National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- 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 principal distributor of mutual funds and potential principal distributor or participating dealer of third party funds, is permitted to sell, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, subsections 11.1(1)(b), 11.2(1)(b), and 19.1.
October 30, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
2210190 ONTARIO INC.
(to be renamed Scotia Securities Inc. effective
November 1, 2009) (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer for a decision (the Requested Relief) under section 19.1 of National Instrument 81-102 Mutual Funds (the Legislation) for an exemption from the provisions of paragraph 11.1(1)(b) and paragraph 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 from the redemption of mutual fund securities (Mutual Fund Trust Monies) with cash received for the purchase or from the sale of guaranteed investment certificates (GICs) and other securities or instruments which the Filer is permitted to sell (Non-Mutual Fund Trust Monies) (the Commingling Prohibitions).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (M1 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon (the Non-principal Jurisdictions).
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless otherwise defined. The following additional terms shall have the following meanings:
Client Trust Accounts means the trust accounts into which Mutual Fund Trust Monies and Non-Mutual Fund Trust Monies are deposited.
Scotia Funds means the mutual funds for which the Filer acts as manager and principal distributor.
MFDA means the Mutual Fund Dealers Association of Canada.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation established under the laws of the Province of Ontario. The Filer's name will change to Scotia Securities Inc. effective November 1, 2009.
2. The Filer is registered as a dealer in the category of mutual fund dealer (or the equivalent) in the Jurisdiction and each of the Non-principal Jurisdictions, and is a member of the MFDA.
3. Each of the Scotia Funds is an open-end mutual fund trust established or continued under the laws of the Province of Ontario. Units of the Scotia Funds are qualified for distribution to the public under a simplified prospectus and annual information form filed in the Jurisdiction and each of the Non-principal Jurisdictions.
4. The Filer will, as of November 1, 2009, act as the principal distributor of the Scotia Funds.
5. The Filer may in the future act as a principal distributor or participating dealer for other mutual funds. Securities of these future mutual funds will be qualified for distribution to the public under a simplified prospectus and annual information form filed in the Jurisdiction or one or more of the Non-principal Jurisdictions. In addition, in the future, the Filer may receive cash for the purchase or from the sale of GICs and other securities or instruments that the Filer is permitted to trade or sell.
6. As a member of the MFDA, the Filer is 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 a member of the MFDA, the Filer is expected to comply with all MFDA Rules and requirements.
7. The Filer operates accounts primarily in "nominee name".
8. The Filer maintains Client Trust Accounts with its affiliate, The Bank of Nova Scotia (BNS), into which all Mutual Fund Trust Monies concerning the Scotia Funds or other mutual funds for which the Filer acts as principal distributor or participating dealer and all Non-Mutual Fund Trust Monies are or will be paid and from which redemption proceeds or assets to be distributed are or will be paid.
9. Client Trust Accounts are and will be maintained in compliance with section 11.3 of NI 81-102.
10. The Client Trust Accounts are and will be each designated as "trust accounts" by the financial institution at which they are held.
11. The Filer does not believe that the interests of its clients will be prejudiced in any way by the commingling of Mutual Fund Trust Monies with Non-Mutual Fund Trust Monies in the Client Trust Accounts.
12. The Commingling Prohibitions prevent the Filer from commingling Mutual Fund Trust Monies with Non-Mutual Fund Trust Monies. Prior to June 23, 2006, section 3.3.2(e) of the MFDA Rules (MFDA Commingling Prohibition) also prohibited the commingling of Mutual Fund Trust Monies with Non-Mutual Fund Trust Monies. On June 23, 2006, the MFDA granted relief from the MFDA Commingling Prohibition to Scotia Securities Inc. (Old SSI), the predecessor to the Filer, subject to Old SSI obtaining similar relief from the Commingling Prohibitions from the Jurisdiction and the Non-principal Jurisdictions which Old SSI obtained on November 7, 2006.
13. The Filer currently has systems in place to be able to account for all of the monies it receives into and all of the monies that are to be paid out of its Client Trust Accounts in order to meet the policy objectives of sections 11.1 and 11.2 of NI 81-102. The Filer believes that its systems are sufficient to enable the Filer to account for all of the monies it receives into and all of the monies that are to be paid out of its Client Trust Accounts.
14. The Filer 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 and any other provision from which, the Filer obtains an exemption from the relevant decision maker, the Filer will comply with all 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 Filer does not believe that the Requested Relief will affect coverage provided by the MFDA IPC.
17. The predecessor to the Filer, Old SSI, was granted identical relief in the Jurisdiction and the Non-principal Jurisdictions, under an MRRS Decision Document dated November 7, 2006, by the Ontario Securities Commission as principal regulator for the decision (the Original Decision).
18. Pursuant to an internal reorganization effective November 1, 2009 involving Old SSI, the Filer and certain of their affiliates, the investment fund manager activities carried on by Old SSI prior to November 1, 2009 will be transferred to and carried on by Scotia Asset Management L.P. and the dealing activities will be transferred to and carried on by the Filer as of November 1, 2009. As a result of this reorganization, Old SSI will, as of November 1, 2009, not be relying on the relief granted under the Original Decision and the Filer will require the Requested Relief as the Original Decision is not available to the Filer.
19. In the absence of the Requested Relief, the commingling of Mutual Fund Trust Monies with Non-Mutual Fund Trust Monies would contravene the Commingling Prohibitions.
20. The Filer is, to the best of its knowledge, not in default of the securities legislation of the Jurisdiction or any of the Non-principal Jurisdictions.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided that this decision, as it relates to the Jurisdiction or to a Non-principal Jurisdiction, 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 Trust Monies and Non-Mutual Fund Trust Monies held in the Client Trust Accounts.
This decision is effective November 1, 2009.