Exemption Orders (Discretionary)
CANADA INVEST DIRECT INC.
2001 BCSECCOM 585
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 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 ALBERTA, BRITISH COLUMBIA, SASKATCHEWAN, NOVA SCOTIA, AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF CANADA INVEST DIRECT INC.
MRRS DECISION DOCUMENT
1. WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provinces of British Columbia, Alberta, Saskatchewan, Nova Scotia and Newfoundland (collectively, the "Jurisdictions") has received an application from Canada Invest Direct Inc. ("Canada Direct") for:
1.1 a decision under the applicable securities legislation of the Jurisdictions (the "Legislation") that the requirements of the Legislation requiring Canada Direct and its registered salespersons, partners, officers and directors (the "Registered Representatives") to make inquiries of each client of Canada Direct as are appropriate, in view 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 (such requirements to be referred to as the "Suitability Requirements") do not apply to Canada Direct and its Registered Representatives; and
1.2 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 Canada Direct and its Registered Representatives to make inquiries of each client of Canada 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 (such requirements to be referred to as the “IDA Suitability Requirements”) do not apply to Canada Direct and its Registered Representatives;
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 Canada Direct has represented to the Decision Makers that:
3.1 Canada Direct is a corporation incorporated under the Business Corporations Act (Ontario);
3.2 the head office of Canada Direct is located in Ontario and Canada Direct has Registered Representatives who are licenced for trading in each of the Jurisdictions;
3.3 Canada Direct is registered under the Legislation as an investment dealer or its equivalent, except in Nova Scotia where Canada Direct has applied for registration as an investment dealer;
3.4 Canada Direct has been a member of the IDA since October 20, 2000;
3.5 Canada Direct is an indirect wholly-owned subsidiary of GlobalNet Financial.com Inc., a company incorporated under the laws of the United Kingdom and subject to the reporting requirements of the Securities and Exchange Act of 1934 in the U.S.;
3.6 Canada Direct will carry on business as a discount broker and as such will provide trade execution services to clients who can place trades by telephoning a toll-free line and speaking to a Registered Representative or by accessing the password-restricted section of Canada Direct’s web site over the internet;
3.7 Canada Direct is and will always be a separate and distinct legal entity operating independently from any other entity using its own letterhead, account documentation and Registered Representatives;
3.8 Canada Direct and its Registered Representatives will not, except as provided in paragraph 3.14 below, provide advice or recommendations regarding the purchase or sale of any security and Canada Direct has adopted policies and procedures to ensure Canada Direct and its Registered Representatives will not, with such exception, provide advice or recommendations regarding the purchase or sale of any security;
3.9 clients who request Canada Direct or its Registered Representatives to provide advice or recommendations or a determination as to suitability will be referred to a registered dealer or adviser that provides those services;
3.10 Canada Direct does not and will not compensate its Registered Representatives on the basis of transactional values;
3.11 each client of Canada Direct will be advised of the Decision of the Decision Makers and requested to acknowledge that:
3.11.1 no advice or recommendation will be provided by Canada Direct or its Registered Representatives regarding the purchase or sale of any security; and
3.11.2 Canada Direct and its Registered Representatives will no longer 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 3.11.1 and 3.11.2 shall constitute the “Client Acknowledgement”);
3.12 the Client Acknowledgement 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 Canada Direct, including the significance of Canada 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;
3.13 each client of Canada Direct will be advised at the time of opening an account with Canada Direct that, if he or she does not wish to provide a Client Acknowledgement, he or she has the option of opening an account or accounts with another registered dealer or advisor that provides advice and recommendations, and that, in the event an account has already been opened by Canada Direct for the client, Canada Direct will not charge any transfer fees to a client who wishes to effect such a transfer (the “Account Transfer Option”);
3.14 Canada Direct and its Registered Representatives will continue to comply, for six months following the date of this Decision, with the Suitability Requirements and IDA Suitability Requirements for existing client accounts for which no Client Acknowledgement is received;
3.15 after the date that is six months following the date of this Decision, Canada 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;
3.16 all prospective clients of Canada Direct will be advised of the Decision of the Decision Makers and required to acknowledge that:
3.16.1 no advice or recommendations will be provided by Canada Direct or its Registered Representatives regarding the purchase or sale of any security; and
3.16.2 Canada 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 3.16.1 and 3.16.2 shall constitute the “Prospective Client Acknowledgement”)
prior to Canada Direct opening an account for such prospective client;
3.17 the Prospective Client Acknowledgement 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 Canada Direct, including the significance of Canada 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;
3.18 Canada Direct has adopted policies and procedures to ensure:
3.18.1 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;
3.18.2 all client accounts of Canada 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
3.18.3 for any client of Canada Direct who does not provide a Client Acknowledgement and chooses to exercise the client’s Account Transfer Option, Canada Direct will transfer the client’s account in an expeditious manner and Canada Direct will not charge any transfer fees to a client who effects such a transfer;
3.19 in the event that Canada Direct becomes affiliated with another entity that provides investment services to clients which include the determination of general investment needs and objectives and the suitability of proposed purchases or sales of securities for clients, then Canada Direct will adopt policies and procedures which ensure that:
3.19.1 Canada Direct operates separately from any such affiliate of Canada Direct; and
3.19.2 Registered Representatives of Canada Direct are clearly employed by Canada Direct and do not handle the business or clients of any other affiliate of Canada Direct;
3.20 Canada Direct has adopted policies and procedures to ensure that a list of Registered Representatives of Canada Direct is maintained at all times; and
3.21 when Canada 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;
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 Makers 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 Canada Direct or its Registered Representatives so long as:
6.1. except as permitted by paragraph 6.6 below, Canada Direct and its Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security;
6.2. clients who request Canada Direct or its Registered Representatives to provide advice or recommendations or a determination as to suitability are referred to a registered dealer or adviser that provides those services;
6.3. Canada Direct operates independently using its own letterhead, accounts, account documentation and Registered Representatives;
6.4. Canada Direct does not compensate its Registered Representatives on the basis of transactional values;
6.5. each client of Canada Direct is advised of the Decision of the Decision Makers and requested to make a Client Acknowledgement or exercise his or her Account Transfer Option if the client does not wish to make a Client Acknowledgement;
6.6. Canada Direct and its Registered Representatives continue to comply, for six months following the date of this Decision, with the Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received;
6.7. commencing six months from the date of this Decision, Canada 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;
6.8. each prospective client of Canada Direct is advised of the Decision of the Decision Makers and required to make a Prospective Client Acknowledgement prior to Canada Direct or its Registered Representatives servicing such prospective client;
6.9. 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;
6.10. for any client who elects to exercise the client’s Account Transfer Option, Canada Direct transfers such account or accounts to a registered dealer or advisor that provides advice or recommendations in an expeditious manner and Canada Direct does not charge any transfer fees to a client who effects such a transfer;
6.11. Canada 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;
6.12. in the event that Canada Direct becomes affiliated with another entity that provides investment services to clients which include the determination of general investment needs and objectives and the suitability of proposed purchases or sales of securities for clients, then Canada direct will adopt policies and procedures which ensure that:
6.12.1. Canada Direct operates separately from any such affiliate of Canada Direct; and
6.12.2. Registered Representatives of Canada Direct are clearly employed by Canada Direct and do not handle the business or clients of any other affiliate of Canada Direct;
6.13. Canada Direct has adopted policies and procedures to ensure that a list of Registered Representatives of Canada Direct is maintained at all times; and
6.14. 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 Makers determine otherwise;
7. THE DECISION of the Decision Makers, other than the Decision Makers in Newfoundland and Nova Scotia, is that the IDA Suitability Requirements do not apply to Canada Direct and its Registered Representatives so long as:
7.1. except as permitted by paragraph 7.6 below, Canada Direct and its Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security;
7.2. clients who request Canada Direct or its Registered Representatives to provide advice or recommendations or a determination as to suitability are referred to a registered dealer or adviser that provides those services;
7.3. Canada Direct operates independently using its own letterhead, accounts, account documentation and Registered Representatives;
7.4. Canada Direct does not compensate its Registered Representatives on the basis of transactional values;
7.5. each client of Canada Direct is advised of the Decision of the Decision Makers and requested to make a Client Acknowledgement or exercise his or her Account Transfer Option if the client does not wish to make a Client Acknowledgement;
7.6. Canada Direct and its Registered Representatives continue to comply, for six months following the date of this Decision, with the Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received;
7.7. commencing six months following the date of this Decision, Canada 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;
7.8. each prospective client of Canada Direct is advised of the Decision of the Decision Makers and required to make a Prospective Client Acknowledgement prior to Canada Direct or its Registered Representatives servicing such prospective client;
7.9. 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;
7.10. or any client who elects to exercise the client’s Account Transfer Option, Canada Direct transfers such account or accounts to a registered dealer or advisor that provides advice or recommendations in an expeditious manner and Canada Direct does not charge any transfer fees to a client who effects such a transfer;
7.11. Canada 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;
7.12. in the event that Canada Direct becomes affiliated with another entity that provides investment services to clients which include the determination of general investment needs and objectives and the suitability of proposed purchases or sales of securities for clients, then Canada direct will adopt policies and procedures which ensure that:
7.12.1. Canada Direct operates separately from any such affiliate of Canada Direct; and
7.12.2. Registered Representatives of Canada Direct are clearly employed by Canada Direct and do not handle the business or clients of any other affiliate of Canada Direct;
7.13. Canada Direct has adopted policies and procedures to ensure that a list of Registered Representatives of Canada Direct is maintained at all times; and
7.14. 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 Makers determine otherwise.
DATED this 27th day of April, 2001.
Stephen P. Sibold, Q.C., Chair Walter B. O’Donoghue, Q.C., Member