Securities Law

35-101 - Conditional Exemption From Registration for United States Broker-Dealers and Agents [NI Proposed - Lapsed]

Published Date: 1997-10-17

CONDITIONAL EXEMPTION FROM REGISTRATION FOR UNITED STATES BROKER-DEALERS AND AGENTS1

1This proposed National Instrument is new and results from negotiations within the North American Securities Administrators Association ("NASAA") for reciprocal treatment of dealers conducting minimal ongoing business in a particular state or jurisdiction (the "NASAA Proposal"). The proposed National Instrument is expected to be adopted as a rule in British Columbia, Alberta, Ontario and Nova Scotia and as a blanket order or ruling in the other jurisdictions represented by the CSA.

PART 1 DEFINITIONS2

2A national definition rule has been adopted as National Instrument 14-101 Definitions. It contains definitions of terms used in more than one national instrument. National Instrument 14-101 Definitions also provides that terms defined in the statute relating to securities of a local jurisdiction, the meaning of which is not restricted to a specific portion of the statute, have the meanings given to them in the statue relating to securities in the local jurisdiction. National Instrument 14-101 Definitions also provides that a provision in a national instrument that specifically refers by name to a jurisdiction, other than the local jurisdiction, shall not have effect in the local jurisdiction, unless otherwise stated in the provision.

1.1 Definitions - In this Instrument

"adviser registration requirement" means the requirement in securities legislation3

3The term "securities legislation" is defined in National Instrument 14-101 Definitions as meaning the particular statute and legislative instruments of the local jurisdiction set out in appendix to that instrument and generally includes the statue, regulation, and in some cases rules, rulings and orders relating to securities in the local jurisdiction. The term "local jurisdiction" is defined in National Instrument 14-101 Definitions as meaning, in a national instrument adopted or made by a Canadian securities regulatory authority, the jurisdiction in which the Canadian securities regulatory authority is situate.

that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under securities legislation;4

4 This term may be moved to National Instrument 14-101 Definitions as it is used in more than one national instrument.

"agent" means a partner, officer, director or salesperson of a broker-dealer who is acting on behalf of a broker-dealer in effecting trades of securities;

"broker-dealer" means a "broker" or "dealer", as those terms are defined in the 1934 Act5

5 The term "1934 Act" is defined in National Instrument 14-101 Definitions. The definition is "means the Securities Exchange Act of 1934 of the United States of America".

that has its principal place of business in the United States of America;

"foreign security" means a security

(a) that is listed for trading or quoted on an exchange or market outside of Canada; or

(b) of an issuer that is not incorporated, continued or organized under the laws of Canada or a jurisdiction;6

6 The term "jurisdiction" is defined in National Instrument 14-101 Definitions. The definition is "a province or territory of Canada, except when used in the term foreign jurisdiction".

"Form BD" means the uniform application for broker-dealer registration issued by the NASD, as amended from time to time;

"Form U-4" means the uniform application for individual securities industry registration or transfer issued by the NASD, as amended from time to time;

"NASD" means the National Association of Securities Dealers in the United States of America;

"prospectus requirement" means the requirement in securities legislation that prohibits a person or company from distributing a security unless a preliminary prospectus and prospectus for the security have been filed and receipts obtained for them;7

7 This term may be moved to National Instrument 14-101 Definitions as it is used in more than one national instrument.

"trading registration requirement" means the requirement in securities legislation that prohibits a person or company from trading in a security unless the person or company is registered in the appropriate category of registration under securities legislation;8

8 This term may be moved to National Instrument 14-101 Definitions as it is used in more than one national instrument.

"underwriter registration requirement" means the requirement in securities legislation that prohibits a person or company from acting as an underwriter unless the person or company is registered in the appropriate category of registration under securities legislation;9 and

9 This term may be moved to National Instrument 14-101 Definitions as it is used in more than one national instrument.

"U.S. federal securities law" means the federal statutes of the United States of America concerning the regulation of securities markets and trading in securities and the regulations, rules, forms and schedules under those statutes.

PART 2 BROKER-DEALER EXEMPTION

2.1 Broker-dealer Exemption

(1) Subject to the requirements of this Part, the trading registration requirement does not apply to a broker-dealer that has no office or other physical presence in any jurisdiction for trading in foreign securities with or for

(a) an individual ordinarily resident in the United States of America who is temporarily resident in the local jurisdiction and with whom the broker-dealer had a broker-dealer client relationship before the individual became temporarily resident in the local jurisdiction; or

(b) an individual if the trade is for the individual's tax-advantaged retirement savings plan or with the individual's tax-advantaged retirement savings plan, and

(i) the plan is located in the United States of America,

(ii) the individual is the holder of or contributor to the plan, and

(iii) the individual was previously resident in the United States of America.

(2) The adviser registration requirement does not apply to advising activities of the broker-dealer if those activities are solely incidental to trades effected by the broker-dealer under subsection (1).

2.2 Solicitations - The broker-dealer shall not advertise for or solicit new accounts in any jurisdiction.

2.3 Membership in NASD - The broker-dealer shall maintain membership in the NASD.

2.4 Documentation - The broker-dealer shall deliver to the securities regulatory authority immediately after the broker-dealer's first trade under subsection 2.1(1)

(a) the most recent copy of the broker-dealer's Form BD;

(b) evidence that the broker-dealer is a member of the NASD and is registered in the state of the United States of America from which the trade took place; and

(c) an executed Submission to Jurisdiction and Appointment of Agent for Service of Process in the form of Appendix A.

2.5 Books and Records

(1) The broker-dealer shall provide to the securities regulatory authority, on demand, complete copies of the papers, documents, books, records and correspondence that it is required by the NASD to maintain for the cross-border trading activities under subsection 2.1(1), subject to the applicable laws of the foreign jurisdiction in which the books, papers, documents, records and correspondence are located concerning the production of such books, papers, documents, records and correspondence.

(2) If the laws of the foreign jurisdiction in which the books, papers, documents, records or correspondence referred to in subsection (1) are located prohibit the production of the books, papers, documents, records or correspondence without the consent of the relevant client, the broker-dealer shall use its best efforts to obtain the client's consent.

2.6 Disclosure of Information - The broker-dealer shall inform the securities regulatory authority immediately of any criminal proceeding brought against the broker-dealer or its agents in a jurisdiction or foreign jurisdiction, or of any finding or sanction imposed on the broker-dealer or its agents as a result of any self-regulatory or regulatory action involving fraud, theft, deceit, misrepresentation or similar conduct in a jurisdiction or foreign jurisdiction.10

10 The term "foreign jurisdiction" is defined in National Instrument 14-101 Definitions. The definition is "a country or political subdivision of a country, other than Canada".

2.7 Disclosure to Clients

(1) The broker-dealer shall disclose in writing to each client in the local jurisdiction that the broker-dealer and its agents are not subject to the full regulatory requirements applicable under securities legislation.

(2) The broker-dealer shall make the disclosure required by subsection (1) immediately after it conducts its first trade on behalf of the client.

2.8 Duties to Clients - The broker-dealer shall, in the course of its dealings with clients, act fairly, honestly and in good faith.

2.9 Termination Notice - The broker-dealer shall immediately notify the securities regulatory authority if the broker-dealer will no longer engage in trading or advising activities under section 2.1, after which the broker-dealer shall not engage in such activities without complying with Part 2 as if the first trade after such notice were the first trade referred to in section 2.4.

PART 3 AGENTS EXEMPTION

3.1 Agents Exemption - Subject to the requirements of this Part, the adviser registration requirement and the trading registration requirement do not apply to an agent engaging in trades or advising activities that are carried out in compliance with the requirements of section 2.1 and such activities are on behalf of a broker-dealer under section 2.1.

3.2 Documentation - The agent shall deliver to the securities regulatory authority immediately after the agent's first trade under section 3.1

(a) the most recent copy of the agent's Form U-4;

(b) evidence that the agent is registered in the state in the United States of America from which the trade took place; and

(c) an executed Submission to Jurisdiction and Appointment of Agent for Service of Process in the form in Appendix B.

3.3 Disclosure of Information - The agent shall inform the securities regulatory authority immediately of any criminal proceeding brought against the agent in a jurisdiction or foreign jurisdiction, or of any finding or sanction imposed on the agent as a result of any self-regulatory or regulatory action involving fraud, theft, deceit, misrepresentation or similar conduct in a jurisdiction or foreign jurisdiction.

3.4 Duties to Clients - The agent shall, in the course of its dealings with the broker-dealer's clients, act fairly, honestly and in good faith.

3.5 Termination Notice - The agent shall immediately notify the securities regulatory authority if the agent will no longer engage in trading or advising activities under section 3.1, after which the agent shall not engage in such activities without complying with Part 3 as if the first trade after such notice were the first trade referred to in section 3.2.

PART 4 EXEMPTION FROM PROSPECTUS AND UNDERWRITER REQUIREMENTS11

11 The NASAA Proposal relates to state requirements and does not affect the application of the U.S. federal requirements. The CSA members are discussing reciprocity with the SEC.

4.1 Exemption from Prospectus and Underwriter Requirements - The prospectus requirement and underwriter registration requirement do not apply to a distribution of foreign securities

(a) by a broker-dealer or agent for a trade for which the adviser registration requirement and the trading registration requirement do not apply under section 2.1 or 3.1; and

(b) made in compliance with all applicable

(i) U.S. federal securities laws, and

(ii) state securities legislation in the United States of America.

 

NATIONAL INSTRUMENT 35-101

CONDITIONAL EXEMPTION FROM REGISTRATION FOR UNITED STATES BROKER-DEALERS AND AGENTS

APPENDIX A

FORM OF SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE OF PROCESS BY BROKER-DEALER

Instructions: Prepare a version of this form for each of the jurisdictions in which the broker-dealer seeks the conditional exemption from registration in National Instrument 35-101 (the "exemption"). Insert the name of the jurisdiction at each "".

1. Name of applicant (the "Applicant");

2. Jurisdiction of incorporation of the Applicant;

3. Name of agent for service of process (the "Agent");

4. Address for service of process on the Agent in ;

5. The Applicant designates and appoints the Agent at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the Applicant's activities in under the exemption, and irrevocably waives any right to raise as defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

6. The Applicant irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of and any administrative proceeding in , in any Proceeding arising out of or related to or concerning the Applicant's activities in under the exemption.

7. Until six years after the Applicant ceases to use the exemption, the Applicant shall file:

a. a new Submission to Jurisdiction and Appointment of Agent for Service of Process in this form at least 30 days before termination for any reason of this Submission to Jurisdiction and Appointment of Agent for Service of Process; and

b. An amended Submission to Jurisdiction and Appointment of Agent for Service of Process at least 30 days before any change in the name or above address of the Agent.

8. This submission to Jurisdiction and Appointment of Agent for Service of Process is governed by and construed in accordance with the laws of .

 

Dated: _____________________ __________________________________
Signature of Applicant or authorized signatory)

________________________________________
(Name and Title of Authorized Signatory)

 

Acceptance

 

The undersigned accepts the appointment as agent for service of process on __________________ (Insert name of Applicant) under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service of Process.

Dated: ___________________ ______________________________
Signature of Applicant or authorized signatory)

________________________________________
(Name and Title of Authorized Signatory)

 

 

NATIONAL INSTRUMENT 35-101

CONDITIONAL EXEMPTION FROM REGISTRATION FOR UNITED STATES

BROKER-DEALERS AND AGENTS

APPENDIX B

FORM OF SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE OF PROCESS BY AGENTS OF THE BROKER-DEALER

Instructions: Prepare a version of this form for each of the jurisdictions in which agents of the broker-dealer seek the conditional exemption from registration in National Instrument 35-101 (the "exemption"). Insert the name of the jurisdiction at each "*".

1. Name of the broker-dealer (the "Broker-Dealer");

2. Jurisdiction of incorporation of the Broker-Dealer;

3. Name(s) and address(es) of person(s) filing this form (the "Filing Person");

4. Name of agent for service of process (the "Agent");

5. Address for service of process on the Agent in *;

6. Each Filing Person designates and appoints the Agent at the address of the Agent stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the Filing Person's activities in * under the exemption, and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

7. Each Filing Person irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of * and any administrative proceeding in , in any Proceeding arising out of or related to or concerning the Filing Person's activities in * under the exemption.

8. Until the earlier of (i) the termination of a Filing Person's position as an agent of the Broker-Dealer and (ii) six years after the Broker-Dealer ceases to use the exemption, the Filing Person shall file:

a. a new Submission to Jurisdiction and Appointment of Agent for Service of Process in this form at least 30 days prior to termination for any reason of this Submission to Jurisdiction and Appointment of Agent for Service of Process; and

b. an amended Submission to Jurisdiction and Appointment of Agent for Service of Process at least 30 days before any change in the name or above address of the Agent.

9. This Submission to Jurisdiction and Appointment of Agent for Service of Process is governed by and construed in accordance with the laws of *.

 

Dated: ____________________ _______________________________
(Signature of Filing Person)

 

Dated: ____________________ ________________________________
(Signature of Filing Person)

 

Dated: _____________________ ________________________________
(Signature of Filing Person)

 

Dated: ______________________ _______________________________
(Signature of Filing Person)

 

 

 Acceptance

 

 

The undersigned accepts the appointment as agent for service of process on _________________

(Insert name(s) of Filing Person(s)) pursuant to the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service of Process.

 

Dated: ______________________ _____________________________
(Signature of Applicant or authorized signatory)

________________________________________
(Name and Title of Authorized Signatory)