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National Bank Financial Inc. and National Bank Financial Ltd. - Decision
Headnote
Decision pursuant to to section 3.1 of Rule31-501 - Registrant Relationships (the Rule) and subsection127(2)(h) of the Regulations under the Securities Act (Ontario)exempting salespersons, directors and officers of the applicants,which are affiliated companies, from certain of the dual registrationrestrictions out in the Rule and exempting their salespersonsfrom the provisions of subsection 127(1) of the Regulations,to the extent that those provisions would prohibit salespersonsof one applicant from also being salespersons of the other applicant.
Statutes Cited
Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am., ss.127(1), 127(2).
Rules Cited
Ontario Securities Commission Rule 31-501 ss.1(1), 3.1.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S.5,AS AMENDED (the "Act")
AND
ONTARIO REGULATION 1015,
BEING THE GENERAL REGULATIONMADE UNDER THE ACT
(the "Regulation")
AND
ONTARIO SECURITIES COMMISSIONRULE 31-501
REGISTRANT RELATIONSHIPS (the"Rule")
AND
IN THE MATTER OF
NATIONAL BANK FINANCIAL BANKINC. AND
NATIONAL BANK FINANCIAL LTD.
DECISION
(Section 127 (2)(h) of theRegulation and Section 3.1 of the Rule)
UPON the Director (as defined in theAct) having received an application (the "Application")from National Bank Financial Inc. ("NBFI")and National Bank Financial Ltd. ("NBFL" and,together with NBFI, the "National Bank Registrants")for a decision (or its equivalent), pursuant to subsection 127(2)(h) of the Regulation and Section 3.1 of the Rule, exemptingthe National Bank Registrants and their current and future salespersons,directors and officers from certain of the "dual"registration restrictions of subsection 127 (1) of the Regulationand the Rule;
AND UPON considering the Applicationand the recommendations of staff of the Ontario Securities Commission;
AND UPON the National Bank Registrantshaving represented to the Director that:
1. Each of the National Bank Registrants isan indirectly wholly-owned subsidiary of the National Bankof Canada, a Schedule I Canadian chartered bank;
2. Each of the National Bank Registrants is(i) registered as a dealer under the Act in the categoriesof broker and investment dealer, (ii) a Member firm of theInvestment Dealers Association of Canada (the "IDA"),(iii) a Participating Organization of The Toronto Stock Exchangeand (iv) a member (or its equivalent) of each of the remainingexchanges (securities and commodity futures) in Canada (otherthan the Montreal Exchange, in respect of which only NBFIis a member firm);
3. For various business and other reasons,National Bank has historically caused, and continues to require,the securities brokerage businesses of its subsidiaries tobe carried out through two registrants whereby, in certainCanadian provinces, retail brokerage business is carried outthrough one registrant and institutional brokerage businessis carried out through a second registrant. Currently, thisis reflected through the respective businesses of the NationalBank Registrants as follows:
(a) all institutional brokerage businessof the National Bank Registrants is carried out throughNBFI;
(b) retail brokerage business in all provincesother than Quebec and New Brunswick (and one branch in Ottawa,Ontario) is carried out through NBFL; and
(c) retail brokerage business in the Provincesof Quebec and New Brunswick (and one branch in Ottawa, Ontario)is carried out through NBFI;
4. For purposes of discharging their obligationsunder applicable securities legislation, stock exchange requirementsand IDA requirements, the National Bank Registrants are consideredin all material respects as a combined entity, including:
(a) for reporting purposes and regulatorycapital adequacy purposes, the National Bank Registrantsprepare a single monthly financial report in which theirnet capital is computed on a joint basis;
(b) a single statement of policies governseach of the National Bank Registrants; and
(c) in compliance with IDA requirements,the respective obligations of the National Bank Registrantsare cross-guaranteed;
5. Each of the National Bank Registrants carrieson business under the name "National Bank Financial"and it is on this basis that clients deal with each of theNational Bank Registrants;
6. A fully harmonized compliance organizationhas been established for the National Bank Registrants;
7. National Bank Financial's compliance structurehas been in place for a significant period and, accordingly,the persons responsible for compliance for the National BankRegistrants are particularly sensitive to, and well structuredto effectively monitor and address, the respective complianceobligations of the National Bank Registrants relating to institutionalclient trading on the one hand and retail client trading onthe other hand. In addition, the persons responsible for overseeingcompliance in respect of client trading are already required,in certain provinces, including Ontario, to monitor the conductof both institutional client trading through NBFI and retailclient trading through NBFL;
8. The National Bank Registrants have determinedthat certain of their salespersons could, as a practical matter,successfully establish accounts for both retail and institutionalclients (and, in certain cases, have done so during theirtenure as salespersons of other registrants) and have requestedthe right to do so;
9. In most provinces, including Ontario, suchindividuals could only do so through being a registered salespersonwith both NBFI (through which institutional brokerage businessis carried out) and NBFL (through which retail brokerage businessis carried out);
10. Section 127(1) of the Regulation providesthat (subject to subsection (2) of such section) no individualmay be registered as a salesperson unless he or she is employedfull-time as a salesperson (emphasis added). Although notexplicit, it may well be implicit that such subsection isintended to require such full-time employment with one registrant;
11. Section 127(2) of the Regulation permitsthe Director to exempt a person from the full-time requirementunder subsection 127(1) of the Regulation where the otheractivities of the subject salesperson will not interfere withhis or her duties and responsibilities as a salesperson andthere is no conflict of interest arising from his or her dutiesas a salesperson and his or her outside activity;
12. Section 1(1) of the Rule provides thatno person registered as a salesperson of a registrant mayact or be registered as a director, partner or officer ofthe registrant or as a salesperson, officer, partner or directorof another registrant;
13. Section 3.1 of the Rule provides thatthe Director may grant an exemption from the Rule, in wholeor in part;
14. Section 1.1 of the Companion Policy tothe Rule (the "Companion Policy") providesthat the Director will consider granting an exemption fromSection 1.1 of the Rule to salespersons, officers or directorsregistered in the United States and employed by a United Statesregistered broker-dealer to trade through an Ontario registeredbroker or investment dealer that is affiliated with the UnitedStates broker-dealer;
15. Section 1.2 of the Companion Policy providesthat the Director will not provide an exemption from the "RelatedRegistrant" restrictions under Section 2.1 of the Ruleunless the Director is satisfied that the applicant or registranthas adopted or proposes to adopt policies and procedures tominimize the potential for conflict of interest; and
16. The by-laws of the IDA have recently beenamended so as to permit dual employment of registered representatives(being salespersons for the purposes of the Act, the Regulationand the Rule) and trading officers of affiliated registrants,provided that any potential conflicts of interest are addressedand such affiliates have cross-guaranteed their obligations;
AND UPON the Director being satisfied,based on the representations set forth in paragraphs 4 through7 above, that there is no potential conflict of interest inthe conduct of brokerage business as between the National BankRegistrants;
AND UPON the Director being satisfiedthat registration of individuals as salespersons of both ofthe National Bank Registrants would not result in interferencewith their duties to either of the National Bank Registrantsand that there is no conflict of interest which would arisefrom such dual registration;
AND UPON the Director being satisfiedthat to do so would not be prejudicial to the public interest;
IT IS THE DECISION of the Director, pursuantto subsection 127 (1) (h) of the Regulation and Section 3.1of the Rule, that, effective the date of this Decision:
(a) the National Bank Registrants and theirrespective salespersons, officers and directors are exemptfrom those provisions of the Rule which would prohibit individualswho are salespersons, officers and/or directors of one ofthe National Bank Registrants from also being salespersons,officers and/or directors of the other National Bank Registrant;and
(b) the National Bank Registrants and theirrespective salespersons are exempt from the provisions ofsubsection 127 (1) of the Regulation to the extent thatsuch provisions would prohibit salespersons of one of theNational Bank Registrants from also being salespersons ofthe other National Bank Registrant,
provided that (i) the circumstances describedin paragraphs 4, 5 and 6 above remain in place and (ii) theNational Bank Registrants comply with all requirements of theIDA from time to time for permitting such dual registration.
October 11, 2002.
"David M. Gilkes"