Manulife Securities International Ltd. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted to participating dealer from the requirements of section 11.2(1)(b) of NI 81-102 to permit commingling of cash received for the purchase or redemption of mutual fund securities with cash received for the purchase and sale of other securities or instruments the participating dealer is licensed to sell, subject to certain conditions.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 11.2(1)(b), 19.1.

July 25, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO, BRITISH COLUMBIA, ALBERTA,

SASKATCHEWAN, MANITOBA, NOVA SCOTIA,

NEW BRUNSWICK, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

NORTHWEST TERRITORIES, AND YUKON

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MANULIFE SECURITIES INTERNATIONAL LTD.

(the Filer)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision (the "Requested Relief") under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the provisions of section 11.2(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") that prohibits participating mutual fund dealers and other service providers from commingling cash received for the purchase or redemption of mutual fund securities ("MF Cash") with cash received for the purchase or sale of guaranteed investment certificates and other securities or instruments the Filer is permitted to trade or sell ("Other Cash") (the "Commingling Prohibition").

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for this application,

and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer, a wholly-owned subsidiary of The Manufacturers Life Insurance Company, is a corporation incorporated under the Canada Business Corporations Act and is registered as a mutual fund dealer in all provinces and territories (other than Nunavut) of Canada where such registration is required for the purpose of trading mutual fund securities. MSIL is also registered as a limited market dealer under the Securities Act (Ontario) and the Securities Act (Newfoundland and Labrador).

2. The Filer is a member of the Mutual Fund Dealers Association of Canada ("MFDA").

3. The Filer is a participating dealer of the Manulife Mix Funds and is also the participating dealer of other third-party mutual fund complexes within the meaning of NI 81-102. In addition to mutual fund securities, the Filer distributes guaranteed investment certificates issued by Manulife Bank of Canada ( "GICs") and other securities and instruments that the Filer is permitted to trade or sell.

4. The Filer proposes to pool Other Cash with MF Cash in a trust settlement account established under Section 11.3 of NI 81-102 (the "Trust Account"). The commingling of Other Cash with MF Cash would facilitate significant administrative and systems economies that will enable the Filer to enhance its level of service to its client accounts at less cost to the Filer. The Trust Account is designated as a 'trust account' by the financial institution at which it is held, and is held in the name of the Filer.

5. The Commingling Prohibition prevents the Filer from commingling the MF Cash with Other Cash. Prior to June 23, 2006, section 3.3.2(e) of the Rules of the MFDA ("MFDA Rules") also prohibited the commingling of Other Cash with MF Cash. On June 23, 2006, the MFDA granted relief from the Commingling Prohibition in section 3.3.2(e) of the MFDA Rules to the Filer subject to the Filer obtaining similar relief from the Commingling Prohibition from the Jurisdictions. Should the Requested Relief be granted by the Jurisdictions, the Filer will provide the MFDA with notice that the Requested Relief has been granted.

6. The Filer will maintain proper records with respect to client cash in a commingled account, and will ensure that the Trust Account is reconciled, and that MF Cash and Other Cash are properly accounted for daily.

7. MF Cash or Other Cash related to a transaction initiated by one of the Filer's clients will not be used to settle a transaction initiated by any other client of the Filer. The Filer settles through FundSERV, on a net basis at the end of each trading day, MF Cash payable from the Trust Account to a mutual fund with MF Cash payable by the mutual fund to the Trust Account.

8. Except for the Commingling Prohibition, the Filer will comply with all other requirements prescribed in Part 11 of NI 81-102 with respect to the handling and segregation of client cash.

9. As a Member of the MFDA, the Filer is subject to the Rules of the MFDA on an ongoing basis, particularly those which set out requirements with respect to the handling and segregation of client cash. As a Member of the MFDA, the Filer is expected to comply with all MFDA requirements.

10. The Filer does not believe that the interests of its clients will be prejudiced in any way by the commingling of Other Cash with MF Cash.

11. Effective July 1, 2005, the MFDA Investor Protection Corporation ("MFDA IPC") commenced offering coverage, within defined limits, to customers of MFDA Members against losses suffered due to the insolvency of MFDA members. The Filer does not believe that the Requested Relief will affect coverage provided by the MFDA IPC.

12. In the absence of the Requested Relief, the commingling of MF Cash with Other Cash in the Trust Account would contravene the Commingling Prohibition.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that this Decision, as it relates to the jurisdiction of a Decision Maker, will terminate upon the coming into force of any change in the MFDA IPC rules which would reduce the coverage provided by the MFDA IPC relating to MF Cash and Other Cash held in the Trust Account.