Commission Approval of Rule: OSC Rule - 35-502 - Non-Resident Advisers

 

RULE 35-503 - TRADES BY CERTAIN MEMBERS OF

THE TORONTO STOCK EXCHANGE - NOTICE OF APPROVAL

BY THE COMMISSION OF THE RULE

 

Notice of Rule

The Commission has under S. 143 of the Securities Act (the "Act") made Rule 35-503: Trades by Certain Members of The Toronto Stock Exchange (the"Rule").

The Rule and the material required by the Act to be delivered to the Minister of Finance were delivered on June 25, 1997. If the Minister does not approve theRule, reject the Rule, or return the Rule to the Commission for further consideration, the Rule will come into force on September 8, 1997. If the Ministerapproves the Rule, the Rule will come into force 15 days after it is approved.

Substance and Purpose of the Rule

The purpose of the Rule is to provide relief from the registration requirements of the Act for certain computer-assisted trades carried out by the partners, officersor employees of members of The Toronto Stock Exchange (the "TSE") that are not registered with the Commission and that do not have an office in Ontario.

The Rule replaces the Blanket Ruling (the "Blanket Ruling") In the Matter of Certain Trades by Members of The Toronto Stock Exchange (1992), 15 OSCB3354 (the "Deemed Rule"), now a deemed rule.

Summary of the Rule

Section 2.1 of the Rule provides relief from the registration requirements of the Act with respect to a trade by an "extra- provincial member" as defined in theRule and the partners, officers or employees of the extra-provincial member. An extra-provincial member is defined in section 1.1 of the Rule to mean anyperson or company that is a member of the TSE, that is registered with one or more of the Canadian securities administrators other than the Commission and thatdoes not have an office in Ontario. Under section 2.1 of the Rule, the extra-provincial member and its partners, officers or employees may effect "remote accesstrades" without having to be registered under the Act, subject to certain conditions. A remote access trade is defined in section 1.1 of the Rule to mean any tradein a security in Ontario that is executed on the TSE by using a computer terminal that provides access to the trading systems of the TSE from outside of Ontario.

The conditions imposed upon an extra-provincial member and its partners, officers or employees in order to be able to rely on the registration exemptionprovided by the Rule are that the extra-provincial member must be in compliance with the requirements relating to the filing of its financial statements of theCanadian securities administrators and the self- regulatory organizations to which the extra-provincial member is subject; the membership of the extra-provincialmember with the TSE must be in good standing; the partner, officer or employee of the extra-provincial number effecting the trade must be registered with theCanadian securities administrator with whom the extra-provincial member is registered: and the only trades that may be made to residents of Ontario are tradesto partners, officer or employees of members of the TSE who are registered under the Act.

Part 3 of the Rule revokes the Blanket Ruling.

The Blanket Ruling was made in 1992 at the request of the TSE. Under the Act, all TSE members, even those whose connections with Ontario were limited toremote access trades, were required to become registered as dealers in Ontario. At the time the Blanket Ruling was made, the Director would not register TSEmembers as dealers in Ontario unless they had an office and resident trading offices in Ontario. The costs of becoming registered therefore effectively acted as abar to TSE membership if the only reason for becoming a member of the TSE was to execute remote access trades on the TSE.

Staff supported the TSE's request that the Blanket Ruling be made because Staff believed that if a TSE member was not trading with the public in Ontario, noinvestor protection concerns existed that were not addressed by virtue of the non-resident member being subject to the TSE's requirements and oversight, andthat registration was therefore onerous and not required in the public interest.

The Rule continues substantially the regime as in the Deemed Rule.

Summary of Comments Received by the Commission

A request for comments with respect to the Rule was published on August 30, 1996 in the OSCB at (1996) 19 OSCB 4777. No written comments werereceived and no changes were made to the Rule.

Text of Rule

The text of the Rule follows.

DATED: June 27, 1997

 

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ONTARIO SECURITIES COMMISSION RULE 35-503

TRADES BY CERTAIN MEMBERS OF THE TORONTO STOCK EXCHANGE

 

PART 1 DEFINITIONS

1.1 Definitions - In this Rule

"extra-provincial member" means a person or company that is a member of the TSE and that does not have an office in Ontario;

"remote access trade" means a trade in a security in Ontario executed on the TSE by using a computer terminal that provides access to the trading systems of theTSE from outside of Ontario; and

"TSE" means The Toronto Stock Exchange

PART 2 REGISTRATION EXEMPTION

2.1 Registration Exemption - Section 25 of the Act does not apply to a remote access trade by an extra- provincial member or by a partner, officer or employeeof an extra-provincial member if at the time of the remote access trade

(a)the extra-provincial member is registered with a Canadian securities regulatory authority other than the Commission;

(b the extra-provincial member has delivered to the Canadian securities regulatory authorities with which the extra-provincial member is registered the financialstatements that they then require the extra-provincial member to have delivered;

(c)the extra-provincial member has filed with the SROs of which the extra-provincial member is a member the financial statements that they then require theextra-provincial member to have filed;

(d) the membership of the extra-provincial member in the TSE is not suspended and the extra- provincial member is not being deprived of any of the rights andprivileges of membership by the TSE;

(e) the partner, officer or employee of the extra-provincial member effecting the trade is registered with a Canadian securities regulatory authority with which theextra-provincial member is then registered; and

(f) the only residents of Ontario with whom the extra-provincial member and the partners, officers or employees of the extra-provincial member trade arepartners, officers or employees of members of the TSE who are registered under the Act.