Merrill Lynch, Pierce, Fenner & Smith Incorporated

Headnote

Multilateral Instrument 11-102 section 4.7(1) -- US broker-dealer registered as exempt market dealer and portfolio manager -- Conditions concerning continuing to be registered under the securities legislation of the US -- Exemption granted from requirement to file Form 31-103F1 -- Conditions concerning filing of SEC Form X-17a-5 (FOCUS Report) in lieu of Form 31-103F1 and notification of any issues -- Exemption granted from requirement to prepare financial statements on an audited unconsolidated basis -- Exemption granted from requirements to provide annual financial statements on a comparative basis and that at least one director sign the statement of financial position -- Filer to deliver the annual financial statements that it files with the SEC and FINRA -- Filer must append audited supplemental information to annual audited financial statements that corresponds with line 3480 through to and including line 3910 "Computation of Net Capital" in the FOCUS Report and the auditor's report relating to the Filer's financial statements expresses an unmodified opinion on the supplemental information -- Exemption Sought shall expire when Filer's registration as an exempt market dealer is terminated or revoked or on December 31, 2013.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7.

National Instrument 14-101 Definitions.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 12.1, 12.10, 12.12, 12.13, 15.1.

National Instrument 52-107 Acceptable Accounting Principles and Accounting Standards, ss. 3.15, 5.1.

September 21, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

(the "Filer")

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that,

(i) for the purposes of section 12.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), permits the Filer to calculate its excess working capital using United States (U.S.) Securities and Exchange Commission (SEC) Form X-17a-5 (FOCUS Report) (the FOCUS Report) rather than Form 31-103F1 Calculation of Excess Working Capital (Form 31-103F1);

(ii) for the purposes of paragraphs 12.12(1)(b) and 12.13(b) of NI 31-103, permits the Filer to deliver the FOCUS Report in lieu of Form 31-103F1; and

(iii) exempts the Filer from

(a) the requirements of subsection 3.15(b) Acceptable Accounting Principles for Foreign Registrants of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements be prepared in accordance with U.S. GAAP, except that any investments in subsidiaries, jointly controlled entities and associates must be accounted for as specified for separate financial statements in International Accounting Standard 27 Consolidated and Separate Financial Statements (IAS 27), and

(b) the requirements of section 12.10 Annual financial statements of NI 31-103 that the Filer prepare a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and a statement of financial position for the financial year immediately preceding the most recently completed financial year and that at least one director of the Filer sign the Filer's statement of financial position,

so long as the Filer delivers to the regulator the annual audited financial statements that it files with the SEC and the Financial Industry Regulatory Authority (FINRA).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, and Quebec (the Passport Jurisdictions, and together with the Jurisdiction, the Jurisdictions).

INTERPRETATION

Terms defined in National Instrument 14-101 Definitions, NI 52-107, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

REPRESENTATIONS

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation formed under the laws of the State of Delaware. The Filer's head office is located in New York, New York, in the U.S. The Filer is a direct, wholly-owned, subsidiary of Merrill Lynch & Co.

2. The Filer is registered in each Jurisdiction as a dealer in the category of exempt market dealer (EMD), and as an adviser in the category of portfolio manager (PM).

3. The Filer is registered as a broker-dealer and investment adviser with the SEC and is a member of FINRA. The Filer is a member of all major U.S. stock exchanges and U.S. commodity futures exchanges.

4. Among other things, for corporate, institutional, government, individual, and other clients, the Filer: (i) acts as a broker (i.e., agent) and dealer (i.e. principal) in the purchase and sale of debt and equity securities and other financial instruments; (ii) provides discretionary and non-discretionary investment advisory services; and (iii) provides investment banking and other financial services.

5. The Filer does not lend money, extend credit or provide margin to clients in the Jurisdictions.

FOCUS Relief

6. Under section 12.1 of NI 31-103, registered firms are required to calculate their excess working capital using Form 31-103F1.

7. The Filer is subject to regulatory capital requirements under the Securities Exchange Act of 1934, specifically SEA Rule 15c3-1 Net Capital Requirements for Brokers or Dealers (SEA Rule 15c3-1) and SEA Rule 17a-5 Reports to be Made by Certain Brokers and Dealers (SEA Rule 17a-5), that are designed to provide protections that are substantially similar to the protections provided by the regulations regarding excess working capital to which dealer members of the Investment Industry Regulatory Organization of Canada (IIROC) are subject, and the Filer is in compliance in all material respects with SEA Rule 15c3-1. The SEC and FINRA have the responsibility to ensure that the Filer operates in compliance with SEA Rule 15c3-1.

8. The Filer is required to prepare and file a FOCUS Report with U.S. regulators, which is the financial and operational report containing a net capital calculation.

9. The FOCUS Report provides a more comprehensive description of the business activities of the Filer, and more accurately reflects those activities including client lending activity, than would be provided by Form 31-103F1. The minimum capital requirements prescribed by SEA Rule 15c3-1 applicable to the Filer are a substantially greater amount than the minimum capital requirements applicable to a registered PM and EMD under subsection 12.1(3) of NI 31-103.

Financial Statements Relief

10. The Filer is subject to certain U.S. reporting requirements under SEA Rule 17a-5, including the requirement to prepare and file annual audited financial statements. SEA Rule 17a-5 requires that the annual audited financial statements of the Filer be filed with the SEC and FINRA.

11. The SEC currently permits the Filer to file audited consolidated annual financial statements that are prepared in accordance with U.S. GAAP.

12. Section 12.10 of NI 31-103 provides that annual financial statements delivered to the regulator must include a statement of comprehensive income, a statement of changes in equity, a statement of cash flows, and a statement of financial position for the most recently completed financial year and the financial year immediately preceding the most recently completed financial year, along with notes thereto. Further, section 12.10 of NI 31-103 also requires that the statement of financial position be signed by at least one director of the registered firm.

13. The annual audited financial statements that the Filer prepares and files with the SEC and FINRA are not required to include the statement of comprehensive income, the statement of changes in equity, the statement of cash flows, and the statement of financial position for the financial year immediately preceding the most recently completed financial year, nor is a signature of at least one director of the Filer for the statement of financial position required. These are requirements under section 12.10 of NI 31-103.

14. The accounting principles and methods used to prepare the FOCUS Reports that the Filer delivers in lieu of Form 31-103F1 are consistent with the accounting principles and methods used to prepare the annual audited financial statements that the Filer files with the SEC and FINRA.

15. Audited supplemental information to the Filer's annual audited financial statements, as required by SEA Rule 17a-5, which includes supplemental information that corresponds with line 3480 through to and including line 3910 "Computation of Net Capital" in the FOCUS Report, along with the auditor's report which expresses an unmodified opinion on this supplemental information, would allow the regulator to assess the capital position of the Filer and, therefore, achieve the same regulatory outcomes as the requirements for annual audited financial statements prepared in accordance with subsection 3.15(b) of NI 52-107 and section 12.10 of NI 31-103. Accordingly, it would be burdensome and costly for the Filer, if it was required to prepare and file unconsolidated annual audited financial statements.

DECISION

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) the head office or principal place of business of the Filer is in the U.S.;

(b) the Filer is registered under the securities legislation of the U.S. in a category of registration that permits it to carry on the activities in the U.S. that registration as an investment dealer would permit it to carry on in the Jurisdiction;

(c) by virtue of the registration referred to in paragraph (b), including required membership in one or more self-regulatory organizations, the Filer is subject to SEA Rule 15c3-1 and SEA Rule 17a-5 for the preparation of annual financial statements; and that the protections provided by SEA Rule 15c3-1 and SEA Rule 17a-5 in respect of maintaining excess net capital are substantially similar to the protections provided by the capital requirements of IIROC that would be applicable to the Filer if it were registered under the Legislation as an investment dealer and were a member of IIROC;

(d) the Filer submits the FOCUS Report in lieu of Form 31-103F1;

(e) the Filer prepares the FOCUS Report on an unconsolidated basis;

(f) the Filer does not guarantee any debt of a third party;

(g) the Filer gives prompt written notice to the principal regulator of any significant issues arising from analysis by U.S. securities regulators of the FOCUS Report filed by the Filer pursuant to FINRA and SEC requirements;

(h) the Filer gives written notice to the principal regulator immediately if excess net capital as calculated on line 25, page 6 of the FOCUS Report is less than zero, and ensures that such excess net capital is not less than zero for two consecutive days;

(i) the Filer provides the principal regulator with at least five days written notice prior to any repayment of subordinated intercompany debt or termination of a subordination agreement with respect to intercompany debt;

(j) the Filer delivers to the principal regulator no later than the 90th day after the end of its financial year its annual financial statements prepared in accordance with U.S. GAAP as permitted by SEA Rule 17a-5;

(k) the Filer gives prompt written notice to the principal regulator if the Filer has received written notice from the SEC or FINRA of any material non-compliance in the preparation and filing of its annual financial statements pursuant to the requirements of SEA Rule 17a-5;

(l) the Filer appends audited supplemental information to its annual audited financial statements, as required by SEA Rule 17a-5, which includes supplemental information that corresponds with line 3480 through to and including line 3910 "Computation of Net Capital" in the FOCUS Report; and

(m) the auditor's report relating to the Filer's financial statements expresses an unmodified opinion on the supplemental information referred to in paragraph (l).

It is further the decision of the principal regulator that the Exemption Sought shall expire on the date that is the earlier of:

(a) the date that the Filer's registration as an EMD is terminated or revoked; and

(b) December 31, 2013.