provided numerous records, including witness interviews, as well as the conclusion of its internal probe. That investigation found “no evidence of dishonest conduct or any intention to deceive,” the agreement states.
The probe also found “no evidence of any intention to withhold information” from the OSC that was required to be provided, Lawrence Ritchie, a lawyer for Bloomberg, told the commission.
The settlement agreement allows both companies to apply for new orders that will allow their Ontario-based clients to trade in both swaps as well as fixed-income securities. The OSC cited the important role that the platforms play in providing liquidity to Ontario users, and the potential disruption to the capital markets if such trading activity was interrupted.
In a statement, Ty Trippet, a spokesperson for Bloomberg said: “Bloomberg is pleased to have resolved this matter with the OSC and we look forward to continuing a close working relationship as we grow our product offerings in Ontario.”
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Greg McArthur