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.
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 MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec,New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador,Northwest Territories, Nunavut Territory and Yukon Territory (the "Jurisdictions") hasreceived an application (the "Application") from Morgan Guaranty Trust Company of NewYork ("Morgan Guaranty") for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that Morgan Guaranty is exempt from various registration,prospectus and filing requirements of the Legislation in connection with the bankingactivities to be carried on by Morgan Guaranty 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 Morgan Guaranty to the DecisionMakers that:
1. Morgan Guaranty is the principal bank subsidiary of J P Morgan & Co. Incorporated("J P Morgan") in the United States. J P Morgan is a bank holding company formedunder the laws of the United States for holding subsidiaries engaged globally inproviding a wide range of financial services, including finance and advisory, salesand trading, and asset management services;
2. Morgan Guaranty currently conducts business in Canada through J.P. MorganCanada ("Morgan Canada"), the Schedule II bank subsidiary of Morgan Guarantylisted in Schedule II to the Bank Act (Canada) (the "Bank Act"), J.P. MorganSecurities Canada Inc., a registered investment dealer, and J.P. Morgan InvestmentManagement, which maintains a representative office in Canada;
3. Morgan Canada is involved in wholesale deposit-taking, commercial lending andrelated treasury functions;
4. Morgan Canada 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 or territory in Canada, (f) a cooperative creditsociety incorporated and regulated by or under an Act of the legislature ofa province or territory in Canada; (g) an entity that is incorporated or formedby or under an Act of Parliament or of the legislature of a province or territoryin Canada and that is primarily engaged in dealing in securities, includingportfolio management and investment counseling, and is registered to act insuch capacity under the applicable Legislation, and (h) a foreign institutionthat is (i) engaged in the banking, trust, loan or insurance business, thebusiness of a cooperative credit society or the business of dealing insecurities or is otherwise engaged primarily in the business of providingfinancial services, and (ii) is incorporated or formed otherwise than by orunder an Act of Parliament or of the legislature of a province or territory inCanada);
(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 as "Authorized Purchasers".
5. Morgan Canada participates in the primary and secondary market in the followingmoney market products: commercial paper, certificates of deposit, repurchaseagreements and bankers' acceptances;
6. Morgan Canada engages in foreign exchange trading;
7. The only advising activities which Morgan Canada undertakes are incidental to itsprimary business and it has not and will not, nor will Morgan Guaranty, advertiseitself as an adviser or allow itself to be advertised as an adviser in the Jurisdictions;
8. In June of 1999 amendments to the Bank Act were proclaimed that permit foreigncommercial banks to establish direct branches in Canada. These amendments havecreated a new Schedule III listing foreign banks permitted to carry on bankingactivities through branches in Canada;
9. Morgan Guaranty 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 to the Bank. Morgan Guaranty will take over the wholesaledeposit-taking, corporate lending and treasury functions currently conducted byMorgan Canada;
10. 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;
11. In order to ensure that Morgan Guaranty, 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 MorganGuaranty 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 Morgan Guaranty in theJurisdictions:
1. Morgan Guaranty 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 may actas an underwriter in respect of without being required to be registered under theLegislation as an underwriter;
2. Morgan Guaranty 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 Morgan Guaranty where Morgan Guaranty 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 Morgan Guaranty, and
(ii) the first trade in a security acquired by Morgan Guaranty 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 Morgan Guaranty is in aspecial relationship (where such term is defined in the ApplicableLegislation) with such issuer, Morgan Guaranty 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 Morgan Guaranty 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 toMorgan Guaranty 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 the 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 Morgan Guaranty 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 Morgan Guaranty or the date theissuer became a reporting issuer, or the equivalent, under theApplicable Legislation, whichever is later; and
(c) Morgan Guaranty 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 Morgan Guarantydoes not hold sufficient number of securities to materially affect the controlof the issuer of such securities but any holding by Morgan Guaranty of morethan 20 per cent of the outstanding voting securities of the issuer of suchsecurities shall, in the absence of evidence to the contrary, be deemed toaffect materially the control of such issuer;
4. Provided Morgan Guaranty 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 Morgan Guaranty shall be exemptfrom the registration and prospectus requirements of the Legislation; and
5. Evidences of deposit issued by Morgan Guaranty 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 Morgan Guaranty:
(i) of a type described in subsection 35(1) of the Ontario Act or section151 of the Regulations 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 byMorgan Guaranty in reliance on this Decision.
September 20th, 2000.
"J. A. Geller" "R. Stephen Paddon"
(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.