Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted 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 of third party funds is permitted to trade and sell, subject to certain conditions.

Applicable Legislative Provisions

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

July 31, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, SASKATCHEWAN, MANITOBA,

ONTARIO, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

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

PARTNERS IN PLANNING FINANCIAL SERVICES 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 prohibit a participating dealer 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 other securities or instruments which 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 Saskatchewan Financial Services 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 is a corporation incorporated under the Canada Business Corporations Act and is registered as mutual fund dealer in all provinces and territories of Canada where such registration is required for the purpose of trading mutual fund securities.

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

3. The Filer is a participating dealer of third-party mutual fund securities. In addition to mutual fund securities the Filer distributes principal protected notes issued by chartered banks or government guaranteed institutions and other securities and instruments that the Filer is permitted to trade and sell.

4. The Filer proposes to commingle and pool MF Cash and Other Cash in a trust account established under Section 11.3 of NI 81-102 (the Trust Account). The commingling of MF Cash and Other 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.

5. The Commingling Prohibition prevents the Filer from commingling the MF Cash and Other Cash. On June 23, 2006 the MFDA granted relief from their equivalent commingling prohibition in section 3.3.2(e) of the Rules of the MFDA (the MFDA Rules) to the Filer subject to the Filer obtaining similar relief from the Decision Makers.

6. Should the Requested Relief be granted by the Decision Makers, the Filer will provide the MFDA with notice that the Requested Relief has been granted.

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

8. MF Cash and 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, primarily 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.

9. In providing its services the Filer utilizes sophisticated systems and is able to account for all of the monies it receives into and all of the monies that are to be paid out of the Trust Account in order to meet the requirements of sections 11.1 and 11.2 of NI 81-102.

10. 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.

11. As a member of the MFDA, the Filer is subject to the MFDA Rules 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.

12. The Filer does not believe that the interest of its clients will be prejudiced in any way by the commingling of MF Cash and Other Cash.

13. 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.

14. In the absence of the Requested Relief, the commingling of MF Cash and 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.

"W. F. Ready"
Commission Member
Saskatchewan Financial Services Commission