Exemption Orders (Discretionary)
QTRADE INVESTOR INC.
2001 BCSECCOM 113
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief for registrants 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 CANADIAN SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, NEWFOUNDLAND AND NOVA SCOTIA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF QTRADE INVESTOR INC.
MRRS DECISION DOCUMENT
[para 1]
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Newfoundland and Nova Scotia (collectively, the “Jurisdictions”) has received an application from Qtrade Investor Inc. (the “Applicant”) for:
1. a decision under the securities legislation of the Jurisdictions (the “Legislation”) that the requirements of the Legislation requiring the Applicant and its registered salespersons, partners, officers and directors (“Registered Representatives”) to make inquiries of each client of the Applicant 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, collectively, the “Suitability Requirements”) do not apply to the Applicant and its Registered Representatives; and
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 the Applicant and its Registered Representatives to make inquiries of each client of the Applicant 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, collectively, the “IDA Suitability Requirements”) do not apply to the Applicant 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 Applicant has represented to the Decision Makers that:
1. the Applicant is a corporation incorporated under the Canada Business Corporations Act;
2. the head office and principal place of business of the Applicant are located in British Columbia;
3. the Applicant became a member of the IDA on May 18, 2000, is registered as an investment dealer in each of the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Newfoundland, P.E.I. and New Brunswick and has applied for registration as an investment dealer in the Province of Nova Scotia;
4. the Applicant is a wholly-owned subsidiary of Qtrade Canada Inc.;
5. the Applicant carries on business as a “discount broker” providing trade execution services to its clients;
6. the Applicant operates independently using its own letterhead, accounts, registered representatives and account documentation;
7. the Applicant does not compensate its Registered Representatives on the basis of transactional values;
8. the Account Application Form used by the Applicant since it commenced carrying on business in May, 2000 requires that prospective clients:
(a) acknowledge that the Applicant will not provide any advice relating to the suitability or profitability of a security or investment; and
(b) indicate whether they acknowledge and confirm that their trades will not be reviewed for suitability by the Applicant;
9. since it commenced carrying on business the Applicant has rejected every application received by it from a prospective client who has failed or declined to provide the acknowledgments referred to in paragraph 8(a) and (b);
10. prospective clients and clients who request that the Applicant or its Registered Representatives provide advice or recommendations regarding the purchase or sale of any security or advice as to the suitability of a proposed purchase or sale of a security are now and have been, since the Applicant commenced carrying on business, referred to a third-party full service investment dealer;
11. although the Applicant has only opened accounts for clients who have provided the acknowledgments described in paragraph 8(a) and (b) above, the Applicant is now and has been, since the Applicant commenced carrying on business, in compliance with the Suitability Requirements;
12. except as required by the Suitability Requirements, the Applicant does not provide its clients with investment advice or recommendations and does not process trades for clients who request such advice or recommendations and has adopted policies and procedures to ensure the Applicant and its Registered Representatives do not, except as required by the Suitability Requirement, and will not provide advice or recommendations regarding the purchase or sale of any security; and
13. in the absence of this Decision, the Applicant must continue to comply with the Suitability Requirements notwithstanding that each of the Applicant’s clients has acknowledged and confirmed that its trades not be reviewed for suitability by the Applicant;
[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 contained in the Legislation shall not apply to the Applicant and its Registered Representatives provided:
1. the Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security;
2. clients who request that the Applicant or its Registered Representatives provide advice or recommendations or advice as to suitability are referred to a full service dealer;
3. the Applicant does not compensate its Registered Representatives on the basis of transactional values;
4. each existing client of the Applicant is advised of the Decision and requested to re-confirm and acknowledge that, effective immediately:
(a) no advice or recommendation will be provided by the Applicant or its Registered Representatives regarding the purchase or sale of any security; and
(b) the Applicant 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;
(paragraphs 4(a) and (b) above being hereinafter referred to as the “Existing Client Acknowledgment”);
5. the Existing 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 the Applicant, including the significance of the Applicant 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;
6. the Applicant will continue to comply with the Suitability Requirements in connection with servicing an existing client until the earlier of the date it receives a completed Existing Client Acknowledgement from the client and the date that is two months from the date of this Decision (the “Client Acknowledgement Date”);
7. if an existing client of the Applicant declines or fails to provide an Existing Client Acknowledgment by the end of the day of the Client Acknowledgement Date, the Applicant will immediately thereafter advise the existing client that they have the option of transferring, at no cost to them, their account(s) to a full service dealer (the “Account Transfer Option”) and the Applicant will no longer permit transactions in the account of such client unless the transaction is a transfer of assets to another account to facilitate the exercise of the Account Transfer Option;
8. prior to opening an account with the Applicant, each prospective client of the Applicant is advised of the Decision and, prior to the Applicant servicing such prospective client, acknowledges that:
(a) no advice or recommendation will be provided by the Applicant or its Registered Representatives regarding the purchase or sale of any security; and
(b) the Applicant 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;
(paragraphs 8(a) and (b) above being hereinafter referred to as the “Prospective Client Acknowledgment”);
9. 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 the Applicant, including the significance of the Applicant 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;
10. evidence of all Existing Client Acknowledgements, Prospective Client Acknowledgements and notifications of the Account Transfer Option is established and retained pursuant to the record keeping requirements of the Legislation and the IDA;
11. the Applicant accurately identifies and distinguishes client accounts for which an Existing Client Acknowledgment or Prospective Client Acknowledgement has been provided and client accounts for which no Existing Client Acknowledgement has been provided;
12. for any existing client who elects to exercise the client’s Account Transfer Option, the Applicant transfers such account(s) to another full-service dealer in an expeditious manner and at no cost to the client; 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 January 22, 2001.
Ross P. McLennan
Director, Registration
[para 8]
THE DECISION of the Decision Makers other than Nova Scotia and Newfoundland, is that the IDA Suitability Requirements do not apply to the Applicant and its Registered Representatives provided:
1. the Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security;
2. clients who request that the Applicant or its Registered Representatives provide advice or recommendations or advice as to suitability are referred to a full service dealer;
3. the Applicant does not compensate its Registered Representatives on the basis of transactional values;
4. each existing client of the Applicant is advised of the Decision and requested to make, effective immediately, an Existing Client Acknowledgement;
5. the Existing 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 the Applicant, including the significance of the Applicant 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;
6. the Applicant will continue to comply with the Suitability Requirements in connection with servicing an existing client until the earlier of the date it receives a completed Existing Client Acknowledgement from the client and the date that is two months from the date of this Decision (the “Client Acknowledgement Date”);
7. if an existing client of the Applicant declines or fails to provide an Existing Client Acknowledgment by the end of the day of the Client Acknowledgement Date, the Applicant will immediately thereafter advise the existing client that they have the option of transferring, at no cost to them, their account(s) to a full service dealer (the “Account Transfer Option”) and the Applicant will no longer permit transactions in the account of such client unless the transaction is a transfer of assets to another account to facilitate the exercise of the Account Transfer Option;
8. prior to opening an account with the Applicant, each prospective client of the Applicant is advised of the Decision and, prior to the Applicant servicing such prospective client, makes a Prospective Client Acknowledgment;
9. 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 the Applicant, including the significance of the Applicant 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;
10. evidence of all Existing Client Acknowledgements, Prospective Client Acknowledgements and notifications of the Account Transfer Option is established and retained pursuant to the record keeping requirements of the Legislation and the IDA;
11. the Applicant accurately identifies and distinguishes client accounts for which an Existing Client Acknowledgment or Prospective Client Acknowledgement has been provided and client accounts for which no Existing Client Acknowledgement has been provided;
12. for any existing client who elects to exercise the client’s Account Transfer Option, the Applicant transfers such account(s) to another full-service dealer in an expeditious manner and at no cost to the client; 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 January 22, 2001.
Ross P. McLennan
Director, Registration