Dealer Conflict of Interest Policies and Procedures
Coinsquare Capital Markets Ltd.
Table of Contents
- Policy Purpose 4
- Introduction 4
- Regulatory Background 4
- Conflict Identification and Management 5
- Identifying conflicts 5
- Disclosure 5
- Ownership 6
- Physical and digital access separation 6
- No referral arrangements 7
- Affiliate support services 7
- Confidentiality procedures 7
- Coinsquare Dealer trading for its own account 7
- Coinsquare Dealer trading for clients 7
- Supervision, Finance and Compliance Oversight 8
- Whistleblower Committee 9
- Personal dealings 9
- Gifts & Entertainment 10
- Availability of the Coinsquare Dealer Conflict of Interest Policies and Procedures 10
1. Policy Purpose
The purpose of this policy (the “Conflicts Policy”) is to inform clients and regulators alike as to how Coinsquare Capital Markets Ltd. (“CCML”) identifies and addresses potential conflicts of interest with respect to the Investment Industry Regulatory Organization of Canada (“IIROC”) dealer member that it operates.
CCML is a dealer member of IIROC and also operates a marketplace that is an ATS. CCML is wholly owned by Coinsquare Ltd. (“Coinsquare”). As an IIROC member that operates as both a dealer (“Coinsquare Dealer”) and an ATS (“Coinsquare ATS”), CCML offers its dealer clients and ATS subscribers the ability to trade digital assets such as Bitcoin, Ether, and others (“Digital Assets”) that are purchased through a securities trading account whereby the accountholder does not hold the Digital Asset directly, but rather, has a contractual entitlement to receive such Digital Assets from the operator of the ATS.
Coinsquare also has a partial ownership interest in Tetra Trust Company (“Tetra”), which provides custody services to the Coinsquare Dealer by virtue of a custody services agreement, and Coinsquare itself is partially owned by Mogo Inc. (“Mogo”), a publicly traded company that owns and operates other Canadian (non-digital asset) securities dealers, which may direct order flow to the Coinsquare Dealer.
As both a dealer member and marketplace member of IIROC, and given CCML’s corporate affiliation and commercial relationships with Tetra and Mogo, CCML is aware of, and recognizes the potential for actual or perceived conflicts of interest, and the potential negative effects of such conflicts on clients, and more generally, industry confidence. As such, in accordance with prudent business practices and applicable regulatory requirements, this document serves to identify potential and perceived conflicts of interest that may arise, and sets out policies and procedures for managing and/or avoiding such conflicts in the best interests of CCML’s clients.
3. Regulatory Background
IIROC Rule 3114 requires IIROC Dealer Members to adopt and maintain policies and procedures that specifically address identifying, avoiding, or otherwise addressing existing material conflicts of interest situations. In particular, the Coinsquare Dealer must address any existing or potential material conflict of interest in a fair, equitable and transparent manner, and considering the best interests of the client or clients. Any existing or potential material conflict of interest between the Coinsquare Dealer and its client(s) that cannot be addressed in a fair, equitable and transparent manner, and considering the best interests of the client or clients, must be avoided. The Coinsquare Dealer must adequately supervise how existing or potential material conflicts of interest between the Approved Person and the client are addressed by its Approved Persons
All Coinsquare personnel, including the members of the Board of Directors, must disclose any outside activities to Compliance using the relevant Google Form. If the individual is registered, Compliance will make the appropriate filing to IIROC on NRD. Individuals are required to consider and address any existing or potential material conflicts of interest between the individual and Coinsquare and between the individual and Coinsquare’s client(s). If the issue cannot be addressed via written client consent or disclosure, the outside activity will be denied and must be avoided or discontinued.
CCML recognizes that carrying on a marketplace and a dealer business as divisions of the same corporate entity may be a source of confusion and perceived conflict and has addressed those conflicts through disclosure by CCML to its clients and through segregation of ATS personnel and trading information from client-facing dealer personnel. Another potential source of conflict is that CCML outsources key services from Coinsquare, including to corporate affiliates, such as Tetra for cold wallet storage and custody of Digital Assets. Conflict-related risks are mitigated by the fact that the ultimate service providers, including Tetra, operate at arm’s length to Coinsquare under written contracts that satisfy CCML’s outsourcing policies.
However, CCML employees, officers, and/or directors who sit on the board of Tetra must specifically address in writing how they will address potential conflicts when a utility like Tetra will be providing services for competitors of CCML. Likewise, when CCML is deciding which cold storage facility to use, Tetra may be considered among other reasonable alternatives, but should not be the exclusive provider.
CCML recognizes that conflicts may arise as the result of future business developments and/or regulatory changes. Consequently, this Conflicts Policy may be amended from time to time to address such changes.
4. Conflict Identification and Management
The Coinsquare Dealer treats the management of all potential conflicts of interest seriously. The Coinsquare Dealer, therefore, operates its investment dealer with an eye to maintaining a robust level of integrity. To do so, the Coinsquare Dealer operates its services in a fair, orderly and transparent manner, addressing the following principles discussed in greater detail below:
- Identifying Conflicts
- Disclosure of Conflicts of Interest
- Avoiding or Addressing Conflicts of Interest in the Best Interests of Clients
- Ownership: Coinsquare
- Distinguishing Commercial Activity from Supervisory, Finance & Compliance Oversight
- Personal Dealings: Personal Trading, Outside Activities, Gifts & Entertainment
a. Identifying conflicts
Paramount in addressing conflicts of interest is proper identification of situations which may create conflicts. As a starting point, employees are advised to refer to the Coinsquare Dealer’s internal Code of Business Conduct and Ethics . CCML reviews potential conflicts of interest regularly, and at least annually, as part of the annual Compliance report to the Board of Directors.
At a minimum, whenever a new business line or relationship is considered, and whenever a senior officer’s participation on the board of, or as a senior officer of, another corporate entity creates any new potential, actual, or perceived conflict, the CCML Ultimate Designated Person (“UDP”) shall consider whether or not there is any actual material conflict of interest with CCML, any of its business units, affiliates, or clients. CCML’s Compliance department shall maintain a registry of all possible conflicts, and note how they were addressed, either by disclosure, avoidance, or otherwise and, as applicable, every activity outside of CCML by a CCML officer or employee shall be disclosed to, and supervised by CCML’s Compliance department in accordance with the procedures described in the Outside Activities – Desk Procedure ; and with respect to directors specifically, additional procedures shall apply in accordance with the Board of Directors Conflict of Interest Policy .
Unless avoided, an existing or potential material conflict of interest must be disclosed to the client in all cases where a reasonable client would expect to be informed:
- for new clients, prior to opening an account for the client; and
- for existing clients, either as the conflict of interest occurs or, in the case of a transaction related conflict of interest, prior to entering into the transaction with the client.
- CCML will also disclose on the CCML website any applicable conflicts in the CCML Relationship Disclosure Document.
As noted above, the Coinsquare Dealer is wholly owned by Coinsquare Ltd. However, the board of directors of CCML (the “ Board ”) shall meet the following terms and conditions at all times, unless staff of the relevant provincial securities regulatory authority (or authorities, as the case may be) expressly permit an alternative:
- the Board shall be comprised of more than 50% independent directors;
- the Chair of the Board shall be an independent director;
- the quorum for the Board shall consist of a majority of the Board members, with at least 50% of the majority being independent directors;
- for greater certainty, an individual is an independent director if the individual is “independent” within the meaning of section 1.4 of National Instrument 52-110 Audit Committees , as amended from time to time, but is not independent if the individual:
- is a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or CCML, or a partner, officer or employee of Coinsquare or CCML or an associate of that shareholder, partner, officer or employee,
- is a shareholder, partner, officer, director or employee of an affiliated entity of Coinsquare or CCML or an associate of that shareholder, partner, officer, director or employee,
- is a shareholder, partner, officer, director or employee of a person or company that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or CCML,
- is a client or subscriber of CCML, or is a shareholder, partner, officer, director or employee of a client or subscriber of CCML who is responsible for or is actively engaged in the day-to-day operations or activities of that CCML client or subscriber
- is a director that was nominated, and as a result appointed or elected, by a founding shareholder or launch shareholder, or
- has, or has had, any relationship with a shareholder that owns or controls, directly or indirectly, more than 5% of the shares of Coinsquare or CCML that could, in the view of the Board, having regard to all relevant circumstances, be reasonably perceived to interfere with the exercise of his or her independent judgment as a director of CCML.
d. Physical and digital access separation
The Coinsquare Dealer maintains office premises that are physically separated from those of Tetra, Mogo, and other Coinsquare corporate affiliates. In addition, the Coinsquare Dealer and Coinsquare ATS maintain physically separated and secured systems and storage areas that are used to house and maintain client-related records, including, but not limited to order- and trade-data. These measures ensure that:(1) Coinsquare Dealer personnel responsible for CCML Dealer’s automated principal orders never have access to counterparty order or trade information, including in particular, information relating to retail client order flow reaching the Coinsquare ATS through Coinsquare Dealer; (2) all principal orders are priced independently of client orders; and (3) principal orders are not executed with any intent to take advantage of mispricing on the Coinsquare ATS.
System access controls ensure that only select Coinsquare Dealer technology personnel, as well as the Chief Financial Officer (“ CFO ”) and Chief Compliance Officer (“ CCO ”) and their delegates, have access to client information. In particular, client information is not shared with any affiliate or third-party service provider of the Coinsquare Dealer, including Tetra and Mogo, except to the extent required for the affiliate or third-party service provider to carry out any key service or system that the Coinsquare Dealer has outsourced to it, in accordance with applicable laws and regulations, as well as with the confidentiality procedures referred to in paragraph (f) below.
e. No referral arrangements
Coinsquare ATS and Coinsquare Dealer do not engage with each other in referral arrangements, as defined in National Instrument 31-103 (“ NI 31-103 ”) section 13.7 or elsewhere.
f. Affiliate support services
The Coinsquare Dealer may allow key members of personnel, including senior officers, to act in dual roles for the Coinsquare ATS, Coinsquare (the parent), and other affiliates, relating to human resources, legal, and administrative matters, pursuant to inter-company shared services arrangements. With the exception of information required to carry out such support services, Coinsquare Dealer management and personnel do not have access to Coinsquare ATS’s data.
g. Confidentiality procedures
All employees of the Coinsquare Dealer are required to follow the confidentiality procedures set out in CCML’s written policies and procedures.
h. Coinsquare Dealer trading for its own account
Coinsquare Dealer, as an IIROC dealer member firm, is subject to compliance examinations by IIROC, and must abide by principal trading requirements, which includes disclosure to clients that the Coinsquare Dealer may from time to time trade its own accounts as principal and that all orders and trades will be marked as principal trades.
In addition, Coinsquare Dealer may submit orders as principal to Coinsquare ATS in order to provide liquidity on the marketplace; however, any potential conflict is addressed through the automation of such principal orders and through physically separated and secured systems and storage areas that ensure that Coinsquare Dealer personnel responsible for such automated principal orders never have access to counterparty order or trade information, including in particular, information relating to retail client order flow reaching the Coinsquare ATS through Coinsquare Dealer.
i. Coinsquare Dealer trading for clients
Coinsquare Dealer, as an IIROC dealer member firm, is subject to compliance examinations by IIROC, and must abide by client/principal trading requirements, which includes giving clients priority over principal trades, unless the client has given specific consent to trade alongside the principal order, in accordance with paragraph 2(c) of UMIR 2.1.
j. Supervision, Finance and Compliance Oversight
In order to preserve proper controls and oversight, including the mitigation and management of any conflicts of interest with the Coinsquare Dealer affiliates or third-party outsourced service providers, the Coinsquare Dealer has appropriate levels of supervision and oversight by means of a Supervisor, a CCO, a CFO, and an UDP, all of whom must be approved by IIROC and, if applicable, registered with the appropriate provincial securities regulatory authority in their respective categories, consistent with IIROC Rules and NI 31-103. The Coinsquare Dealer makes a clear distinction between supervision by and within the trading side, and compliance oversight by personnel outside the trading side of the firm.
The Supervisor is a trading business supervisor engaged in the daily flow of trading who has the means and authority to supervise the trading and other activities of personnel of the Coinsquare Dealer from a regulatory perspective. The Supervisor reports directly to the Chief Executive Officer (“ CEO ”).
The UDP is CCML’s CEO (both for Coinsquare ATS and Coinsquare Dealer) and has ultimate control and responsibility to ensure, in particular, that the Coinsquare Dealer operates in accordance with good governance principles, including confidentiality of information, managing conflicts of interest, and upholding relevant laws, regulations, and rules inside the Coinsquare Dealer (and the Coinsquare ATS).
The CCO must ensure compliance with IIROC Rules, as well as applicable provincial securities legislation. The CCO reports directly to the UDP on an ongoing basis and provides a compliance report to the UDP and the Board of CCML at least annually.
The CCO for Coinsquare ATS is also the CCO for the Coinsquare Dealer, which is consistent with section 5.2 of the Companion Policy to National Instrument 31-103 (“ 31-103CP ”). This is fully disclosed to, and approved by, both IIROC and the OSC in the National Registration Database (“ NRD ”).
The CFO is charged with ensuring proper financial controls and oversight, and oversees the business with independence. The CFO must ensure compliance with IIROC financial requirements, as well as applicable legislation. The CFO reports directly to the UDP and reports all appropriate financial issues directly to the UDP and the Board of CCML.
The CFO of Coinsquare ATS is also the CFO for Coinsquare Dealer, which is consistent with section 5.2 of 31-103CP, and this is fully disclosed to, and approved by, both IIROC and the OSC in the NRD.
k. Whistleblower Committee
The Coinsquare Dealer has created and shall permanently maintain a “whistleblower” program that contains reporting channels that are independent, broadly communicated and accessible to all employees and officers of the company (the “ Internal Whistleblower Program ”).
The Internal Whistleblower Program meets the following terms and conditions, failing which CCML shall immediately advise the Ontario Securities Commission and take appropriate measures to promptly remedy such failure:
- it reports directly to an independent committee of the Board (the “ Independent Board Committee ”),
- it includes protections from reprisal and mechanisms for anonymous reporting;
- the Independent Board Committee exercises oversight of the Internal Whistleblower Program and ensures that information being submitted is properly investigated and resolved, and
- the Independent Board Committee ensures that information received from the Internal Whistleblower Program is reported to the relevant provincial securities regulatory authority (or authorities, as the case may be), a recognized self-regulatory organization, or a law enforcement agency where appropriate or otherwise required by law.
Additional policies and procedures relating to the Independent Whistleblower Program are set out in a separate policy document (the Whistleblower Policies and Procedures ).
l. Personal dealings
Employees of the Coinsquare Dealer are required to disclose and receive approval from the Supervisor for their personal trading, which may have the potential for a conflict of interest. This ensures that all personal trading which may pose a potential conflict of interest are identified and addressed or avoided. The Coinsquare Dealer will take reasonable steps to resolve the conflict either by denying approval for the activity, or properly mitigating the potential conflict. The Coinsquare Dealer leverages an internal compliance system to register and address potential conflicts of interest. This includes:
(i) Supervision of personal trading
All personal trading by employees of the Coinsquare Dealer must be disclosed to and pre-cleared by the CCO, in accordance with the Employee Trading Policy .
(ii) Outside Activities
Outside Activities (“ OAs ”) include any employment, directorship, charity, or other activity by a registered Coinsquare Dealer employee, independent contractor, officer, or director (board member) (each, a “Registered Person”), whether or not remunerated, including with regard to Tetra, Mogo, or any other Coinsquare corporate affiliate. Some OAs involve a potential interaction with a client, which may give rise to an actual or perceived conflict, and in those cases, such OAs are generally prohibited. Some OAs, however, are permitted if they are separate from the Coinsquare Dealer and/or client activity and done outside of the Coinsquare Dealer’s hours of operation and premises.
In accordance with the Outside Activities – Desk Procedure , all OAs must be disclosed by a Registered Person to the CCO in the manner prescribed by the Outside Activities – Desk Procedure ,which shall be delivered by the completion and submission of the OA Google Form, the content of which shall be sent to compliance via the Google Form submission which shall populate the Google Sheet.
Compliance shall review and, where appropriate, ensure that appropriate approval (or denial) of the OA is granted, and that the OA is adequately documented on the Google Sheet. If necessary, the material conflict would be disclosed to clients on the CCML website in the Relationship Disclosure Document.
m. Gifts & Entertainment
Entertainment of, or by subscribers of the Coinsquare Dealer must not be excessive or be seen to unduly influence any parties. Gifts received or given must be disclosed to the CCO via the Google Form to ensure they are only nominal in value and frequency. On an annual basis, no one person should receive more than CAD $800 in gifts. Additional policies and procedures concerning gifts and entertainment are set out in other CCML policies and procedures. Any questions about this Gifts & Entertainment policy should be directed to the CCO.
5. Availability of the Coinsquare Dealer Conflict of Interest Policies and Procedures
This document is available to all employees and officers of the Coinsquare Dealer. This policy is also available to the public on the CCML website: www.coinsquare.com .
For any inquiries, please contact the CCO of the Coinsquare Dealer.