Securities Law & Instruments


Headnote

Application by several dealer firms for variation of the disclosure and informed consentrules contained in Part 8 of National Instrument 81-105 Mutual Fund Sales Practices.Relief granted on a number of conditions providing for alternative disclosure andinformed consent regimes.

Rules Cited

National Instrument 81-102 Mutual Funds

National Instrument 81-105 Mutual Fund Sales Practices


IN THE MATTER OF
NATIONAL INSTRUMENT 81-105 MUTUAL FUND SALES PRACTICES

AND

IN THE MATTER OF
THE MUTUAL RELIANCE SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
CIBC FINANCIAL PLANNING INC., CIBC INVESTOR SERVICES INC., CIBC WORLD MARKETS INC.,CREDENTIAL SECURITIES INC., MERRILL LYNCH CANADA INC., NESBITT BURNS INC.,NESBITT BURNS LTEE/LTD., BANK OF MONTREAL INVESTOR SERVICES LIMITED, RBC DOMINION SECURITIES INC.,ROYAL BANK ACTION DIRECT INC., SCOTIA CAPITAL INC., SCOTIA DISCOUNT BROKERAGE INC.,TD SECURITIES INC. and TD WATERHOUSE INVESTOR SERVICES (CANADA) INC.

MRRS DECISION DOCUMENT


WHEREAS the Canadian securities regulatory authority or regulator (the "DecisionMaker") in each of the provinces and territories of Canada has received an applicationfrom CIBC Financial Planning Inc.; CIBC Investor Services Inc. ("CIBC Investor Services");CIBC World Markets Inc. ("CIBC World Markets"); Credential Securities Inc. ("Credential");Merrill Lynch Canada Inc. ("Merrill Lynch"); Nesbitt Burns Inc. and Nesbitt Burns Ltee/Ltd(collectively, the "Nesbitt Burns Companies"); Bank of Montreal Investor Services Limited("BOM Investor Services"); RBC Dominion Securities Inc. ("RBC DS"); Royal Bank ActionDirect Inc. ("Action Direct"); Scotia Capital Inc.; Scotia Discount Brokerage Inc. ("ScotiaDiscount"); TD Securities Inc.; and TD Waterhouse Investor Services (Canada) Inc. ("TDWaterhouse") (collectively, the "Dealers" and individually, a "Dealer") for a decisionpursuant to Section 9.1 (1) of National Instrument 81-105 Mutual Fund Sales Practices ("NI81-105") that the requirements in paragraphs 8.2(3)(c) and (d) and subsection 8.2(4) ofNI 81-105 shall not apply in certain circumstances;

AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission is the principalregulator for this Application;

AND WHEREAS the Dealers have represented to the Decision Makers that:

1. Each Dealer (or its affiliate) is a member of the Investment Dealers Association ofCanada (the "IDA") and each Dealer is registered to trade in securities underapplicable securities legislation. Each Dealer, other than Credential, has its headoffice in Ontario. The head office of Credential is located in British Columbia.

2. Each Dealer is a "member of the organization" as defined in NI 81-105 in respectof certain mutual funds (in each case, the "Related Mutual Funds") offered, orwhich may be offered, by prospectus in one or more of the provinces and territoriesof Canada and for which the applicable Dealer is a "participating dealer" as definedin National Instrument 81-102 Mutual Funds ("NI 81-102").

3. Each of the Dealers is controlled by a Canadian chartered bank, other thanCredential and Merrill Lynch.

4. Credential is owned by Credit Union Central of Canada (80.1%) and by MerrillLynch & Co., Canada Ltd. ("ML Canada") (19.9%). ML Canada is a reporting issuerwhose shares are listed on the Toronto and Montreal stock exchanges.

5. Merrill Lynch is a subsidiary of ML Canada, and indirectly a subsidiary of MerrillLynch & Co., Inc. ("ML&Co."), a public company whose securities are listed on theNew York, Chicago, Pacific, Paris, London and Tokyo stock exchanges.

6. Each Dealer currently makes extensive disclosure of its relationship with its RelatedMutual Funds. This disclosure is provided in some or all of: (a) the prospectus ofthe Related Mutual Funds; (b) the statement of policies that the Dealer provides toclients; (c) confirmations; (d) the conflict of interest rule statement (in BritishColumbia) and (e) the statement of related registrants (in Ontario).

7. Action Direct, Scotia Discount, CIBC Investor Services, BOM Investor Services andTD Waterhouse (the "Discount Dealers") engage in discount brokerage securitiesactivities. In offering these services, the Discount Dealers do not provideinvestment advice or recommendations. In addition, the Discount Dealers do notsolicit specific orders.

8. Representatives of Merrill Lynch may own equity securities in ML Canada and/orML&Co. No individual representative acting on a trade (and the associates of thatrepresentative) holds more than 10% of the equity securities of ML Canada orML&Co.

9. As part of the new application process of Merrill Lynch for any person after January1, 1999 (an "Account Date"), disclosure of the equity interest of any individualrepresentative acting on a trade (and the associates of that representative) inexcess of 10% of the equity securities of ML Canada or ML&Co. is made andwritten consent for trades in the Related Mutual Funds is obtained prior to any tradeby that person.

10. Representatives of the Nesbitt Burns Companies may own equity securities in acompany (or companies) which is also a member of the organization of theirRelated Mutual Funds. The equity interests of representatives and their associatesdo not exceed, in the aggregate, 20% of the equity securities of such company(companies). No individual representative acting on a trade (and the associates ofthat representative) holds more than 0.1% of such equity securities.

11. As part of the new application process of the Nesbitt Burns Companies for anyperson after January 1, 1999 (an "Account Date"), disclosure of the maximumaggregate equity interests of representatives of the Nesbitt Burns Companies andtheir associates in a member of the organization of their Related Mutual Funds andthe maximum equity interests of any individual representative acting on the trade(and the associates of that representative) in a member of the organization of itsRelated Mutual Funds is made and written consent for trades in the Related MutualFunds is obtained prior to any trade by that person.

12. Representatives of BOM Investor Services may own equity securities in a company(or companies) which is also a member of the organization of its Related MutualFunds. These companies and the manager, portfolio adviser and principaldistributor of the Related Mutual Funds of BOM Investor Services are notsubsidiaries of one another.

13. As part of the new application process of RBC DS for any person after December21, 1998 (an "Account Date"), written consent for trades in the Related MutualFunds is obtained prior to any trade by that person.

14. As part of the new application process of CIBC Financial Planning Inc. and CIBCWorld Markets for any person after January 1, 1999 (an "Account Date") writtenconsent for trades in their Related Mutual Funds is obtained prior to any trade bythat person.

15. As part of the new application process of Credential for any person after July 31,1998 (an "Account Date") written consent for trades in the Related Mutual Fundsis obtained prior to any trade by that person.

16. As part of the new application process of Scotia Capital Inc. for any regular accountopened after March 31, 1999 (an "Account Date") and for any registered accountopened after November 1, 1999, written consent for trades in its Related MutualFunds is being obtained prior to any trade by the clients. For some, but not all,registered accounts opened between March 31 and November 1, 1999 such priorwritten consent was obtained. For the period from December 31, 1998 to March 31,1999 in relation to regular accounts and to November 1, 1999 in relation toregistered accounts, written consent has been or is being obtained from clients whopurchased Related Mutual Funds in those periods. In addition, a general mailingto clients who opened accounts between December 31, 1998 and March 31, 1999was made informing them of the relationship between Scotia Capital Inc. and theRelated Mutual Funds.

17. As part of the new application process of TD Securities Inc. for any person afterDecember 8, 1998 (an "Account Date") written consent for trades in its RelatedMutual Funds is obtained prior to any trade by that person.

AND WHEREAS pursuant to the System, this MRRS Decision Document evidencesthe decision of each Decision-Maker (collectively, the "Decision");

AND WHEREAS the Decision Makers are of the opinion that it would not beprejudicial to the public interest to make the Decision;

The Decision of the Decision-Makers pursuant to Section 9.1(1) of NI 81-105 isthat:

(i) a Discount Dealer is not required to comply with paragraphs 8.2(3)(c) and (d) orsubsection 8.2(4) of NI 81-105 for a trade that is not specifically solicited by theDiscount Dealer and in connection with which no investment advice is provided;

(ii) a Dealer is not required to comply with subsection 8.2(4) of NI 81-105 for a tradeif the purchaser in the trade had an account with the Dealer prior to the applicableAccount Date;

(iii) Merrill Lynch is not required to comply with paragraphs 8.2(3)(c) and (d) of NI 81-105 provided that disclosure is made of the amount of any equity interest therepresentative of Merrill Lynch that is acting on the trade (and the associates of thatrepresentative), in the aggregate, have in any member of the organization of itsRelated Mutual Funds and for the purpose of the definition of "equity interest" in NI81-105, ML&Co. is deemed to be a reporting issuer whose securities are listed ona Canadian stock exchange; and

(iv) the Nesbitt Burns Companies are not required to comply with (a) paragraph8.2(3)(c) of NI 81-105 provided that a document that discloses the maximum equityinterest, in the aggregate, of the representatives of the Nesbitt Burns Companiesand their associates in any member of the organization of their Related MutualFunds has been or is provided to the purchaser in the trade if the trade waseffected through a Nesbitt Burns Company subsequent to the applicable AccountDate and (b) paragraph 8.2(3)(d) of NI 81-105 provided that a document thatdiscloses the maximum equity interests of the representative that is acting on thetrade (and the associates of that representative) in any member of the organizationof its Related Mutual Funds has been or is provided to the purchaser in the tradeif the trade was or is effected through a Nesbitt Burns Company subsequent to theapplicable Account Date and for the purpose of the definition of "equity interests"in NI 81-105, The Nesbitt Burns Corporation Limited and/or Bank of MontrealSecurities Canada Limited are deemed to be reporting issuers whose securities arelisted on a Canadian stock exchange.

February 16th, 2000.

"Howard I. Wetston"     "R. Stephen Paddon"