National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Large investment dealer with separate retail and institutional operating divisions exempted from the requirement to register an individual as a chief compliance officer (CCO) -- permitted to register two CCOs, one for each operating division.
National Instrument 31-103 Registration Requirements and Exemptions, s. 11.3.
June 3, 2010
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
DUNDEE SECURITIES CORPORATION
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement contained in section 11.3 of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) that the Filer designate an individual to be the chief compliance officer (CCO) and instead be permitted to designate and register two individuals as CCO in respect of two distinct lines of securities business of the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a Passport Application):
(a) the Ontario Securities Commission is the principal regulator for the purpose of this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada outside of Ontario (the Non-Principal Jurisdictions and together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation formed under the Business Corporations Act (Ontario) and its head office located in Toronto, Ontario.
2. The Filer is not in default of securities legislation in any of the Jurisdictions.
3. The Filer is registered under the Legislation as a dealer in the category of investment dealer and is a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).
4. The Filer is also registered as an investment dealer in each of the Non-Principal Jurisdictions and as a derivatives dealer in Quebec.
5. The Filer has two distinct lines of securities business based on the nature of its clients:
(a) the institutional division (the Institutional Division) provides a broad spectrum of services to institutional clients, including equity, fixed income and options sales and trading, investment banking and research. The Institutional Division oversees the Filer's trading desks and its options and managed account programs; and
(b) the retail division (the Retail Division) provides diversified wealth-management services to the Filer's retail clients, including full-service retail accounts and suitability-based investment advice. The Retail Division oversees the Filer's registration department, complaints and investigations, trade surveillance, sales communications and training of branch managers.
6. The Retail Division and the Institutional Division each have a well-established, separate and distinct supervisory structure. Each division has its own compliance department and has its own CCO.
7. Given the specialized and diversified business operations within the Institutional Division of the Filer, the CCO of the Institutional Division requires a different set of skills, experience and focus than that of the CCO of the Filer's large-scale Retail Division.
8. The CCO of the Institutional Division focuses on the needs of institutional clients and oversees compliance systems that are reasonably designed to ensure integrity of the marketplace for all of the Filer's clients. The CCO of the Institutional Division's responsibilities include supervising the Filer's trade desk, supervising all trades in options and commodity pools, overseeing trade matching & settlement and conducting the quarterly trade desk review as well as quarterly reports to regulators. Additionally, the CCO of the Institutional Division sits on the managed accounts committee and is responsible overseeing management for the Filer's managed accounts programs. On the investment banking side, the CCO of the Institutional Division also sits on the new issues screening committee, manages the Filer's restricted and grey lists and is responsible for overseeing research. The CCO of the Institutional Division also acts as the CCO and anti-money laundering officer of the Filer's U.S. Financial Industry Regulatory Authority-registered affiliate.
9. The CCO of the Retail Division fulfils a different mandate than the CCO of the Institutional Division. The CCO of the Retail Division focuses on the needs of retail clients and oversees compliance systems that are reasonably designed to ensure the suitability of investment advice and products and services for retail clients. Additionally, the CCO of the Retail Division is responsible for tier 2 supervision of more than 1,100 investment advisors and branch audits of more than 450 branches and sub-branches. The CCO of the Retail Division also acts as the Filer's anti-money laundering officer and privacy officer.
10. NI 31-103 was implemented on September 28, 2009 (the Implementation Date). Under section 11.3 of NI 31-103, a registered firm is required to designate an individual to be the CCO (the CCO Requirement).
11. Prior to the Implementation Date, the Filer was permitted by IIROC to designate two individuals to fulfill the role of CCO under IIROC rules. The role of the CCO under IIROC rules is equivalent to the role of the CCO under NI 31-103. As a result, the Filer has had two CCOs, one for the Retail Division and one for the Institutional Division, for a number of years.
12. Given the size, diversity and increasing complexity of the Filer's Retail Division and the Institutional Division it is (i) unreasonable for one individual to effectively carry out all of the responsibilities of the CCO for both the Retail Division and the Institutional Division, (ii) difficult for one CCO to effectively identify and stay abreast of the different issues and risks applicable to both the Retail Division and Institutional Division, and (iii) to escalate all such issues and risks to the ultimate designated person and the board of directors in a timely and effective manner.
13. Without the Exemption Sought, the filer would have to change its supervisory and its compliance structure to meet the CCO Requirement. Alternatively, the Filer would have to separate the Retail Division and the Institutional Division into two separate registered firms. Either option would be burdensome for the Filer. There would be significant costs associated with the restructuring resulting from a loss of certain operational and technological efficiencies that currently exist as a result of operating as a single registrant.
14. Designating only one CCO for the purposes of satisfying the CCO Requirement in the Legislation would not be consistent with the policy objectives the Legislation is intended to achieve because the Retail Division and the Institutional Division are independent operations that are distinct from one another.
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 principle regulator under the Legislation is that the Exemption Sought is granted provided that the Filer designate:
1. only one individual to be CCO of the Retail Division; and
2. only one individual to be CCO of the Institutional Division.