Exemption Orders (Discretionary)
FRIEDBERG MERCANTILE GROUP
2001 BCSECCOM 733
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief for registrants from the suitability requirements of the Securities Rules and the suitability requirements of the Investment Dealers Association, to enable the registrant discount dealer to provide trade 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 OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN AND NOVA SCOTIA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF FRIEDBERG MERCANTILE GROUP
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Alberta, British Columbia, Saskatchewan and Nova Scotia (the "Jurisdictions") has received an application from Friedberg Mercantile Group ("FMG") for a decision under the securities legislation of the Jurisdictions (the “Legislation”) that a certain operating division of FMG and its salespersons, partners, officers and directors shall not be subject to the requirements under the Legislation and, except in Nova Scotia, sections 1300.1(b), 1800.5(b) and 1900.4 of the regulations of the Investment Dealers Association of Canada (the “IDA”) that a registrant and its salespersons, partners, officers and directors make such inquiries of each client as are appropriate in view of the client's investments and the type of transaction being effected for the client's account in order to determine the general investment needs and objectives of the client and the suitability of a proposed purchase, sale or trade of a security or futures contract for the client (the “Suitability Requirements”);
2. AND WHEREAS, pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Alberta Securities Commission is the principal regulator for this application;
3. AND WHEREAS FMG has represented to the Decision Makers that:
3.1. FMG is a general partnership established under the laws of Ontario;
3.2. the head office of FMG is in Toronto, Ontario;
3.3. FMG is registered to trade in securities and futures contracts under the Legislation in each of the Jurisdictions;
3.4. FMG is a member of the IDA;
3.5. FMG is a participating organization, approved participant or member of The Toronto Stock Exchange, the Bourse de Montréal Inc., the Canadian Venture Exchange Inc. and the Winnipeg Commodity Exchange;
3.6. FMG has constituted a new division under the name FMG'S E-TRADERS (the "Discount Division");
3.7. the Discount Division provides discount trade execution services for securities and futures contracts to its clients;
3.8. the Discount Division is not a separate legal entity, but operates as a distinct internal operating division within FMG, using separate letterhead, accounts and account documentation;
3.9. the Discount Division maintains salespersons, partners, officers and directors authorized for trading in securities and futures contracts (“Registered Representatives”) in each Jurisdiction separate from those maintained by the full service division of FMG;
3.10. the Discount Division does not compensate its Registered Representatives on the basis of transactional values;
3.11. except as provided in paragraph 3.16, the Discount Division and its Registered Representatives will not provide advice, recommendations or a determination as to suitability regarding the purchase or sale of any security or futures contract;
3.12. the Discount Division will refer clients who request that the Discount Division or its Registered Representatives provide advice, recommendations or a determination as to suitability to Registered Representatives of the full service division of FMG or a registrant that provides such services;
3.13. the Discount Division will advise each of its clients of the decision herein and request that they provide a written acknowledgement (the “Client Acknowledgment”) that:
3.13.1. no advice or recommendation will be provided by the Discount Division or its Registered Representatives regarding the purchase or sale of any security or futures contract; and
3.13.2. the Discount Division and its Registered Representatives will no longer determine the general investment needs and objectives of the client or the suitability of a proposed purchase, sale or trade of a security or futures contract for the client;
3.14. the form of Client Acknowledgement will provide the client with sufficient detail and will explain to each client the significance of not receiving investment advice or a recommendation from the Discount Division, including the significance of the Discount Division not determining the general investment needs and objectives of the client or the suitability of a proposed purchase, sale or trade of a security or futures contract for the client;
3.15. the Discount Division will advise each of its clients in writing that they have the option of transferring their account or accounts to the full-service division of FMG or to another registrant that provides such services at no cost to the client if the client does not wish to provide a Client Acknowledgement (the "Account Transfer Option");
3.16. the Discount Division and its Registered Representatives will continue to comply with the Suitability Requirements for accounts for which no Client Acknowledgement is received for six months following the date of this Decision, following which the Discount Division 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;
3.17. prior to the Discount Division opening an account for a prospective client, the Discount Division will advise such prospective client of the decision herein and require that they provide a written acknowledgement (the “Prospective Client Acknowledgment”) that:
3.17.1. no advice or recommendations will be provided by the Discount Division or its Registered Representatives regarding the purchase, sale or trade of any security or futures contract; and
3.17.2. the Discount Division and its Registered Representatives will not determine the general investment needs and objectives of the client or the suitability of a proposed purchase, sale or trade of a security or futures contract for the client;
3.18. the Prospective Client Acknowledgement will provide the client with sufficient detail and will explain to each prospective client the significance of not receiving either investment advice or a recommendation from the Discount Division, including the significance of the Discount Division not determining the general investment needs and objectives of the client or the suitability of a proposed purchase, sale or trade of a security or futures contract for the client;
3.19. the Discount Division will treat each client of the full service division of FMG who wishes to transfer their account or accounts to the Discount Division as a prospective client of the Discount Division and require them to provide a Prospective Client Acknowledgement;
3.20. FMG and the Discount Division will adopt policies and procedures to ensure that:
3.20.1. 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;
3.20.2. all client accounts of the Discount Division are appropriately designated as being a client account to which a Client Acknowledgement or Prospective Client Acknowledgement has been received or as being a client account to which a Client Acknowledgement has not been received;
3.20.3. the Discount Division transfers the account or accounts of any client of the Discount Division who does not provide a Client Acknowledgement and chooses to exercise the Account Transfer Option in an expeditious manner and at no cost to the client;
3.20.4. the Discount Division operates separately from any other division of the FMG;
3.20.5. Registered Representatives of the Discount Division are clearly employed by the Discount Division and do not handle the business or clients of any other division of FMG; and
3.20.6. a list of Registered Representatives of the Discount Division is maintained at all times;
3.21. in the absence of this decision herein, the Discount Division would be required to comply with the Suitability Requirements when it provides trade execution services to its clients;
4. AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
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;
6. THE DECISION of the Decision Makers under the Legislation is that the Suitability Requirements shall not apply to the Discount Division and its Registered Representatives so long as:
6.1. except as permitted by paragraph 6.7, the Discount Division and its Registered Representatives do not provide any advice or recommendations regarding the purchase, sale or trade of any security or futures contract to its clients;
6.2. the Discount Division refers clients who request that the Discount Division or its Registered Representatives provide advice, recommendations or a determination as to suitability to Registered Representatives to the full service division of FMG or a registrant that provides such services;
6.3. the Discount Division operates independently of the other divisions of FMG, using separate letterhead, accounts, account documentation and Registered Representatives;
6.4. the Discount Division does not compensate its Registered Representatives on the basis of transactional values;
6.5. the Discount Division advises each of its clients of the Decision and requests that they provide a Client Acknowledgement;
6.6. the Discount Division provides the Account Transfer Option to its clients;
6.7. the Discount Division and its Registered Representatives continue to comply, for six months following the date of this Decision, with the Suitability Requirements for client accounts for which no Client Acknowledgement is received;
6.8. commencing six months following the date of this Decision, the Discount Division does 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;
6.9. the Discount Division advises each prospective client of the Decision and obtains a Prospective Client Acknowledgement from them;
6.10. the Discount Division establishes and retains evidence of all Client Acknowledgements, Prospective Client Acknowledgements and Account Transfer Options pursuant to the record keeping requirements of the Legislation and the IDA;
6.11. the Discount Division appropriately designates all client accounts as being an account with respect to which a Client Acknowledgement or Prospective Client Acknowledgement has been received or as an account to which a Client Acknowledgement has not been received;
6.12. the Discount Division transfers the account or accounts of any client of the Discount Division who does not provide a Client Acknowledgement and chooses to exercise the Account Transfer Option in an expeditious manner and at no cost to the client;
6.13. the Discount Division and FMG have in force policies and procedures to ensure that:
6.13.1. the Discount Division operates separately from any other division of FMG;
6.13.2. Registered Representatives of the Discount Division are clearly employed by the Discount Division and do not handle the business or clients of any other division of FMG; and
6.13.3. a list of Registered Representatives of the Discount Division is maintained at all times;
7. THE FURTHER DECISION of the Decision Makers under the Legislation is that the relief provided herein shall cease to be of effect on the date that is one year following the date that any Legislation or rule or regulation of the IDA affecting the application of the Suitability Requirements to the Discount Division comes into force.
DATED this 20th day of June, 2001.
Eric T. Spink, Vice-Chair Thomas G. Cooke, Q.C., Member