Last Modified: February 6, 2023
An Overview of Newton Crypto Ltd.
Newton Crypto Ltd. (Newton, the Firm or We) is registered as a restricted dealer in each province and territory of Canada, subject to specific terms and conditions contained in the exemptive relief decision Re Newton Crypto Ltd. dated August 15, 2022 (the Decision). which permit Newton to operate a crypto asset trading platform on which Canadian residents can buy, sell and hold crypto assets (crypto) that have been approved by Newton.
The Products and Services we offer
The Newton Platform does not list crypto that are considered securities or derivatives under securities legislation in Canada. However, because we hold crypto beneficially owned by you on your behalf, your account with Newton is a “Crypto Contract”, and is considered to be a security or derivative in Canada.
Before listing a crypto on the Newton Platform, we perform a product assessment by reviewing publicly available information about the creation, governance and use of the crypto, the supply, demand, maturity, utility and liquidity of the crypto, material technical risks associated with the crypto and legal and regulatory risks associated with the crypto.
The Newton Platform includes a Crypto Asset Statement for every listed crypto. We will update the Crypto Asset Statement if there is a material change in the crypto, including a change in the risk profile or a determination made by a court or regulator that the crypto is a security or a derivative. If this happens, we will de-list the crypto and you will be required to sell it or withdraw it from the Newton Platform.
We hold crypto on your behalf in: (i) “cold storage” custody accounts at Coinbase Custody Trust Company (the Crypto Custodian), a limited purpose trust company regulated by the New York Department of Financial Services (NYDFS); and (ii) online in “hot” wallets secured by software provided by Fireblocks Inc. At least 80% of client crypto assets are held in cold storage with the Crypto Custodian at all times. The Crypto Custodian maintains insurance over its cold storage assets, however, the insurance may not be sufficient to cover all losses. Clients and the Firm may have difficulty repatriating their assets on the bankruptcy or insolvency of the Custodian. The Firm has considered the nature of the regulation and sufficiency of equity of the Crypto Custodian and has concluded that the Crypto Custodian is an appropriate Crypto Custodian, as it has the license and expertise required to satisfy securities regulatory requirements for crypto custodians.
We hold fiat cash currency on your behalf in an account at a Canadian financial institution that is a qualified custodian for cash under applicable securities laws (the Cash Custodian), separate and apart from Newton’s own assets.
The Crypto Custodian and the Cash Custodian (together, the Custodians) are required to segregate client assets from their own assets and are subject to regulatory oversight, minimum capital and insurance requirements. Client assets are subject to risk of loss: (i) if a Custodian becomes bankrupt or insolvent; (ii) if there is a breakdown in a Custodian’s information technology systems; or (iii) due to the fraud, willful or reckless misconduct, negligence or error of a Custodian or its personnel. The Firm has reviewed each Custodian’s reputation, financial stability, relevant internal controls and ability to deliver custodial services and has concluded that such Custodian’s system of controls and supervision is sufficient to manage risks of loss to client assets in accordance with prudent business practice.
Although client assets are generally held by a Custodian, the Firm has access to client assets held online in hot wallets to the extent necessary to facilitate trading on the Newton Platform. We also have access to client assets when accepting or making delivery of crypto or cash in accordance with client instructions on a temporary basis. Finally, Newton has access to client crypto held in trust on your behalf at the Crypto Custodian because the custody account is in the name of Newton, in trust for our clients. Client assets are exposed to risk of loss: (i) if there is a breakdown in the Firm’s information technology systems; or (ii) due to the fraud, willful or reckless misconduct, negligence or error of the Firm or its personnel. In addition, the Firm is required under applicable securities laws to insure against the additional risk of loss which arises due to its access to client assets.
Risks to Consider when Making an Investment Decision
Please see the Risk Statement for a description of the risks to consider when deciding to invest in crypto.
Risks of Using Borrowed Money to Finance an Investment
We do not lend money, extend credit or provide margin to our clients.
Using borrowed money to finance the purchase of crypto involves greater risk than using cash resources only. If you borrow money to purchase crypto, your responsibility to repay the loan and pay interest as required by the terms of the loan remains the same even if the value of the crypto purchased declines.
Conflicts of Interest
Newton does not operate a marketplace nor does it engage in market making. Newton’s role is to buy or sell crypto for clients from various liquidity providers, and adding a small spread which is earned by Newton. Therefore, the prices at which Newton’s liquidity providers sell crypto assets to, and buy crypto assets from, Newton, directly impact the prices at which Newton sells crypto assets to, and buys crypto assets from, clients on the Newton Platform. Newton’s primary liquidity provider is DV Chain (Canada) Inc. (DV Chain Canada), a specified affiliate of Newton. The specified affiliate relationship could result in DV Chain Canada charging higher prices when selling crypto assets to, and offer lower prices when buying crypto assets from, Newton, than would a third party liquidity provider, which would directly impact the prices of client transactions on the Newton Platform. To address this material conflict of interest, Newton has taken steps to ensure that the offers to its clients are priced competitively with the offers available on other registered crypto trading platforms in Canada, including implementing a smart order router which automatically routes trades to Newton’s other liquidity provider if the pricing for a crypto asset transaction is better than the price provided by DV Chain Canada.
Newton also regularly evaluates prices obtained from its liquidity providers, including DV Chain Canada, against global benchmarks to provide fair and reasonable pricing to its clients, and reviews the pricing policy of DV Chain Canada, including the factors that it considers when pricing transactions and determining the fair value of crypto assets. Newton operates a paid referral arrangement whereby a client of Newton receives a one-time referral fee in consideration for referring each new client to the Newton Platform. Each new client is provided with a Referral Statement that identifies the possible conflicts of interest that may arise in a paid referral arrangement. The Referral Statement is incorporated by reference into this Relationship Disclosure Information.
Costs Associated with your Account
Newton does not charge commissions, withdrawal or other transaction fees for trading on the Newton Platform or depositing assets to the Newton Platform. However, crypto withdrawals may be subject to “on-chain” network fees. Newton earns a spread on trades, as described above under “Conflicts of Interest”. The spread charged by Newton covers the costs of the Crypto Custodian, our liquidity providers, and operational overhead. This fee structure is posted clearly on our website in multiple locations, displayed and agreed to when you complete a transaction and provided in a receipt for the transaction that is emailed to you.
The Costs of Buying, Holding and Selling Crypto
Other than the spread and withdrawal fees described above, there are no costs directly paid by you associated with buying, holding and selling crypto on the Newton Platform.
Benefits Received by Us
When you buy, hold and sell crypto on the Newton Platform, we earn the spread fees described above.
Reporting to You
Information about your investments, including trade confirmations, quarterly account statements, annual reports of charges and compensation and investment performance reports, are available in your account portal on the Newton Platform.
Complaints and Dispute Resolution
Annex A describes the dispute resolute service available to you.
KYC and Appropriateness
Newton performs an appropriateness assessment prior to opening an account, on an ongoing basis and at least annually. Newton does not give advice or recommendations regarding crypto, including the suitability of crypto transactions.
We gather know your client (KYC) information about your experience and knowledge in investing in crypto assets, your experience in using order execution only online brokerages, your financial assets and income and your risk tolerance. We use this information, together with our product assessments of all crypto that is listed on the Newton Platform, to determine whether an account is appropriate for you. If we do not think an account is appropriate for you, we will send you a prominent message that this is the case.
Your Relationship with Us
We are required to determine that an account on the Newton Platform is appropriate for you and to put your interests first. You should promptly advise us of any change to your KYC information that could reasonably result in a change the appropriateness of your account, such as a change to your financial assets and income or risk tolerance.