Mutual Reliance Review System for ExemptiveRelief Applications - revocation and restatement of MRRS DecisionDocument dated October 31, 2002 In The Matter of RBC DominionSecurities Inc. and In The Matter of Strip Residuals, StripCoupons and Strip Packages (Including Packages of Strip Couponsand Par Adjusted Rate Strips™) Derived by RBCDominion Securities Inc. from Debt Obligations of Canadian Corporateand Trust Issuers ("CARS and PARS Programme") of RBCDominion Securities Inc. permitting Strip Securities to be issuedunder the CARS and PARS Programme by other dealers in additionto RBC Dominion Securities Inc.
Exemption granted from the eligibility requirementsof National Instrument 44-102 Shelf Distributions and NationalInstrument 44-101 Short Form Prospectus Distributions to permitthe filing of an amended and restated shelf prospectus and prospectussupplements (the "Amended and Restated Prospectus")qualifying for distribution strip residuals, strip coupons andstrip packages (the "Strip Securities") to be derivedfrom debt obligations ("Underlying Obligations") ofCanadian corporations and trusts; exemption also granted fromthe requirements that the Amended and Restated Prospectus containa certificate of the issuer and that it incorporate by referencedocuments of the Underlying Issuer.
The exemptions are subject to the followingconditions (i) all of the Underlying Obligations from whichthe Strip Securities are derived were qualified under prospectusesfiled in British Columbia, Alberta, Ontario, Quebec, at leastfour months have passed from the sale of the Underlying Obligationsand the distribution of the Underlying Obligations is complete;(ii) when the Strip Securities are sold the Underlying Issueris eligible to file a short form prospectus; (iii) the Amendedand Restated Prospectus is not effective after December 19,2004; (iv) the Amended and Restated Prospectus complies withall the requirements of NI 44-101 and NI 44-102 except thosefrom which an exemption is granted by the decision documentor granted by the regulators as evidenced by the receipt forthe Amended and Restated Prospectus; (v) the Filer issues apress release and files a material change report for each materialchange which affects the Strip Securities but not an UnderlyingIssuer and any change in CDS's Debt Clearing Procedures whichmay have a significant effect on a holder of Strip Securities;(vi) the Filer files the Amended and Restated Prospectus, therequired material changes reports and all other documents relatedthereto on SEDAR under a SEDAR profile for the Strip Securitiesand pays all SEDAR filing fees (vii) if the Underlying ObligationsProspectus is not available through the SEDAR website, eachFiler who is participating in the offering of the series ofStrip Securities derived from those Underlying Obligations agreesto provide a copy of it without charge and (viii) the exemptionsgiven do not apply to any offering of securities in which CIBCWorld Markets Inc. participates if any securities are distributedunder the prospectus dated February 11, 2003 filed for the C&TStrips Program of CIBC World Markets Inc. after the date followingthe date of the final receipt for the Amended and Restated Prospectusif those securities could have been distributed at the timeunder the Amended and Restated Prospectus.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.,subsection 58(1).
Applicable National Instruments
National Instrument 44-101 Short Form ProspectusDistributions.
National Instrument 44-102 Shelf Distributions.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,
ONTARIO, QUÉBEC, NEWBRUNSWICK, NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR,
YUKON TERRITORY, NORTHWESTTERRITORIES AND NUNAVUT
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
RBC DOMINION SECURITIES INC.,BMO NESBITT BURNS INC., CIBC WORLD MARKETS INC., NATIONAL
BANK FINANCIAL INC., SCOTIACAPITAL INC. AND TD SECURITIES INC. (THE "DEALERS")
IN THE MATTER OF
THE COUPONS AND RESIDUALS("CARS"™) AND
PAR ADJUSTED RATE STRIPS™("PARS"™) PROGRAMME OF THE DEALERS
MRRS DECISION DOCUMENT
WHEREAS RBC Dominion Securities Inc.obtained a MRRS Decision Document dated October 31, 2002 fromthe local securities regulatory authority or regulator (the"Decision Maker") in each of British Columbia, Alberta,Saskatchewan, Manitoba, Ontario, Québec, New Brunswick,Prince Edward Island, Nova Scotia, Newfoundland and Labrador,Yukon Territory, Northwest Territories and Nunavut (collectively,the "Jurisdictions") to permit it to establish a stripbond product programme to be offered by shelf prospectus;
AND WHEREAS CIBC World Markets Inc. obtaineda MRRS Decision Document dated January 29, 2003 from the DecisionMakers to permit it to establish a similar strip bond programmeto be offered by shelf prospectus;
AND WHEREAS the Decision Makers havereceived a subsequent application from RBC Dominion SecuritiesInc., BMO Nesbitt Burns Inc., CIBC World Markets Inc., NationalBank Financial Inc., Scotia Capital Inc. and TD Securities Inc.(each a "Filer", and collectively, the "Filers"or the "Dealers") for a decision pursuant to the securitieslegislation of the Jurisdictions (the "Legislation")that the following requirements shall not apply, in respectof any Underlying Issuer (as defined below) whose UnderlyingObligations (as defined below) are purchased by the Filer(s)on the secondary market, and separate components of interest,principal or combined principal and interest components derivedtherefrom sold under the CARS and PARS Programme (as definedbelow):
(a) Section 2.1 of National Instrument 44-102Shelf Distributions ("NI 44-102") and section2.1 of National Instrument 44-101 Short Form ProspectusDistributions ("NI 44-101") so that an amendedand restated short form prospectus (which amends and restatesthe base shelf prospectus dated November 19, 2002 for theCARS and PARS Programme) which is a base shelf prospectustogether with the appropriate prospectus supplements (the"Amended and Restated Prospectus") can be filedto offer the Strip Securities (as defined below) in theJurisdictions;
(b) the requirements of the Legislationthat the Amended and Restated Prospectus contain a certificateof the issuer; and
(c) the requirements of the Legislationthat the Amended and Restated Prospectus incorporate byreference documents of an Underlying Issuer.
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Quebec Securities CommissionNotice 14-101;
AND WHEREAS the Filers have representedto the Decision Makers that:
1. The Filers propose to operate a strip bondproduct programme (the "CARS and PARS Programme")to be offered by shelf prospectus;
2. The CARS and PARS Programme will be operatedby purchasing, on the secondary market, publicly-issued debtobligations of Canadian corporate and/or or trust issuers("Underlying Issuers"), which obligations will carryan "approved rating" as such term is defined inNI 44-101 (the "Underlying Obligations"), at thetime of the closing of the discrete offering in respect ofthe related strip securities (the "Offering Date"),and deriving separate components therefrom, being:
(a) separate components of principal ("StripResiduals") and interest ("Strip Coupons"),and/or
(b) packages of strip securities ("StripPackages"), including packages of:
(i) Strip Coupons; and
(ii) Par Adjusted Rate Strips ("PARS").PARS will comprise an entitlement to receive the principalamount of, and a portion, equal to a market rate (at thetime of issuance of the PARS), of the interest payableunder the Underlying Obligations.
The Strip Residuals, Strip Coupons and StripPackages (including packages of Strip Coupons and PARS) areeach referred to as "Strip Securities");
3. The relevant Underlying Issuer will, tothe best of the knowledge of each Filer participating in therelevant offering under the CARS and PARS Programme, be eligibleto file a short form prospectus under NI 44-101 (whether sucheligibility results from the specific qualification criteriaof NI 44-101 or from the granting of an exemption from thosecriteria) at the Offering Date;
4. The Underlying Obligations will have beendistributed under a prospectus for which a receipt was grantedby the regulator in British Columbia, Alberta, Ontario, andQuebec;
5. A single short form base shelf prospectushas been established for the CARS and PARS Programme as awhole, with a separate series of Strip Securities being offeredunder a discrete prospectus supplement for each distinct seriesor class of Underlying Obligations;
6. It is expected that the Strip Securitieswill be predominantly sold to retail customers;
7. The CARS and PARS Programme is designedto provide a mechanism for retail investors to participatein the secondary market for corporate debt. The PARS componentof the CARS and PARS Programme is designed to make availablea strip package that is priced at or about par by way of includingan interest component reflective of a current market rateplus return of principal at maturity;
8. It is expected that the Filers, or certainof them, will periodically identify, as demand indicates,series of outstanding debt obligations of Canadian corporationsor trusts and will purchase and "repackage" individualseries of these for sale under the CARS and PARS Programmeas discrete series of Strip Securities. In purchasing theUnderlying Obligations and creating the Strip Securities,the Filers will not enter into any agreement or other arrangementswith the Underlying Issuers;
9. The Amended and Restated Prospectus willrefer purchasers of the Strip Securities to the System forElectronic Document Analysis and Retrieval ("SEDAR")website maintained by The Canadian Depository for SecuritiesLimited ("CDS") (currently located at www.sedar.com)where they can obtain the continuous disclosure materialsof the Underlying Issuer;
10. The Filers, or certain of them, may, fromtime to time, form and manage a selling group consisting ofother registered securities dealers to solicit purchases ofand sell to the public the Strip Securities;
11. The Strip Securities will be sold in series,each such series relating to separate Underlying Obligationsof an Underlying Issuer. The base shelf prospectus for usewith the CARS and PARS Programme will describe the CARS andPARS Programme in detail. The shelf prospectus supplementfor any series of Strip Securities that are offered will describethe specific terms of the Strip Securities;
12. Each offering of Strip Securities willbe derived from one or more Underlying Obligations of a singleclass or series of an Underlying Issuer. The Filer(s) participatingin each offering under the CARS and PARS Programme intendto separate the Underlying Obligations for such series intoseparate principal and interest components, or strip bonds.These components will, in connection with each series, bere-packaged if and as necessary to create the Strip Securities;
13. The Strip Residuals of a particular serieswill consist of the entitlement to receive payments of a portionof the principal amounts payable under the Underlying Obligations,if, as and when paid by the Underlying Issuer on the UnderlyingObligations, in accordance with their respective terms;
14. The Strip Coupons of a particular serieswill consist of the entitlement to receive a payment of aportion of the interest payable under the Underlying Obligations,if, as and when paid by the Underlying Issuer on the UnderlyingObligations, in accordance with their respective terms;
15. The Strip Packages will consist of theentitlement to receive (a) in the case of PARS, both paymentsof a portion of the principal amounts payable and periodicpayments of a portion equal to a market rate (at the timeof issuance of the PARS) of the interest payable under theUnderlying Obligations, and/or (b) in the case of packagesconsisting of Strip Coupons, periodic payments of portionsof the interest payable, or the principal amounts payable,under the Underlying Obligations, in each case, if, as andwhen paid by the Underlying Issuer on the Underlying Obligations,in accordance with their respective terms;
16. Holders of a series of Strip Securitieswill be entitled to payments from cash flows from the relatedUnderlying Obligations if, as and when made by the respectiveUnderlying Issuer. The Strip Securities of one series willnot be entitled to receive any payments from the cash flowsof Underlying Obligations related to any other series. Asthe Underlying Issuers will be the sole obligors under therespective Underlying Obligations, holders of Strip Securitieswill be entirely dependent upon the Underlying Issuers' abilityto perform their respective obligations under their respectiveUnderlying Obligations;
17. The Strip Securities will be sold at pricesdetermined by the Filers from time to time and, as such, thesemay vary as between purchasers of the same series and duringthe offering period of Strip Securities of the same series.In quoting a price for the Strip Securities, the Filers willadvise the purchaser of the annual yield to maturity thereofbased on such price;
18. The Underlying Issuers will not receiveany proceeds, and the Filers will not be entitled to be paidany fee or commission by the Underlying Issuers, in respectof the sale by the Filers or the members of any selling groupof the Strip Securities. Each Filer's overall compensationwill be increased or decreased by the amount by which theaggregate price paid for a series of the Strip Securitiesby purchasers exceeds or is less than the aggregate pricepaid by such Filer for the related Underlying Obligations;
19. The maturity dates of any particular seriesof Strip Coupons and the interest component of Strip Packageswill be coincident with the interest payment dates for theUnderlying Obligations, with terms of up to 30 years or longer.The maturity date of a particular series of Strip Residualsand the principal component of Strip Packages, if any, willbe the maturity date of the Underlying Obligations for theseries;
20. The Strip Securities will be issuablein Canadian and U.S. dollars and in such minimum denomination(s)and with such maturities as may be described in the applicableshelf prospectus supplement;
21. The Underlying Issuers will be Canadiancorporations or trusts. The Underlying Obligations are securitiesof the Underlying Issuers. The Strip Securities will be derivedwithout regard, except as to ratings and eligibility to filea short form prospectus under NI 44-101, for the value, price,performance, volatility, investment merit or creditworthinessof the Underlying Issuers historically or prospectively;
22. To be eligible for inclusion in the CARSand PARS Programme, the Underlying Obligations must have beenqualified for distribution under a prospectus for which areceipt was issued by the regulators in British Columbia,Alberta, Ontario and Quebec, at least four months must havepassed from the date of closing of the original issue of therelevant class or series of Underlying Obligations and thedistribution of the Underlying Obligations must be complete;
23. The Filers will cause all Underlying Obligationsfrom which the Strip Securities will be derived and whichare not already in the CDS system to be delivered to CDS andregistered in the name of CDS. The Underlying Obligationsfrom which the Strip Securities will be derived will, exceptin very limited circumstances, be held by CDS until theirmaturity and will not otherwise be released or removed fromthe segregated account used by CDS to maintain the UnderlyingObligations. A separate security identification number orISIN will be assigned by CDS to each series of Strip Securities;
24. Pursuant to the operating rules and proceduresof its Debt Clearing Service, or any successor operating rulesand procedures, CDS will maintain book based records of ownershipfor the Strip Securities, entering in such records only thenames of participants ("Participants") in the depositorysystem of CDS. No purchaser of Strip Securities will be entitledto any certificate or other instrument from the UnderlyingIssuer, the Filers or CDS evidencing the Strip Securitiesor the ownership thereof, and no purchaser of Strip Securitieswill be shown on the records maintained by CDS except throughthe book entry account of a Participant. Upon the purchaseof Strip Securities, the purchaser will receive only the customaryconfirmation slip that will be sent to such purchaser by oneof the Filers or another Participant;
25. Transfers of beneficial ownership in StripSecurities will be effected through records maintained forStrip Securities by CDS or its nominee (with respect to interestsof Participants) and on the records of Participants (withrespect to interests of persons other than Participants).Beneficial holders who are not Participants, but who desireto purchase, sell or otherwise transfer beneficial ownershipof, or any other interest in, such Strip Securities of a series,may do so only through Participants;
26. Payments in respect of a principal component(if any), interest component(s) (if any), or other amounts(if any) owing under a series of Strip Securities will bemade from payments received by CDS in respect of the relatedUnderlying Obligations from the relevant Underlying Issuer.Amounts payable on the maturity of the Strip Securities willbe payable by the Underlying Issuer to CDS as the registeredholder of the Underlying Obligations. Following receipt thereof,CDS will pay to each of its Participants shown on its recordsas holding matured Strip Securities the amount to which suchParticipant is entitled. The Filers will, and the Filers understandthat each other Participant, who holds such Strip Securitieson behalf of a purchaser thereof will, pay or otherwise accountto such purchaser for the amounts received by it in accordancewith the instructions of the purchaser to such Participant.Holders of a series of Strip Securities will not have anyentitlement to receive payments under any Underlying Obligationsacquired in connection with the issue of any other seriesof Strip Securities;
27. As the registered holder of the UnderlyingSecurities, CDS will receive any voting rights in respectof the Underlying Obligations for the Strip Securities. CDSwill allocate these rights to the holders of the Strip Securitiesin accordance with the operating rules and procedures of itsDebt Clearing Service, or any successor operating rules andprocedures, in effect at the time. These procedures currentlyprovide for the distribution of the voting rights based onthe "proportionate economic interest", determinedas described in the base shelf prospectus for use with theCARS and PARS Programme. Such voting rights will be vestedon a series by series basis. In order for a holder of StripSecurities to have a legal right to attend a meeting of holdersof Underlying Obligations, or to vote in person, such holderof Strip Securities must be appointed as proxyholder for thepurposes of the meeting by the CDS Participant through whomhe or she holds Strip Securities;
28. In the event that an Underlying Issuerrepays a callable Underlying Obligation prior to maturityin accordance with its terms, CDS will allocate the amountof proceeds it receives as the registered holder of the UnderlyingObligations to the holders of the Strip Securities in accordancewith the operating rules and procedures of its Debt ClearingService, or any successor operating rules and procedures,in effect at the time. These procedures currently providefor the distribution of proceeds on the repayment of a callableUnderlying Obligation based on the "proportionate economicinterest"; and
29. Any other entitlements received by CDSwith respect to the Underlying Obligations upon the occurrenceof an event other than in respect of maturity, including entitlementson the insolvency or winding-up of an Underlying Issuer, thenon-payment of interest or principal when due, or a defaultof the Underlying Issuer under any trust indenture or otheragreement governing the Underlying Obligations, will be processedby CDS in accordance with the operating rules and proceduresof its Debt Clearing Service, or any successor operating rulesand procedures, in effect at the time. These procedures alsocurrently provide for CDS to distribute the resulting cashand/or securities to the holders of the Strip Securities basedon "proportionate economic interest". In addition,if the Underlying Issuer offers an option to CDS as the registeredholder of the Underlying Obligations in connection with theevent, the Filers understand that CDS will attempt to offerthe same option to the holders of the Strip Securities, wherefeasible.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers underthe Legislation is that:
1. in respect of the CARS and PARS Programme:
(a) An exemption is granted from section2.1 of NI 44-102 and section 2.1 of NI 44-101 to permitthe Amended and Restated Prospectus to be filed and receiptsissued therefor;
(b) The requirements in the Legislationthat the Amended and Restated Prospectus contain a certificateof the issuer shall not apply; and
(c) The requirement in the Legislation thatthe Amended and Restated Prospectus incorporate by referenceany document of an Underlying Issuer shall not apply;
(i) The Underlying Obligations were qualifiedfor distribution under a prospectus (the "UnderlyingObligations Prospectus") for which a receipt wasissued by the regulators in British Columbia, Alberta,Ontario and Quebec, at least four months have passed fromthe date of closing of the original issue of the relevantclass or series of Underlying Obligations and the distributionof the Underlying Obligations is complete;
(ii) If the Underlying Obligations Prospectusis not available through the SEDAR website, the prospectussupplement for the series of Strip Securities derivedfrom the Underlying Obligations for which the prospectusis not available states that a copy of the UnderlyingObligations Prospectus may be obtained, upon request,without charge, from each Filer who is participating inthe offering of the series of Strip Securities derivedfrom these Underlying Obligations;
(iii) To the best of the knowledge ofthe Filer(s) participating in a relevant offering underthe CARS and PARS Programme, the relevant Underlying Issueris eligible to file a short form prospectus under NI 44-101(whether such eligibility results from the specific qualificationcriteria of NI 44-101 or from the granting of an exemptionfrom those criteria) at the Offering Date;
(iv) A receipt issued for the Amendedand Restated Prospectus issued in reliance on this DecisionDocument is not effective after December 19, 2004;
(v) The offering and sale of the StripSecurities complies with all the requirements of NI 44-102and NI 44-101 as varied by NI 44-102, other than thosefrom which an exemption is granted by this Decision Documentor from which an exemption is granted in accordance withPart 11 of NI 44-102 by the securities regulatory authorityor regulator in each of the Jurisdictions as evidencedby a receipt for the Prospectus;
(vi) The Filers issue a press releaseand file a material change report in respect of:
A. a material change to the CARS andPARS Programme which affects any of the Strip Securitiesother than a change which is a material change to anUnderlying Issuer; and
B. a change in the operating rules andprocedures of the Debt Clearing Service of CDS, or anysuccessor operating rules and procedures in effect atthe time, which may have a significant effect on a holderof Strip Securities.
(vii) The Filers file the Amended andRestated Prospectus, the material change reports referredto above, and all documents related thereto on SEDAR undera SEDAR profile for the Strip Securities and pay all filingfees applicable to such filings; and
(viii) The exemptions given in this DecisionDocument do not apply to any offering of securities inwhich CIBC World Markets Inc. participates if any securitiesare distributed under the prospectus dated February 11,2003 filed for the C&T Strips Program of CIBC WorldMarkets Inc. after the date following the date of thefinal receipt for the Amended and Restated Prospectusif those securities could have been distributed at thetime under the Amended and Restated Prospectus; and
2. the MRRS Decision Document dated October31, 2002 In The Matter of RBC Dominion Securities Inc. andIn The Matter of Strip Residuals, Strip Coupons and StripPackages (Including Packages of Strip Coupons and Par AdjustedRate Strips™) Derived by RBC Dominion SecuritiesInc. from Debt Obligations of Canadian Corporate and TrustIssuers ("CARS and PARS Programme") of RBC DominionSecurities Inc. is revoked effective as of the date followingthe date of the final receipt for the Amended and RestatedProspectus.
March 6, 2003.