Document ID: SEC-2014-2195-0001
Agency: sec
Document Type: Notice
Title: Applications; Temporary Orders: Royal Bank of Canada, et al.
Posted Date: 2014-12-30T05:00Z

[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Notices]
[Pages 78519-78522]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30225]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31388; File No. 812-14403]

Royal Bank of Canada, et al.; Notice of Application and Temporary 
Order

December 19, 2014.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Temporary order and notice of application for a permanent 
order under section 9(c) of the Investment Company Act of 1940 
(``Act'').

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SUMMARY OF APPLICATION: Applicants have received a temporary order 
(``Temporary Order'') exempting them from section 9(a) of the Act, with 
respect to an injunction entered against Royal Bank of Canada (``RBC'') 
on December 18, 2014 by the United States District Court for the 
Southern District of New York (``Court''), in connection with a consent 
order between RBC and the United States Commodity Futures Trading 
Commission (``CFTC''), until the Commission takes final action on an 
application for a permanent order (the ``Permanent Order,'' and with 
the Temporary Order, the ``Orders''). Applicants also have applied for 
a Permanent Order.

APPLICANTS: RBC, RBC Europe Limited (``RBC EL''), RBC Capital Markets 
Arbitrage, S.A. (``CMA''), RBC Global Asset Management (U.S.) Inc. 
(``GAM US''), BlueBay Asset Management LLP (``BlueBay LLP''), BlueBay 
Asset Management USA LLC (``BlueBay USA''), and RBC Global Asset 
Management (UK) Limited (``GAM UK'') (each an ``Applicant'' and 
collectively, the ``Applicants'').

DATES: Filing Date: The application was filed on December 19, 2014.

[[Page 78520]]

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on January 12, 2015, and should be accompanied by proof of service 
on Applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: RBC: 200 Bay Street, 
Toronto, Ontario, Canada M5J 2J5, GAM US, 50 South 6th Street, 
Minneapolis, MN 55402, BlueBay LLP, 77 Grosvenor Street, London W1K 3JR 
United Kingdom, BBAM USA, 4 Stamford Plaza, 107 Elm Street, Suite 512, 
Stamford, CT 06902, GAM UK and RBC EL, Riverbank House, 2 Swan Lane, 
London EC4R 3BF United Kingdom, and CMA, 16 Rue Notre Dame, Luxembourg, 
2240, Luxembourg.

FOR FURTHER INFORMATION CONTACT:  Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Melissa R. Harke, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a temporary order and a 
summary of the application. The complete application may be obtained 
via the Commission's Web site by searching for the file number, or an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. RBC is a Canadian-chartered bank and a Canada-based global 
financial services firm. RBC is the ultimate parent of the other 
Applicants. RBC EL is a United Kingdom-based subsidiary of RBC that is 
registered in the United Kingdom to engage in capital market 
activities. CMA is a Luxembourg-based subsidiary of RBC that engages 
primarily in interdealer market making and proprietary trading. GAM US 
is a corporation formed under the laws of Minnesota. BlueBay LLP is a 
limited liability partnership incorporated in England and Wales. 
BlueBay USA is a limited liability company formed under the laws of 
Delaware. GAM UK is a corporation formed under the laws of the United 
Kingdom. GAM US, BlueBay LLP, BlueBay USA and GAM UK are each a wholly-
owned subsidiary of RBC and are each an investment adviser registered 
under the Investment Advisers Act of 1940. GAM US, BlueBay LLP, BlueBay 
USA and GAM UK each serve as investment adviser or investment sub-
adviser to investment companies registered under the Act, or series of 
such companies (each a ``Fund'') and are collectively referred to as 
the ``Fund Servicing Applicants.''
    2. While no existing company of which RBC is an affiliated person 
within the meaning of section 2(a)(3) of the Act (``Affiliated 
Person''), other than the Fund Servicing Applicants, currently serves 
or acts as an investment adviser or depositor of any Fund, employees' 
securities company or investment company that has elected to be treated 
as a business development company under the Act, or principal 
underwriter (as defined in section 2(a)(29) of the Act) for any open-
end management investment company registered under the Act (``Open-End 
Fund''), unit investment trust registered under the Act (``UIT''), or 
face-amount certificate company registered under the Act (``FACC'') 
(such activities, ``Fund Services Activities''),\1\ Applicants request 
that any relief granted also apply to any existing company of which RBC 
is an Affiliated Person, other than RBC EL and CMA, and to any other 
company of which RBC may become an Affiliated Person in the future 
(together with the Fund Servicing Applicants, the ``Covered Persons'') 
with respect to any activity contemplated by section 9(a) of the Act.
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    \1\ RBC, RBC EL, and CMA are parties to the application, but do 
not and will not engage in Fund Services Activities.
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    3. On April 22, 2012, the CFTC filed a complaint, and on October 
17, 2012, an amended complaint which superseded the original complaint 
(the ``Complaint'') in the Court captioned Commodity Futures Trading 
Commission v. Royal Bank of Canada (the ``Action''). The Complaint 
alleged that RBC entered into certain stock futures contract 
transactions in ``block trades,'' which are privately negotiated 
transactions pursuant to exchange rules, and that RBC entered into 
these block trades through its branches and internal trading accounts, 
and it traded opposite RBC EL and CMA. The Complaint also alleged a 
violation of Section 4c(a) of the Commodity Exchange Act (``CEA''), 
whereby RBC entered into the block trades with an express or implied 
understanding that the positions resulting from the trades would later 
be offset or delivered opposite each other, which achieved an economic 
and futures market nullity for the RBC corporate group because the RBC 
corporate group as a whole was not exposed to risk in the futures 
market. Furthermore, the Complaint alleged that, in violation of CFTC 
Regulation 1.38(a), the express or implied understandings for later 
trades were not reported to the OneChicago, LLC (``OneChicago'') 
futures exchange ``without delay,'' as required by OneChicago's rules.
    4. RBC and the CFTC have reached an agreement to settle the Action. 
As part of the agreement, the CFTC submitted a consent order (``Consent 
Order'') to the Court. RBC has consented to the entry of the Consent 
Order by the Court, without admitting or denying the findings set forth 
therein (other than those relating to the jurisdiction of the Court and 
the jurisdiction of the CFTC over the Conduct \2\). On December 18, 
2014 the Court entered the Consent Order which enjoins RBC from 
violating section 4c(a) of the CEA and CFTC Regulation 1.38(a) (the 
``Injunction'') and required RBC to pay a civil monetary penalty of 
$35,000,000.\3\
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    \2\ The alleged conduct giving rise to the Injunction (defined 
below) is referred to herein as the ``Conduct.''
    \3\ See Consent Order, CFTC v. Royal Bank of Canada, 12-cv-2497, 
Dkt. No. 124 (S.D.N.Y. Dec. 18, 2014).
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Applicants' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from engaging in or continuing any conduct or 
practice in connection with the purchase or sale of a security, or in 
connection with activities as an underwriter, broker or dealer, from 
acting, amCFTC v. Royal Bank of Canada, 12-CV-2497, (S.D.N.Y. Dec. 18, 
2014).ong other things, as an investment adviser or depositor of any 
registered investment company or a principal underwriter for any Open-
End Fund, UIT or FACC. Section 9(a)(3) of the Act makes the prohibition 
in section 9(a)(2) applicable to a company, any affiliated person of 
which has been disqualified under the provisions of section 9(a)(2). 
Section 2(a)(3) of the Act defines ``affiliated person'' to include, 
among others, any person directly or indirectly controlling, controlled 
by, or under common control with, the other person. Applicants state 
that, taken together, sections 9(a)(2) and 9(a)(3)

[[Page 78521]]

would have the effect of precluding the Fund Servicing Applicants and 
Covered Persons from engaging in Fund Services Activities upon the 
entry of the Injunction against RBC because RBC is an Affiliated Person 
of each Fund Servicing Applicant and Covered Person.
    2. Section 9(c) of the Act provides that, upon application, the 
Commission shall by order grant an exemption from the disqualification 
provisions of section 9(a) of the Act, either unconditionally or on an 
appropriate temporary or other conditional basis, to any person if that 
person establishes that: (a) The prohibitions of section 9(a), as 
applied to the person, are unduly or disproportionately severe or (b) 
the conduct of the person has been such as not to make it against the 
public interest or the protection of investors to grant the exemption. 
Applicants have filed an application pursuant to section 9(c) seeking a 
Temporary Order and a Permanent Order exempting the Fund Servicing 
Applicants and other Covered Persons from the disqualification 
provisions of section 9(a) of the Act. The Fund Servicing Applicants 
and other Covered Persons may, if the relief is granted, in the future 
act in any of the capacities contemplated by section 9(a) of the Act 
subject to the applicable terms and conditions of the Orders.
    3. Applicants believe they meet the standards for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them would be unduly and disproportionately 
severe and that the conduct of Applicants has not been such as to make 
it against the public interest or the protection of investors to grant 
the exemption from section 9(a).
    4. Applicants state the Conduct did not involve any of the 
Applicants engaging in Fund Services Activities. Applicants also state 
that the Conduct did not involve any Fund or the assets of any Fund. In 
addition, Applicants state that the Conduct involved proprietary 
trading in accounts owned by RBC, RBC EL and CMA and was not conducted 
on behalf of any Fund or using assets of any Fund.
    5. Applicants state that: (a) None of the current directors, 
officers or employees of the Fund Servicing Applicants (or any other 
persons serving in such capacity during the time period covered by the 
Complaint) participated in the Conduct and (b) the personnel at RBC, 
RBC EL, or CMA who participated in the Conduct or who may subsequently 
be identified by RBC, RBC EL, CMA, or any U.S. or non-U.S. regulatory 
or enforcement agency as having been responsible for the Conduct have 
had no, and will not have any involvement in providing Fund Services 
Activities and will not serve as an officer, director, or employee of 
any Covered Person. Applicants assert that because the personnel of the 
Fund Servicing Applicants did not participate in the Conduct, the 
shareholders of Funds were not affected any differently than if those 
Funds had received services from any other non-affiliated investment 
adviser or sub-adviser.
    6. Applicants submit that section 9(a) should not operate to bar 
them from serving the Funds and their shareholders in the absence of 
improper practices relating to their Fund Services Activities. 
Applicants state that the section 9(a) disqualification could result in 
substantial costs to the Funds to which the Fund Servicing Applicants 
provide investment advisory services, and such Funds' operations would 
be disrupted, as they sought to engage new advisers or sub-advisers. 
Applicants assert that these effects would be unduly severe given the 
Fund Servicing Applicants' lack of involvement in the Conduct. 
Moreover, Applicants state that RBC has taken remedial actions to 
address the Conduct, as outlined in the application. Thus, Applicants 
believe that granting the exemption from section 9(a), as requested, 
would be consistent with the public interest and the protection of 
investors.
    7. Applicants state that the inability of the Fund Servicing 
Applicants to continue to provide investment advisory services to Funds 
would result in those Funds and their shareholders facing unduly and 
disproportionately severe hardships. Applicants state that they will 
distribute to the boards of directors of the Funds (the ``Boards'') 
written materials describing the circumstances that led to the 
Injunction and any impact on the Funds, and the application. The 
written materials will include an offer to discuss the materials at an 
in-person meeting with each Board for which the Fund Servicing 
Applicants provide Fund Services Activities, including the directors 
who are not ``interested persons'' of such Funds as defined in section 
2(a)(19) of the Act, and their independent legal counsel as defined in 
rule 0-1(a)(6) under the Act. Applicants state they will provide the 
Boards with the information concerning the Injunction and the 
application that is necessary for those Funds to fulfill their 
disclosure and other obligations under the federal securities laws and 
will provide them a copy of the Consent Order as entered by the Court.
    8. Applicants state that if the Fund Servicing Applicants were 
barred under section 9(a) of the Act from providing investment advisory 
services to the Funds, and were unable to obtain the requested 
exemption, the effect on their businesses and employees would be unduly 
and disproportionately severe because they have committed substantial 
capital and other resources to establishing an expertise in advising 
Funds. Applicants further state that prohibiting the Fund Servicing 
Applicants from engaging in Fund Services Activities would not only 
adversely affect their businesses, but would also adversely affect 
their employees who are involved in those activities. Applicants state 
that many of these employees working for the Fund Servicing Applicants 
could experience significant difficulties in finding alternative fund-
related employment.
    9. Applicants state that certain affiliates of the Applicants have 
previously received an order under section 9(c) of the Act, as the 
result of conduct that triggered section 9(a), as described in greater 
detail in the application.

Applicants' Conditions

    Applicants agree that any order granted by the Commission pursuant 
to the application will be subject to the following conditions:
    1. Any temporary exemption granted pursuant to the application 
shall be without prejudice to, and shall not limit the Commission's 
rights in any manner with respect to, any Commission investigation of, 
or administrative proceedings involving or against, Covered Persons, 
including without limitation, the consideration by the Commission of a 
permanent exemption from section 9(a) of the Act requested pursuant to 
the application or the revocation or removal of any temporary 
exemptions granted under the Act in connection with the application.
    2. Each Applicant and Covered Person will adopt and implement 
policies and procedures reasonably designed to ensure that it will 
comply with any terms and conditions of the Orders within 60 days of 
the date of the Permanent Order.
    3. RBC will comply with the terms and conditions of the Consent 
Order.
    4. Applicants will provide written notification to the Chief 
Counsel of the Commission's Division of Investment Management with a 
copy to the Chief Counsel of the Commission's Division of Enforcement 
of a material violation of the terms and conditions of the Orders or 
Consent Order within 30 days of discovery of the material violation.

[[Page 78522]]

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Fund Servicing Applicants and any other Covered Persons are granted a 
temporary exemption from the provisions of section 9(a), solely with 
respect to the Injunction, subject to the representations and 
conditions in the application, from December 18, 2014, until the 
Commission takes final action on their application for a permanent 
order.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30225 Filed 12-29-14; 8:45 am]
BILLING CODE 8011-01-P