Applicant for registration as an international adviser exempted from the requirements of subparagraph 3.7(1)(b)(ii) of OSC Rule 35-502, which would otherwise require that the international adviser be subject to the agreement announced by the bank for international settlements concerning international convergence of capital measurement and capital standards, in order for the international adviser to hold securities or money of Ontario clients as custodian -- Applicant is registered as an investment adviser and broker dealer with the SEC in the United States -- Exemption is subject to terms and conditions.
Securities Act, R.S.O. 1990, c. S.5, as am.
Ontario Securities Commission Rule 35-502 Non-Resident Advisers, ss. 3.7, 3.7(1)(b)(ii), 10.1.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, C. S.5, AS AMENDED (the "Act")
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION RULE 35-502
NON-RESIDENT ADVISERS (the "Rule")
IN THE MATTER OF MORGAN STANLEY DW INC.
(Section 10.1 of the Rule)
UPON the application (the "Application") of Morgan Stanley DW Inc. ("Morgan DW") to the Director, for an exemption, pursuant to section 10.1 of the Rule, from the requirement of subsection 3.7(1)(b)(ii) of the Rule that would require Morgan DW to be subject to the agreement (the "BIS Agreement") announced by the Bank for International Settlements on July 1, 1988 concerning international convergence of capital measurement and capital standards, in order for Morgan DW to act as custodian of securities or money of Ontario clients (as defined in the Rule), in accordance with the requirements of section 3.7 of the Rule;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Morgan DW having represented to the Director that:
1. Morgan DW is a corporation organized under the laws of the State of Delaware, in the United States of America (the U.S.A."), and is a wholly-owned subsidiary of Morgan Stanley ("Morgan Stanley"). The head office of Morgan DW is located in Purchase, New York, U.S.A.
2. Morgan DW is not presently registered under the Act. Morgan DW has applied for registration under the Act as an adviser, in the category of "international adviser" (investment counsel and portfolio manager), and as a dealer, in the category of "international dealer".
3. Morgan DW is a global financial services firm and is registered as an investment adviser and broker-dealer with the United States Securities and Exchange Commission (the "SEC"). Morgan DW provides investment, financing, and related services to individuals and institutions on a global basis. Services provided to clients include:
(i) securities brokerage, trading, and underwriting;
(ii) investment banking, strategic services, including mergers and acquisitions, and other corporate finance advisory activities;
(iii) origination, dealer and related activities; and
(iv) securities clearance and settlement services and investment advisory and related record-keeping services.
4. As at November 30, 2004, Morgan DW had regulatory net capital of US $1.130 billion as determined under Rule 15c3-1 ("Rule 15c3-1") under the United States Securities Exchange Act of 1934, and shareholders' equity of US$ 1.532 billion, and since November 30, 2004, there has been no material adverse change in the regulatory net capital of Morgan D.W., as determined under Rule 15c3-1, or the shareholder's equity of Morgan DW.
5. As at November 30, 2004, Morgan Stanley had shareholders' equity of US $28.206 billion.
6. Morgan DW has five principal affiliated financial institutions: Morgan Stanley Bank (shareholders' equity: US$1.6 billion as at November 30, 2004), Discover Bank (shareholders' equity: US$2.82 billion as at November 30, 2004), Morgan Stanley Bank International Ltd. (shareholders equity: US$725 million as at November 30, 2004), Bank Morgan Stanley AG (shareholders' equity: US$238,774,928 as at November 30, 2004), and Morgan Stanley Bank AG Germany (shareholders equity: US$228,721,109 as at November 30, 2004). (Morgan Stanley Bank, Discover Bank, Morgan Stanley Bank International Ltd., Bank Morgan Stanley AG and Morgan Stanley Bank AG Germany are collectively referred to as the "Morgan Stanley Banks.")
7. Morgan DW acts as custodian for its clients who are resident in the U.S.A. and elsewhere in the world. As of February 28, 2005, Morgan DW had custody of approximately US $483 billion of client assets.
8. Upon obtaining registration under the Act as an "international adviser", Morgan DW proposes to hold as custodian securities and money of Ontario clients.
9. Section 3.7 of the Rule provides as follows:
(1) Subject to subsection (2) and (3), an international adviser shall ensure that the securities and money of an Ontario client are held
(a) by the Ontario client; or
(b) by a custodian or sub-custodian
(i) that meets the requirements prescribed for acting as a custodian or sub-custodian of a mutual fund in National Instrument 81-102, and
(ii) that is subject to [the BIS Agreement].
(2) An international adviser or an affiliate of the international adviser that holds the securities or money of an Ontario client as custodian or sub-custodian shall hold the securities and money in compliance with sections 116, 117, 118 and 119 of the Regulation.
(3) The securities of an Ontario client may be deposited with or delivered to a depository or clearing agency that is authorized to operate a book-based system.
10. Morgan DW will not hold any securities or money of an Ontario client unless, at the relevant time, it meets the requirements prescribed for acting as a custodian or sub-custodian of a mutual fund in National Instrument 81-102.
11. Morgan DW will notify the Director immediately upon:
(i) any suspension or termination of the registration of Morgan DW as an investment adviser or broker-dealer with the SEC;
(ii) any material decline in the regulatory net capital of Morgan DW, as determined under Rule 15c3-1;
(iii) any material decline in the shareholders' equity of Morgan DW;
(iv) any material decline in the dollar value of client assets held by Morgan DW as custodian; or
(v) any material change in the ownership of Morgan DW.
12. The BIS Agreement is a framework for measuring capital adequacy that was designed to strengthen the soundness and stability of the international banking system. The BIS Agreement provides minimum levels of capital that are intended to be applied to banks on a consolidated basis, including subsidiaries undertaking banking and financial business.
13. Morgan DW is an affiliate of each of the Morgan Stanley Banks, but is not a subsidiary of any of the Morgan Stanley Banks. Accordingly, because of Morgan DW's corporate structure, and because Morgan DW is not a bank, the BIS Agreement does not apply to Morgan DW.
AND UPON the Director being satisfied that to do so would not be prejudicial for the public interest;
IT IS THE DECISION of the Director, pursuant to section 10.1 of the Rule, that Morgan DW is exempt from the requirements of subsection 3.7(1)(b)(ii) of the Rule, which would require that Morgan DW be subject to the BIS Agreement in order for it to hold securities or money of Ontario Clients as custodian, provided that this decision will terminate upon:
(A) any suspension or termination of the registration of Morgan DW as an investment adviser or broker-dealer with the SEC;
(B) any material decline in amount of the regulatory net capital of Morgan DW, as determined under Rule 15c3-1, from the amount referred to in paragraph 4, above;
(C) any material decline in the amount of shareholders' equity of Morgan DW from the amount referred to in paragraph 4, above;
(D) any material decline in the dollar value amount of client assets held by Morgan DW as custodian from the amount referred to in paragraph 7, above; or
(E) any material change in the ownership of Morgan DW.
April 11, 2005.
"David M. Gilkes"
IT IS ORDERED pursuant to Section 83 of the Act, that 3460 be deemed to have ceased to be a reporting issuer under the Act.
May 13, 2005.
"Paul M. Moore"