HeadnoteSection80 of the Commodity Futures Act-relief for Schedule III back fromthe requirement to register as an adviser where the performanceof the service as an adviser is incidental to the principal bankingbusiness.
StatutesCitedCommodityFutures Act. R.S.O. 1990, c.C20, as am., sections 22(1)(b), 80
INTHE MATTER OF
THECOMMODITIES FUTURES ACT,
R.S.O.1990, CHAPTER S.20, AS AMENDED (the "Act")
INTHE MATTER OF
(Section80)UPONapplication (the "Application") by HSBC Bank USA ("HBUS") to theOntario Securities Commission (the "Commission") for an orderpursuant to section 80 of the Act exempting HBUS from the requirementto obtain registration as an adviser under clause 22(1)(b) ofthe Act in connection with the banking business to be carriedon by HBUS in Ontario;
ANDUPON considering the Application and the recommendationof staff of the Commission;
ANDUPON HBUS having represented to the Commission that:
1.HBUS is a corporation duly organized and existing under the lawsof the State of New York and is a validly existing banking organizationunder the banking laws of the State of New York. HBUS is a wholly-ownedsubsidiary and the principal banking subsidiary of HSBC USA Inc.,an indirectly-held, wholly-owned subsidiary of HSBC Holding plc.
2.HBUS is the third largest depository institution and has the mostextensive branch network in the State of New York, with more than420 branches. It also has branches in Florida, Pennsylvania, Californiaand Panama. In addition to its branch network, HBUS has the thirdlargest factoring service in the United States of America andis the largest US bank-owned factor. It also conducts one of theworld's largest precious metals operations and has also enteredinto Internet banking.
3.HSBC is not, and has no current intention of becoming, a reportingissuer in any province of Canada, nor are any of its securitieslisted on any stock exchange in Canada.
4.HBUS does not currently have a presence in Canada. An affiliateof HBUS, HSBC Bank Canada, currently provides retail banking,commercial lending and corporate treasury products in Canada.The full service branch of HBUS intends to leverage its AA creditrating to provide commercial lending services to corporate andinstitutional banking clients which have credit requirements thatexceed the single name limit in Canada (an A credit rating). Inaddition, HBUS plans to engage in certain treasury related activities.
5.In June 1999, amendments to the Bank Act were proclaimedthat permit foreign commercial banks to establish direct branchesin Canada. These amendments have created a new Schedule III listingforeign banks permitted to carry on banking activities throughbranches in Canada.
6.In October, 2001, HBUS made an application (the "Bank Act Application")to the Office of the Superintendent of Financial InstitutionsCanada ("OSFI") for an order under the Bank Act permittingit to establish a full service branch under the Bank Actand designating it on Schedule III to the Bank Act.
7.Upon approval of the Bank Act Application, HSBC will establishand commence business as a foreign bank branch under the BankAct. HSBC expects to receive all OSFI approvals on or before March1, 2002.
8.HBUS will only be involved in wholesale deposit-taking, commerciallending and related treasury functions. The treasury functionwithin HBUS also engages in derivatives advisory activities. HBUSwill also be performing certain foreign exchange advisory servicesin connection with its principal banking business.
9.HBUS will only accept deposits from the following:
(a) Her Majesty inright of Canada or in right of a province or territory, an agentof Her Majesty in either of those rights and includes a municipalor public body empowered to perform a function of governmentin Canada, or an entity controlled by Her Majesty in eitherof those rights;(b)the government of a foreign country or any political subdivisionthereof, an agency of the government of a foreign country or anypolitical subdivision thereof, or an entity that is controlledby the government of a foreign country or any political subdivisionthereof;
(c)an international agency of which Canada is a member, includingan international agency that is a member of the World Bank Group,the Inter-American Development Bank, the Asian Development Bank,the Caribbean Development Bank and the European Bank for Reconstructionand Development and any other international regional bank;
(d)a financial institution (i.e.: (a) a bank or an authorized foreignbank under the Bank Act; (b) a body corporate to whichthe Trust and Loan Companies Act (Canada) applies, (c)an association to which the Cooperative Credit AssociationAct (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 incorporatedby or under an Act of the legislature of a province or territoryin Canada, (f) a cooperative credit society incorporated and regulatedby or under an Act of the legislature of a province or territoryin Canada; (g) an entity that is incorporated or formed by orunder an Act of Parliament or of the legislature of a provinceor territory in Canada and that is primarily engaged in dealingin securities, including portfolio management and investment counseling,and is registered to act in such capacity under the applicableLegislation, and (h) a foreign institution that is (i) engagedin the banking, trust, loan or insurance business, the businessof a cooperative credit society or the business of dealing insecurities or is otherwise engaged primarily in the business ofproviding financial services, and (ii) is incorporated or formedotherwise than by or under an Act of Parliament or of the legislatureof a province or territory in Canada);
(e)a pension fund sponsored by an employer for the benefit of itsemployees or employees of an affiliate that is registered andhas total plan assets under administration of greater than $100million;
(f)a mutual fund corporation that is regulated under an Act of thelegislature of a province or territory in Canada or under thelaws of any other jurisdiction and has total assets under administrationof greater than $10 million;
(g)an entity (other than an individual) that has gross revenues onits own books and records of greater than $5 million as of thedate of its most recent annual financial statements; 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.
11.Section 31(a) of the Act refers to a "bank listed on ScheduleI or II to the Bank Act" in connection with the exemption fromthe adviser registration requirement however no referenceis made in the Act to entities listed on Schedule III of the BankAct.
12.In order to ensure that HBUS, as an entity listed on ScheduleIII to the Bank Act, is able to provide banking servicesto businesses in Ontario it requires similar exemptions enjoyedby banking institutions incorporated under the Bank Actto the extent that the current exemptions applicable to such bankinginstitutions are relevant to the banking business being undertakenby HBUS in Ontario.
ANDUPON the Commission being satisfied that to do so wouldnot be prejudicial to the public interest;
ITIS RULED pursuant to section 80 of the Act that uponthe making of an order under the Bank Act permitting HBUS to establisha branch listed on Schedule III of that Act, HBUS is exempt fromthe requirement of clause 22(1)(b) of the Act where the performanceof the service as adviser is solely incidental to HBUS' principalbanking business.
"PaulM. Moore" "Stephen Paddon"