Ontario’s securities regulator says Thomson Reuters has failed to provide enough information to prove that a major foreign exchange trading platform used by Canadian banks complies with provincial trading regulations.
Early last week, the Ontario Securities Commission (OSC) warned Thomson Reuters the firm could be forced to revoke Canadian banks’ access to its Multilateral Trading Facility (MTF), an electronic trading platform that matches buyers and sellers of foreign exchange derivatives. The MTF facilitates about US$300-billion in daily trading.
That caused consternation among Canada’s largest banks, which were caught off guard by the prospect of losing access to such a prominent platform. The MTF serves as a key channel for trading forward contracts and other derivatives in European currency markets, giving banks and their clients much-needed liquidity. Other trading venues are available, but banks could expect to lose out on trading revenue should they be shut out of the Thomson Reuters system.
As of Monday, Canadian banks still had access to trade normally on the Thomson Reuters MTF. But the OSC has been seeking information from Thomson Reuters for months to determine whether the MTF meets requirements set out in a rule known as National Instrument 21-101. The regulation governs alternative trading systems that act as marketplaces, matching buyers and sellers. Typically, the regulator seeks to understand how those trades are constructed to ensure the marketplace acts fairly.
To allow Canadian financial institutions to carry out trading in Europe on its platform, the Thomson Reuters MTF must either be regulated as a marketplace, or be granted a specific exemption.
“To date, we have not received sufficient information from Thomson Reuters,” OSC spokesperson Kristen Rose said in an e-mail, although she declined to say whether the regulator has set a deadline by which Thomson Reuters must provide more details.
“As we had advised the company several months ago, if we receive sufficient information supporting the necessity for access to their platform, we are prepared to consider an exemption that would allow them to continue to operate,” Ms. Rose said.
A spokesperson for Thomson Reuters declined to comment on Monday. But talks with the OSC are continuing, after the company confirmed “active discussions” with the regulator on Sunday in an effort to maintain its customers’ access to the market.
The Woodbridge Co. Ltd., the holding company for Canada’s Thomson family and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
In early January, Thomson Reuters was required to convert its existing FXall electronic trading platform into an MTF – a multilateral system that connects third-party buyers and sellers of financial instruments. The change was made to comply with sweeping new European rules governing financial markets, known as the Markets in Financial Instruments Directive II, or MiFID II.
The next day, on Jan. 4, the Canadian Securities Administrators published a notice cautioning trading venues that allow Canadian customers to trade on their platforms, including MTFs, that they should start discussions to ensure they were complying with provincial securities laws.
Canada’s largest banks have declined to comment on the issue between the OSC and Thomson Reuters, but have jointly retained a lawyer specializing in derivatives to represent them in the matter.
The Thomson Reuters MTF is offered through the firm’s financial and risk division, which is being spun out from the company as a separate entity after the company struck a US$17-billion deal with Blackstone Group LP to form a joint venture. The deal is expected to close before the end of the year, subject to regulatory approvals.