Exemption Orders (Discretionary)
REFCO FUTURES (CANADA) LTD.
2001 BCSECCOM 756
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF REFCO FUTURES (CANADA) LTD.
Exemption Order Under Sections 27 and 48
[para 1]
WHEREAS Refco Futures (Canada) Ltd. (“Refco”) has applied to the Executive Director on behalf of two separate internal divisions of Refco (the "Divisions"), Refco Securities Direct (the "Discount Securities Division") and Refco Futures Direct (the "Discount Futures Division"), for:
(a) an order under section 48 of the Securities Act, R.S.B.C. 1996, c. 418, that the requirements of section 48(1)(b) of the Securities Rules, B.C. Reg. 194/97, requiring the Divisions and their respective registered salespersons, partners, officers and directors (the "Registered Representatives") to make inquiries of each client of the applicable Division 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 or future, as the case may be, for the client (such requirements, the "Suitability Requirements") do not apply to the Divisions and their respective Registered Representatives; and
(b) a decision under section 27(1)(a) of the Actthat 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 Divisions and their respective Registered Representatives to make inquiries of each client of the applicable Division 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 or future, as the case may be, for the client (such requirements, the "IDA Suitability Requirements") do not apply to the Divisions and their respective Registered Representatives;
[para 2]
AND WHEREAS Refco and each of the Divisions have represented to the Executive Director that:
1. Refco is a corporation incorporated under the Canada Business Corporations Act;
2. Refco has constituted two new internal operating divisions, namely, (a) the Discount Futures Division, an online execution service for futures and options on futures, and (b) the Discount Securities Division, an online execution service for securities and securities options; the Divisions are not separate legal entities, but will operate as distinct internal operating divisions within Refco;
3. the head office of Refco is located in Ontario, and Refco also maintains offices and has executive officers and Registered Representatives in Ontario, and has Registered Representatives for securities and futures who are resident in each of Ontario, British Columbia, Alberta and Quebec;
4. Refco is registered under the applicable legislation in each of the Provinces of Ontario, Alberta, Quebec and British Columbia to trade in securities and futures, is a member of the IDA, and is a participating organization, approved participant or member, as the case may be, of The Toronto Stock Exchange Inc., the Bourse de Montréal Inc. and the Canadian Venture Exchange Inc.;
5. the Divisions and their respective Registered Representatives do not and will not, except as provided in paragraph 14 below, provide advice or recommendations regarding the purchase or sale of any security or future, as the case may be, and Refco and the Divisions have each adopted policies and procedures to ensure the Divisions and the Divisions' respective Registered Representatives will not, with such exception, provide advice or recommendations regarding the purchase or sale of any security or future;
6. Refco Futures Direct and Refco Securities Direct are trade names of Refco, registered in each of the Provinces of Ontario, Alberta, Quebec and British Columbia;
7. when the Divisions provide trade execution services to clients they would, in the absence of this Order, be required to comply with the Suitability Requirements and IDA Suitability Requirements;
8. clients who request a Division or its Registered Representatives to provide advice or recommendations or a determination as to suitability will be referred to Registered Representatives of the "full-service" division of Refco or to another "full-service" dealer; the "full-service" division of Refco carries on business as a "full-service" investment dealer and as such, provides specific or tailored investment advice and recommendations to its clients regarding trades executed by Refco;
9. each Division will operate independently of any other division of Refco including the full service division of Refco, using separate letterhead, accounts, account documentation and Registered Representatives;
10. the Divisions do not and will not compensate their respective Registered Representatives on the basis of transactional values, but rather on a system of salaries and bonuses based on performance;
11. each client of a Division will be advised of this Order and requested to acknowledge that:
(a) no advice or recommendation will be provided by the Division or its Registered Representatives regarding the purchase or sale of any security or future, as the case may be; and
(b) the 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 or sale of a security or future for the client; (both (a) and (b) shall constitute the “Client Acknowledgement”);
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 the applicable Division, including the significance of such Division not determining the general investment needs and objectives of the client, or the suitability of a proposed purchase or sale of a security or future for the client;
13. each client of a Division will be advised that he or she has the option of transferring his or her account or accounts to the full-service division of Refco or to another registered dealer at no cost to the client if the client does not wish to provide a Client Acknowledgement (the “Account Transfer Option”);
14. the Divisions and their respective 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 Order;
15. after the date six months following the date of this Order, the Divisions 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;
16. all prospective clients of a Division will be advised of this Order and required to acknowledge that:
(a) no advice or recommendations will be provided by the Division or its Registered Representatives regarding the purchase or sale of any security or future; and
(b) the Division 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 or future for the client, (both (a) and (b) shall constitute the “Prospective Client Acknowledgement”);
prior to the Division opening an account for such prospective client;
17. 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 applicable Division, including the significance of such Division not determining the general investment needs and objectives of the client, or the suitability of a proposed purchase or sale of a security or future for the client;
18. each verbal acceptance of a Client Acknowledgement or Prospective Client Acknowledgement shall be kept by the Division in a written special record (the "Verbal Receipts") indicating the acknowledgement of the client;
19. each client of the full-service division of Refco who wishes to transfer his or her account or accounts to either of the Divisions of Refco will be treated, in all respects, as a prospective client of the applicable Division and required to provide a Prospective Client Acknowledgement;
20. Refco and each of the Divisions have adopted policies and procedures to ensure:
(a) that evidence of all Client Acknowledgements, Prospective Client Acknowledgements (including Verbal Receipts) and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Act and the IDA;
(b) all client accounts of the Divisions are appropriately designated as being a client account to which a Client Acknowledgement or Prospective Client Acknowledgement (including Verbal Receipts) has been received or being a client account to which a Client Acknowledgement has not been received; and
(c) for any client of a Division who does not provide a Client Acknowledgement and chooses to exercise the client’s Account Transfer Option, the applicable Division will transfer the client’s account in an expeditious manner at no cost to the client; and
21. Refco and each of the Divisions have adopted policies and procedures to ensure that:
(a) each of the Divisions will operate separately from any other division of Refco;
(b) Registered Representatives of a Division are clearly employed by the applicable Division and will not handle the business or clients of any other division of Refco; and
(c) a list of Registered Representatives of the respective Divisions is maintained at all times;
[para 3]
AND WHEREAS the Executive Director considers that it would not be prejudicial to the public interest to do so:
[para 4]
IT IS ORDERED under section 48 of the Act that the Suitability Requirements contained in section 48(1)(b) of the Securities Rules shall not apply to the Divisions and their respective Registered Representatives so long as:
1. except as permitted by 6 below, each Division and its respective Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security or future;
2. clients who request a Division 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. each Division operates independently using its own letterhead, accounts, account documentation and Registered Representatives;
4. the Divisions do not compensate their respective Registered Representatives on the basis of transactional values;
5. each client of the Divisions is advised of this Order and requested to make a Client Acknowledgement or transfer his or her account to a dealer that provides advice if the client does not wish to make a Client Acknowledgement;
6. each Division and its Registered Representatives continue to comply, for six months following the date of this Order, with the 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 Order, a Division 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 a Division is advised of this Order and required to make a Prospective Client Acknowledgement prior to the Division or its Registered Representatives servicing such prospective client;
9. evidence of all Client Acknowledgements, Prospective Client Acknowledgements (including Verbal Receipts) and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Act and the IDA;
10. for any client who elects to exercise the client’s Account Transfer Option, the applicable Division transfers such account or accounts to the full-service division of Refco or to another registered dealer in an expeditious manner at no cost to the client;
11. each Division accurately identifies and distinguishes client accounts for which a Client Acknowledgement or Prospective Client Acknowledgement (including Verbal Receipts) has been provided and client accounts for which no Client Acknowledgement has been provided;
12. Refco has in force policies and procedures to ensure that:
(a) each Division continues to operate separately from any other division of Refco;
(b) Registered Representatives of a Division are clearly employed by the Division and do not handle the business or clients of any other division of Refco; and
(c) a list of Registered Representatives of the respective Divisions is maintained at all times; and
13. if an IDA rule addressing the IDA Suitability Requirements comes into effect, the Order with respect to the Suitability Requirements will terminate one year following the date such rule comes into force, unless the Executive Director determines otherwise.
[para 5]
DATED July 17, 2001.
Brenda Leong
Director
[para 6]
THE DECISION of the Executive Director under section 27(1)(a) of the Act is that the IDA Suitability Requirements do not apply to the Divisions and their respective Registered Representatives so long as:
1. except as permitted by 6 below, each Division and its respective Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any security or future;
2. clients who request a Division 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. each Division operates independently using its own letterhead, accounts, account documentation and Registered Representatives;
4. the Divisions do not compensate their respective Registered Representatives on the basis of transactional values;
5. each client of the Divisions is advised of this Order and requested to make a Client Acknowledgement or transfer his or her account to a dealer that provides advice if the client does not wish to make a Client Acknowledgement;
6. each Division and its Registered Representatives continue to comply, for six months following the date of this Order, with the 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 Order, a Division 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 a Division is advised of this Order and required to make a Prospective Client Acknowledgement prior to the Division or its Registered Representatives servicing such prospective client;
9. evidence of all Client Acknowledgements and Prospective Client Acknowledgements (including Verbal Receipts) and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Act and the IDA;
10. for any client who elects to exercise the client’s Account Transfer Option, the applicable Division transfers such account or accounts to the full-service division of Refco or to another registered dealer in an expeditious manner at no cost to the client;
11. each Division accurately identifies and distinguishes client accounts for which a Client Acknowledgement or Prospective Client Acknowledgement (including Verbal Receipts) has been provided and client accounts for which no Client Acknowledgement has been provided;
12. Refco has in force policies and procedures to ensure that:
(a) each Division continues to operate separately from any other division of Refco;
(b) Registered Representatives of a Division are clearly employed by the Division and do not handle the business or clients of any other division of Refco; and
(c) a list of Registered Representatives of the respective Divisions is maintained at all times; and
13. if an IDA rule addressing the IDA Suitability Requirements comes into effect, the Order with respect to the IDA Suitability Requirements will terminate one year following the date such rule comes into force, unless the Executive Director determines otherwise.
[para 7]
DATED July 17, 2001.
Brenda Leong
Director