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Bayerische Landesbank Girozentrale - 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 a guaranteed by Schedule III Bankprovided trades involve only specified purchases - prospectus and registration relief for evidences of deposits issuedby Schedule III bank to specified purchases - fee relief for trades made in reliance on Decision.
Section 80 of the Commodity Futures Act - relief for Schedule III bank from requirement to register as an adviser wherethe performance of the service is incidental to principal banking business.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., 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.
Commodity Futures Act, R.S.O. 1990, c.S.20, as am., sections 22(1)(b), 80.
Regulations Cited
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., s. 151, 206, 218. Schedule 1 Section 28.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK, NOVA SCOTIA,
PRICE 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
BAYERISCHE LANDESBANK GIROZENTRALE
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provincesof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince EdwardIsland, Newfoundland and Labrador, Northwest Territories, Nunavut Territory and Yukon Territory (the "Jurisdictions")has received an application (the "Application") from Bayerische Landesbank Girozentrale (the "Bank") for a decisionpursuant to the securities legislation of the Participating Jurisdictions (the "Legislation") that the Bank is exempt fromvarious registration, prospectus and filing requirements of the Legislation in connection with the banking activities to becarried on by 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 Bank to the Decision Makers that:
1. The Bank is a public law institution created by statute to serve as the state bank of the Free State of Bavaria("Bavaria"), a state (Land) of the Federal Republic of Germany, and as the central credit institution for themunicipalities and other local public authorities in Bavaria and for the Bavarian savings banks organized underpublic law. The Bank is currently the second largest German landesbank and the sixth largest bank inGermany in terms of total consolidated assets. The Bank has maintained a presence in Canada since 1977through a representative office;
2. The Bank has submitted, through the Office of the Superintendent of Financial Institutions (Canada) ("OSFI"),a draft application to the Minister of Finance (Canada) (the "Minister") for an order pursuant to subsection524(1) of the Bank Act permitting the Bank to establish a full-service Canadian Branch. OSFI has reviewedthe draft application and supporting materials and, pursuant to subsection 525(2) of the Bank Act, authorizedthe Bank to publish notice of its intention to apply for an order pursuant to subsection 524(1) of the Bank Act.The notices have been published in the Canada Gazette and The Globe and Mail newspaper, and the objectionperiod within which a person may object to the issuance of the subsection 524(1) order will expire on December25, 2000. A formal application, by letter, for the Minister's order will be made forthwith thereafter. It isanticipated that the Minister's order pursuant to subsection 524(1) of the Bank Act will be made in early January2001. Following a commencement review by OSFI thereafter, it is anticipated that an order of theSuperintendent of Financial Institutions (Canada) pursuant to subsection 534(1) authorizing the Bank tocommence and carry on business in Canada through its Canadian Branch will be made in mid to late January2001.
3. The key businesses of the Bank in Canada will be to provide wholesale deposit-taking, commercial lending andcorporate finance advisory services and related treasury functions to corporate clients, and to governments atthe municipal, provincial and federal levels as well as Crown agencies. The Bank will source participants andact as agent bank in syndicated loan transactions;
4. Local treasury operations of the Bank will provide funding and liquidity for the lending activities of the Bank inCanada, and will engage in proprietary risk taking activities including interest rate and currency trading. Thetreasury function will also manage the investment portfolio of the Bank holding government and corporate debtand the use of derivative products as asset/liability management tools.
5. The Bank will be an active participant in the overnight interbank market, and will accept term deposits frommajor Canadian and multi-national corporations and will derive a portion of its funding from brokered deposits.Subject to the deposit restrictions described in paragraph 9 below, these deposits will be evidenced bycertificates of deposit registered in the holder's name, bearer deposit notes or printed confirmations addressedto the depositor.
6. The Bank will participate in the primary and secondary market in the following money market products:commercial paper, certificates of deposit, repurchase agreements and bankers' acceptances;
7. The advising activities which the Bank will undertake will be incidental to its primary business and it will notadvertise itself as an adviser or allow itself to be advertised as an adviser in the Jurisdictions;
8. The Bank will engage in foreign exchange trading, interest arbitrage/swaps and derivatives/options trading(derivatives/options trading to be only on customers' orders);
9. The Bank will only accept deposits from the following:
(a) Her Majesty in right of Canada or in right of a province or territory, an agent of Her Majesty in eitherof 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 the governmentof a foreign country or any political subdivision thereof, or an entity that is controlled by thegovernment 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 and Developmentand 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 to whichthe Cooperative Credit Association Act (Canada) applies; (d) an insurance company or a fraternalbenefit society to which the Insurance Companies Act (Canada) applies; (e) a trust, loan or insurancecorporation incorporated by or under an Act of the legislature of a province; (f) a cooperative creditsociety incorporated and regulated by or under an Act of the legislature of a province or territory inCanada; (g) an entity that is incorporated or formed by or under an Act of Parliament or of thelegislature of a province or territory in Canada and that is primarily engaged in dealing in securities,including portfolio management and investment counseling, and is registered to act in such capacityunder the applicable Legislation; and (h) a foreign institution that is (i) engaged in the banking, trust,loan or insurance business, the business of a cooperative credit society or the business of dealing insecurities or is otherwise engaged primarily in the business of providing financial services, and (ii) isincorporated or formed otherwise than by or under an Act of Parliament or of the legislature of aprovince or territory in Canada);
(e) a pension fund sponsored by an employer for the benefit of its employees or employees of an affiliatethat is registered and has total plan assets under administration of greater than $100 million;
(f) a mutual fund corporation that is regulated under an Act of the legislature of a province or territory inCanada or under the laws of any other jurisdiction and has total assets under administration of greaterthan $10 million;
(g) an entity (other than an individual) that has for the fiscal year immediately preceding the initial deposit,gross revenues on its own books and records of greater than $5 million; or
(h) any other person if the trade is in a security which has an aggregate acquisition cost to the purchaserof greater than $150,000;
collectively referred to for purposes of this Decision Document as "Authorized Purchasers";
10. The Canadian Branch of Bayerische will engage in foreign exchange advisory activities in respect of suchactivities as hedging arrangements and management of exchange rates;
11. 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 foreign bankspermitted to carry on banking activities through branches in Canada;
12. 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 reference ismade in any of the Legislation to entities listed on Schedule III to the Bank Act;
13. In order to ensure that the Bank, as an entity listed on Schedule III to the Bank Act, is able to provide bankingservices to businesses in the Jurisdictions it requires similar exemptions enjoyed by banking institutionsincorporated under the Bank Act to the extent that the current exemptions applicable to such bankinginstitutions are relevant to the banking business to be undertaken by the 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 that providesthe 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 the Bank in the Jurisdictions:
1. The Bank is exempt from the requirement under the Legislation, where applicable, to be registered as anunderwriter with respect to trading in the same types of securities that an entity listed on Schedule I or II to theBank Act (Canada) may act as an underwriter in respect of without being required to be registered under theLegislation as an underwriter;
2. The 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 the Bank where the Bank purchases the security as principal shall be exempt from theregistration and prospectus requirements of the Legislation of the Jurisdiction in which the trade takes 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 II tothe Bank Act purchasing as principal (referred to in this Decision as a "Schedule I or II Bank ExemptTrade") are filed and paid in respect of the trade to the Bank; and
(ii) the first trade in a security acquired by the Bank pursuant to this Decision is deemed a distribution (orprimary 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 the Bank is in a special relationship (where such term is defined in theApplicable Legislation) with such issuer, the Bank has reasonable grounds to believe thatsuch 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 of theresale of a security acquired in a Schedule I or II Bank Exempt Trade and complywith the requirements set out in paragraph (a) or (b) of Appendix A to this Decisionand have been held at least six months from the date of the initial exempt trade tothe Bank or the date the issuer became a reporting issuer, or the equivalent, underthe Applicable Legislation, whichever is the later, or
(ii) the securities are bonds, debentures or other evidences of indebtedness issued orguaranteed by an issuer or are preferred shares of an issuer and comply with therequirements set out in paragraph (a) or (c) of Appendix A to this Decision and havebeen held at least six months from the date of the initial exempt trade to the Bankor the date the issuer became a reporting issuer, or the equivalent, under theApplicable 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 ofresale of a security acquired in a Schedule I or II Bank Exempt Trade or are bonds,debentures or other evidences of indebtedness issued or guaranteed by thereporting issuer, or the equivalent, under the Applicable Jurisdiction whosesecurities are so listed, and have been held at least one year from the date of theinitial exempt trade to the Bank or the date the issuer became a reporting issuer,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 the initialexempt trade to the Bank or the date the issuer became a reporting issuer, or theequivalent, under the Applicable Legislation, whichever is later; and
(c) The Bank files a report within 10 days of the trade prepared and executed in accordance withthe requirements of the Applicable Legislation that would apply to a Schedule I or II BankExempt 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 the Bank does not hold a sufficient number of securities to materially affect the control of theissuer of such securities but any holding by the Bank of more than 20 percent of the outstandingvoting securities of the issuer of such securities shall, in the absence of evidence to the contrary, bedeemed to affect materially the control of such issuer;
4. Provided the 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 the Bankshall be exempt from the registration and prospectus requirements of the Legislation; and
5. Evidences of deposit issued by the Bank to Authorized Purchasers shall be exempt from the registration andprospectus requirements of the Legislation.
THE FURTHER DECISION of the Decision Maker in Ontario is that:
A. Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O. 1990 c. S.5 (as amended) (the "Ontario Act") doesnot apply to a trade by the Bank:
(i) of a type described in subsection 35(1) of the Act or section 151 of the regulations made under theOntario Act; or
(ii) in securities described in subsection 35(2) of the Ontario Act; and
B. Except as provided for in paragraph 3 of this Decision, section 28 of Schedule I to the Regulations made underthe Ontario Act shall not apply to trades made by the Bank in reliance on this Decision.
February 6, 2001.
"Howard I. Wetston" "John A. Geller"
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 the date of theinitial exempt trade at least equal to the specified annual rate upon all of its preferred shares, or
(ii) the common shares of the corporation are, at the date of the initial exempt trade, in compliance withparagraph (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 one yearbefore 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 common shares,
of at least 4% of the average value at which the shares were carried in the capital stock account of thecorporation during the year in which the dividend was paid or in which the corporation had earnings availablefor the payment of dividends as the case may 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 the common shares ofthe corporation which comply with paragraph (a) or (b) of this Appendix A, or
(ii) a corporation if its earnings in a period of five years ended less than one year before the date of theinitial exempt trade have been equal in sum total to at least ten times and in each of any four of thefive years have been equal to at least 1-1/2 times the annual interest requirements at the date of theinitial exempt trade on all indebtedness of or guaranteed by it, other than indebtedness classified asa current liability in its balance sheet, and, if the corporation at the date of the initial exempt tradesowns directly or indirectly more than 50% of the common shares of another corporation, the earningsof the corporations during the said period of five years may be consolidated with due allowance forminority interests, if any, and in that event the interest requirements of the corporation shall beconsolidated and such consolidated earnings and consolidated interest requirements shall be takenas the earnings and interest requirements of the corporation, and, for the purpose of this subclause,"earnings" mean earnings available to meet interest charges on indebtedness other than indebtednessclassified as a current liability.