Securities Law & Instruments

Headnote

Provincial trust corporation exempted from registrationrequirement in clause 25(1)(a) of the Act for trades in securitieswhere the purchaser is an account that is fully managed by thetrust corporation, subject to terms and conditions.

Statutes Cited

An Act Respecting Trust Companies and SavingsCompanies, R.S.Q., c. S-29.01, as am.

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25(1)(a), 35(1)3, 35(1)3(ii), 35(3), 74(1).

Loan and Trust Corporations Act, R.S.O. 1990,c. L.25, as am.

Bank Act, S.C. 1991, c. 46.

Regulations Cited

Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am., ss. 98, 204(1), 209, 209(1)(h), 209(10).

Rules Cited

Ontario Securities Commission Rule 31-503 LimitedMarket Dealers, ss. 2.2, 4.1.

Ontario Securities Commission Rule 32-502 RegistrationExemption for Certain Trades by Financial Intermediaries.

Ontario Securities Commission Rule 32-503 Registrationand Prospectus Exemption for Trades by Financial Intermediariesin Mutual Fund Securities to Corporate Sponsored Plans.

Ontario Securities Commission Rule 45-501 ExemptDistributions, s. 1.1(y), 2.3, 3.1, 3.4.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, CHAPTER S.5,AS AMENDED (the "Act")

AND

IN THE MATTER OF

R.R.O. 1990, REGULATION 1015,

AS AMENDED (the "Regulation")

AND

IN THE MATTER OF

NATIONAL BANK TRUST INC.

 

RULING

(Subsection 74(1) of the Act)

UPON the application (the "Application")of National Bank Trust Inc. (the "Trust Company")to the Ontario Securities Commission (the "Commission")for a ruling, pursuant to subsection 74(1) of the Act, thatthe Trust Company shall not be subject to the registration requirementin clause 25(1)(a) of the Act in respect of any trade in securities(a "Managed Account Trade"), that is made by the TrustCompany, as principal or agent, where the purchaser is an accountthat is fully managed by the Trust Company, as agent or trustee;

AND UPON considering the Applicationand the recommendation of staff of the Commission;

AND UPON the Trust Company having representedto the Commission that:

1. The Trust Company is incorporated underand governed by an Act Respecting Trust Companies and SavingsCompanies (Quebec).

2. The Trust Company is registered as a trustcorporation under the Loan and Trust Corporations Actand, therefore, is a "financial intermediary" asdefined in subsection 204(1) of the Regulation.

3. The Trust Company is registered under theAct as an adviser in the categories of "investment counsel"and "portfolio manager".

4. The Trust Company is a wholly-owned subsidiaryof National Bank of Canada, a bank listed in Schedule I tothe Bank Act (Canada).

5. Subparagraph 3(ii) of subsection 35(1)of the Act provides that "subject to the regulation,registration is not required in respect of .... [a] tradewhere the party purchasing as principal, but not as underwriter,is, ... [a] trust corporation registered under the Loanand Trust Corporations Act".

6. Subsection 35(3) of the Act provides that"For the purposes of subsection (1), a trust corporationregistered under the Loan and Trust Corporations Actshall be deemed to be acting as principal when it trades astrustee or as agent for accounts fully managed by it".

7. Ontario Securities Commission Rule 32-502"Registration Exemption for Certain Trades by FinancialIntermediaries" ("Rule 32-502") providesthat section 25 of the Act does not apply to a trade by afinancial intermediary of the type described in subsection35(1) of the Act, but Rule 32-502 also provides that thisexemption does not apply to a trade in a security of a mutualfund.

8. Section 3.1 of Ontario Securities CommissionRule 45-501 "Exempt Distributions" ("Rule45-501) provides that the exemptions from the registrationrequirement contained in paragraph 3 of subsection 35(1) ofthe Act are not available for a trade in a security. However,Rule 45-501:

(i) includes in the definition of "accreditedinvestor" in section 1.1, in clause (y), "an accountthat is fully managed by a trust corporation registeredunder the Loan and Trust Corporations Act";

(ii) provides in section 2.3 that section25 of the Act does not apply to a trade in a security ifthe purchaser is an accredited investor and purchases asprincipal;

(iii) provides in section 3.4 that the exemptionin section 2.3 is not available to a market intermediaryif the market intermediary is not a limited market dealer.

9. If the Trust Company obtained registrationunder the Act as a limited market dealer, the Trust Companywould be able to make Managed Account Trades pursuant to Rule45-501.

10. Section 2.2 of Ontario Securities CommissionRule 31-503 "Limited Market Dealers" ("Rule31-503") provides that a financial intermediary shallnot be registered as a limited market dealer, unless an exemptionfrom this provision is obtained from the Director pursuantto section 4.1 of Rule 31-503.

11. At the time the Regulation was amendedto withdraw registration exemptions from market intermediariesin order to implement the concept of "universal registration",there was added to the categories of registration, in section98 of the Regulation, the category of "financial intermediarydealer", which paragraph 2 of section 98 of the Regulationdefines as "a financial intermediary that is registeredsolely for the purpose of trading in securities in accordancewith section 209 of the Regulation".

12. Clause 209(1)(h) of the Regulation contemplatesthat a financial intermediary, that is not regulated by thefederal Office of the Superintendent of Financial Institutions("OSFI"), and that obtains registration under theAct as a financial intermediary dealer, may act as a marketintermediary for the purpose of "trading as principalor agent with or for accounts fully managed by the financialintermediary as agent or trustee".

13. Subsection 209(10) of the Regulation providesthat a financial intermediary regulated by OSFI is not requiredto obtain registration as a dealer for the purpose of tradingas described in subsection 209(1) of the Regulation, includingtrading described in clause 209(1)(h) of the Regulation.

14. Through Rule 32-502, and Ontario SecuritiesCommission Rule 32-503 "Registration and ProspectusExemption for Trades by Financial Intermediaries in MutualFund Securities to Corporate Sponsored Plans", theCommission has, generally, deferred the application of universalregistration to financial intermediaries, and, to date, hasnot registered any financial intermediary as a financial intermediarydealer.

15. If the Trust Company were regulated byOSFI, the Trust Company would be able to make Managed AccountTrades in reliance upon the registration exemption containedin subsection 209(10) of the Regulation.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;

IT IS RULED, pursuant to subsection 74(1)of the Act, that the Trust Company shall not be subject to theregistration requirement in clause 25(1)(a) of the Act in respectof any trades that are Managed Account Trades, provided that:

(A) at the time of the trade, the TrustCompany is registered under the Loan and Trust CorporationsAct as a trust corporation and is registered under theAct as an adviser in the category of "portfolio manager";and

(B) this Ruling shall terminate upon theearlier of:

(i) the day the Trust Company becomesa financial intermediary regulated by OSFI;

(ii) the day of any revocation of clause209(1)(h) or subsection 209(10) of the Regulation;

(iii) the day of coming into force ofany successor provision to clause 209(1)(h) or subsection209(10) of the Regulation; or

(iv) the day that is one year after thecoming into force, subsequent to the date hereof, of arule or other regulation under the Act that relates, inwhole or part, to any trading by persons or companiesthat are registered under the Act, either as a portfoliomanager or as a financial intermediary dealer, or both,in securities, to an account of a client, in respect ofwhich the person or company has full discretionary authorityto trade in securities for the account, without obtainingthe specific consent of the client to the trade, but doesnot include any rule or regulation that is specificallyidentified by the Commission as not applicable for thesepurposes.

November 15, 2002.

"Harold P. Hands"                    "RobertL. Shirriff"