Securities Law & Instruments

Headnote

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

Relief pursuant to section 147 of the Securities Act (Ontario) from the requirements relating to segregation of funds and securities in section 116, 117 and 118 of the Regulation. Previous order granted U.S. applicant permission to act as custodian for its Ontario clients. Subsequent order granting limited market dealer status to applicant, despite non-residency, required compliance with Regulations, including sections 116, 117 and 118. Therefore sections 116,117 and 118 continue to apply to the applicant despite designation as a limited market dealer which would normally exempt it from those requirements. Compliance with U.S. SEC requirements and additional safeguards, considered equivalent to requirements of the Regulations and exempted was granted.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S. 5, as amended (the Act)

AND

IN THE MATTER OF

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

 

EXEMPTION ORDER

UPON the application of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) for an exemption order pursuant to section 147 of the Act from the requirements with respect to segregation of funds and securities found in sections 116, 117 and 118 of the Regulation (the Application);

AND UPON considering the Application;

AND UPON Merrill Lynch having represented that:

1. Merrill Lynch is a corporation formed under the laws of the State of Delaware and is a wholly owned subsidiary of Merrill Lynch & Co., Inc. (ML&Co.). The head office of Merrill Lynch is located in New York, New York.

2. Merrill Lynch provides investment, financing, and related services to individuals and institutions on a global basis. Services provided to clients include securities brokerage, trading, and underwriting; investment banking, strategic services, including mergers and acquisitions, and other corporate finance advisory activities; origination, brokerage, dealer and related activities; securities clearance and settlement services and investment advisory and related record keeping services.

3. Merrill Lynch is registered under the Securities Act (Ontario) as an international dealer and an international adviser. Merrill Lynch is also registered as a broker-dealer and an investment adviser with the United States Securities and Exchange Commission.

4. Merrill Lynch has applied for registration under the Act as a limited market dealer. Section 213 of the Regulation provides that a registered dealer that is not an individual must be a company incorporated, or a person formed or created, under the laws of Canada or a province or territory of Canada. Merrill Lynch does not have an office in Ontario or any directors, officers or employees resident in Ontario. Accordingly, Merrill Lynch applied for and on June 25, 2004, obtained, an order of the Commission exempting it from the residency requirement in section 213 (the Residency Order).

5. Merrill Lynch has filed an application for registration under the Act as a non-Canadian investment counsel and portfolio manager.

6. On March 28, 2003, Merrill Lynch obtained an order of the Commission permitting it to act as custodian for its Ontario clients. Sections 116, 117 and 118 of the Regulation provide certain requirements with respect to the segregation of client funds and securities where a registrant holds client assets. Pursuant to subsection 2.3(2) of Ontario Securities Commission Rule 31-503 a limited market dealer is exempted from the requirements of sections 116, 117 and 118 of the Regulation. However, a condition of the Residency Order is that if client securities, funds or other assets are held by a custodian or sub-custodian that is Merrill Lynch or an affiliate of Merrill Lynch, that custodian must hold such securities, funds and other assets in compliance with the requirements of the Regulation.

7. In connection with its potentially broader customer base and services to be offered in Ontario, Merrill Lynch seeks an exemption from the requirements of sections 116, 117 and 118 of the Regulation to ensure that its existing global custody services and processes can be used with respect to Ontario clients.

8. As a broker-dealer regulated by the Securities and Exchange Commission (the SEC), Merrill Lynch must comply with the SEC's regulations with respect to protection of customer's cash and securities. Merrill Lynch has a number of additional safeguards in place to protect client funds and securities over which it has custody.

9. Merrill Lynch is a member of the Securities Investor Protection Corporation (SIPC) which was established by the United States Congress under the Securities Investor Protection Act of 1970, as amended (SIPA). SIPA was passed to protect customers of securities firms and to promote public confidence in the United States securities markets.

10. Merrill Lynch has also obtained additional protection by purchasing a policy (the Policy) from Lloyd's of London for potential losses in excess of SIPC's limits.

11. The protections under SIPC and the Policy apply to clients of Merrill Lynch, including clients resident in Ontario.

IT IS ORDERED, pursuant to section 147 of the Act that Merrill Lynch is exempted from the requirements in sections 116, 117 and 118 of the Regulation provided that:

a) the SEC's regulations with respect to protection of clients' cash and securities continue to apply to Merrill Lynch; and

b) it maintains additional safeguards to protect client funds and securities over which it has custody, including insurance coverage, in substantially the same form as at present.

March 29, 2005.

"Robert L. Shirriff"
"Wendell S. Wigle"