Investment Industry Regulatory Organization of Canada -- s. 147 of the Act and s. 80 of the CFA

Headnote

Application under section 147 of the Securities Act (Ontario) and under section 80 of the Commodity Futures Act (Ontario) from section 9 of the recognition order in connection with the distribution of settlement funds and interest earned on these funds paid to IIROC by three member firms under settlement agreements that resolved proposed proceedings related to the sale of third-party asset-backed commercial paper.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s. 147.

Commodity Futures Act, R.S.O. 1990, c.20, as am., s. 80.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O 1990, CHAPTER S.5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the "CFA")

AND

IN THE MATTER OF

INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA

("IIROC")

ORDER

(Section 147 of the Act and Section 80 of the CFA)

UPON the application ("the Application") of Investment Industry Regulatory Organization of Canada ("IIROC") to the Ontario Securities Commission (the "Commission") for an order pursuant to section 147 of the Securities Act (Ontario) (the "Act") and to section 80 of the Commodity Futures Act (Ontario) (the "CFA") exempting IIROC from the requirements of Section 9 of Appendix A ("Section 9") of the Commission's Order dated May 16, 2008, effective June 1, 2008, as varied and restated by an Order of the Commission dated May 28, 2010, recognizing IIROC as a self-regulatory organization ("SRO") pursuant to section 21.1 of the Act and subsection 16(1) of the CFA, in connection with the proposed distribution by IIROC of funds (including interest earned on those funds, the "Settlement Funds") paid to it by three member firms (the "Settling Firms") under settlement agreements accepted by IIROC hearing panels on December 21, 2009 (the "Settlement Agreements") that resolved proposed proceedings related to the sale of third-party asset-backed commercial paper ("ABCP") by the Settling Firms to clients of the Settling Firms who purchased ABCP from or through the Settling Firms in the circumstances described in the Settlement Agreements;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON IIROC having represented to the Commission that:

1. IIROC has been recognized as an SRO under the Act and the CFA and under similar legislation in all other provinces of Canada.

2. On December 21, 2009, the Autorité des marchés financiers ("AMF"), the Commission and IIROC announced that they had reached settlements that resulted from investigations into the Canadian ABCP market providing for the payment of administrative penalties and investigation costs.

3. The Settling Firms were Scotia Capital Inc. ("Scotia"), Canaccord Financial Ltd. (now Canaccord Genuity Corp.) ("Canaccord") and Credential Securities Inc. ("Credential").

4. Under the Settlement Agreements, Scotia paid IIROC $28,950,000, Canaccord paid $3,100,000 and Credential paid $200,000 in Settlement Funds.

5. Subsequent to the settlements, IIROC determined, with the approval of its Corporate Governance Committee, to allocate the Settlement Funds to investors who purchased ABCP from the Settling Firms.

Scotia Settlement Funds

6. IIROC wishes to distribute the Settlement Funds received from Scotia to investors who purchased ABCP issued by Coventree Inc. ("Coventree ABCP") from Scotia between July 25 and August 10, 2007, inclusive, who continued to hold this ABCP on August 13, 2007, the date the third-party ABCP market froze, and who were not aware of the fact that a number of Coventree conduits contained significant U.S. subprime exposure, as disclosed in an email sent to Scotia by Coventree on July 24, 2007.

7. Each such investor will receive a proportionate amount of the Settlement Funds paid by Scotia, based on the purchase price paid by the investor, less any cash amounts received by the investor with respect to its Coventree ABCP on or before January 12, 2009 or subsequently from a registered dealer, other than Scotia, from or through whom the investor purchased its Coventree ABCP.

8. IIROC will publish a news release jointly with the Commission announcing its proposed distribution and the terms on which investors are eligible to obtain their proportionate amount of the Settlement Funds paid by Scotia and will send a joint Commission-IIROC notice (the "Joint Notice") to all such investors, describing the eligibility criteria and the method of calculating the funds to be distributed to them.

9. As Canaccord and Credential purchased Coventree ABCP directly or indirectly from Scotia during the relevant period, Canaccord and Credential will be entitled to participate in the distribution on behalf of their clients who purchased this Coventree ABCP through or from them and who satisfy the eligibility criteria contained in the Joint Notice, but neither Canaccord nor Credential will be entitled to participate in the distribution of these Settlement Funds on their own behalf.

Canaccord & Credential Settlement Funds

10. Canaccord and Credential each established relief programs under which they returned to their clients a substantial amount of their losses from the purchase of third-party ABCP.

11. Clients of Canaccord and Credential who purchased third-party ABCP from one of them, other than Coventree ABCP purchased directly or indirectly from Scotia after July 24, 2007, and who continued to hold this ABCP on August 13, 2007 will receive a proportionate share of the Settlement Funds paid to IIROC by Canaccord or Credential, as applicable, based on the purchase price paid by the client for the third-party ABCP held on August 13, 2007, less any cash amounts received by the client with respect to the ABCP from Canaccord or Credential or otherwise.

12. IIROC will publish a news release announcing its proposed distribution and the terms on which investors are eligible to obtain their proportionate amount of the Settlement Funds paid by Canaccord and Credential and will send a notice (the "IIROC Notice") to all such investors, describing the eligibility criteria and the method of calculating the funds to be distributed to them.

13. None of Scotia, Canaccord or Credential will be permitted to receive any of the Settlement Funds, directly or indirectly.

14. IIROC and the Commission have agreed jointly to retain an administrator (the "Administrator") to administer the distribution of the Settlement Funds paid by the Settling Firms and of settlement funds paid by the other firms that entered into settlement agreements approved by the Commission on December 21, 2009 and have agreed to share the costs of the administration of all the settlement funds, in particular, the Administrator's fees and expenses, on a proportionate basis; IIROC wishes to pay its share of the Administrator's fees and expenses from the Settlement Funds.

15. Section 9 restricts the use of the Settlement Funds to specified purposes that benefit investors; it permits IIROC to use payments made under settlement agreements for the administration of its disciplinary hearing panels or, subject to approval by IIROC's Corporate Governance Committee, the development of systems and other non-recurring capital expenditures necessary to address emerging regulatory issues and education about and research into investing and similar matters, but these purposes do not permit it to use the Settlement Funds to benefit investors by distributing the Settlement Funds or paying the costs of administration relating to distribution of the Settlement Funds.

AND UPON the Commission being satisfied that it would not be prejudicial to the public interest for the Commission to grant the requested exemption:

IT IS ORDERED pursuant to section 147 of the Act and section 80 of the CFA that IIROC is exempt from Section 9 with respect to the distribution of the Settlement Funds to investors and/or clients of the Settling Firms who satisfy the eligibility criteria in the Joint Notice and the IIROC Notice, as applicable, including the costs of administration of the distribution.

DATED at Toronto this 23rd day of March, 2012.