National Bank Financial Inc. -- s. 80 of the CFA

Headnote

Application for an order pursuant to section 80 of the Commodity Futures Act granting relief from sections 42, 43, 44 and 45 which contain requirements to deliver confirmations and statements to customers in the context of "give-up" transactions.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 42, 43, 44, 45, 80.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

NATIONAL BANK FINANCIAL INC.

(the Filer)

ORDER

(Section 80 of the CFA)

UPON the application by the Filer to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA granting relief from sections 42, 43, 44 and 45 of the CFA which contain the requirements to deliver certain confirmations and statements of trade to customers (the Delivery Requirements) in respect of trades in commodity futures contracts and commodity futures options in the context of trade "give-ups";

AND WHEREAS the Filer has represented to the Commission that:

1. The Filer is registered as an investment dealer under the securities legislation of all provinces and territories of Canada, as a futures commission merchant under the CFA and The Commodity Futures Act (Manitoba) and as a derivatives dealer under the Derivatives Act (Quebec).

2. The Filer is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the TSX Venture Exchange, an approved participant of the Montreal Exchange and a participating organization of the Toronto Stock Exchange.

3. The head office of the Filer is located in Montréal, Québec.

4. The Filer acts as an executing and clearing broker for give-up transactions that involve, among other things, the purchase and sale of commodity futures contracts and commodity futures options (Futures Contracts).

5. Give-up Transactions are purchases or sales of Futures Contracts by investors, each of whom is an "institutional customer" within the meaning of IIROC Dealer Member Rule 1.1 (Institutional Customer), that have an existing relationship as a client with a clearing broker but wish to use the trade execution services of one or more executing brokers for the purpose of executing such purchases or sales on one or more markets (Subject Transactions). Under these circumstances, the executing broker executes the Subject Transactions in accordance with the Institutional Customer's instructions and then "gives up" the Subject Transactions to the clearing broker for clearing, settlement and/or custody (Give-up Transactions). The service provided by the executing broker is limited to trade execution only.

6. The clearing broker remains subject to applicable Delivery Requirements in respect of its Institutional Customers in Give-up Transactions. The clearing broker maintains an account for the Institutional Customer that is administered in accordance with the terms and conditions of the account documentation of the clearing broker that has been signed by the Institutional Customer. For a Give-up Transaction, the Institutional Customer does not sign account documentation with the executing broker, and the executing broker does not receive any money, securities, margin or collateral from the Institutional Customer. The Institutional Customer does, however, enter into an agreement with the executing broker and the clearing broker that governs their Give-up Transaction relationship (a Give-up Agreement).

7. Although the Filer is responsible for record-keeping, bookkeeping, custody and other administrative functions (Account Services) in respect of its own clients, it does not provide Account Services for execution-only Institutional Customers in Give-up Transactions, such Account Services remain the responsibility of those Institutional Customers' clearing brokers.

8. The Filer does, however, record in its own books and records and accounting system all Give-up Transactions that it executes, which generally comprise those Futures Contract positions held by it that are not allocated to any of its own Institutional Customer accounts. The Filer communicates these unallocated positions to the relevant clearing brokers who either accept or reject the positions so allocated on behalf of their clients based on existing Give-up Agreements. If a clearing broker rejects a proposed allocation, the Filer contacts the person who executed the trade to obtain clarifying instructions and then allocates the position in accordance with the instructions so received.

9. The Filer prepares a monthly or transaction-by-transaction invoice detailing all Give-up Transactions (including the amount of any commission to the Filer for execution thereof) that the Filer conducted during the month for each Institutional Customer under a Give-up Agreement. The Filer delivers such invoice to the clearing broker who then reconciles the Give-up Transactions with its own records.

10. The clearing broker will have the primary relationship with the Institutional Customers and is contractually responsible for risk monitoring, overall trade monitoring as well as reporting trade confirmations and sending out monthly statements.

11. The Filer is, to the best of its knowledge, in compliance with all IIROC requirements relating to the maintenance of records of executed transactions. The Filer is not in default of securities, futures or derivatives legislation in any jurisdiction.

12. Section 42 of the CFA requires that a registered dealer that has acted as an agent in connection with a trade in a commodity futures contract promptly send customers a written confirmation of the trade.

13. Section 43 of the CFA requires that a registered dealer that has acted as an agent in connection with a liquidating trade in a commodity futures contract promptly send customers a written statement of purchase and sale.

14. Section 44 of the CFA requires that registered dealers send customers a written monthly statement.

15. Section 45 of the CFA requires that a registered dealer that has acted as an agent in connection with a trade in a commodity futures option promptly send customers a written confirmation of the trade.

16. Application of the Delivery Requirements to the Filer when it provides only trade execution services in respect of Give-up Transactions would:

(a) be duplicative and confusing because delivery of the required trade confirmations and the statements of account to execution -- only Institutional Customers would capture only some, not all, of the information that would be contained in the trade confirmations and statements of account delivered to the same Institutional Customers by their clearing brokers; and

(b) not be required to establish an audit trail or to facilitate reconciliation of Give-up Transactions as between the Filer and a clearing broker.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

THIS ORDER of the Commission is that the Filer is exempt from the requirements of sections 42, 43, 44 and 45 of the CFA for the purpose of acting as executing broker for Give-up Transactions provided that:

1. the Filer provides trade execution services in respect of Give-up Transactions only for Institutional Customers;

2. the Filer enters into a Give-up Agreement with the clearing broker and the Institutional Customer; and

3. the clearing broker has agreed to provide each Institutional Customer with written trade confirmations and statements of account that include information for any Subject Transactions.

December 11, 2012.