Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act - relief for Schedule III bank from requirementto register as an adviser where the performance of the service as an adviser isincidental to principal banking business.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c.S.20, as am., sections 22(1)(b), 80.


IN THE MATTER OF THE COMMODITIES FUTURES ACT,
R.S.O. 1990, CHAPTER S.20, AS AMENDED (the "Act")

AND

IN THE MATTER OF
THE CHASE MANHATTAN BANK

ORDER
(Section 80)


UPON application (the "Application") by The Chase Manhattan Bank ("ChaseManhattan") to the Ontario Securities Commission (the "Commission") for an orderpursuant to section 80 of the Act exempting Chase Manhattan from the requirement toobtain registration as an adviser under clause 22(1)(b) of the Act;

AND UPON considering the Application and the recommendation of staff of theCommission;

AND UPON Chase Manhattan having represented to the Commission that:

1. Chase Manhattan is the principal bank subsidiary of The Chase ManhattanCorporation in the United States. The Chase Manhattan Corporation is an entityformed under the laws of the United States. Chase Manhattan and its predecessorbanks have maintained an active presence in Canada since 1973. The ChaseManhattan Bank of Canada ("CMBC") is a foreign bank subsidiary of ChaseManhattan currently listed on Schedule II of the Bank Act (Canada) (the "BankAct");

2. The key businesses of CMBC are lending and corporate finance advisory servicesto Canadian corporate customers and custodial activities for Canadian mutualfunds. CMBC sources participants and acts as agent bank in syndicated loantransactions. Local treasury operations of CMBC provide funding and liquidity forthe corporate lending activities of CMBC. CMBC is an active participant in theovernight interbank market, accepts term deposits from major Canadian andmultinational corporations and derives a portion of its funding from brokereddeposits. These deposits are evidenced by certificates of deposit registered in theholder's name, bearer deposit notes or printed confirmations addressed to thedepositor;

3. The treasury function within CMBC also engages in proprietary risk taking activitiesincluding interest rate and currency trading. The treasury function also managesthe investment portfolio of CMBC holding Canadian government debt and the useof derivative products as asset/liability management tools;

 

4. Chase Manhattan only accepts deposits from the following:

(a) Her Majesty in right of Canada or in right of a province or territory, an agentof Her Majesty in either of those rights and includes a municipal or publicbody empowered to perform a function of government in Canada, or an entitycontrolled by Her Majesty in either of those rights;

(b) the government of a foreign country or any political subdivision thereof, anagency of the government of a foreign country or any political subdivisionthereof, or an entity that is controlled by the government of a foreign countryor any political subdivision thereof;

(c) an international agency of which Canada is a member, including aninternational agency that is a member of the World Bank Group, the InterAmerican Development Bank, the Asian Development Bank, the CaribbeanDevelopment Bank and the European Bank for Reconstruction andDevelopment and any other international regional bank;

(d) a financial institution (i.e.: (a) a bank or an authorized foreign bank under theBank Act; (b) a body corporate to which the Trust and Loan Companies Act(Canada) applies, (c) an association to which the Cooperative CreditAssociation Act (Canada) applies, (d) an insurance company or a fraternalbenefit society to which the Insurance Companies Act (Canada) applies, (e)a trust, loan or insurance corporation incorporated by or under an Act of thelegislature of a province, (f) a cooperative credit society incorporated andregulated by or under an Act of the legislature of a province or territory inCanada; (g) an entity that is incorporated or formed by or under an Act ofParliament or of the legislature of a province or territory in Canada and thatis primarily engaged in dealing in securities, including portfolio managementand investment counseling, and is registered to act in such capacity underthe applicable legislation, and (h) a foreign institution that is (i) engaged inthe banking, trust, loan or insurance business, the business of a cooperativecredit society or the business of dealing in securities or is otherwiseengaged primarily in the business of providing financial services, and (ii) isincorporated or formed otherwise than by or under an Act of Parliament orof the legislature of a province or territory in Canada;

(e) a pension fund sponsored by an employer for the benefit of its employeesor employees of an affiliate that is registered and has total plan assets underadministration of greater than $100 million;

(f) a mutual fund corporation that is regulated under an Act of the legislature ofa province or territory in Canada or under the laws of any other jurisdictionand has total assets under administration of greater than $10 million;

(g) an entity (other than an individual) that has for the fiscal year immediatelypreceding the initial deposit, gross revenues on its own books and recordsof greater than $5 million; or

(h) any other person if the trade is in a security which has an aggregateacquisition cost to the purchaser of greater than $150,000;

collectively referred to for purposes of this Decision Document as "AuthorizedPurchasers";

5. In June of 1999 amendments to the Bank Act were proclaimed that permit foreigncommercial banks, to establish direct branches in Canada. These amendmentshave created a new Schedule III listing foreign banks permitted to carry on bankingactivities through branches in Canada;

6. Chase Manhattan has been granted an order under the Bank Act on April 17, 2000permitting it to establish a full service branch under the Bank Act and designatingit on Schedule III. Chase Manhattan will take over the current wholesale deposit-taking, corporate lending, custody and treasury functions currently conducted byCMBC. Chase Manhattan intends to maintain CMBC to conduct CMBC's currentCanadian corporate finance advisory activities.

7. Section 31(a) of the Act refers to "a bank listed on Schedule I or II to the Bank Act"in connection with the exemption from the adviser registration requirement howeverno reference is made in the Act to entities listed on Schedule III to the Bank Act;

8. In order to ensure that Chase Manhattan, as an entity listed on Schedule III to theBank Act, is able to provide banking services to businesses in Ontario it requiressimilar exemptions enjoyed by banking institutions incorporated under the Bank Actto the extent that the current exemptions applicable to such banking institutions arerelevant to the banking business being undertaken by Chase Manhattan in Ontario;

9. Chase Manhattan will be performing certain foreign exchange advisory services inconnection with its principal banking business;

AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;

IT IS RULED pursuant to section 80 of the Act that Chase Manhattan is exempt fromthe requirement of clause 22(1)(b) of the Act where the performance of the service as anadviser is solely incidental to Chase Manhattan's principal banking business.

September 6th, 2000.

"J A. Geller"      "R. Stephen Paddon"