Filer exempted from section 13.12 [Restriction on lending to clients] of National Instrument 31-103 -- Filer is a registered broker-dealer with the SEC and a member of FINRA -- Filer is applying for registration under the legislation as an exempt market dealer provided that: (a) the head office or principal place of business of the Filer remains in the United States; (b) the Filer remains licensed or registered under the securities legislation of the United States in a category of licensing or registration that permits it to carry on the activities in that jurisdiction that registration as an investment dealer would permit it to carry on in the local jurisdiction; and (c) the Filer remains subject to requirements in respect of its lending money, extending credit or providing margin to clients (including clients that are located in Canada) that are substantially similar to the capital and margin requirements of IIROC that would be applicable to the Filer if it were registered under securities legislation as an investment dealer and were a member of IIROC.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 14-101 Definitions.
National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.12, 15.1.
In the Matter of AXA Rosenberg Investment Management LLC, Bloomberg Tradebook (Bermuda) Ltd., Bloomberg Tradebook LLC, BNY Mellon Capital Markets LLC, Credit Suisse Securities (Europe) Limited, Credit Suisse Securities (USA) LLC, Goldman Sachs Execution & Clearing, L.P., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and Morgan Stanley Smith Barney LLC., (2009) 32 OSCB 8030
October 29, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
NATIONAL INSTRUMENT 31-103 REGISTRATION
REQUIREMENTS AND EXEMPTIONS
IN THE MATTER OF
PIPER JAFFRAY & CO.
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 13.12 of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) that a registrant must not lend money, extend credit or provide margin to a client (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport review 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 (MI 11-102) is intended to be relied upon in British Columbia, Manitoba and Québec (and together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless they are otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation formed under the laws of the State of Delaware. Its head office is located at 800 Nicollet Mall Minneapolis, MN 55402-7020.
2. The Filer is a directly wholly owned subsidiary of the Piper Jaffray Companies.
3. The Filer is registered as a broker-dealer with the U.S. Securities and Exchange Commission (SEC), and is a member of the Financial Industry Regulatory Authority (FINRA). The Filer is a member of all major U.S. stock exchanges.
4. The Filer is permitted to carry on in the United States the same activities that registration as an investment dealer would authorize it to carry on in Canada if the Filer were registered in the Jurisdictions as an investment dealer.
5. The Filer currently acts as a dealer in reliance on the international dealer exemption under s. 8.18 of NI 31-103 in each of the Jurisdictions.
6. The Filer provides a variety of capital raising, investment banking, market making, brokerage, and advisory services, including fixed income and equity sales and research, investment banking and derivatives dealing for governments, corporate, financial institutions and retail customers. The Filer also conducts proprietary trading activities. The Filer may engage in other activities which may be considered lending money, extending credit or providing margin to its clients, including clients in Canada, in connection with and as an integral part of its brokerage services.
7. The Filer is subject to regulations of the Board of Governors of the U.S. Federal Reserve System (the Board), the SEC, FINRA and the NYSE regarding the lending of money, extension of credit and provision of margin to clients (the U.S. Margin Regulations) that are designed to provide protections that are substantially similar to the protections provided by the regulations regarding the lending of money, extension of credit and provision of margin to which dealer members of the Investment Industry Regulatory Organization of Canada (IIROC) are subject, and the Filer is in compliance in all material respects with all applicable U.S. Margin Regulations. In particular, the Filer is subject to the margin requirements imposed by the Board, including Regulations T, U and X, under applicable SEC rules and under NYSE Rule 431.
8. The Filer is in compliance with the U.S. Margin Regulations imposed by the Board, including Regulations T, U and X, under applicable SEC rules and under NYSE Rule 431 and maintains internal written policies and procedures governing its margin lending and arranging activities, as required by the U.S. Margin Regulations.
Exempt Market Dealer Registration
9. The Filer has applied for registration, as an exempt market dealer in each of the Jurisdictions in order to permit it to act as a market intermediary in respect of trades in the exempt market across Canada.
10. Section 13.12 of NI 31-103 prohibits a registrant from lending money, extending credit or providing margin to a client. Upon registration as an EMD the Filer will be subject to the prohibition contained in s.13.12 of NI 31-103.
11. In certain comments received on NI 31-103, after it was published for comment, it was suggested that the prohibitions in section 13.12 should not apply to exempt market dealers that are members of foreign self-regulatory organizations, or subject to regulatory requirements in a foreign jurisdiction, where the dealer is subject to margin regimes similar to that imposed by IIROC. The Canadian Securities Administrators responded to these comments by suggesting that these circumstances could be considered on a case-by-case basis, through exemption applications, and that an exemption should be made available to registrants who have "adequate measures in place to address the risks involved and other related regulatory concerns".
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 Exemption Sought is granted provided that:
(a) the head office or principal place of business of the Filer is in the United States;
(b) the Filer is licensed or registered under the securities legislation of the United States in a category of licensing or registration that permits it to carry on the activities in the United States that registration as an investment dealer would permit it to carry on in the Jurisdiction; and
(c) by virtue of the registration referred to in paragraph (b), including required membership in one or more self-regulatory organizations, the Filer is subject to requirements in respect of its lending money, extending credit or providing margin to clients (including clients that are located in Canada) that result in substantially similar regulatory protections to those provided for under the capital and margin requirements of IIROC that would be applicable to the Filer if it were registered under the Legislation as an investment dealer and were a member of IIROC.