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U. S. Bank, N. A. - MRRS Decision
Headnote
MRRS - Underwriter and advisor registration relief for Schedule III Bank - prospectus and registration relief for tradeswhere Schedule III Bank purchasing as principal and first trade relief for Schedule III Bank - prospectus and registrationrelief for trades of bonds, debentures and other evidences of indebtedness of or guaranteed by Schedule III Bankprovided trades involve only specified purchasers - prospectus and registration relief for evidences of deposits bySchedule III Bank to specified purchasers - fee relief for trades made in reliance on Decision.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am. ss. 25(1)(a)&(c), 34(a), 35(1)(3)(i), 35(2)1(c), 53(i), 72(1)(a)(i), 73(1)(a), 74(1),147.
Regulations Cited
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am. ss. 151, 206, 218, Schedule 1 s. 28.
IN THE MATTER OF THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NEW BRUNSWICK, NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLAND, YUKON TERRITORY,
NORTHWEST TERRITORIES, AND NUNAVUT TERRITORY
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
U.S. BANK, N.A.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island,Newfoundland and Labrador, Northwest Territories, Nunavut Territory and Yukon Territory (the "Jurisdictions") hasreceived an application (the "Application") from U.S. Bank, N.A. ("U.S. Bank") for a decision pursuant to thesecurities legislation of the Jurisdictions (the "Legislation") that U.S. Bank is exempt from various registration,prospectus and filing requirements of the Legislation in connection with the banking business to be carried on byU.S. Bank in the Jurisdictions;
AND WHEREAS, pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS it has been represented by U.S. Bank to the Decision Makers that:
1. U.S. Bank is established under the laws of the United States and is the principal bank subsidiary of U.S.Bancorp in the United States. U.S. Bancorp is an entity formed under the laws of the State of Delaware.U.S. Bank is seeking an order under the Bank Act (Canada) (the "Bank Act") permitting it to establish a fullservice branch under the Bank Act and designating it on Schedule III.
2. Initially, the business of U.S. Bank in Canada will be the delivery of corporate and purchasing card servicesto Canada businesses and government entities. Local treasury operations of U.S. Bank in Canada willprovide funding and liquidity for the various activities of U.S. Bank in Canada. It is expected that the U.S.Bank in Canada will be an active participant in the overnight interbank market and offer commercial paperprograms.
3. U.S. Bank only accepts deposits from the following:
(a) Her Majesty in right of Canada or in right of a province or territory, an agent of Her Majesty ineither of those rights and includes a municipal or public body empowered to perform a function ofgovernment in Canada, or an entity controlled by Her Majesty in either of those rights;
(b) the government of a foreign country or any political subdivision thereof, an agency of thegovernment of a foreign country or any political subdivision thereof, or an entity that is controlledby the government of a foreign country or any political subdivision thereof;
(c) an international agency of which Canada is a member, including an international agency that is amember of the World Bank Group, the Inter American Development Bank, the Asian DevelopmentBank, the Caribbean Development Bank and the European Bank for Reconstruction andDevelopment and any other international regional bank;
(d) a financial institution (i.e.: (a) a bank or an authorized foreign bank under the Bank Act; (b) a bodycorporate to which the Trust and Loan Companies Act (Canada) applies; (c) an association towhich the Cooperative Credit Association Act (Canada) applies; (d) an insurance company or afraternal benefit society to which the Insurance Companies Act (Canada) applies; (e) a trust, loanor insurance corporation incorporated by or under an Act of the legislature of a province or territoryin Canada; (f) a cooperative credit society incorporated and regulated by or under an Act of thelegislature of a province or territory in Canada; (g) an entity that is incorporated or formed by orunder an Act of Parliament or of the legislature of a province or territory in Canada and that isprimarily engaged in dealing in securities, including portfolio management and investmentcounseling, and is registered to act in such capacity under the applicable Legislation; and (h) aforeign institution that is (i) engaged in the banking, trust, loan or insurance business, the businessof a cooperative credit society or the business of dealing in securities or is otherwise engagedprimarily in the business of providing financial services, and (ii) is incorporated or formedotherwise than by or under an Act of Parliament or of the legislature of a province or territory inCanada);
(e) a pension fund sponsored by an employer for the benefit of its employees or employees of anaffiliate that is registered and has total plan assets under administration of greater than $100million;
(f) a mutual fund corporation that is regulated under an Act of the legislature of a province or territoryin Canada or under the laws of any other jurisdiction and has total assets under administration ofgreater than $10 million;
(g) an entity (other than an individual) that has, for the fiscal year immediately preceding the initialdeposit, gross revenues on its own books and records of greater than $5 million; or
(h) any other person if the deposit is, in the aggregate, greater than $150,000;
collectively referred to for purposes of this Decision as "Authorized Purchasers".
4. The only advising activities which U.S. Bank will undertake are incidental to its primary business and it hasnot and will not advertise itself as an adviser or allow itself to be advertised as an adviser in theJurisdictions.
5. In June of 1999 amendments to the Bank Act were proclaimed that permit foreign commercial banks toestablish direct branches in Canada. These amendments have created a new Schedule III listing foreignbanks permitted to carry on banking activities through branches in Canada.
6. U.S. Bank has filed an application under the Bank Act to establish a full service branch under the Bank Actand designating it on Schedule III to the Bank Act.
7. The Legislation applicable in each Jurisdiction refers to either "Schedule I and Schedule II banks", "banks","savings institutions" or "financial institutions" in connection with certain exemptions however no referenceis made in any of the Legislation to entities listed on Schedule III to the Bank Act.
8. In order to ensure that U.S. Bank, as an entity listed on Schedule III to the Bank Act, is able to providebanking services to businesses in the Jurisdictions it requires exemptions under the Legislation which aresimilar to the exemptions applicable to banking institutions incorporated under the Bank Act to the extentthat the current exemptions applicable to such banking institutions are relevant to the banking businessbeing undertaken by U.S. Bank in the Jurisdictions.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that in connection with the bankingbusiness to be carried on by U.S. Bank in the Jurisdictions:
1. U.S. Bank is exempt from the requirement under the Legislation, where applicable, to be registered as anunderwriter with respect to the same types of securities that an entity listed on Schedule I or II to the BankAct may act as an underwriter in respect of without being required to be registered under the Legislation asan underwriter.
2. U.S. Bank is exempt from the requirement under the Legislation to be registered as an adviser where theperformance of the service as an adviser is solely incidental to its primary banking business.
3. A trade of a security to U.S. Bank where U.S. Bank purchases the security as principal shall be exemptfrom the registration and prospectus requirements of the Legislation of the Jurisdiction in which the tradetakes place (the "Applicable Legislation") provided that:
(i) the forms that would have been filed and the fees that would have been paid under the ApplicableLegislation if the trade had been made, on an exempt basis, to an entity listed on Schedule I or IIto the Bank Act purchasing as principal (referred to in this Decision as a "Schedule I or II BankExempt Trade") are filed and paid in respect of the trade to U.S. Bank, and
(ii) the first trade in a security acquired by U.S. Bank pursuant to this Decision is deemed adistribution (or primary distribution to the public) under the Applicable Legislation unless:
(a) the issuer of the security is a reporting issuer, or the equivalent, under the ApplicableLegislation and, if U.S. Bank is in a special relationship (where such term is defined in theApplicable Legislation) with such issuer, U.S. Bank has reasonable grounds to believethat such issuer is not in default of any requirements of the Applicable Legislation;
(b) (i) the securities are listed and posted for trading on a stock exchange, that isrecognized by the Decision Maker of the applicable Jurisdiction for purposes ofthe resale of a security acquired in a Schedule I or II Bank Exempt Trade, andcomply with the requirements of either paragraph (a) or (b) of Appendix A to thisDecision and have been held at least six months from the date of the initialexempt trade to U.S. Bank or the date the issuer became a reporting issuer, orthe equivalent, under the Applicable Legislation, whichever is the later, or
(ii) the securities are bonds, debentures or other evidences of indebtedness issuedor guaranteed by an issuer or are preferred shares of an issuer and comply withthe requirements set out in paragraph (a) or (c), of Appendix A to this Decision,and have been held at least six months from the date of the initial exempt tradeto U.S. Bank or the date the issuer became a reporting issuer, or the equivalent,under the Applicable Legislation, whichever is the later, or
(iii) the securities are listed and posted for trading on a stock exchange, that isrecognized by the Decision Maker of the applicable Jurisdiction for purposes ofthe resale of a security acquired in a Schedule I or II Bank Exempt Trade, or arebonds, debentures or other evidences of indebtedness issued or guaranteed bythe reporting issuer, or the equivalent, under the Applicable Jurisdiction whosesecurities are so listed, and have been held at least one year from the date ofthe initial exempt trade to U.S. Bank or the date the issuer became a reportingissuer, or the equivalent, under the Applicable Legislation, whichever is later, or
(iv) the securities have been held at least eighteen months from the date of theinitial exempt trade to U.S. Bank or the date the issuer became a reportingissuer, or the equivalent, under the Applicable Legislation, whichever is later;and
(c) U.S. Bank files a report within 10 days of the trade prepared and executed in accordancewith the requirements of the Applicable Legislation that would apply to a Schedule I or IIBank Exempt Trade,
provided that no unusual effort is made to prepare the market or to create a demand for suchsecurities and no extraordinary commission or consideration is paid in respect of such trade andprovided U.S. Bank does not hold sufficient number of securities to materially affect the control ofthe issuer of such securities but any holding by U.S. Bank of more than 20 per cent of theoutstanding voting securities of the issuer of such securities shall, in the absence of evidence tothe contrary, be deemed to affect materially the control of such issuer.
4. Provided U.S. Bank only trades the types of securities referred to in this paragraph 4 with AuthorizedPurchasers, trades of bonds, debentures or other evidences of indebtedness of or guaranteed by U.S.Bank shall be exempt from the registration and prospectus requirements of the Legislation.
5. Evidences of deposit issued by U.S. Bank to Authorized Purchasers shall be exempt from the registrationand prospectus requirements of the Legislation.
THE FURTHER DECISION of the Decision Maker in Ontario is that in connection with the bankingbusiness to be carried on by U.S. Bank in Ontario:
A. Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O. 1990 c. S.5 (as amended) (the "Act") does notapply to a trade by U.S. Bank:
(i) of a type described in subsection 35(1) of the Act or section 151 of the Regulations madeunder the Act; or
(ii) in securities described in subsection 35(2) of the Act.
B. Except as provided for in paragraph 3 of this Decision, section 28 of Schedule I to the Regulations madeunder the Act shall not apply to trades made by U.S. Bank in reliance on this Decision.
December 4th, 2000.
"Howard I. Wetston" "Stephen N. Adams"
APPENDIX A
(a) are preferred shares of a corporation if,
(i) the corporation has paid a dividend in each of the five years immediately preceding thedate of the initial exempt trade at least equal to the specified annual rate upon all of itspreferred shares, or
(ii) the common shares of the corporation are, at the date of the initial exempt trade, incompliance with paragraph (b) of this Appendix A;
(b) are fully paid common shares of a corporation that during a period of five years that ended less than oneyear before the date of the initial exempt trade has either,
(i) paid a dividend in each such year upon its common shares, or
(ii) had earnings in each such year available for the payment of a dividend upon its commonshares of at least 4% of the average value at which the shares were carried in the capitalstock account of the corporation during the year in which the dividend was paid or inwhich the corporation had earnings available for the payment of dividends as the casemay be;
(c) are bonds debentures or other evidences of indebtedness issued or guaranteed by,
(i) a corporation if, at the date of the initial exempt trade, the preferred shares or thecommon shares of the corporation which comply with paragraph (a) or (b) of thisAppendix A, or
(ii) a corporation if its earnings in a period of five years ended less than one year before thedate of the initial exempt trade have been equal in sum total to at least ten times and ineach of any four of the five years have been equal to at least 1-1/2 times the annualinterest requirements at the date of the initial exempt trade on all indebtedness of orguaranteed by it, other than indebtedness classified as a current liability in its balancesheet, and, if the corporation at the date of the initial exempt trades owns directly orindirectly more than 50% of the common shares of another corporation, the earnings ofthe corporations during the said period of five years may be consolidated with dueallowance for minority interests, if any, and in that event the interest requirements of thecorporation shall be consolidated and such consolidated earnings and consolidatedinterest requirements shall be taken as the earnings and interest requirements of thecorporation, and, for the purpose of this subclause, "earnings" mean earnings available tomeet interest charges on indebtedness other than indebtedness classified as a currentliability.