Mutual Reliance Review System for Exemptive Relief Applications - The requirement insubsection 36(1) of the Act to send trade confirmations for trades shall not apply fortrades made by a registered in connection with a dividend reinvestment plan operatedby the dealer - The requirement in clause 36(1)(c) of the Act to indicate in tradeconfirmations whether the dealer acted as principal or agent in a trade shall not applyto trade confirmations delivered in connection with pooled trades conducted by thedealer under a low cost investing program operated by the dealer.
Applicable Ontario Statutes
Securities Act, 1990 R.S.O., c.S.5, as am., ss. 36, 147.
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
JOHN BART INVESTMENTS INC.
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "DecisionMaker") in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland,the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island,Saskatchewan and the Yukon (collectively, the "Jurisdictions" and, individually, a"Jurisdiction") have received an application from John Bart Investments Inc. (the "Filer")for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation")that:
(a) the provisions of the Legislation that require a registered dealer who hasacted as principal or agent in connection with any trade in a security to senda written confirmation of the trade shall not apply in connection with theautomatic reinvestment of dividends paid by issuers in respect of securitiesheld in pooled trading accounts administered by the Filer; and
(b) the provisions of the Legislation that require every confirmation provided bya registered dealer to disclose whether the registered dealer acted asprincipal or agent in respect of a trade shall not apply to the confirmationsdelivered by the Filer through its web site for the pooled trades administeredby the Filer on behalf of its clients.
AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission (the "OSC") is theprincipal regulator for this application;
AND WHEREAS the Filer has represented to the Decision Makers that:
1. The Filer is a corporation incorporated under the Business Corporations Act(Ontario) on June 25, 1999. Its sole office is located at 2 Carlton Street, Suite1317, Toronto, Ontario, M5B 1J3.
2. On September 10, 1999, the Filer concurrently filed an application with the OSC forregistration under the Securities Act (Ontario) in the category of Investment Dealerand an application with the Investment Dealers Association of Canada (the "IDA")for membership in the IDA. The Filer is also in the process of filing applications forregistration as an Investment Dealer, or the equivalent thereof, under the securitieslegislation of each of the other Jurisdictions.
3. Once registered, the Filer intends to administer two types of trades on behalf of itsclients: (i) traditional trades whereby the Filer will arrange for the immediateexecution of a client's order to purchase or sell a security; and (ii) pooled tradeswhereby the Filer will pool orders received from its clients to purchase or sell asecurity in order that one aggregate order can be placed on a regular, periodicbasis.
4. Pooled trades through the Filer will be administered in accordance with the termsof a plan (the "Plan") which will initially be referred to as the Low Cost InvestingProgram. The terms of the Plan will allow clients of the Filer to purchase or sellcertain securities for a fraction of the cost which would otherwise apply to suchtransactions if conducted through other full-service, discount or on-line brokeragefacilities. Clients who want to open a pooled trading account with the Filer willreceive a document disclosing the operations of the Plan prior to the opening ofsuch account.
5. A list of the securities available through the Plan (each such security being referredto herein as an "Eligible Security") will be posted on the Filer's web site and/orpublished in a publication available to the clients of the Filer. The list of EligibleSecurities will only include: (i) common shares of certain companies listed on arecognized stock exchange; and (ii) securities issued by certain stock exchangeindex funds. The Filer will also post on its web site and/or publish in a publicationavailable to its clients a schedule setting out the frequency and length of theinvestment period (the "Investment Period") for each Eligible Security, which is thedesignated period during which the Filer will administer trades in respect of thatEligible Security. The Investment Period for an Eligible Security will initially occurmonthly but may occur at greater or lesser intervals, for example, on a bi-weekly orquarterly basis.
6. The process for administering pooled trades under the Plan will begin when theFiler receives orders from its clients either by mail, e-mail, facsimile or verbally, topurchase an Eligible Security through the Plan and the client either makes a lump-sum payment to the Filer or arranges for periodic, regular payments and, in eithercase, requests that such amount be invested during the next Investment Period forthat Eligible Security.
7. Immediately prior to the beginning of the Investment Period for an Eligible Security,the Filer will prepare an order for a specific quantity of the Eligible Security bycomparing the aggregate amount of funds (the "Aggregate Amount of Funds")received from its clients to be invested in that Eligible Security with the amount pershare (the "Estimated Purchase Price") that the Filer estimates will be required topurchase shares of that Eligible Security during the Investment Period. The orderwill then be placed with a member (the "Jitney Broker") of the stock exchange onwhich the issuer of the Eligible Security is listed once the Investment Period begins.
8. Once the Jitney Broker has purchased the quantity of the Eligible Securityrequested by the Filer, the Jitney Broker will then deliver such shares to a custodian(the "Custodian") which will hold the shares on behalf of the clients who contributedfunds to purchase the Eligible Security or, at the Filer's direction, the Jitney Brokeritself may act as the Custodian for such shares. The Jitney Broker will then advisethe Filer of the actual purchase price per share (the "Actual Purchase Price") of theEligible Security, which will be the weighted average cost per share of all of theshares of the Eligible Security purchased during the Investment Period. Based onthe Actual Purchase Price, the Filer will allocate the proper number of shares toeach client (rounded to four decimal places) on its register of shareowners for thatEligible Security.
9. In arriving at the quantity of the Eligible Security to be ordered during an InvestmentPeriod, the Filer will always order a nominally larger quantity (approximately oneper cent to three per cent more) than the quantity that would otherwise be arrivedat using the Estimated Purchase Price and the Aggregate Amount of Funds. Thisis to ensure that enough shares of the Eligible Security are always purchased toallot the proper number of shares, based on the Actual Purchase Price and theAggregate Amount of Funds, to each client who contributed funds. This nominalnumber of shares (referred to herein as "Excess Shares") will be held by the Filerand then will be contributed to the pool of shares that will be used to satisfy ordersfrom the pooled trading clients of the Filer who contribute funds to purchase sharesof that Eligible Security in the next Investment Period. The price per share receivedby the Filer for each Excess Share will be the weighted average cost per share ofthe shares of that Eligible Security purchased during the Investment Period whenthey are contributed.
10. When a client executes a pooled trade through the Filer other than a trade involvingthe reinvestment of dividends, as described below, a confirmation of such trade willbe delivered to the client through the Filer's secure web site within 24 hoursfollowing the date that the trade was executed; however, the Filer will not send theclient a paper copy of such confirmation unless the client specifically requests thata paper copy of such confirmation be sent and pays the applicable fee. Theconfirmation delivered through the Filer's web site will include all of the informationrequired by the Legislation, except whether the Filer acted as principal or agent inconnection with the trade due to the fact that the Excess Shares will be pooled withthe newly purchased shares of the Eligible Security before being allotted amongstthe applicable clients. The Filer's secure web site will also allow its clients toconfirm at their convenience the total number of shares of an Eligible Security heldin their pooled trading account and any debit or credit balance of funds at any time.
11. The document describing the operations of the Plan which will be provided to eachclient prior to opening a pooled trading account will disclose that a confirmation willnot be sent in paper form in connection with any pooled trade unless the clientspecifically requests that a paper copy of the confirmation be sent and pays theapplicable fee.
12. The Filer will deliver a statement through its web site at the end of each month toeach client in whose account there was any activity during the preceding month(including the reinvestment of dividends, as described below). In addition, the Filerwill send a statement in paper form to each client making at least one pooled tradeduring a month (other than the reinvestment of dividends) at the end of the monthduring which such trade occurs. A client may obtain statements with respect to theactivity in their pooled trading account on a more frequent basis by communicatingtheir request to the Filer and paying the applicable fee. In addition, an annualstatement will be sent to each client with securities in a pooled trading account atthe end of the year.
13. As a condition of the Filer agreeing to set up a pooled trading account for a client,the client must agree that all or part of the cash dividends received from an issuerin respect of securities held in his or her account will be automatically reinvestedby the Filer in additional securities of that issuer during the next Investment Periodfor that Eligible Security. Shares of an Eligible Security that will be received froman issuer as stock dividends will be automatically deposited with the Custodian.These securities will then be allocated on a pro rata basis to clients owning theEligible Security. Securities, other than Eligible Securities, that will be received asa dividend will either be: (i) sold in the market and the proceeds treated as cashdividends; or (ii) at the Filer's discretion, added to the list of Eligible Securities andallotted on a pro rata basis to the applicable clients.
14. While the Filer does not intend to deliver confirmations either in paper form orelectronically to its clients in connection with the reinvestment of dividends, exceptwhere a client specifically requests that such confirmation be sent and pays theapplicable fee, a notice will be posted on the Filer's web site and/or published in apublication available to the clients of the Filer announcing the most recent receiptand reinvestment of dividends for each Eligible Security. The information containedin this notice, in conjunction with the information in the client's most recentstatement, will provide the client with all of the information needed to determine thenumber of shares of the Eligible Security allocated to him or her as a result of thereinvestment of dividends. In addition, as mentioned above, a statement will bedelivered through the Filer's web site at the end of each month for each client inwhose pooled trading account there was any activity during the preceding monthincluding the reinvestment of dividends and, as mentioned above, the Filer's website will also allow its clients to confirm at their convenience the total number ofshares of an Eligible Security held in their pooled trading account including sharespurchased through the reinvestment of dividends.
15. The document describing the operations of the Plan which will be provided to eachclient prior to opening a pooled trading account will disclose that a confirmation willnot be sent in connection with any reinvestment of dividends unless the clientspecifically requests that such confirmation be sent and pays the applicable fee.
AND WHEREAS pursuant to the System, this MRRS Decision Document evidencesthe decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make the Decisionhas been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that where theFiler is registered as an Investment Dealer or its equivalent in a Jurisdiction,
(a) the provisions of the Legislation of the Jurisdiction that require a registereddealer who has acted as principal or agent in connection with any trade ina security to send a written confirmation of such trade shall not apply inconnection with the automatic reinvestment of dividends paid by issuers inrespect of securities held in the pooled trading accounts administered by theFiler; and
(b) the provisions of the Legislation of the Jurisdiction that require everyconfirmation provided by a registered dealer to disclose whether theregistered dealer acted as principal or agent in respect of a trade shall notapply to confirmations delivered by the Filer through its web site for thepooled trades administered by the Filer provided that the pooled trades aremade in accordance with the terms of the Plan described in this DecisionDocument.
February 11th, 2000.
"Howard I. Wetston" "Theresa McLeod"