NIN 2000/31 - Proposed Rule Amendments to Require Membership in a Self-Regulatory Organization for Mutual Fund Dealers and Securities Dealers [NIN - Rescinded]
| Published Date: | 2000-07-21 |
|---|---|
| Effective Date: | 2000-07-20 |
Background
The Proposed Amendments were first published for comment with NIN#98/39 in July 1998. Since then, the Mutual Fund Dealers Association of Canada (the “MFDA”) has applied to be recognized as the SRO for mutual fund dealers and has published its proposed rules and bylaws for comment. NIN#2000/25, which was published on June 16, 2000, discusses these rules and bylaws. It also provides information on how the public can comment.
Key Elements of the Proposed Amendments
The Commission proposes several key changes from the first publication in order to provide a transition period for dealers that will be required to join SROs. The specific provisions are as follows:
- Securities dealers must, to maintain their registration, apply to join either the Investment Dealers Association of Canada (“IDA”) or the Mutual Fund Dealers Association of Canada (“MFDA”) by February 1, 2001.
- No new registrants in the category of securities dealer will be permitted after January 31, 2001.
- An existing securities dealer may containue to be registered in that category until the earlier of February 28, 2002, or the date it is accepted or rejected as a member of the IDA or the MFDA. Upon joining an SRO, the securities dealer will be required to register either as an investment dealer or a mutual fund dealer in order to continue to operate.
- Mutual fund dealers, to maintain their registration, must apply to join the MFDA by February 1, 20011
1The Commission is still considering the recognition application of the MFDA. It expects to consider the application in time to make a decision regarding recognition by January 1, 2001. If it does so, the date by which application for membership must be made will be February 1, 2001.
- An existing mutual fund dealer may continue to be registered without being an MFDA member until the earlier of February 28, 2002, or the date it is accepted or rejected as a member of the MFDA.
- An applicant for registration as a mutual fund dealer between February 1, 20012
Summary of Comments and Responses2 This date will be fixed if the Commission recognizes the MFDA as a self-regulatory body. If recognized, staff anticipates that this date would be February 1, 2001, and also expects that February 28, 2002 is the date by which the dealer must become a member of the MFDA.
and February 28, 2002 must also apply to become a member of the MFDA. It may become registered without being an MFDA member until the earlier of February 28, 2002, or the date it is accepted or rejected as a member of the MFDA.
Two comment letters were submitted during the first comment period on the Proposed Amendments: one from Balcom Financial Corp. a mutual fund dealer, and one on behalf of 11 separate securities dealers.
Commenters noted that if the MFDA did not permit its members to sell securities under certain registration exemptions (for example selling limited partnerships to sophisticated purchasers) the result would be that securities dealers who wanted to continue to trade using these exemptions would have to apply to join the IDA. The commenter said the IDA had indicated that it might not accept members who traded securities under certain exemptions because most other IDA members did not do so extensively. The commenters were concerned that as a result they would need to significantly change the way they did business to become members of either SRO.
The Executive Director recently issued NIN#2000/27 “Proposed Conditions of Registration for Limited Dealers” which seeks comment on conditions of registration the Director, Registration intends to impose on all limited dealers relating to the sale of securities in reliance on registration exemptions. It clarifies that mutual fund dealers (and other limited dealers), can trade and advise on securities sold under an exemption and describes how mutual fund dealers must conduct themselves in order to rely on these exemptions. Therefore, securities dealers will have an option. Should they choose to, the dealers may become mutual fund dealers, apply to join the MFDA, and still continue to trade and advise on securities sold under exemptions, so long as they do so in compliance with the conditions of registration that will be imposed. Dealers should carefully review NIN#2000/27 for details of the proposed conditions of registration.
The MFDA will, together with staff of the Commission where appropriate, monitor its members’ trading under exemptions and their compliance with any conditions of registration placed on mutual fund dealers in B.C.
Another commenter acknowledged that the time has come for mutual fund dealers to become SRO members, but wished to ensure that the MFDA recognizes their uniqueness, including their relative size, risk to the public and contribution to business in British Columbia. The commenter was particularly concerned about the impact of any requirement that may be imposed by the MFDA to participate in a public contingency fund, similar to that operated by the Canadian Investor Protection Fund (“CIPF”). The commenter suggested that this requirement could be avoided if the MFDA required all members to register mutual fund accounts in client name directly with the mutual fund company. An exception would be self-administered RRSP accounts that would be registered with independent trust companies.
Commission staff have reviewed the proposed MFDA rules and note that the MFDA does not mandate in which name mutual fund accounts must be registered. It intends to permit either client name or nominee name accounts. The MFDA intends to require that all members, regardless of how they register client accounts, participate in a CIPF-like contingency fund. To enhance investor protection, Commission staff support this requirement.
In developing its rules and bylaws, the MFDA has advised that it considered differences between mutual fund dealers and other dealers. Dealers who believe that the rules do not properly reflect these differences, or that they impose requirements not needed for investor protection, should provide comments to the MFDA before September 15, 2000.
Continued Applicability of Securities Legislation
Mutual fund dealers and their salespersons should note that, in addition to becoming members of the MFDA, they must also continue their registration with the Commission, and comply with the Securities Act, Rules and policies, including the capital and notification requirements. For example, in British Columbia, the minimum capital requirement for a mutual fund dealer that does not hold client funds will remain at $25,000, notwithstanding any lower capital requirement that might initially be permitted by the MFDA.
Timing
If the MFDA is recognized, the Proposed Amendments are expected to come into force at or closely following the date of recognition of the MFDA. Timing for mutual fund dealers to join the MFDA has been closely harmonized with Ontario and Alberta. There are some differences in timing for securities dealers. Dealers who operate in more than one province should closely review the proposed rules requiring SRO membership in all jurisdictions in which they operate to ensure compliance with all requirements.
Request for Comment
Interested parties are invited to make written submissions with respect to the Proposed Amendments. Submissions received by September 20, 2000 will be considered.
Submissions should be sent to:
Brenda Benham
Director, Policy & Legislation
British Columbia Securities Commission
200-865 Hornby Street
Vancouver BC V6Z 2H4
bbenham@bcsc.bc.ca
Comment letters submitted in response to Requests for Comments are placed on the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the public file, freedom of information legislation may require the Commission to make those comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.
DATED at Vancouver, British Columbia, on July 20, 2000.
Douglas Hyndman
Chair
Ref: NIN#98/39
NIN#2000/25
NIN#2000/27
This NIN refers to other documents. These documents can be found at the B.C. Securities Commission public website atwww.bcsc.bc.cain the Commission Documents database or the Historical Documents database.
Proposed Amendments to the Securities Rules
and the Registration Transfer Rules
The Securities Rules, R.B.C. Reg. 194/97, are amended as follows:
1.Section 6(2) is repealed and the following is substituted:
(2) A person registered as a dealer must be classified in one or more of the following categories:
^
(a) investment dealer: a person that
(i) is a member, a branch office member or an associate member of the Investment Dealers Association of Canada, and
(ii) trades in securities, exchange contracts or both;(b) securities dealer: a person that
(i) is not an investment dealer, and
(ii) trades exclusively in securities, other than forward contracts;(c) ^ limited dealer -
(i) exchange contracts dealer: a person that trades exclusively in exchange contracts, forward contracts, or both;
(ii) mutual fund dealer: a person that ^(A)is a member of the Mutual Fund Dealers Association of Canada, and
(B)trades exclusively in the securities of mutual funds;(iii) security issuer: an issuer that trades in securities for purposes of distributing securities of its own issue exclusively for its own account;
(iv) real estate securities dealer: a person that trades in the capacity of agent or principal exclusively in real estate securities;
(v) scholarship plan dealer: a person that trades exclusively in securities of a scholarship or educational plan or trust;
(vi)special limited dealer1
1Note that this is a new category of registration proposed by the Commission. It was included in the draft amendments published for comment with NIN #98/39 though at that time was called “general limited dealer”.: a person that trades exclusively in a specified type of security.
(3) Despite subsection 2(b), a person may not be registered as a securities dealer after January 31, 2001.
(4) Despite subsection (3), a person registered as a securities dealer when this subsection comes into force may continue to be registered as a securities dealer until the earlier of February 28, 2002, and the date the person is accepted or rejected as a member of a self regulatory body recognized under section 24(1) of the Act, provided the person applies for membership in accordance with the requirements of a recognized self regulatory body before February 1, 2001.(5) Despite subsection (2)(c)(ii)(A), a person registered as a mutual fund dealer when this subsection comes into force may continue to be registered as a mutual fund dealer without being a member of the Mutual Fund Dealers Association of Canada until the earlier of•2
2This date will be fixed if the Commission recognizes the MFDA as a self-regulatory body. If recognized, staff anticipates that this date would be February 28, 2002.
and the date the person is accepted or rejected as a member of the Mutual Fund Dealers Association of Canada, provided the person applies for membership before •3
3This date will be fixed if the Commission recognizes the MFDA as a self-regulatory body. If recognized, staff anticipates that this date would be February 1, 2001.
in accordance with the requirements of the Mutual Fund Dealers Association of Canada.
(6) Despite subsection (2)(c)(ii)(A), a person that applies to be registered as a mutual fund dealer between the date this subsection comes into force and •4
4See also footnote 2 and 3. If the MFDA is recognized, this date is expected to be February 28, 2002.
may be registered as a mutual fund dealer without being a member of the Mutual Fund Dealers Association of Canada until the earlier of •5
5Ibid.
and the date the person is accepted or rejected as a member of the Mutual Fund Dealers Association of Canada provided the person has applied for membership in accordance with the requirements of the Mutual Fund Dealers Association of Canada.
2.Section 9 (a)(ii) is repealed and the following substituted:
(ii) investment adviser: an employee of ^ an investment dealer that trades in securities, exchange contracts or both on behalf of the ^ investment dealer;
3.Section 12 is repealed and the following substituted:
^ Investment dealer acting as portfolio manager
12. The provisions of this Part that apply to a portfolio manager do not apply to
(a) ^ an investment dealer, or
(b) a partner, director, officer or salesperson of an ^ investment dealer
that, by the operation of section 86, is exempt from registration under 34(1)(c) of the Act as a portfolio manager.
4.Section 19(1) is amended by deleting the words “A broker or” and substituting the word “An”.
5.Section 41(1)(b) is amended by deleting the words “a broker,” and substituting the word “an”.
6.Section 44(2) is amended by deleting the words “, broker”.
7.Section 46 is repealed and the following substituted:
^ Investment dealer’sand mutual fund dealer’sguidelines
46.(1) ^ An investment dealer or mutual fund dealer complies with section 44 (1) if it follows the bylaws, rules or other regulatory instruments or policies relating to dealing with clients established by^ a self regulatory body of which it is a member that is named in or recognized for the purpose of section 6(2) if those bylaws, rules or other regulatory instruments or policies(i) have been filed by the ^ self-regulatory body before they take effect, and
(ii) subject to subsection (3), have not been objected to by the commission.
(2) An investment dealer, if registered as an underwriter, complies with section 45 (1) if it follows the bylaws, rules or other regulatory instruments or policies relating to underwriting established by ^ a self regulatory body of which it is a member that is named in or recognized for the purpose of section 7, relating to underwriting, if those bylaws, rules or other regulatory instruments or policies
(i) have been filed by the ^ self regulatory body before they take effect, and
(ii) subject to subsection (3), have not been objected to by the commission.
(3) If ^ a self regulatory body files a bylaw, rule or other regulatory instrument or policy in accordance with subsection (1)(i) or 2(i) and the commission does not give a written notice of objection within ^30 days after filing, the bylaw, rule or other regulatory instrument or policy is deemed to have not been objected to by the commission.
8.Section 52(2) is amended by deleting the words “a broker or” and substituting the word “an”.
9.Section 64(1) is amended by deleting the words “a broker,” and substituting the word “an”.
10.Section 70(1) is amended by deleting the words “A broker,” and substituting the word “An”.
11.Section 86 is repealed and the following substituted:
^ Investment Dealer acting as portfolio manager
86.(1) ^ An investment dealer and a partner, director, officer or salesperson of the investment dealer, is exempt from registration under section 34(1)(c) of the Act if
(a) the ^ investment dealer, partner, director, officer or salesperson follows the bylaws, rules or other regulatory instruments or policies established by the ^ Investment Dealers Association of Canada relating to activities as a portfolio manager, and
(b) those bylaws, rules or other regulatory instruments or policies
(i) have been filed by the ^ Investment Dealers Association of Canada before they take effect, and
(ii) subject to subsection (2), have not been objected to by the commission.
(2) If the ^ Investment Dealers Association of Canada files a bylaw, rule or other regulatory instrument or policy in accordance with subsection (1)(b)(i) and the commission does not give a written notice of objection within 30 days after filing, the bylaw, rule or other regulatory instrument or policy is deemed not to have been objected to by the commission.
The Registration Transfer Rules, R.B.C. 193/97, are amended as follows:
1.Section 1 is amended by deleting the words “each of the Vancouver Stock Exchange and” in the definition of designated organization.
2.Section 2(1) is amended by deleting the words “the Vancouver Stock Exchange and”.
3.Section 3 is repealed and the following substituted:
3.(1) Subject to subsections (2) and (3), a person must apply to the designated organization for registration or renewal of, reinstatement of or amendment to registration as
(a) ^ an investment dealer,
(b) a trading partner, director or officer of ^ an investment dealer,
(c) a salesperson of ^ an investment dealer, or
(d) an underwriter that is a member of a designated organization.
4.Section 4(1) is repealed and the following substituted:
(a) subject to subsection (2) register ^ an investment dealer, underwriter or trading partner, director or officer or salesperson of ^ an investment dealer if the designated organization considers the applicant to be suitable for registration in the capacity applied for.
5.Section 8 is amended by deleting the words “a broker or” and substituting the word “an”.
6.Section 9(1)(d) is amended by deleting the words “broker or”.