Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted from the requirements of section 11.1(1)(b) and 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 of third party funds and potential principal distributor of mutual funds is permitted to sell, subject to certain conditions. Certain of the dealers are or may act as 'carrying dealers' in the context of carrying dealer/introducing dealer arrangements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 11.1(1)(b), 11.2(1)(b), 19.1.

April 13, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, SASKATCHEWAN, MANITOBA,

ONTARIO, NOVA SCOTIA,

PRINCE EDWARD ISLAND, NEWFOUNDLAND AND

LABRADOR, THE NORTHWEST TERRITORIES,

NUNAVUT AND YUKON

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ALTAMIRA FINANCIAL SERVICES LTD.,

ASSANTE FINANCIAL MANAGEMENT LTD.,

BERKSHIRE INVESTMENT GROUP INC.,

BMO INVESTMENTS INC.,

DESJARDINS FINANCIAL SERVICES FIRM INC.,

DUNDEE PRIVATE INVESTORS INC.,

FUNDEX INVESTMENTS INC.,

INDEPENDENT PLANNING GROUP INC.,

INVESTIA FINANCIAL SERVICES INC.,

INVESTORS GROUP FINANCIAL SERVICES INC.,

IPC INVESTMENT CORPORATION,

IQON FINANCIAL INC.,

M.R.S. INC., NATIONAL BANK SECURITIES INC.,

RICE FINANCIAL GROUP INC.,

TD INVESTMENT SERVICES INC., AND

WORLDSOURCE FINANCIAL MANAGEMENT INC.

(the "Filers")

 

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 Filers for a decision (the "Requested Relief") under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the provisions of section 11.1(1)(b) and section 11.2(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") that prohibit a principal distributor and other service providers, or a participating dealer and other service providers, from commingling cash received for the purchase or redemption of mutual fund securities ("Mutual Fund Trust Monies") with cash received for the purchase or sale of guaranteed investment certificates ("GICs") and other securities or instruments the Filers are permitted to sell ("Non Mutual Fund Client Trust Monies") (the "Commingling Prohibitions").

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 each Filer:

1. Certain of the Filers are corporations governed by the laws of the Province Ontario, and certain of the Filers are corporations governed by the laws of Canada and maintain their head office in the Province of Ontario. Other Filers are governed by the laws of Canada, the laws of Québec and the laws of Manitoba but are registered as extra-provincial corporations in the Province of Ontario and undertake significant business in Ontario.

2. Each Filer is registered as a dealer in the category of mutual fund dealer (or the equivalent) in all the Jurisdictions listed opposite the Filer's name in Schedule "A" hereto. Each Filer is a member of the Mutual Fund Dealers Association of Canada ("MFDA") in all the Jurisdictions listed opposite its name in Schedule "A".

3. The Filers' principal business is trading in mutual funds, guaranteed investment certificates ("GICs") and other securities or instruments that the Filers are permitted to sell pursuant to their mutual fund dealer registration or other registration.

4. The Filers act as participating dealers and/or assume the role of principal distributors with respect to the sale of mutual funds.

5. Some of the Filers are or may become "carrying dealers" within the meaning prescribed by section 1 of MFDA By-Law 1 ("By-Law 1") which defines a "carrying dealer" as a member of the MFDA that carries customer accounts in accordance with Rule 1.1.6 of the Rules of the MFDA ("MFDA Rules") to the extent, at a minimum, of clearing and settling trades, maintaining books and records of customer transactions and the holding of client cash, securities and other property. By-Law 1 defines an "introducing dealer" as a member of the MFDA that introduces customer accounts to a carrying dealer in accordance with Rule 1.1.6 of the MFDA Rules.

6. The Filers' clients choose which investments he or she wishes to make on the basis of the material provided to the client by a Filer where a Filer acts as an introducing dealer. Where a Filer acts as a carrying dealer, the Filer's clients choose which investments he or she wishes to make on the basis of materials provided to the client by the introducing dealer which, in the case of publicly offered mutual funds, includes the simplified prospectus for those funds.

7. As members of the MFDA, the Filers are subject to the rules of the MFDA ("MFDA Rules") on an ongoing basis, particularly those with respect to the handling and segregation of client cash. As members of the MFDA, the Filers are expected to comply with all MFDA Rules and requirements.

8. Each Filer maintains or has maintained on its behalf one or more trust accounts ("Client Trust Accounts") with one or more major Canadian financial institutions into which all monies invested by clients are paid and from which redemption proceeds or assets to be distributed are paid. These trust accounts are interest bearing and all of the interest earned on the cash in the trust accounts is paid out to securityholders or to each of the mutual funds to which the trust account pertains on a pro rata basis in compliance with subsection 11.2(4) of NI 81-102 (and that would be required by subsection 11.1(4) where a Filer acting as a principal distributor). The Filers also ensure compliance with section 11.3 in the way in which the Client Trust Accounts are maintained.

9. Each Filer proposes to pool Non-Mutual Fund Client Trust Monies with Mutual Fund Trust Monies in one or more Client Trust Accounts established under section 11.3 of NI 81-102. The commingling of Non-Mutual Fund Client Trust Monies with Mutual Fund Trust Monies would facilitate significant administrative and systems economies that would enable each Filer to enhance its level of service to its clients at less cost each Filer. The Filers' Client Trust Accounts are each designated as "trust accounts" by the financial institutions at which they are held.

10. The Filers do not believe that the interests of their clients will be prejudiced in any way by the commingling of Mutual Fund Trust Monies with Non-Mutual Fund Client Trust Monies.

11. The Commingling Prohibitions prevent the Filers from commingling Mutual Fund Trust Monies with Non-Mutual Fund Client Trust Monies.

12. Prior to June 23, 2006 section 3.3.2(e) of the MFDA Rules (the "MFDA Commingling Prohibition") also prohibited the commingling of Mutual Fund Trust Monies with Non-Mutual Fund Client Trust Monies. On June 23, 2006, the MFDA granted relief from the MFDA Commingling Prohibition to the Filers subject to the Filers obtaining similar relief from the Commingling Prohibitions 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.

13. In providing their services, the Filers have systems in place to be able to account for all of the monies they receive into and all of the monies that are to be paid out of their Client Trust Accounts in order to meet the policy objectives of sections 11.1 and 11.2 of NI 81-102.

14. The Filers will maintain proper records with respect to client cash in a commingled account, and will ensure that all Client Trust Accounts are reconciled, and that Mutual Fund Trust Monies and Non-Mutual Fund Trust Monies are properly accounted for, daily.

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

16. 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 Filers do not believe that the Requested Relief will affect coverage provided by the MFDA IPC.

17. In the absence of the Requested Relief, the commingling of Mutual Fund Trust Monies with Non-Mutual Fund Client Trust Monies would contravene the Commingling Prohibitions.

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 Mutual Fund Client Trust Monies and Non-Mutual Fund Client Trust Monies held in the Client Trust Accounts.

"Leslie Byberg"
Manager, Investment Funds Branch
Ontario Securities Commission

 

SCHEDULE "A"

NAME OF CORPORATION
JURISDICTIONS
 
Altamira Financial Services Ltd.
All provinces and territories
 
Assante Financial Management Ltd.
BC, AB, SK, MB, ON, QC, NB, NS, PE, NF, NT, YK
 
Berkshire Investment Group Inc.
BC, AB, SK, MB, ON, QC, NB, NS, PE, NF, NT, YK
 
BMO Investments Inc.
All provinces and territories
 
Desjardins Financial Services Firm Inc.
BC, AB, SK, MB, ON, QC, NB, NS, PE, NF
 
Dundee Private Investors Inc.
All provinces and territories
 
FundEX Investments Inc.
All provinces and territories
 
Independent Planning Group Inc.
BC, AB, SK, MB, ON, QC, NB, NS, PE, NF
 
Investia Financial Services Inc.
BC, AB, SK, MB, ON QC NB, NS, PE, NF
 
Investors Group Financial Services Inc.
All provinces and territories
 
IPC Investment Corporation
All provinces and territories
 
IQON Financial Inc.
BC, AB, SK, MB, ON, NB, NS, PE, NF, NT, YK, NU
 
M.R.S. Inc.
All provinces and territories
 
National Bank Securities Inc.
All provinces and territories
 
Rice Financial Group Inc.
BC, AB, SK, MB, ON
 
TD Investment Services Inc.
All provinces and territories
 
Worldsource Financial Management Inc.
All provinces and NT