Securities Law & Instruments

Headnote

MRRS - Underwriter and advisor registration relief for Schedule III Bank - prospectus andregistration relief for traders where Schedule III bank purchasing as principal and firsttrade relief for Schedule III bank - prospectus and registration relief for trades of bonds,debentures and other evidences of indebtedness of a guaranteed by Schedule III Bankprovided trades involve only specified purchases - prospectus and registration relief forevidences of deposits issued by Schedule III bank to specified purchases - fee relief fortrades made in reliance on Decision.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c.S.5, as am., 25(1)(a)&(c), 34(a), 35(1)(3)(i), 35(2)1(c), 53(i),72(1)(a)(i), 73(1)(a), 74(1), 147.

Regulations Cited

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., s. 151, 206,218. Schedule 1 Section 28.


IN THE MATTER OF THE SECURITIES LEGISLATION OFBRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,ONTARIO, QUEBEC, NEW BRUNSWICK, NOVA SCOTIA,PRINCE EDWARD ISLAND, NEWFOUNDLAND, YUKON TERRITORY,NORTHWEST TERRITORIES, AND NUNAVUT TERRITORY

AND

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

AND

IN THE MATTER OF
THE CHASE MANHATTAN BANK

MRRS DECISION DOCUMENT


WHEREAS the Canadian securities regulatory authority or regulator (the "DecisionMaker") in each of the provinces of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland andLabrador, Northwest Territories, Nunavut Territory and Yukon Territory (the "ParticipatingJurisdictions") has received an application (the "Application") from The Chase ManhattanBank ("Chase Manhattan") for a decision pursuant to the securities legislation of theParticipating Jurisdictions (the "Legislation") that Chase Manhattan is exempt from variousregistration, prospectus and filing requirements of the Legislation in connection with thebanking activities to be carried on by Chase Manhattan in the Jurisdictions;

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 it has been represented by Chase Manhattan to the DecisionMakers 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. The Legislation applicable in each Jurisdiction refers to either "Schedule I andSchedule II banks", "banks", "savings institutions" or "financial institutions" inconnection with certain exemptions however no reference is made in any of theLegislation 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 the Jurisdictions itrequires similar exemptions enjoyed by banking institutions incorporated under theBank Act to the extent that the current exemptions applicable to such bankinginstitutions are relevant to the banking business being undertaken by ChaseManhattan in the Jurisdictions;

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 inconnection with the banking business to be carried on by Chase Manhattan in theJurisdictions:

1. Chase Manhattan is exempt from the requirement under the Legislation, whereapplicable, to be registered as an underwriter with respect to trading in the sametypes of securities that an entity listed on Schedule I or II to the Bank Act (Canada)may act as an underwriter in respect of without being required to be registeredunder the Legislation as an underwriter;

2. Chase Manhattan is exempt from the requirement under the Legislation to beregistered as an adviser where the performance of the service as an adviser issolely incidental to its primary banking business;

3. A trade of a security to Chase Manhattan where Chase Manhattan purchases thesecurity as principal shall be exempt from the registration and prospectusrequirements of the Legislation of the Jurisdiction in which the trade takes place(the "Applicable Legislation") provided that:

(i) the forms that would have been filed and the fees that would have been paidunder the Applicable Legislation if the trade had been made, on an exemptbasis, to an entity listed on Schedule I or II to the Bank Act purchasing asprincipal (referred to in this Decision as a "Schedule I or II Bank ExemptTrade") are filed and paid in respect of the trade to Chase Manhattan; and

(ii) the first trade in a security acquired by Chase Manhattan pursuant to thisDecision is deemed a distribution (or primary distribution to the public) underthe Applicable Legislation unless;

(a) the issuer of the security is a reporting issuer, or the equivalent,under the Applicable Legislation and, if Chase Manhattan is in aspecial relationship (where such term is defined in the ApplicableLegislation) with such issuer, Chase Manhattan has reasonablegrounds to believe that such issuer is not in default of anyrequirements of the Applicable Legislation;

(b) (i) the securities are listed and posted for trading on a stockexchange, that is recognized by the Decision Maker of the applicableJurisdiction for purposes of the resale of a security acquired in aSchedule I or II Bank Exempt Trade and comply with therequirements set out in paragraph (a) or (b) of Appendix A to thisDecision and have been held at least six months from the date of theinitial exempt trade to Chase Manhattan or the date the issuerbecame a reporting issuer, or the equivalent, under the ApplicableLegislation, whichever is the later, or

 

(ii) the securities are bonds, debentures or other evidences ofindebtedness issued or guaranteed by an issuer or are preferredshares of an issuer and comply with the requirements set out inparagraph (a) or (c) of Appendix A to this Decision and have beenheld at least six months from the date of the initial exempt trade toChase Manhattan or the date the issuer became a reporting issuer,or the equivalent, under the Applicable Legislation, whichever is thelater, or

(iii) the securities are listed and posted for trading on a stockexchange, that is recognized by the Decision Maker of the applicableJurisdiction for purposes of resale of a security acquired in aSchedule I or II Bank Exempt Trade or are bonds, debentures orother evidences of indebtedness issued or guaranteed by thereporting issuer, or the equivalent, under the Applicable Jurisdictionwhose securities are so listed, and have been held at least one yearfrom the date of the initial exempt trade to Chase Manhattan or thedate the issuer became a reporting issuer, or the equivalent, underthe Applicable Legislation, whichever is later, or

(iv) the securities have been held at least eighteen months from thedate of the initial exempt trade to Chase Manhattan or the date theissuer became a reporting issuer, or the equivalent, under theApplicable Legislation, whichever is later; and

(c) Chase Manhattan files a report within 10 days of the trade preparedand executed in accordance with the requirements of the ApplicableLegislation that would apply to a Schedule I or II Bank Exempt Trade,

provided that no unusual effort is made to prepare the market or to create ademand for such securities and no extraordinary commission orconsideration is paid in respect of such trade and provided ChaseManhattan does not hold sufficient number of securities to materially affectthe control of the issuer of such securities but any holding by ChaseManhattan of more than 20 per cent of the outstanding voting securities ofthe issuer of such securities shall, in the absence of evidence to thecontrary, be deemed to affect materially the control of such issuer;

4. Provided Chase Manhattan only trades the types of securities referred to in thisparagraph 4 with Authorized Purchasers, trades of bonds, debentures or otherevidences of indebtedness of or guaranteed by Chase Manhattan shall be exemptfrom the registration and prospectus requirements of the Legislation; and

5. Evidences of deposit issued by Chase Manhattan to Authorized Purchasers shallbe exempt from the registration and prospectus requirements of the Legislation.

THE FURTHER DECISION of the Decision Maker in Ontario is that:

A. Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O. 1990 c. S.5 (asamended) (the "Ontario Act") does not apply to a trade by Chase Manhattan:

(i) of a type described in subsection 35(1) of the Ontario Act or section 151 of theRegulations made under the Ontario Act; or

(ii) in securities described in subsection 35(2) of the Ontario Act; and

B. Except as provided for in paragraph 3 of this Decision, section 28 of Schedule I tothe Regulations made under the Ontario Act shall not apply to trades made byChase Manhattan in reliance on this Decision.

DATED September 20th, 2000.

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

APPENDIX A

(a) are preferred shares of a corporation if,

(i) the corporation has paid a dividend in each of the five years immediatelypreceding the date of the initial exempt trade at least equal to the specifiedannual rate upon all of its preferred shares, or

(ii) the common shares of the corporation are, at the date of the initial exempttrade, in compliance with paragraph (b) of this Appendix A;

(b) are fully paid common shares of a corporation that during a period of five years thatended less than one year before the date of the initial exempt trade has either,

(i) paid a dividend in each such year upon its common shares, or

(ii) had earnings in each such year available for the payment of a dividend uponits common shares,

of at least 4% of the average value at which the shares were carried in the capitalstock account of the corporation during the year in which the dividend was paid orin which the corporation had earnings available for the payment of dividends as thecase may be;

(c) are bonds debentures or other evidences of indebtedness issued or guaranteed by,

(i) a corporation if, at the date of the initial exempt trade, the preferred sharesor the common shares of the corporation which comply with paragraph (a)or (b) of this Appendix A, or

(ii) a corporation if its earnings in a period of five years ended less than oneyear before the date of the initial exempt trade have been equal in sum totalto at least ten times and in each of any four of the five years have beenequal to at least 1-1/2 times the annual interest requirements at the date ofthe initial exempt trade on all indebtedness of or guaranteed by it, other thanindebtedness classified as a current liability in its balance sheet, and, if thecorporation at the date of the initial exempt trades owns directly or indirectlymore than 50% of the common shares of another corporation, the earningsof the corporations during the said period of five years may be consolidatedwith due allowance for minority interests, if any, and in that event the interestrequirements of the corporation shall be consolidated and such consolidatedearnings and consolidated interest requirements shall be taken as theearnings and interest requirements of the corporation, and, for the purposeof this subclause, "earnings" mean earnings available to meet interestcharges on indebtedness other than indebtedness classified as a currentliability.