Securities Law & Instruments

Headnote

Order to vary previous orders granting filers certain relief from National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) under section 15.1 of NI 31-103 -- previous orders provided relief to permit filers who are exempt market dealers or restricted dealers and registered with the U.S. Securities Exchange Commission (SEC) and members of the Financial Regulatory Authority (FINRA) to provide margin, to file the US FOCUS Report in lieu of Form 31-103F1, and to file the annual audited financial statements that it files with the SEC and FINRA -- previous order varied to extend the sunset clause to the earlier of the date on which amendments to NI 31-103 come into force limiting brokerage activities in which exempt market dealers or restricted dealers engage or December 31, 2014 -- extension of sunset clause is in line with CSA Staff Notice 31-333 Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 12.1, 12.10, 12.12(1)(b), 12.13(b), 13.12, 15.1.

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 3.15(b).

December 20, 2013

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
CERTAIN EXEMPT MARKET DEALER AND RESTRICTED DEALER FIRMS LISTED IN SCHEDULE A
(the FILERS)

DECISION

UPON the application (the Application) to the principal regulator in the Jurisdiction by the Director (the Director) for a decision, pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), to vary previous orders (the Previous Orders) of the principal regulator made under section 15.1 of NI 31-103 with respect to the Filers.

AND WHEREAS the Previous Orders provided that the Filers are exempt, subject to certain terms and conditions, from the following requirements contained in NI 31-103:

(a) the requirement contained in section 13.12 of NI 31-103 that a registrant must not lend money, extend credit or provide margin to a client (the Margin Relief);

(b) the requirement contained in section 12.1 of NI 31-103 to maintain and calculate excess working capital using Form 31-103F1 Calculation of Excess Working Capital and instead use United States Securities and Exchange Commission Form X-17a-5 (FOCUS Report);

(c) the requirement contained in paragraphs 12.12(1)(b) and 12.13(b) of NI 31-103 to deliver Form 31-103F1 and instead to deliver the FOCUS Report (together with (b) above, the FOCUS Relief);

(d) the requirement contained in subsection 3.15(b) Acceptable Accounting Principles for Foreign Registrants of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements be prepared in accordance with U.S. GAAP, except that any investment in subsidiaries, jointly controlled entities and associates must be accounted for as specified for separate financial statements in International Accounting Standard 27 Consolidated and Separate Financial Statements (IAS 27); and

(e) the requirement contained in section 12.10 Annual financial statements of NI 31-103 that the registrant prepare a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and a statement of financial position for the financial year immediately preceding the most recently completed financial year and that at least one director of the registrant sign the registrant's statement of financial position so long as the registrant delivers to the principal regulator the annual audited financial statements that it files with the Securities Exchange Commission (SEC) and the Financial Regulatory Authority (FINRA) (together with (d) above, the Financial Statement Relief).

AND WHEREAS a condition in the Previous Orders is that the relief is subject to a sunset clause which expires on December 31, 2013.

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

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

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is being relied upon in the jurisdictions noted in Schedule A for each Filer.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and the Previous Orders have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the same representations made by the Filers in the Previous Orders and which remain true and complete.

The Filers were granted Margin Relief, FOCUS Relief and Financial Statement Relief as noted in Schedule A for each Filer subject to certain terms and conditions including a sunset clause while the Canadian Securities Administrators (CSA) considered the regulatory issues arising from FINRA member firms seeking registration in the EMD category. It was hoped that by December 31, 2013, amendments to NI 31-103 would have been made effective to prohibit EMDs or restricted dealers from conducting brokerage activities. Proposed rule amendments were published on December 5, 2013, as part of the ongoing amendments to NI 31-103. However, the public comment period will last for 90 days and the rule amendments are not expected to be effective until December, 2014.

It would be appropriate to include a new sunset clause in the Previous Orders to extend the relief until such rule amendments become effective. The extension of the sunset clause in the Previous Orders is in line with CSA Staff Notice 31-333 Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category which was published on February 7, 2013 and which indicates that EMDs and restricted dealers may continue to conduct brokerage activities until rule amendments become effective.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

It is the decision of the principal regulator that, in line with CSA Staff Notice 31-333 Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category, the Previous Orders shall expire on the date that is the earlier of:

(a) The date on which amendments to NI 31-103 come into force limiting the brokerage activities in which EMDs or restricted dealers may engage; and

(b) December 31, 2014.

"Debra Foubert"
Director, Compliance & Registrant Regulation
Ontario Securities Commission

 

Schedule A

Filer

Date of Previous Order

Type of Relief

Jurisdictions

 

Goldman Sachs & Co.

September 28, 2010, July 27, 2011 and June 15, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory

 

Goldman Sachs Execution & Clearing, LP

September 28, 2010, July 27, 2011 and June 15, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory

 

Morgan Stanley & Co. LLC

September 28, 2010, November 15, 2011 and July 11, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, North West Territories, Nunavut

 

Morgan Stanley Smith Barney LLC

September 28, 2010, November 15, 2011 and July 11, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, North West Territories, Nunavut

 

Merrill Lynch, Pierce, Fenner & Smith Incorporated

September 21, 2012

FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Quebec

 

Piper Jaffray & Co.

October 29, 2010, November 4, 2011 and October 9, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Manitoba, Quebec

 

JP Morgan Securities LLC

November, 11, 2011 and November 7, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, North West Territories, Nunavut

 

Credit Suisse Securities (USA) LLC

September 28, 2010, February 3, 2012 and November 16, 2012

Margin, FOCUS Report, Financial Statements

Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, North West Territories, Nunavut