Exemption Orders (Discretionary)
CREDENTIAL SECURITIES INC.
2001 BCSECCOM 451
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief for registrant from the suitability requirements of the Securities Rules and the IDA, 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 OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, NOVA SCOTIA, AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF CREDENTIAL SECURITIES INC. AND CREDENTIAL DIRECT
MRRS DECISION DOCUMENT
[para 1]
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the “Jurisdictions”) has received an application from Credential Securities Inc. (the “Filer”), in respect of its independently operating on-line trading business unit, Credential Direct (“Credential Direct”), for:
(a) a decision under the legislation of each Jurisdiction (the “Legislation”) that the requirements of the Legislation requiring Credential Direct and its registered salespersons, partners, officers and directors (“Registered Representatives”) to make inquiries of each client of Credential Direct 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 (a) the general investment needs and objectives of the client and (b) the suitability of a proposed purchase or sale of a security for the client (collectively, the “Suitability Requirements”) do not apply to Credential Direct and its Registered Representatives; and
(b) a decision under the Legislation, other than the securities legislation of Newfoundland and Nova Scotia, that the requirements of the Investment Dealers Association of Canada (the “IDA”), in particular IDA Regulation 1300.1(b), 1800.5(b) and 1900.4, requiring Credential Direct and its Registered Representatives to make inquiries of each client of Credential Direct 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 (a) the general investment needs and objectives of the client and (b) the suitability of a proposed purchase or sale of a security for the client (collectively, the “IDA Suitability Requirements”) do not apply to Credential Direct and its Registered Representatives;
[para 2]
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the British Columbia Securities Commission is the principal regulator for this application;
[para 3]
AND WHEREAS the Filer has represented to the Decision Makers that:
1. the Filer is a corporation incorporated under the Canada Business Corporations Act on September 27, 1995, is a member of the IDA, and is registered in each of the Jurisdictions except Nova Scotia where applications for registration have been made;
2. Credential Direct is a division of the Filer that operates as an independent business unit using its own letterhead, accounts, registered representatives and account documentation;
3. Credential Direct is a trade name of the Filer registered with each Jurisdiction;
4. the head offices of the Filer and Credential Direct are located in British Columbia and the Filer has officers and salespersons located in each of the Jurisdictions, except New Brunswick and Newfoundland, where an exemption from the residency requirements has been obtained, and Nova Scotia where applications for registration on a non-residency basis have been made;
5. Credential Direct and its Registered Representatives do not and will not, except as provided in paragraph 12 below, provide advice or recommendations regarding the purchase or sale of any security and Credential Direct has adopted policies and procedures to ensure Credential Direct and its Registered Representatives do not, with such exception, provide advice or recommendations regarding the purchase or sale of any security;
6. when Credential Direct provides trade execution services to clients it would, in the absence of this Decision, be required to comply with the Suitability Requirements and IDA Suitability Requirements;
7. clients who request Credential Direct or its Registered Representatives to provide advice or recommendations or advice as to suitability will be referred to a registered dealer or adviser that provides those services;
8. Credential Direct does not and will not compensate its Registered Representatives on the basis of transactional values;
9. each client of Credential Direct will be advised of the Decision of the Decision Makers and requested to acknowledge that:
(a) no advice or recommendation will be provided by Credential Direct or its Registered Representatives regarding the purchase or sale of any security; and
(b) Credential Direct and its Registered Representatives will not determine the general investment needs and objectives of the client or the suitability of a proposed purchase or sale of a security for the client; (both (a) and (b) shall constitute the “Client Acknowledgement”);
10. the Client Acknowledgment will provide the client with sufficient detail and will explain to each client the significance of not receiving either investment advice or a recommendation from Credential Direct, including the significance of Credential Direct not determining the general investment needs and objectives of the client or the suitability of a proposed purchase or sale of a security for the client;
11. each client of Credential Direct will be advised that he or she has the option of transferring his or her account or accounts to a registered dealer or adviser that provides advice and recommendations at no cost to the client if the client does not wish to provide a Client Acknowledgement (the “Account Transfer Option”);
12. Credential Direct and its Registered Representatives will continue to comply with the Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received for six months following the date of this Decision;
13. after the date six months following the date of this Decision, Credential Direct will not permit a transaction in an account for which a Client Acknowledgement has not been received unless the transaction is a sale for cash or a transfer of assets to another account;
14. all prospective clients of Credential Direct will be advised and required to acknowledge that:
(a) no advice or recommendations will be provided by Credential Direct or its Registered Representatives regarding the purchase or sale of any security; and
(b) Credential Direct and its Registered Representatives will not determine the general investment needs and objectives of the client or the suitability of a proposed purchase or sale of a security for the client, (both (a) and (b) shall constitute the “Prospective Client Acknowledgement”);
prior to Credential Direct opening an account for such prospective client;
15. the Prospective Client Acknowledgment will provide the prospective client with sufficient detail and will explain to each client the significance of not receiving either investment advice or a recommendation from Credential Direct, including the significance of Credential Direct not determining the general investment needs and objectives of the client or the suitability of a proposed purchase or sale of a security for the client;
(a) Credential Direct has adopted policies and procedures to ensure:
(b) that evidence of all Client Acknowledgements, Prospective Client Acknowledgements and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Legislation and the IDA;
(c) client accounts of Credential Direct are appropriately designated as being a client account to which a Client Acknowledgement or Prospective Client Acknowledgement has been received or being a client account to which a Client Acknowledgement has not been received; and
16. for any client of Credential Direct who does not provide a Client Acknowledgement and chooses to exercise the client’s Account Transfer Option, Credential Direct will transfer the client’s account in an expeditious manner and at no cost to the client;
17. Credential Direct has adopted policies and procedures to ensure that:
(a) it operates separate from the full-service division of the Filer;
(b) Registered Representatives of Credential Direct are clearly employed by Credential Direct and do not handle the business or clients of the full-service division of the Filer; and
(c) a list of Registered Representatives of Credential Direct is maintained at all times;
[para 4]
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
[para 5]
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;
[para 6]
The Decision of the Decision Makers under the Legislation is that the Suitability Requirements shall not apply to Credential Direct and its Registered Representatives so long as:
1. except as permitted by 6 below, Credential Direct and its Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security;
2. clients who request Credential Direct or its Registered Representatives to provide advice or recommendations or advice as to suitability are referred to a registered dealer or adviser that provides those services;
3. Credential Direct is a division of the Filer and operates as an independent business unit using its own letterhead, accounts, Registered Representatives and account documentation;
4. Credential Direct does not compensate its Registered Representatives on the basis of transactional values;
5. each client of Credential Direct is advised of the Decision of the Decision Makers and requested to make a Client Acknowledgement or transfer his or her account to a dealer who provides advice if the client does not make a Client Acknowledgement;
6. Credential Direct and its Registered Representatives continue to comply, for six months following the date of this Decision, with their Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received;
7. commencing six months following the date of this Decision, Credential Direct will not permit transactions in an account for which a Client Acknowledgement has not been received unless the transaction is a sale for cash or a transfer of assets to another account;
8. each prospective client of Credential Direct is advised of the Decision of the Decision Makers and required to make a Prospective Client Acknowledgement prior to Credential Direct servicing such prospective client;
9. evidence of all Client Acknowledgements, Prospective Client Acknowledgements and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Legislation and the IDA;
10. for any client who elects to exercise the client’s Account Transfer Option, Credential Direct transfers such account or accounts to a registered dealer or adviser that provides advice or recommendations in an expeditious manner and Credential Direct does not charge any transfer fees to a client who effects such a transfer;
11. Credential Direct accurately identifies and distinguishes client accounts for which a Client Acknowledgement or Prospective Client Acknowledgement has been provided and client accounts for which no Client Acknowledgement has been provided;
12. the Filer has in force policies and procedures to ensure that:
(a) Credential Direct continues to operate separately from the full-service division of the Filer;
(b) Registered Representatives of Credential Direct are clearly employed by Credential Direct and do not handle the business or clients of the full-service division of the Filer; and
(c) a list of Registered Representatives of Credential Direct is maintained at all times; and
13. if an IDA rule addressing the IDA Suitability Requirements 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 Maker determines otherwise.
[para 7]
DATED April 27, 2001.
Gerry Halischuk
Director, Capital Markets Regulation
[para 8]
The Decision of the Decision Makers, other than Nova Scotia and Newfoundland, is that the IDA Suitability Requirements do not apply to Credential Direct and its Registered Representatives so long as:
1. excepted as permitted by 6 below, Credential Direct and its Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security;
2. clients who request Credential Direct or its Registered Representatives to provide advice or recommendations or advice as to suitability are referred to a registered dealer or adviser that provides those services;
3. Credential Direct is a division of the Filer and operates as an independent business unit using its own letterhead, accounts, Registered Representatives and account documentation;
4. Credential Direct does not compensate its Registered Representatives on the basis of transactional values;
5. each client of Credential Direct is advised of the Decision of the Decision Makers and requested to make a Client Acknowledgement or transfer his or her account to a dealer who provides advice if the client does not make a Client Acknowledgement;
6. Credential Direct and its Registered Representatives continue to comply, for six months following the date of this Decision, with their Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received;
7. commencing six months following the date of this Decision, Credential Direct will not permit transactions in an account for which a Client Acknowledgement has not been received unless the transaction is a sale for cash or a transfer of assets to another account;
8. each prospective client of Credential Direct is advised of the Decision of the Decision Makers and required to make a Prospective Client Acknowledgement prior to Credential Direct servicing such prospective client;
9. evidence of all Client Acknowledgements, Prospective Client Acknowledgements and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Legislation and the IDA;
10. for any client who elects to exercise the client’s Account Transfer Option, Credential Direct transfers such account or accounts to a registered dealer or adviser that provides advice or recommendations in an expeditious manner and Credential Direct does not charge any transfer fees to a client who effects such a transfer;
11. Credential Direct accurately identifies and distinguishes client accounts for which a Client Acknowledgement or Prospective Client Acknowledgement has been provided and client accounts for which no Client Acknowledgement has been provided;
12. the Filer has in force policies and procedures to ensure that:
(a) Credential Direct continues to operate separately from the full-service division of the Filer;
(b) Registered Representatives of Credential Direct are clearly employed by Credential Direct and do not handle the business or clients of the full-service division of the Filer; and
(c) a list of Registered Representatives of Credential Direct is maintained at all times; and
13. if an IDA rule addressing the IDA Suitability Requirements 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 Maker determines otherwise.
[para 9]
DATED April 27, 2001.
Gerry Halischuk
Director, Capital Markets Regulation