Securities Law & Instruments

Headnote

In jurisdictions where there is no Limited Market Dealer (LMD) registration category, persons or companies that would be required to register as Exempt Market Dealers (EMDs) have a one year transition period before they must become registered in the new category. However, in Ontario and Newfoundland and Labrador, LMDs automatically became registered as EMDs as soon as NI 31-103 Registration Requirements and Exemptions (NI 31-103) came into force on September 28, 2009. These "mapped-over EMDs" thus became immediately subject to the financial statement and capital calculation delivery requirements and the client statement delivery requirements in NI 31-103 without the benefit of a transition period.

The Director has made a decision that provides transitional relief to mapped-over EMDs from:

1. the requirements in subsection 12.12(1) to deliver audited annual financial statements and prescribed capital calculations for a period of one year, consistent with the other solvency-related transitional relief provided in section 16.3; and

2. the requirements in section 14.14 to deliver certain client statements for a period of two years, consistent with that which section 16.17 provides for mutual fund dealers.

The relief is only available to the extent a mapped-over EMD is not registered in another category that requires delivery of financial statements or client statements during the applicable transition period.

September 28, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NATIONAL INSTRUMENT 31-103

REGISTRATION REQUIREMENTS

AND EXEMPTIONS

(NI 31-103 or the Instrument) AND

CROSBIE & COMPANY INC. AND CERTAIN OTHER

LIMITED MARKET DEALERS THAT HAVE BECOME

EXEMPT MARKET DEALERS UNDER

SUBSECTION 16.3(2) OF NI 31-103

 

DECISION

Interpretation

Unless otherwise defined in this decision or the context otherwise requires, terms used in this decision that are defined in NI 31-103 have the same meaning, and other terms used in this decision that are defined in National Instrument 14-101 Definitions or Multilateral Instrument 11-102 Passport System (MI 11-102) have the same meaning.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the Commission) is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of MI 11-102 is intended to be relied upon in Newfoundland and Labrador.

Background

1. NI 31-103 came into force on September 28, 2009 (the Effective Date).

2. Under subsection 16.3(2), in Ontario and Newfoundland and Labrador, persons or companies that were registered in those jurisdictions as limited market dealers immediately before the coming into force of NI 31-103 (LMDs) have been automatically registered in the jurisdiction as exempt market dealers (EMDs, such former LMDs referred to in this decision document as "mapped-over EMDs").

3. Subsection 12.12(1) provides that a registered dealer (including an EMD) must within 90 days after the end of the registrant's financial year deliver (a) annual audited financial statements including information prescribed in section 12.10 and (b) a completed Form 31-103F1 Calculation of Excess Working Capital showing prescribed information.

4. Mapped-over EMDs were not subject to financial statement filing requirements or capital requirements prior to the coming into force of NI 31-103 unless they were also registered in certain other categories.

5. Section 14.14 provides that a registered dealer (including an EMD) must deliver client statements including prescribed information, in some circumstances on a monthly basis and, in any event, at least once every three months.

6. Mapped-over EMDs were not subject to client statement requirements prior to the coming into force of NI 31-103 unless they were also registered in certain other categories.

7. There is no transition provision for the application of subsection 12.12(1) or section 14.14 to mapped-over EMDs, although NI 31-103 does include transition provisions for other requirements where immediate compliance may pose significant costs or practical difficulties for registrants -- including subsections 16.3(1) and (4), which provide that in Ontario and Newfoundland Labrador, section 12.1 [Capital requirements] does not apply to a mapped-over EMD until one year after the Instrument comes into force, and section 16.17, which provides that, in all jurisdictions, section 14.14 does not apply to a person or company that is a mutual fund dealer (MFD) on the day the instrument comes into force until two years after that day (a mapped-over MFD).

Application

The Filer has applied to the regulator in Ontario (the Decision Maker), under section 15.1 of NI 31-103, for exemptions for itself and any other mapped-over EMD (together with the Filer, the Filers) from:

1. the audited annual financial statement and Form 31-103F1 delivery requirements in subsection 12.12(1) (together, the Financial Statement Requirements) until one year after the Effective Date, subject to the conditions and restrictions set out in this decision; and

2. the client statement requirements in section 14.14 (the Client Statement Requirement) for a period of two years from the Effective Date, subject to the conditions and restrictions set out in this decision.

Filers may also be mapped-over EMDs in Newfoundland and Labrador and in such cases, the Filers have provided notice that section 4.7(1) of MI 11-102 is intended to be relied upon on the same basis in Newfoundland and Labrador; but otherwise this decision is not intended to be relied upon by any Filer in any other jurisdiction under MI 11-102.

Representations of the Filers

1. Each of the Filers is a mapped-over EMD.

2. Compliance with the Financial Statement Requirements would present practical difficulties and significant costs for Filers who are not already subject to comparable requirements as a result of registration in another category.

3. A transitional relief period of one year will enable them to make adequate preparations to comply with the Financial Statement Requirements.

4. Immediate compliance with the Client Statement Requirements will pose practical difficulties and significant costs for Filers who are not already subject to comparable requirements as a result of registration in another category.

5. A transitional relief period of two years will enable them to make adequate preparations to comply with the Client Statement Requirements.

Decision

The Decision Maker is satisfied that this decision meets the test set out in the securities legislation (the Legislation) of the Jurisdiction for the Decision Maker to make the decision.

The decision of the Decision Maker under the Legislation is that:

1. each Filer is exempt from the Financial Statement Requirement provided that it is not registered in any other category of registration in Ontario or Newfoundland and Labrador; and

2. each Filer is exempt from the Client Statement Requirement provided that it is not registered in any other category of registration in Ontario or Newfoundland and Labrador except as a mapped-over MFD or an investment fund manager.

This decision with respect to the Financial Statement Requirement will expire one year after the Effective Date.

This decision with respect to the Client Statement Requirement will expire two years after the Effective Date.

"Erez Blumberger"
Manager, Registrant Regulation
Ontario Securities Commission