NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Coordinated Review -- Registered investment dealer exempted from section 228 of the Regulations made under the Securities Act (Ontario) for recommendations in respect of securities of its parent bank, subject to conditions -- Decision permits the registrant to make recommendations in the circumstances contemplated by subsection 228(2) of the Regulation, but without having to comply with the requirement for (comparative) information, similar to that set forth in respect of the bank, for a substantial number of other persons or companies that are in the industry or business of the bank.
Applicable Ontario Statutory Provision
Ontario Regulation 1015, R.R.O. 1990, as am., ss. 228, 233.
April 3, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, NOVA SCOTIA AND
NEWFOUNDLAND AND LABRADOR
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
RBC DOMINION SECURITIES INC.
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the provisions (the Recommendation Prohibition) in the Legislation which provide that no registrant shall, in any medium of communication, recommend, or cooperate with any person or company in the making of any recommendation, that the securities of the registrant, or a related issuer of the registrant, or, in the course of a distribution, the securities of a connected issuer of the registrant, be purchased, sold or held, shall not, in certain circumstances, apply to the Filer, in respect of securities of its parent bank, the Royal Bank of Canada (the Bank).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer, a corporation incorporated under the laws of Canada, has its head office in Toronto, Ontario.
2. The Bank is a Canadian chartered bank named in Schedule I of the Bank Act (Canada).
3. The Filer is a wholly-owned subsidiary of the Bank and, as such, is a "related issuer" of the Filer for the purposes of the Recommendation Prohibition.
4. The Filer is registered under the Legislation of each of the Jurisdictions as a dealer in the category of "investment dealer".
5. The Filer acts as a full-service investment dealer.
6. The Filer provides equity research report coverage on a very large number of issuers, including the Bank and all of the other banks currently named in Schedule I of the Bank Act (Canada).
7. As a member of the Investment Industry Regulatory Organization of Canada (IIROC), the Filer is obliged to comply with Rule 3400 -- Research Restrictions and Disclosure Requirements (Rule 3400) of the IIROC Dealer Member Rules..
8. Guideline No. 3 of Rule 3400 states:
Members should adopt standards of research coverage that include, at a minimum, the obligation to maintain and publish current financial estimates and recommendations on securities followed, and to revisit such estimates and recommendations within a reasonable time following the release of material information by an issuer or the occurrence of other relevant events.
9. In each of the Jurisdictions, the Legislation provides an exemption (the Statutory Exemption) from the Recommendation Prohibition for a recommendation (a Recommendation) to purchase, sell or hold securities of an issuer, that is contained in a circular, pamphlet or similar publication (a Report) that is published, issued or sent by a registrant and is of a type distributed with reasonable regularity in the ordinary course of its business, provided that the Report:
(a) includes in a conspicuous position, in type not less legible than that used in the body of the Report
(i) a full and complete statement (a Relationship Statement) of the relationship or connection between the registrant and the issuer of the securities; and
(ii) a full and complete statement of the obligations of the registrant under the Recommendation Prohibition and the Statutory Exemption;
(b) includes information (Comparative Information) similar to that set forth in respect of the issuer for a substantial number of other persons or companies (Competitors) that are in the industry or business of the issuer; and
(c) does not give materially greater space or prominence to the information set forth in respect of the issuer than to the information set forth in respect of any other person or company described therein.
10. So long as the Filer remains a related issuer of the Bank, the Filer cannot rely on the Statutory Exemption from the Recommendation Prohibition, to publish in a Report any Recommendation with respect to securities of the Bank, including a revision to a previous Recommendation, in response to:
(a) the release of interim financial statements of the Bank or information concerning such financial statements, or
(b) the release of information, or the occurrence of an event, that might reasonably be interpreted to have, or possibly have, a significant effect on the value of any securities issued by the Bank, or the continued validity of previously published financial estimates or recommendation issued by the Filer in respect of any securities issued by the Bank,
unless, at the relevant time, the Filer has been able to ascertain, and is able to include in the Report, Comparative Information for a substantial number of Competitors of the Bank, and also satisfy the requirements of the Statutory Exemption relating to space and prominence of information, referred to in paragraph 9(c) above.
11. The Filer submits that meeting the requirement to include Comparative Information is disadvantageous to its clients because the time consuming tasks associated with compiling the Comparative Information delay the timely dissemination of its research.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Recommendation Prohibition shall not apply to Recommendations of the Filer in respect of securities of the Bank that are made by the Filer in a Report, in response to:
(i) the release of interim financial statements of the Bank or information concerning such financial statements, or
(ii) the release of information, or the occurrence of an event, that might reasonably be interpreted to have, or possibly have, a significant effect on the value of any securities issued by the Bank, or the continued validity of previously published financial estimates or recommendation issued by the Filer in respect of any securities issued by the Bank;
(a) the Recommendation is made by the Filer in a Report that:
(i) is published or distributed by the Filer regularly in the ordinary course of the Filer's business; and
(ii) includes in a conspicuous position and large type, a complete statement of the relationship or connections between the Filer and the Bank; and
(b) this Decision, as it relates to the jurisdiction of a Decision Maker, will terminate:
(i) upon the coming into force of Proposed National Instrument 31-103 Registration Requirements (the "Proposed Rule") containing a rule or provision that replaces the Statutory Exemption as contemplated in section 6.5 of the Proposed Rule published on February 29, 2008;
(ii) 90 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to make the Proposed Rule; or
(iii) 90 days after the coming into force of the Proposed Rule if the Proposed Rule does not contain a rule or provision that replaces the Statutory Exemption which is substantially the same as contemplated in section 6.5 of the Proposed Rule.