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Deutsche Bank Aktiengesellschaft. - MRRS Decision
Headnote
MRRS - Underwriter and advisor registration relief for Schedule III Bank - prospectus and registration relief for tradeswhere Schedule III Bank purchasing as principal and first trade relief for Schedule III Bank - prospectus and registrationrelief for trades of bonds, debentures and other evidences of indebtedness of or guaranteed by Schedule III Bankprovided trades involve only specified purchasers - prospectus and registration relief for evidences of deposits bySchedule III Bank to specified purchasers - fee relief for trades made in reliance on Decision.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am. ss. 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. ss. 151, 206, 218, Schedule 1 s. 28.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH 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
DEUTSCHE BANK AKTIENGESELLSCHAFT
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island,Newfoundland, Northwest Territories, Nunavut Territory and Yukon Territory (the "Jurisdictions") has received anapplication (the "Application") from Deutsche Bank Aktiengesellschaft ("Deutsche Bank AG") for a decision pursuant tothe securities legislation of the Jurisdictions (the "Legislation") that Deutsche Bank AG is exempt from variousregistration, prospectus and filing requirements of the Legislation in connection with the banking activities to be carriedon by Deutsche Bank AG in the Jurisdictions;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS it has been represented by Deutsche Bank AG to the Decision Makers that:
1. Deutsche Bank AG is a bank incorporated under the laws of the Federal Republic of Germany. Its head officeis in Frankfurt, Germany. It is the largest bank in Germany in terms of assets.
2. Deutsche Bank Canada ("DB Canada") is a foreign bank subsidiary of Deutsche Bank AG and is currently listedon Schedule II to the Bank Act (Canada) (the "Bank Act"). Its head office is in Toronto, Ontario.
3. DB Canada carries on a banking business involving corporate lending, real estate investment, inventoryfinancing, global markets and equities businesses. It focuses on institutional clients, providing services to bothgovernment and private sectors.
4. The Deutsche Financial Services Division ("DFS Canada") of DB Canada provides wholesale inventoryfinancing to retail dealers across Canada in commercial and consumer durable products, as well as accountsreceivable and asset-based financing and inventory control and portfolio management services.
5. DB Canada also owns all of the outstanding shares of Deutsche Bank Securities Limited ("DBSL"), whichcarries on business, and is registered under applicable provincial securities laws, as a broker and investmentdealer.
6. Deutsche Bank AG will only accept deposits from the following:
(a) Her Majesty in right of Canada or in right of a province or territory, an agent of Her Majesty in eitherof those rights and includes a municipal or public body empowered to perform a function ofgovernment in Canada, or an entity controlled by Her Majesty in either of those rights;
(b) the government of a foreign country or any political subdivision thereof, an agency of the governmentof a foreign country or any political subdivision thereof, or an entity that is controlled by thegovernment of a foreign country or any political subdivision thereof;
(c) an international agency of which Canada is a member, including an international agency that is amember of the World Bank Group, the Inter American Development Bank, the Asian DevelopmentBank, the Caribbean Development Bank and the European Bank for Reconstruction and Developmentand any other international regional bank;
(d) a financial institution (i.e.: (a) a bank or an authorized foreign bank under the Bank Act; (b) a bodycorporate to which the Trust and Loan Companies Act (Canada) applies; (c) an association to whichthe Cooperative Credit Association Act (Canada) applies; (d) an insurance company or a fraternalbenefit society to which the Insurance Companies Act (Canada) applies; (e) a trust, loan or insurancecorporation incorporated by or under an Act of the legislature of a province or territory in Canada; (f)a cooperative credit society incorporated and regulated by or under an Act of the legislature of aprovince or territory in Canada; (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 that is primarily engaged indealing in securities, including portfolio management and investment counselling, and is registeredto act in such capacity under the applicable Legislation, and (h) a foreign institution that is: (i)engaged in the banking, trust, loan or insurance business, the business of a cooperative credit societyor the business of dealing in securities or is otherwise engaged primarily in the business of providingfinancial services; and (ii) is incorporated or formed otherwise than by or under an Act of Parliamentor of the legislature of a province or territory in Canada);
(e) a pension fund sponsored by an employer for the benefit of its employees or employees of an affiliatethat is registered and has total plan assets under administration of greater than $100 million;
(f) a mutual fund corporation that is regulated under an Act of the legislature of a province or territory inCanada or under the laws of any other jurisdiction and has total assets under administration of greaterthan $10 million;
(g) an entity (other than an individual) that has for the fiscal year immediately preceding the initial deposit,gross revenues on its own books and records of greater than $5 million; or
(h) any other person if the trade is in a security which has an aggregate acquisition cost to the purchaserof greater than $150,000;
collectively referred to for purposes of this Decision Document as "Authorized Purchasers".
7. The only advisory activities which Deutsche Bank AG will undertake are incidental to its primary business andit has not and will not advertise itself as an adviser or allow itself to be advertised as an adviser in theJurisdictions.
8. In June of 1999, amendments to the Bank Act were proclaimed that permit foreign commercial banks toestablish direct branches in Canada. These amendments have created a new Schedule III listing foreign bankspermitted to carry on banking activities through branches in Canada.
9. Deutsche Bank AG received an order dated January 26, 2001 under the Bank Act permitting it to establish afull service branch under the Bank Act and designating it on Schedule III thereto. Deutsche Bank AG will takeover the current wholesale deposit-taking, corporate lending, custody and treasury functions currentlyconducted by DB Canada. In addition, DB Canada will transfer all the assets of DFS Canada to a newlycreated wholly-owned Canadian subsidiary of Deutsche Bank AG, and DB Canada will transfer all of the sharesof DBSL to Deutsche Bank AB or a wholly-owned non-Canadian subsidiary thereof.
10. The Legislation applicable in each Jurisdiction refers to either Schedule I and Schedule II banks, "banks","savings institutions" or "financial institutions" in connection with certain exemptions; however, no reference ismade in any of the Legislation to entities listed on Schedule III to the Bank Act.
11. In order to ensure that Deutsche Bank AG, as an entity listed on Schedule III to the Bank Act, will be able toprovide banking services to businesses in the Jurisdictions it requires similar exemptions enjoyed by bankinginstitutions incorporated under the Bank Act to the extent that the current exemptions applicable to suchbanking institutions are relevant to the banking business being undertaken by Deutsche Bank AG in theJurisdictions.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that in connection with the bankingbusiness to be carried on by Deutsche Bank AG in the Jurisdictions upon the establishment by Deutsche Bank AG ofa branch designated on Schedule III of the Bank Act:
1. Deutsche Bank AG is exempt from the requirement under the Legislation, where applicable, to be registeredas an underwriter with respect to trading in the same types of securities that an entity listed on Schedule I orII to the Bank Act may act as an underwriter in respect of without being required to be registered under theLegislation as an underwriter.
2. Deutsche Bank AG is exempt from the requirement under the Legislation to be registered as an adviser wherethe performance of the services as an adviser is solely incidental to its primary banking business.
3. A trade of security to Deutsche Bank AG where Deutsche Bank AG purchases the security as principal shallbe exempt from the registration and prospectus requirements of the Legislation of the Jurisdiction in which thetrade takes place (the "Applicable Legislation") provided that:
(i) the forms that would have been filed and the fees that would have been paid under the ApplicableLegislation if the trade had been made, on an exempt basis, to an entity listed on Schedule I or II tothe Bank Act purchasing as principal (referred to in this Decision as a "Schedule I or II Bank ExemptTrade") are filed and paid in respect of the trade to Deutsche Bank AG; and
(ii) the first trade in a security acquired by Deutsche Bank AG pursuant to this Decision is deemed adistribution (or primary distribution to the public) under the Applicable Legislation unless:
(a) the issuer of the security is a reporting issuer, or the equivalent, under the ApplicableLegislation and, if Deutsche Bank AG is in a special relationship (where such term is definedin the Applicable Legislation) with such issuer, Deutsche Bank AG has reasonable groundsto believe that such issuer is not in default of any requirements of the Applicable Legislation;
(b) (i) the securities are listed and posted for trading on a stock exchange that isrecognized by the Decision Maker of the applicable Jurisdiction for the purposesof the resale of a security acquired in a Schedule I or II Bank Exempt Trade andcomply with the requirements set out in paragraph (a) or (b) of Appendix A to thisDecision and have been held at least six months from the date of the initial exempttrade to Deutsche Bank AG or the date the issuer became a reporting issuer, or theequivalent, under the Applicable Legislation, whichever is the later, or
(ii) the securities are bonds, debentures or other evidences of indebtedness issued orguaranteed by an issuer or are preferred shares of an issuer and comply with therequirements set out in paragraph (a) or (c) of Appendix A to this Decision and havebeen held at least six months from the date of the initial exempt trade to DeutscheBank AG or the date the issuer became a reporting issuer, or the equivalent, underthe Applicable Legislation, whichever is the later, or
(iii) the securities are listed and posted for trading on a stock exchange, that isrecognized by the Decision Maker of the applicable Jurisdiction for purposes ofresale of a security acquired in a Schedule I or II Bank Exempt Trade or are bonds,debentures or other evidences of indebtedness issued or guaranteed by thereporting issuer, or the equivalent, under the Applicable Jurisdiction whosesecurities are so listed, and have been held at least one year from the date of theinitial exempt trade to Deutsche Bank AG or the date the issuer became a reportingissuer, or the equivalent, under the Applicable Legislation, whichever is later, or
(iv) the securities have been held at least 18 months from the date of the initial exempttrade to Deutsche Bank AG or the date the issuer became a reporting issuer, or theequivalent, under the Applicable Legislation, whichever is later; and
(b) Deutsche Bank AG files a report within 10 days of the trade prepared and executed inaccordance with the requirements of the Applicable Legislation that would apply to aSchedule I or II Bank Exempt Trade,
provided that no unusual effort is made to prepare the market or to create a demand for suchsecurities and no extraordinary commission or consideration is paid in respect of such trade andprovided Deutsche Bank AG does not hold sufficient number of securities to materially affect thecontrol of the issuer of such securities but any holding by Deutsche Bank AG of more than 20 per centof the outstanding voting securities of the issuer of such securities shall, in the absence of evidenceto the contrary, be deemed to affect materially the control of such issuer.
4. Provided Deutsche Bank AG only trades the types of securities referred to in this paragraph 4 with AuthorizedPurchasers, trades of bonds, debentures or other evidences of indebtedness of or guaranteed by DeutscheBank AG shall be exempt from the registration and prospectus requirements of the Legislation.
5. Evidences of deposit issued by Deutsche Bank AG to Authorized Purchasers shall be exempt from theregistration and prospectus requirements of the Legislation.
THE FURTHER DECISION of the Decision Maker in Ontario is that upon the establishment by Deutsche BankAG of a branch designated on Schedule III of the Bank Act and in connection with the banking activities to be carriedon in Ontario by Deutsche Bank AG through such branch:
A. Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O. 1990 c. S.5 (as amended) (the "Ontario Act") doesnot apply to a trade by Deutsche Bank AG:
(i) of a type described in subsection 35(1) of the Ontario Act or section 151 of the Regulations madeunder the Ontario Act; or
(ii) in securities described in subsection 35(2) of the Ontario Act.
B. Except as provided for in paragraph 3 of this Decision, section 28 of Schedule I to the Regulation made underthe Ontario Act shall not apply to trades made by Deutsche Bank AG in reliance on this Decision.
February 15th, 2001.
"J. A. Geller" "R. Stephen Paddon"
APPENDIX A
The following are the securities referred to subclauses 3(ii)(b)(i) and 3(ii)(b)(ii), as applicable, of the Decisionherein:
(a) preferred shares of a corporation if,
(i) the corporation has paid a dividend in each of the five years immediately preceding the dateof the initial exempt trade at least equal to the specified annual rate upon all of its preferredshares, or
(ii) the common shares of the corporation are, at the date of the initial exempt trade, incompliance with paragraph (b) of this Appendix A;
(b) fully paid common shares of a corporation that during a period of five years that ended less than oneyear 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 upon its commonshares,
of at least 4% of the average value at which the shares were carried in the capital stock account ofthe corporation during the year in which the dividend was paid or in which the corporation hadearnings available for the payment of dividends as the case may be;
(c) bonds debentures or other evidences of indebtedness issued or guaranteed by:
(i) corporation if, at the date of the initial exempt trade, the preferred shares or the commonshares 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 one year before the dateof the initial exempt trade have been equal in sum total to at least ten times and in each ofany four of the five years have been equal to at least 1-1/2 times the annual interestrequirements at the date of the initial exempt trade on all indebtedness of or guaranteed byit, other than indebtedness classified as a current liability in its balance sheet, and, if thecorporation at the date of the initial exempt trades owns directly or indirectly more than 50%of the common shares of another corporation, the earnings of the corporations during thesaid period of five years may be consolidated with due allowance for minority interests, ifany, and in that event the interest requirements of the corporation shall be consolidated andsuch consolidated earnings and consolidated interest requirements shall be taken as theearnings and interest requirements of the corporation, and, for the purpose of this subclause,"earnings" means earnings available to meet interest charges on indebtedness other thanindebtedness classified as a current liability.