Securities Law

LPS 3-42 - Registered Representatives Continued Fitness for Registration [Rescinded]

Published Date: 1987-01-16
Effective Date: 1987-02-01
Rescinded Date: 1996-01-01

1.0          IMPLEMENTATTION

1.1          This Local Policy Statement has been revised solely to conform with the Securities Act S.B.C. 1985 c.83 and the Regulations thereto. Other than consequential amendments, there have been no changes of a substantive nature to this policy.  It becomes effective upon proclamation of the Act on February, 1, 1987.

2.0          APPLICATION

2.1          This Local Policy Statement applies to Registered Representatives employed by non-member houses as well as by members of the Investment Dealers Association and/or the Vancouver Stock Exchange.  It should be read in conjunction with National Policy 18.  The chief concerns of this Local Policy Statement involve continued fitness of registered representatives who become personally insolvent or who become involved with listed and unlisted companies as property vendors, promoters, directors and/or officers or some combination thereof.

3.0          BANKRUPTCY/INSOLVENCY OF REGISTERED REPRESENTATIVES

An economic downturn may have an impact on some Registered Representatives who are facing personal financial difficulty.  This poses a potential threat to the clients of the Registered Representatives, and to the individual brokerage house and any self-regulatory organization that may be guaranteeing accounts, such as the Vancouver Stock Exchange and the National Contingency Fund.  It is not the intention of this office to automatically cancel or suspend licences of Registered Representatives encountering serious financial problems, such as entering into bankruptcy, as each case must be dealt with on its individual merits.  Therefore, effective immediately, each Registered Representative must immediately notify his employer, the Superintendent's office, and the appropriate self-regulatory organization of the financial problem.  Measures will then be taken to ensure that no threat is posed to the public.  Failure to immediately disclose a serious financial problem may well result in immediate suspension until such time as the problem is resolved.

4.0          REGISTERED REPRESENTATIVES AS DIRECTORS, ETC., OF REPORTING COMPANIES

4.1          Occasionally in the past, it has been found that Registered Representatives have been involved with listed and unlisted companies as property vendors, promoters, directors and/or officers or some combination thereof.  The Vancouver Stock Exchange Rules presently contain provisions that preclude Registered Representatives from being directors or officers of listed companies without prior approval of the Membership Committee.  Other VSE rules prevent Registered Representatives from being vendors of property or acquiring property from companies listed on the Exchange.

4.2          This raises the question as to whether a Registered Representative who is an insider can recommend the purchase or sale of security in these issues to a client purely on the merits of the issue.  The Registered Representative may well be in possession of information respecting the affairs of the issuer, not generally known to the public, which could have an effect on the price of the security.  It is therefore questionable whether such salesman, being in possession of such information, would put his client's financial well-being before that of his legal duty to the issuer.  There is no question that a saleman must give paramount concern to his client and any resulting conflict must always be resolved in favour of that client.

4.3          National Policy 18 notes that every director has a fiduciary obligation not to reveal any privileged information to anyone not authorized to receive such information, and that a director's first responsibility is to the corporation.  The National Policy further notes that where a Registered Representative is not a director, but is acting in an advisory capacity to an issuer and discussing confidential matters, the ground rules should be substantially the same.

4.4          Both the above statements reflect fiduciary duties and the general principles of law.  This need not, however, necessarily create a conflict between this Local Policy Statement and National Policy 18.  One rule requires a director to protect the confidentiality of information, the other requires a broker to protect his client's position.

4.5          A Registered Representative must give paramount consideration to his client, and if that obligation creates a conflict with National Policy 18, by virtue of his close association with a company, then the Registered Representative's duty is to decline to act for the client in the particular transaction.  Where it is found that a Registered Representative is, directly or indirectly, involved in a situation which puts him in a position of conflict of interest with his client, the mere fact of the situation will call into question his fitness for continued registration and a hearing may result.

4.6          This Local Policy Statement is meant as a warning and guide.  Where a filings analyst, in the course of reviewing a prospectus submission, encounters evidence that a Registered Representative is an Insider of the subject issuer, a comment to this effect will likely appear in a filing deficiency letter.  It is not the responsibility of the analyst to advise as to whether or not a breach of duty is deemed to arise from the individual having placed himself in a situation of conflict of interest.

 

DATED at Vancouver, B.C. this ___  day of___________________ 19__.

Jill Bodkin
Chairman
B.C. Securities Commission