National Bank Securities Inc.

Decision

Headnote

A large bank-owned mutual fund dealer and investment fund manager with distinct operating divisions and de facto co-CEOs exempted from requirements to register a single ultimate designated person (UDP) and a single chief compliance officer (CCO) -- Decision permits it to register two UDPs and two CCOs, one for each operating division.

Statutes Cited

Multilateral Instrument 11-102 Passport System, s. 4.7(1).

National Instrument 31-103 Registration Requirements and Exemptions ss. 3.6, 3.14, 11.2, 11.2(2), 11.3, 11.3(3).

Companion Policy 31-103CP Registration Requirements and Exemptions, s. 5.2.

May 31, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the "Jurisdictions")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NATIONAL BANK SECURITIES INC.

(the "Filer")

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions ("Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for relief from the requirement contained in section 11.2 of National Instrument 31-103 Registration Requirements and Exemptions ("31-103") to designate an individual to be the ultimate designated person ("UDP") and from the requirement contained in section 11.3 of 31-103 to designate an individual to be the chief compliance officer ("CCO"), and instead be permitted to designate and register two individuals as UDPs and two individuals as CCOs in respect of the two distinct operational divisions of the Filer (the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Autorité des marchés financiers is the principal regulator for this application;

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("11-102") is intended to be relied upon in all of the jurisdictions in Canada outside of Québec except Ontario (together with Québec and Ontario, the "Filing Jurisdictions"); and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is registered under the Legislation in each of the Filing Jurisdictions in the category of "mutual fund dealer" and in the Province of Québec in the category of "investment fund manager", and has its head office in the Province of Québec.

2. The Filer is not, to the best of its knowledge, in default of any requirements of securities legislation in any of the Filing Jurisdictions.

3. The Filer's operational structure has always been organized in two distinct divisions, which are based on the nature of its operations (the "Divisions"): This operational structure has not been modified by the Filer in connection with the coming into force of 31-103. The Filer now seeks to ensure that its operational structure remains aligned with its business model while effectively meeting the policy objectives of 31-103:

Investment Fund Manager Division

(a) The President and Chief Executive Officer of the Filer has been registered as the UDP of the Filer since November 17, 2009 (the "Current UDP").

(b) The Current UDP is responsible of the product development and manufacturing activities of the Filer. Accordingly, he spearheads all activities of the Filer related to the creation and management of mutual funds, including all activities related to its independent committee, the preparation of all outbound documents of the Filer, and the distribution of the Filer's products within the external dealer distribution network of National Bank of Canada ("NBC"). As such, the Current UDP is responsible of promoting regulatory compliance within the Filer with respect to these activities.

(c) If the Exemption Sought is granted, the Filer intends to have the Current UDP continue to act as UDP of the Filer, but only with respect to its product development and manufacturing division (the "Investment Fund Manager Division").

(d) The CCO of the Filer has been registered as such under 31-103 since November 10, 2009 (the "Current CCO").

(e) The Current CCO oversees compliance in the manufacturing activities of the Filer. As such, she conceptualizes and implements compliance programs for the manufacturing of products of the Filer, including its back-office functions.

(f) If the Exemption Sought is granted, the Filer intends to have the Current CCO continue to act as CCO of the Filer, but only with respect to the Investment Fund Manager Division.

Mutual Fund Dealer Division

(g) The Executive Vice President and Chief of Distribution of the Filer is also a director of the Filer (the "Proposed Additional UDP").

(h) The Proposed Additional UDP is responsible for the product distribution activities of the Filer within the internal dealer distribution network of NBC. Accordingly, she spearheads all activities of the Filer related to its registered representatives, the implementation of a distribution network with a compliance supervision model for the 452 branches of the Filer, and the implementation of procedures pertaining to the validation of the suitability of transactions. As such, the Proposed Additional UDP is responsible of promoting regulatory compliance within the Filer with respect to these activities.

(i) If the Exemption Sought is granted, the Filer intends to have the Proposed Additional UDP registered as UDP of the Filer, but only with respect to its internal dealer distribution division (the "Mutual Fund Dealer Division").

(j) The filer has hired on September 27, 2010 an additional individual to fulfill the position of Chief Compliance Officer -- Mutual Fund Dealer Division of the Filer (the "Proposed Additional CCO").

(k) The Proposed Additional CCO oversees compliance in the distribution activities of the Filer. As such, her responsibilities include ensuring that the Filer's policies and procedures comply with applicable laws and regulations related to distribution activities, and that controls and surveillance routines are established and maintained adequately.

(l) If the Exemption Sought is granted, and upon the Proposed Additional CCO meeting the requirements set out in sections 3.6 and 3.14 of 31-103, the Filer intends to have the Proposed Additional CCO registered as CCO of the Filer, but only with respect to its Mutual Fund Dealer Division.

4. The Investment Fund Manager Division and the Mutual Fund Dealer Division each have separate and distinct senior management structures. Although they are part of the same corporate entity, each Division is functionally a stand-alone operation within the Filer's business.

5. There is currently only one UDP appointed and registered for both Divisions. If the Exemption Sought is granted, the Filer will keep its Current UDP for the Investment Fund Manager Division, and will appoint its Proposed Additional UDP for its Mutual Fund Dealer Division. The Current UDP and the Proposed Additional UDP will be the most senior executive member of each Division (for purposes of this application, the "Division Heads").

6. The Current UDP of the Filer holds the title of President and Chief Executive Officer ("CEO").

7. Despite the fact that only one of the Division Heads has the title of CEO, both Division Heads have equivalent roles to that of a CEO in respect of their Division. There is no line of reporting between the Division Heads. Each Division Head reports independently to different members of the senior management team of National Bank of Canada and each has direct access to the Filer's Board of Directors. No other executive officer of the Filer has authority to overrule a decision of the UDP or control the UDP's access to the Board of Directors of the Filer.

8. There is currently only one CCO responsible for both the Investment Fund Manager Division and the Mutual Fund Dealer Division. If the Exemption Sought is granted, the Filer will keep its Current CCO for the Investment Fund Manager Division, and will appoint its Proposed Additional CCO for its Mutual Fund Dealer Division once the Proposed Additional CCO has met the registration requirements set out in sections 3.6 and 3.14 of 31-103.

9. The CCO for each Division has, or will have, access to their Division Head and direct access to the Filer's Board of Directors, and reports, or will report, independently to the Filer's Board of Directors.

This decision is also based on the following facts represented by the Filer:

1. 31-103 was implemented on September 28, 2009.

2. Under paragraph 11.2(2) of 31-103, a registered firm is required to designate an individual to be UDP and the UDP must be: (i) the CEO or sole proprietor; (ii) an officer in charge of a division of a registered firm, if the activity that requires a firm to register occurs only in the division; or (iii) the equivalent of (i) or (ii) above of the registered firm (collectively, the "UDP Requirement").

3. Prior to the implementation of 31-103, there was no requirement under the securities legislation of any Filing Jurisdiction for a mutual fund dealer or an investment fund manager to designate an individual and have him or her registered as the UDP.

4. Designating only one UDP for purposes of satisfying the UDP Requirement would not be consistent with the policy objectives it is intended to achieve because the Current UDP and the Proposed Additional UDP for the Divisions are effectively the CEOs of their respective operation line.

5. Under paragraph 11.3(1) of 31-103, a registered firm is required to designate an individual to be the CCO (the "CCO Requirement").

6. Prior to the implementation of 31-103, there was a requirement under the securities legislation of many of the Filing Jurisdictions to designate a registered partner or officer as the "compliance officer" who was responsible for discharging the obligations of the registered firm under the applicable securities legislation.

7. In section 5.2 of Companion Policy 31-103 Registration Requirements and Exemptions, the Canadian Securities Administrators indicate that:

"Firms must designate one CCO. However, in large firms, the scale and kind of activities carried out by different operating divisions may warrant the designation of more than one CCO. We will consider applications, on a case-by-case basis, for different individuals to act as the CCO of a firm's operating divisions."

8. Designating only one CCO for purposes of satisfying the CCO Requirement would not be consistent with the policy objectives it is intended to achieve because the Investment Fund Manager Division and the Mutual Fund Dealer Division are independent operations that are distinct from one another in kind and conducted on a very large scale.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

(a) each Division shall each have its own UDP, who shall be its Division Head; and

(b) each Division shall each have its own CCO.

"Mario Albert"
Superintendent, Client Services,
Compensation and Distribution