Securities Law & Instruments

Headnote

Order to amend and restate a previous order of the Commission dated December 16, 2013, In the Matter of Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund and Knowledge First Financial Inc. -- Previous order had exempted the applicant from the requirement in subsection 110(1) of Regulation 1015, made under the Securities Act, that the applicant participate in a compensation fund or contingency trust fund that that has been approved by the Commission and satisfies certain other requirements set out in that subsection -- New order provides applicant with additional time to provide notice of its exemption to its existing clients.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 144, 147.

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., s. 110(1).

Notices Cited

Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund, (2012) 35 OSCB 1087.

Orders Cited

In the Matter of Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund and Certain Registered Dealers, (2013) 36 OSCB 2913.

In the Matter of Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund and Knowledge First Financial Inc., (2014) 37 OSCB 91.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the "Act")

AND

REGULATION 1015, R.R.O. 1990, AS AMENDED, MADE UNDER THE ACT (the "Regulation")

AND

IN THE MATTER OF ONTARIO SECURITIES COMMISSION STAFF NOTICE 33-739 TERMINATION OF THE ONTARIO CONTINGENCY TRUST FUND AND KNOWLEDGE FIRST FINANCIAL INC.

COMMISSION ORDERS (Sections 144 and 147 of the Act)

Background

1. Subsection 110(1) of the Regulation requires every registered dealer, other than an exempt market dealer as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registration Obligations (NI 31-103), to participate in a compensation fund or contingency trust fund that has been approved by the Commission and satisfies certain other requirements set out in that subsection (the compensation fund participation requirement).

2. The Ontario Contingency Trust Fund (the OCTF or Plan) is one of three compensation funds or contingency trust funds that have been approved by the Commission for the purposes of subsection 110(1) of the Regulation.

3. The terms of the OCTF are set out in a form of trust agreement (the Trust Agreement) that has been entered into by each participant in the Plan with the trustee (the Trustee) of the Plan.

4. Certain registered dealers (OCTF Dealers) that are not members of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) participate in the OCTF, and as such do not participate in the corresponding approved compensation fund for members of these self-regulatory organizations.

5. OCTF Dealers comprise scholarship plan dealers and mutual fund dealers that obtained an exemption from the requirement in Ontario securities law to be a member of the MFDA.

6. As indicated in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund (the OSC Notice), the continued operation of the Plan is not financially sustainable. The Trustee has proposed that the OCTF be wound up in accordance with advice and direction from the court, and the Commission has advised the Trustee that it does not object to the Trustee pursuing such a wind-up.

7. In anticipation of the future wind-up of the OCTF, staff of the Commission invited OCTF Dealers to apply for an exemption from the compensation fund participation requirement on terms, and following the simplified procedure, set out in the OSC Notice.

Applications

Knowledge First Financial (Knowledge First) is registered under the Act as a dealer in the category of "scholarship plan dealer". (Knowledge First is also registered under the Act as an "investment fund manager".)

Knowledge First is currently a participant in the OCTF.

Knowledge First is one of a number of OTC Dealers (collectively, the Filers) that applied for and obtained an order from the Commission dated March 15, 2013, In the Matter of Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund and Certain Registered Dealers (the Original Commission Order) exempting the Filers from the compensation fund participation requirement, on terms set out in the Original Commission Order which was effective on April 14, 2013 (the Effective Date). The attached Annex includes as a Schedule a copy of the Original Commission Order as it was published in the OSC Bulletin.

As one of the terms and conditions on its exemption in the Original Commission Order, Knowledge First was required to provide certain disclosure (the Existing Client Notice) to existing clients within 60 days of the Effective Date, as more particularly set out in paragraph (i) C. of the Original Commission Order.

Knowledge First applied for and obtained a variation order from the Commission dated December 16, 2013 (the First Variation Order) amending and restating the Original Commission Order, insofar as applies to Knowledge First as a Filer, and allowing Knowledge First additional time to provide the Existing Client Notice. The attached Annex contains a copy of the First Variation Order.

Knowledge First has made an application (the Second Variation Application) to the Commission for an amendment and restatement of the First Variation Order to allow Knowledge First additional time to provide the Existing Client Notice.

Representations of Knowledge First

In its Second Variation Application, Knowledge First has represented to the Commission that:

a) Knowledge First is Canada's second-largest scholarship plan dealer, with approximately 400,000 clients in Canada.

b) Knowledge First included the Existing Client Notice as part of another general mailing to existing clients that took place on or about January 31, 2014, in order to avoid a prohibitively expensive separate mailing of the Existing Client Notice.

c) Knowledge First has been advised by legal counsel for the Trustee that the OCTF is still in existence and that under the wind-up of the OCTF that is being pursued by the Trustee it is expected that:

i. coverage under the OCTF will continue to be available until a "coverage end date" which will not be before February 28, 2014;

ii. client claims may continue to be submitted to the OCTF any time up to a "claims bar date" which will not be before April 1, 2014.

d) Knowledge First is not a member of either IIROC or the MFDA, and Knowledge First is not required by Ontario securities law to be a member of either of these self-regulatory organizations.

e) Knowledge First does not now hold for its clients any funds, securities or other property (Client Assets), and since the Effective Date Knowledge First has not held any Client Assets.

f) So long as Knowledge First relies upon the exemption from the compensation fund participation requirement as herein provided, Knowledge First will not hold any Client Assets.

g) Before any person or company that was not a client of Knowledge First on the Effective Date becomes (or became) a client of Knowledge First, Knowledge First will provide (or has provided) to that person or company prominent written notice of the following:

Knowledge First has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.

It is a condition of the exemption that Knowledge First not hold any client assets.

h) On or about January 31, 2014, Knowledge First sent to each person or company that was then a client of Knowledge First and was also a client of Knowledge First on the Effective Date prominent written notice of the following:

Knowledge First has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.

It is a condition of the exemption that Knowledge First not hold any client assets.

Knowledge First was a participant in the Ontario Contingency Trust Fund at the time it applied for this exemption. It applied for this exemption in response to the proposed wind-up of that fund, as discussed in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund.

i) Knowledge First will not rely upon the passport provisions of Canadian securities legislation to passport these Commission Orders into any other jurisdiction of Canada without the prior written consent of that other jurisdiction.

Commission Orders

In the opinion of the Commission it is not prejudicial to the public interest to make these Orders.

It is ordered by the Commission that:

i. pursuant to section 144 of the Act, the First Variation Order is varied to revoke the exemption from subsection 110(1) of the Regulation granted by the Commission to Knowledge First in the First Variation Order, and

ii. pursuant to section 147 of the Act, beginning on the date hereof, Knowledge First is exempt from subsection 110(1) of the Regulation, but only so long as:

A. Knowledge First is not required by Ontario securities law to be a member of either IIROC or the MFDA;

B. Knowledge First does not hold any Client Assets; and

C. Knowledge First provides the disclosure to its clients referred to in paragraph (g) above and has provided the disclosure to its clients referred to in paragraph (h) above.

DATED at Toronto, Ontario this 25 day of February, 2014.

"Deborah Leckman"
"Judith Robertson"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission

 

ANNEX

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the "Act")

AND

REGULATION 1015, R.R.O. 1990, AS AMENDED, MADE UNDER THE ACT (the "Regulation")

AND

IN THE MATTER OF ONTARIO SECURITIES COMMISSION STAFF NOTICE 33-739 TERMINATION OF THE ONTARIO CONTINGENCY TRUST FUND AND KNOWLEDGE FIRST FINANCIAL INC.

COMMISSION ORDERS (Sections 144 and 147 of the Act)

Background

1. Subsection 110(1) of the Regulation requires every registered dealer, other than an exempt market dealer as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registration Obligations (NI 31-103), to participate in a compensation fund or contingency trust fund that has been approved by the Commission and satisfies certain other requirements set out in that subsection (the compensation fund participation requirement).

2. The Ontario Contingency Trust Fund (the OCTF or Plan) is one of three compensation funds or contingency trust funds that have been approved by the Commission for the purposes of subsection 110(1) of the Regulation.

3. The terms of the OCTF are set out in a form of trust agreement (the Trust Agreement) that has been entered into by each participant in the Plan with the trustee (the Trustee) of the Plan.

4. Certain registered dealers (OCTF Dealers) that are not members of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) participate in the OCTF, and as such do not participate in the corresponding approved compensation fund for members of these self-regulatory organizations.

5. OCTF Dealers comprise scholarship plan dealers and mutual fund dealers that obtained an exemption from the requirement in Ontario securities law to be a member of the MFDA.

6. As indicated in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund (the OSC Notice), the continued operation of the Plan is not financially sustainable. The Trustee has proposed that the OCTF be wound up in accordance with advice and direction from the court, and the Commission has advised the Trustee that it does not object to the Trustee pursuing such a wind-up.

7. In anticipation of the future wind-up of the OCTF, staff of the Commission invited OCTF Dealers to apply for an exemption from the compensation fund participation requirement on terms, and following the simplified procedure, set out in the OSC Notice.

Applications

Knowledge First Financial (Knowledge First) is registered under the Act as a dealer in the category of "scholarship plan dealer". (Knowledge First is also registered under the Act as an "investment fund manager".)

Knowledge First is currently a participant in the OCTF.

Knowledge First is one of a number of OTC Dealers (collectively, the Filers) that applied for and obtained an order from the Commission dated March 15, 2013, In the Matter of Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund and Certain Registered Dealers (the Previous Commission Order) exempting the Filers from the compensation fund participation requirement, on terms set out in the Previous Commission Order which was effective on April 14, 2013 (the Effective Date). The attached Schedule contains a copy of the Previous Commission Order as it was published in the OSC Bulletin.

As one of the terms and conditions on its exemption in the Previous Commission Order, Knowledge First was required to provide certain disclosure (the Existing Client Notice) to existing clients within 60 days of the Effective Date, as more particularly set out in paragraph (i) C. of the Previous Commission Order.

Knowledge First has made an application (the Variation Application) to the Commission for a amendment and restatement of the Previous Commission Order, insofar as applies to Knowledge First as a Filer, to allow Knowledge First additional time to provide the Existing Client Notice.

Representations of Knowledge First

In its Variation Application, Knowledge First has represented to the Commission that:

a) Knowledge First is Canada's second-largest scholarship plan dealer, with approximately 400,000 clients in Canada.

b) Knowledge First proposes to include the Existing Client Notice as part of another general mailing to existing clients that will take place on or before December 31, 2013, in order to avoid a prohibitively expensive separate mailing of the Existing Client Notice.

c) Knowledge First has been advised by legal counsel for the Trustee that the OCTF is still in existence and that under the wind-up of the OCTF that is being pursued by the Trustee it is expected that:

i. coverage under the OCTF will continue to be available until a "coverage end date" which will not be before January 31, 2014;

ii. client claims may continue to be submitted to the OCTF any time up to a "claims bar date" which will not be before March 1, 2014.

d) Knowledge First is not a member of either IIROC or the MFDA, and Knowledge First is not required by Ontario securities law to be a member of either of these self-regulatory organizations.

e) Knowledge First does not now hold for its clients any funds, securities or other property ("Client Assets"), and since the Effective Date Knowledge First has not held any Client Assets.

f) So long as Knowledge First relies upon the exemption from the compensation fund participation requirement as herein provided, Knowledge First will not hold any Client Assets.

g) Before any person or company that was not a client of Knowledge First on the Effective Date becomes (or became) a client of Knowledge First, Knowledge First will provide (or has provided) to that person or company prominent written notice of the following:

Knowledge First has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.

It is a condition of the exemption that Knowledge First not hold any client assets.

h) By no later than December 31, 2013, Knowledge First will have sent to any person or company that is now a client of Knowledge First and was a client of Knowledge First on the Effective Date prominent written notice of the following:

Knowledge First has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.

It is a condition of the exemption that Knowledge First not hold any client assets.

Knowledge First was a participant in the Ontario Contingency Trust Fund at the time it applied for this exemption. It applied for this exemption in response to the proposed wind-up of that fund, as discussed in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund.

i) Knowledge First will not rely upon the passport provisions of Canadian securities legislation to passport these Commission Orders into any other jurisdiction of Canada without the prior written consent of that other jurisdiction.

Commission Orders

In the opinion of the Commission it is not prejudicial to the public interest to make these Orders.

It is ordered by the Commission that:

i. pursuant to section 144 of the Act, the Previous Commission Order is varied to revoke the exemption from subsection 110(1) of the Regulation granted by the Commission to Knowledge First in the Previous Commission Order, and

ii. pursuant to section 147 of the Act, beginning on the date hereof, Knowledge First is exempt from subsection 110(1) of the Regulation, but only so long as:

A. Knowledge First is not required by Ontario securities law to be a member of either IIROC or the MFDA;

B. Knowledge First does not hold any Client Assets; and

C. Knowledge First provides the disclosure to its clients referred to in paragraph (g) above and has provided the disclosure to its clients referred to in paragraph (h) above.

DATED at Toronto, Ontario this 16th day of December, 2013.

"Edward P. Kerwin"
"Alan J. Lenczner"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission

 

Schedule

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the "Act"),

AND

REGULATION 1015, R.R.O. 1990, AS AMENDED, MADE UNDER THE ACT (the "Regulation")

AND

ONTARIO SECURITIES COMMISSION RULE 13-502 FEES (the "Fee Rule")

AND

IN THE MATTER OF ONTARIO SECURITIES COMMISSION STAFF NOTICE 33-739 TERMINATION OF THE ONTARIO CONTINGENCY TRUST FUND AND CERTAIN REGISTERED DEALERS

COMMISSION ORDER (Section 147 of the Act)

DIRECTOR EXEMPTION DECISION (Section 6.1 of the Fee Rule)

Background

1. Subsection 110(1) of the Regulation requires every registered dealer, other than an exempt market dealer as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registration Obligations (NI 31-103), to participate in a compensation fund or contingency trust fund that has been approved by the Commission and satisfies certain other requirements set out in that subsection (the compensation fund participation requirement).

2. The Ontario Contingency Trust Fund (the OCTF or Plan) is one of three compensation funds or contingency trust funds that have been approved by the Commission for the purposes of subsection 110(1) of the Regulation.

3. The terms of the OCTF are set out in a form of trust agreement (the Trust Agreement) that has been entered into by each participant in the Plan with the trustee (the Trustee) of the Plan.

4. Twenty-nine registered dealers (OCTF Dealers) that are not members of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) participate in the OCTF, and as such do not participate in the corresponding approved compensation fund for members of these self-regulatory organizations.

5. OCTF Dealers comprise scholarship plan dealers and mutual fund dealers that obtained an exemption from the requirement in Ontario securities law to be a member of the MFDA.

6. As indicated in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund (the Notice), the continued operation of the Plan is not financially sustainable. The Trustee has proposed that the OCTF be wound up in accordance with advice and direction from the court and the Commission has advised the Trustee that it does not object to the Trustee pursuing such a wind-up.

Applications

Each of the OCTF Dealers (each, a Filer) listed in the attached Appendix has applied to the Commission for an order, under section 147 of the Act, exempting the Filer from the compensation fund participation requirement on the terms set out in this Order.

Each Filer has also applied to the Director, under section 6.1 of the Fee Rule, for an exemption from the requirement in section 4.1 to pay a fee for its filing of these exemption applications.

Representations of each Filer

Each Filer has represented to the Commission and the Director that:

a. The Filer is not a member of either IIROC or the MFDA, and the Filer is not required by Ontario securities law to be a member of either of these self-regulatory organizations.

b. The Filer does not now hold for its clients any funds, securities or other property (Client Assets).

c. So long as the Filer relies upon the exemption from the compensation fund participation requirement set out in this Order, the Filer will not hold any Client Assets.

d. Before any person or company that is not a client of the Filer on the Effective Date (defined below) becomes a client of the Filer, the Filer will provide to that person or company prominent written notice of the following:

The Filer has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.

It is a condition of the exemption that the Filer not hold any client assets.

e. Within 60 days of the Effective Date, the Filer will have provided to any person or company that is an existing client of the Filer prominent written notice of the following:

The Filer has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.

It is a condition of the exemption that the Filer not hold any client assets.

The Filer was a participant in the Ontario Contingency Trust Fund at the time it applied for this exemption. It applied for this exemption in response to the proposed wind-up of that fund, as discussed in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund.

f. The Filer will not rely upon the passport provisions of Canadian securities legislation to passport this Ontario Order into any other jurisdiction of Canada without the prior written consent of that other jurisdiction.

Commission Order

In the opinion of the Commission it is not prejudicial to the public interest to make this Order.

It is ordered by the Commission pursuant to section 147 of the Act that:

(i) beginning on the Effective Date (as defined below), each of the Filers is exempt from subsection 110(1) of the Regulation, but only so long as, in the case of that Filer:

A. the Filer is not required by Ontario securities law to be a member of either IIROC or the MFDA;

B. the Filer does not hold any Client Assets; and

C. the Filer provides the disclosure to its clients referred to in paragraph (d) above and has provided the disclosure to its clients referred to in the paragraph (e) above; and

(ii) this Order shall be effective on the day that is 30 calendar days after the date hereof (the "Effective Date").

DATED at Toronto, Ontario this 15 day of March, 2013.

"Mary Condon"
"James Turner"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission

Director Exemption Decision

The Director is satisfied that to grant this Exemption would not be prejudicial to the public interest.

It is the decision of the Director, pursuant to section 6.1 of the Fee Rule, that each Filer is exempt from the requirement in section 4.1 of the Fee Rule to pay an activity fee for the filing by the Filer of the above-referenced applications.

DATED at Toronto, Ontario this 15 day of March, 2013.

"Marrianne Bridge"
Deputy Director,
Compliance and Registrant Regulation
Ontario Securities Commission

 

APPENDIX

1. AGF Investments Inc.

2. BluMont Capital Corporation

3. Brandes Investment Partners & Co.

4. Children's Education Funds Inc.

5. CI Funds Services Inc.

6. Citibank Canada Investment Funds Limited

7. C.S.T. Consultants Inc.

8. Equilife Investment Management Inc.

9. Fidelity Investments Canada ULC

10. Franklin Templeton Investments Corp.

11. FT Portfolios Canada Co.

12. Global RESP Corporation

13. Invesco Canada Ltd.

14. Knowledge First Financial Inc.

15. Matco Financial Inc.

16. Mawer Investment Management Ltd.

17. MFS McLean Budden Limited

18. NexGen Financial Limited Partnership

19. Portland Investment Counsel Inc.

20. Russell Investments Canada Limited

21. Sentry Invesments Inc.

22. Strathbridge Asset Management Inc.

23. Sun Life Global Investments (Canada) Inc.