Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System – National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – National Instrument 33-109 Regis-tration Information (NI 33-109) and Derivatives Regulation (Québec) – relief from certain filing requirements of NI 33-109 and Derivatives Regulation (Québec) in connection with a bulk transfer of business locations and registered individuals pursuant to an asset purchase in accordance with section 3.4 of Companion Policy 33-109CP to NI 33-109.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System
National Instrument 33-109 Registration Information, ss. 2.2, 2.5, 3.2, 4.1, 5.2.
Companion Policy 33-109CP Registration Information, s. 3.4 and Appendix C.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
Derivatives Act (Québec) and Derivatives Regulation (Québec).

October 31, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
THE DERIVATIVES LEGISLATION OF
QUÉBEC

AND

IN THE MATTER OF
NATIONAL BANK FINANCIAL INC. (“NBFI”),
NATIONAL BANK FINANCIAL LTD (“NBFL”),
NBCN INC. (“NBCN”) AND
NATIONAL BANK DIRECT BROKERAGE INC. (“NBDB”)
(collectively the Filers)

DECISIONS

Background

The securities regulatory authority in Québec (the Principal Decision Maker) and the regulator in Ontario (the Ontario Decision Maker) have received an application (the 33-109 Application) from the Filers, resulting from the proposed amalgamation (the Amal-gamation) of NBFI, NBFL, NBCN and NBDB, for a decision under the securities legislation of each of Québec and Ontario (the Legislation) providing exemptions from the requirements contained in sections 2.2, 2.3, 2.5, 3.2 and 4.2 of National Instrument 33-109 Registration Information (NI 33-109) pursuant to section 7.1 of NI 33-109 to allow the bulk transfer (the Bulk Transfer) of all the registered individuals and all of the business locations of each of NBFL, NBCN and NBDB to NBFI, on or about November 1, 2017 (the Amalgamation Date) in accordance with section 3.4 of the Companion Policy to NI 33-109 (the Exemption Sought).

The Principal Decision Maker has also received an application (the Derivatives Legislation Application) from the Filers for a decision under the derivatives legislation of Québec for relief from section 11.1 of the Derivatives Regulation (Québec) pursuant to section 86 of the Derivatives Act (Québec) to allow the Bulk Transfer of NBCN and NBDB individuals registered under Québec derivatives legislation and all of the business locations from NBCN and NBDB to NBFI, on the Amalgamation Date in accordance with section 3.4 of the Companion Policy to NI 33-109 (the Derivatives Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):

(a)           L’Autorité des marchés financiers is the Principal regulator for the Exemption sought and the Derivatives Exemption Sought;

(b)           for the decision of the Principal Decision Maker in respect of the Exemption Sought, the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba,
New Brunswick, Newfoundland-Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Sas-katchewan and Yukon (together with Québec and Ontario, the Jurisdictions and each a Jurisdiction);

(c)           the decision with respect to the Exemption Sought is the decision of the Principal Decision Maker and evidences the decision of the Ontario Decision Maker (the Principal Decision Maker and the Ontario Decision Maker are collec-tively referred to as the Dual Decision Makers); and

(d)           the decision with respect to the Derivatives Exemption Sought is the decision of the Principal Decision Maker.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in these decisions, unless otherwise defined.

Representations

These decisions are based on the following facts represented by the Filers:

1.             NBFI was incorporated under the Part 1A Companies Act (Québec) now governed by the Business Corporations Act (Québec) and has its head office located in Montreal, Québec. NBFI is an indirect wholly-owned subsidiary of National Bank of Canada (NBC), a Canadian chartered bank validly existing under the laws of Canada.

2.             NBFI is registered as:

(a)           an investment dealer in each Jurisdiction;

(b)           a futures commission merchant in Ontario; and as

(c)           a derivatives dealer in Québec.

3.             NBFI is also a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).

4.             NBFL was incorporated under the laws of Ontario and has its head office located in Toronto, Ontario. NBFL is a wholly-owned direct subsidiary of NBFI and, as a result, is also an indirect wholly-owned subsidiary of NBC.

5.             NBFL is registered as an investment dealer in each of the provinces and territories of Canada, excluding Québec and New Brunswick, and as a futures commission merchant in Manitoba and Ontario. NBFL is also a dealer member of IIROC.

6.             NBCN was incorporated under the Corporations Registration Act of Nova Scotia and continued under the Canada Business Corporations Act and has its head office located in Toronto, Ontario. NBCN is a wholly-owned direct subsidiary of NBFI and, as a result, is also an indirect wholly-owned subsidiary of NBC.

7.             NBCN is registered as an investment dealer in each of the Jurisdictions and as a derivatives dealer in Québec. NBCN is also a dealer member of IIROC.

8.             NBDB was incorporated under the laws of Québec and has its head office located in Montreal, Québec. NBDB is an affiliate of NBFI, and hence is also a wholly-owned indirect subsidiary of NBC.

9.             NBDB is registered as an investment dealer in each of the provinces of Canada and as a derivatives dealer in Québec. NBDB is also a dealer member of IIROC.

10.          NBFI, NBFL, NBCN and NBDB are not in default of securities legislation in any Jurisdiction and/or of derivatives legislation.

The Proposed Amalgamation

11.          NBFI is proposing to amalgamate with the affiliated IIROC dealer members of its group, NBFL, NBCN and NBDB (collectively, the Amalgamating Entities) to form a single full service securities broker serving retail and institutional clients which would continue to do business as National Bank Financial Inc. (the legal entity resulting from the Amalgamation).

12.          The proposed Amalgamation aims to allow the Amalgamating entities to carry out their dealer member and securities brokerage activities in a simplified and efficient manner, by consolidating their activities under a single corporate entity. For operational purposes, NBFI will have “divisions” corresponding to the existing business activities of the Amalgamating Entities, including institutional, retail, direct brokerage and trade execution and carrying broker divisions.

13.          Immediately before the Amalgamation Date, all shares of NBDB will be transferred to NBFI, so that NBDB will become a wholly-owned direct subsidiary of NBFI.

14.          The Amalgamation will also be preceded by some corporate technical and sequential restructuring steps including the continuance of some of the Amalgamating Entities to bring them all under the same jurisdiction of incorporation.

15.          The Amalgamation will be effected through the Canada Business Corporation Act regular process. As such, after the Amalgamation, NBFL, NBCN, NBDB and NBFI will continue as one legal entity under the name of National Bank Financial Inc. (with French version Financière Banque Nationale Inc.).

16.          The head office location will be the same as the current head office location of NBFI and the National Registration Database (NRD) number will be the same as the current NRD number of NBFI.

17.          As part of the Amalgamation, 630 registered representatives and 58 business locations of NBFL, 105 registered representatives and one business location from NBDB and 45 registered representatives and 5 business locations from NBCN (the Transferred Representatives and the Transferred Business Locations) will be transferred to NBFI.

18.          The Amalgamation is scheduled to occur on or about November 1, 2017.

19.          On August 31, 2017, IIROC issued a non-objection letter with respect to the Amalgamation.

Submissions in support of exemptions

20.          Subject to obtaining the Exemption Sought and the Derivatives Exemption Sought, no disruption in the services provided by the Filers to their clients is anticipated as a result of the Amalgamation.

21.          Given the significant number of individuals and affected business locations of the Filers, it would be unduly time consuming to individually transfer all individuals and affected business locations to NBFI and difficult to transfer each of the Transferred Representatives and Transferred Business Locations through the National Registration Database in accordance with the requirements of NI 33-109 if the Exemption Sought and the Derivatives Exemption Sought are not granted.

22.          Following the implementation of the Amal-gamation, the divisions will continue to conduct the business previously conducted by the Amalgamating Entities in the same manner as conducted prior to the Amalgamation. All operations, client accounts, assets and contracts will continue to be managed using the same systems and personnel.

23.          Consequently, in connection with the Amal-gamation, it is anticipated that all of the current registrable activities of NBFL, NBCN and NBDB will be transferred to NBFI via Bulk Transfer as of the Amalgamation Date. NBFI will assume all of the existing registrations and approvals of NBFL’s, NBCN’s and NBDB’s registered individuals and permitted individuals and all of the business locations of NBFL, NBCN and NBDB.

24.          NBFI will continue to comply with all applicable securities legislation in each of the Jurisdictions and Québec derivatives legislation.

25.          The Amalgamation will not proceed without the prior non-objection or approval of IIROC.

26.          NBFL, NBCN, and NBDB clients have been, or will be, made aware of the Amalgamation via: (i) their September quarterly statements; and (ii) via a website notice.

27.          The Exemption Sought and the Derivatives Exemption Sought comply with the requirements of, and the reasons for, a bulk transfer as set out in Section 3.4 of the Companion Policy to NI 33-109 and Appendix C thereto.

Decisions

The Dual Decision Makers for the Exemption Sought, and the Principal Decision Maker for the Derivatives Exemption Sought, are satisfied that the following decisions meet the tests set out in the Legislation and the Derivatives Act (Québec), as applicable.

The decision of the Dual Decision Makers under the Legislation is that the Exemption Sought is granted.

The decision of the Principal Decision Maker under the Derivatives Act (Québec) is that the Derivatives Exemption Sought is granted.

“Eric Stevenson”
Superintendent, Client Services and Distribution Oversight