Exemption Orders (Discretionary)
PENSON SECURITIES INC. VALEURS MOBILIÈRES PENSON INC.
2001 BCSECCOM 739
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief for registrants from the suitability requirements of the Securities Rules and the requirements of the Investment Dealers Association, to enable the registrant discount dealer to provide electronic day trading execution services to clients, subject to the terms and conditions set out in the decision document.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 27 and 48
Securities Rules, B.C. Reg 194/97, s. 48(1)(b)
IN THE MATTER OFTHE SECURITIES LEGISLATION OF ONTARIO AND BRITISH COLUMBIA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF PENSON SECURITIES INC. VALEURS MOBILIÈRES PENSON INC.
MUTUAL RELIANCE REVIEW SYSTEM DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator in each of the Provinces of Ontario and British Columbia (collectively the "Jurisdictions"), being the Ontario Securities Commission and the British Columbia Securities Commission (collectively the "Decision Makers") have received an application from Penson Securities Inc. (the "Filer") for a decision under:
(a) the securities legislation of the Jurisdictions (the "Legislation") exempting the Filer and its registered salespersons, officers and directors (collectively the "Registered Representatives") from the requirements of the Legislation to make inquiries of each client of the Filer as are appropriate, in view of the nature of the client's investments and of the type of transaction being effected for the client's account, to determine the suitability of a proposed purchase or sale of a security for the client on an order-by-order basis (such requirements being collectively referred as the "Suitability Requirements"); and
(b) a decision under the Legislation, exempting the Filer and its Registered Representatives from the requirements of the Investments Dealers Association of Canada (the "IDA"), in particular IDA Regulations 1300.1(a) and (b) and 1900.4, all on an order-by-order basis, requiring the Filer and its Registered Representatives to make inquiries of each client of the Filer as are appropriate, in view of the nature of the client's investments and of the type of transaction being effected for the client's account, to determine the suitability of a proposed purchase or sale of a security for the client (such requirements being collectively referred to the "IDA Suitability Requirements");
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Filer has represented to the Decision Makers that:
1. the Filer is a corporation incorporated under the Canada Business Corporations Act;
2. the Filer is registered as a dealer with unrestricted practice (discount broker) in the Province of Quebec and as an investment dealer in the Provinces of Ontario, Manitoba and British Columbia;
3. the Filer is and has been a member of the IDA since April 12, 2001;
4. the Filer intends to provide electronic day trading execution services to its clients;
5. when the Filer provides such services to clients it would, in the absence of a Decision by the Decision Makers, be required to comply with the Suitability Requirements and IDA Suitability Requirements;
6. prospective customers will be required to complete a one week theory course, followed by a three-hour exam on which a grade of 70% is required to proceed to a five week practical course, to be followed by a further exam which requires a grade of 70% to pass and that only by passing both courses will customers be permitted to use the Filer’s trading facilities;
7. approved customers will be required to provide a minimum initial deposit of U.S. $25,000 to open an account and a customer will not be permitted to trade if his or her account is below U.S. $15,000;
8. customers will be required to sign a Customer Acknowledgement Form and Day Trading Risk Disclosure Statement under which each Customer will acknowledge that day trading is speculative and that it is possible to lose all, part of or more than one's investment;
9. the trading software that will be used by customers does not permit over-margined trades; and
10. the Filer will not advise its clients with respect to specific investments.
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers under the Legislation is that the Suitability Requirements contained in the Legislation shall not apply to the Filer and its Registered Representatives on an order-by-order basis provided that:
1. the Filer exercises diligence in ascertaining the financial circumstances (including investment experience and investment objectives) of a prospective customer in order to determine whether a day trading strategy is suitable for the customer;
2. the Filer exercises diligence in ascertaining whether the financial circumstances of a customer have changed such that continuing to pursue a day trading strategy is no longer suitable for the customer;
3. the Filer exercises diligence to ensure that each customer understands the operation of the Filer’s order execution systems and procedures;
4. the Filer exercises diligence to ensure that each customer understands the risk associated with day trading by (i) providing each customer with a separate disclosure statement indicating the risks of day trading, and (ii) providing each customer with training to ensure that each customer understands the fundamentals of day trading; and
5. if an IDA rule addressing either the IDA Suitability Requirements or specific requirements for firms promoting a day trading strategy comes into effect, the Decision with respect to the Suitability Requirements will terminate one year following the date such rule comes into force, unless the Decision Makers determine otherwise.
June 29, 2001
Randee Pavalow
THE DECISION of the Decision Makers is that the IDA Suitability Requirements do not apply to the Filer and its Registered Representative on an order-by-order basis provided that:
1. the Filer exercises diligence in ascertaining the financial circumstances (including investment experience and investment objectives) of a prospective customer in order to determine whether a day trading strategy is suitable for the customer;
2. the Filer exercises diligence in ascertaining whether the financial circumstances of a customer have changed such that continuing to pursue a day trading strategy is no longer suitable for the customer;
3. the Filer exercises diligence to ensure that each customer understands the operation of the Filer’s order execution systems and procedures;
4. the Filer exercises diligence to ensure that each customer understands the risk associated with day trading by (i) providing each customer with a separate disclosure statement indicating the risks of day trading, and (ii) providing each customer with training to ensure that each customer understands the fundamentals of day trading; and
5. if an IDA rule addressing either the IDA Suitability Requirements or specific requirements for firms promoting a day trading strategy comes into effect, the Decision with respect to the IDA Suitability Requirements will terminate one year following the date such rule comes into force, unless the Decision Makers determine otherwise.
June 29, 2001
Paul Moore R. Stephen Paddon