Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm -- the firms are affiliated entities and have valid business reasons for the representatives to be registered with both firms -- policies in place to handle potential conflicts of interest -- institutional clients provided disclosure regarding the dual registrations.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.

July 11, 2014

IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the "Jurisdictions") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NATIONAL BANK FINANCIAL INC. ("NBFI") AND NBCN INC. ("NBCN" and, together with NBFI, the "Filers")

DECISIONS

Background

The securities regulatory authority or regulator in each of the Jurisdictions ("Decision Maker") has received an application from the Filers for decisions under the securities legislation of the Jurisdictions (the "Legislation") for relief from the requirement in paragraph 4.1 (1) (b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103"), pursuant to section 15.1 of NI 31-103 that the Filers must not permit their respective dealing representatives to act as dealing representatives of their firm if such dealing representatives are registered as dealing representatives of the other Filer, and instead seek to be allowed, in connection with the implementation of a proposed internal reorganization, to permit their respective current and future dealing representatives who process trades and interact solely with other dealing representatives and institutional clients of the Filers, to act as dealing representatives of their firm if such dealing representatives are registered as dealing representatives of the other Filer (the "Exemption Sought").

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

(a) The Autorité des marchés financiers is the principal regulator of NBFI and the Ontario Securities Commission is the principal regulator of NBCN;

(b) The Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in all of the other Canadian jurisdictions (all such jurisdictions together with the provinces of Québec and Ontario, the "Filing Jurisdictions"); and

(c) The decisions are the decisions of the principal regulators and evidence the decisions of the securities regulatory authority or regulator in all Canadian jurisdictions.

Interpretation

Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in these decisions, unless otherwise defined.

Representations

These decisions are based on the following facts represented by the Filers:

1. NBFI is a corporation incorporated under the laws of the Province of Québec. The head office of NBFI is located in Montréal, Québec.

2. NBFI is an indirectly wholly-owned subsidiary of National Bank of Canada ("National Bank").

3. NBFI is registered as an investment dealer in every jurisdiction of Canada; it is a member of the Investment Industry Regulatory Organization of Canada ("IIROC"), the TSX Venture Exchange ("TSX-V"), the Montreal Exchange, TMX Select, TMX Alpha Exchange and the Canadian National Stock Exchange, is an approved participant of the Montreal Exchange, and is a participating organization of the Toronto Stock Exchange ("TSX"). NBFI is also registered as a derivatives dealer in Québec.

4. NBCN is a corporation incorporated under the laws of the Province of Nova Scotia and continued under the laws of Canada. The head office of NBCN is located in Toronto, Ontario.

5. NBCN is a wholly-owned subsidiary of NBFI and, as a result, is also an indirectly wholly-owned subsidiary of National Bank.

6. NBCN is registered as an investment dealer in every jurisdiction of Canada; it is a member of IIROC and the TSX-V, and is a participating organization of the TSX. NBCN is also registered as a derivatives dealer in Québec.

7. The Filers are not in default of any requirement of securities legislation in any jurisdiction where they are operating.

8. For various business and other reasons, National Bank has historically caused, and continues to require, its securities brokerage business to be conducted through three registrants, whereby NBFI conducts an institutional and retail brokerage business (retail brokerage is limited to the provinces of Québec and New Brunswick), National Bank Financial Ltd. (NBFL) conducts retail brokerage business in all jurisdictions other than the provinces of Québec and New Brunswick and NBCN conducts a custody and brokerage services business for institutional clients that include third party IIROC member firms and registered portfolio managers.

9. As members of IIROC, and affiliates of each other, each of the Filers and NBFL have cross-guaranteed the obligations of the other to their respective clients.

10. Among other services, NBFI offers trade execution services to retail clients through the operation of an equity trading desk, an equity options trading desk and a fixed income distribution desk (the "NBFI Desks"). The NBFI Desks are operated by a group of registered dealing representatives within NBFI (the "NBFI Desks Representatives") that, in connection with processing trades on behalf of retail clients of NBFI, interact solely with other dealing representatives of NBFI (the "NBFI Clients Representatives").

11. Among other services, NBCN offers trade execution services through the operation of an equity trading desk, an equity options trading desk and a fixed income distribution desk (the "NBCN Desks"). The NBCN Desks are operated by a group of registered dealing representatives within NBCN (the "NBCN Desks Representatives" and, together with the NBFI Desks Representatives, the "Desks Representatives") that, in connection with processing trades, interact with clients of NBCN, which are all institutional clients. NBCN offers execution-only services only. NBCN does not provide advice.

12. The Filers intend to proceed to an internal reorganization (the "Proposed Reorganization") whereby NBCN will resign as a participating organization of the TSX and a member of the TSX-V, and NBCN and NBFI will merge the NBCN Desks into the NBFI Desks (the "Merged NBFI Desks"). Once the Proposed Reorganization is implemented, the institutional clients of NBCN will necessitate access to the trade execution services provided by the Merged NBFI Desks. Following the implementation of the Proposed Reorganization, it is also intended that the Desks Representatives process trades on the Merged NBFI Desks on behalf of both retail clients of NBFI, through interacting solely with NBFI Clients Representatives, and institutional clients of NBCN.

13. NBFI proposes to dually register the NBCN Desks Representatives with NBFI so that they can act on behalf of the institutional clients of NBCN on the Merged NBFI Desks and on behalf of the retail clients of NBFI, through interacting solely with NBFI Clients Representatives, on the Merged NBFI Desks, and NBCN proposes to dually register the NBFI Desks Representatives with NBCN so that they can act on behalf of the institutional clients of NBCN on the Merged NBFI Desks.

14. The Desks Representatives have, or will have, extensive experience providing trade execution services and interacting with NBFI Clients Representatives and institutional clients of NBCN. The Desks Representatives will interact solely with NBFI Clients Representatives and institutional clients of NBCN.

15. The Desks Representatives are, or will be, approved by IIROC as registered representatives, as defined by IIROC, with the product type of "securities" and client type of "institutional only".

16. The Desks Representatives will be under the direct supervision and control of both Filers and they will be subject to all securities-related conflicts of interest policies and procedures of both Filers.

17. The compliance structure of the Filers has been in place for a significant period and, accordingly, the persons responsible for compliance for the Filers are particularly sensitive to, and well structured to effectively monitor and address, the respective compliance obligations of the Filers.

18. The dual registration will not be a source of any client confusion or conflicts of interest because:

a) when acting on behalf of NBCN, the Desks Representatives will only trade on behalf of institutional clients;

b) when acting on behalf of NBCN, the Desks Representatives will not provide advice, and all trading orders received by the Desks Representatives will be unsolicited;

c) when acting on behalf of NBFI, the Desks Representatives will not provide advice, and all trading orders received by the Desks Representatives will be unsolicited and from NBFI Clients Representatives only;

d) prior to interacting with an institutional client of NBCN, the Desks Representatives will provide written notice to the institutional client of their dual registration with both Filers;

e) the Desks Representatives will act in the best interests of both the retail clients of NBFI, through interacting solely with NBFI Clients Representatives, and the institutional clients of NBCN; and

f) the Desks Representatives will conduct their activities and deal fairly, honestly and in good faith.

19. The Filers' competitors, which conduct brokerage services within a single registered investment dealer, currently provide such trade execution services without requiring an exemption from the dual registration restriction.

20. The Merged NBFI Desks will be accustomed to providing trade execution services and will remain staffed by a sufficient number of Desks Representatives to handle expected trade volumes at all times. Accordingly, the Desks Representatives will have sufficient time to adequately serve each Filer.

21. Pursuant to the grandfathering provision in section 4.1(2) of NI 31-103, the dual registration restriction in section 4.1(1) (b) does not apply in respect of a dealing representative whose registration as a dealing representative of more than one registered firm was granted before July 11, 2011.

22. In the absence of the Exemption Sought, the Filers will be prohibited from permitting the Desks Representatives to act as dealing representatives of their firm while the individuals are dealing representatives of the other Filer, even though NBCN is a wholly-owned subsidiary of NBFI.

Decisions

Each of the Decision Makers is satisfied that the decisions meet the test set out in the Legislation for the Decision Makers to make the decision.

The decisions of the Decision Makers under the Legislation are that the Exemption Sought is granted provided that:

a) each Desks Representatives, when acting as a dealing representative by trading securities on behalf of the Filers, will interact solely with NBFI Clients Representatives and institutional clients of NBCN;

b) no Desks Representatives on the Merged NBFI Desks who is dually registered with NBFI and NBCN will also be registered as a dealing representative of NBFL; and

c) The Filers comply with all requirements of IIROC from time to time permitting such dual registration.

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