National Bank Direct Brokerage Inc. and NBCN Inc.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm -- individuals will engage in the same activities with the same clients but only through a different entity for a limited period of time to facilitate the transition of client accounts -- policies in place to handle potential conflicts of interest -- clients provided disclosure regarding the transition of client accounts and relationship between the Filers -- Filers (who are large bank-owned investment dealers with institutional and retail businesses) exempted from prohibition for a limited period of time

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.

November 1, 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 DIRECT BROKERAGE INC.

(NBDB)

AND

NBCN INC.

(NBCN, and, together with NBDB, the Filers)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement in paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103) to permit a group of individuals identified in Schedule "A" (collectively, the Representatives) to each be registered as both a dealing representative of NBDB and a dealing representative of NBCN (the Dual Registration) for a limited period of time to facilitate the transfer of the portfolio management business (the PM Business) of NBDB to NBCN (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 Filers have provided notice that subsection 4.7(1) of Multilateral Instrument Passport System (11-102) is intended to be relied upon by the Filers in each jurisdiction of 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 National Instrument 14-101 Definitions and 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

The decision is based on the following facts represented by the Filers:

1. NBDB is registered as a dealer in each jurisdiction of Canada (except Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon) in the category of investment dealer and is also registered as a derivatives dealer in Québec. NBDB is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and has its head office in Québec.

2. NBCN is registered in each jurisdiction of Canada as a dealer in the category of investment dealer and as a derivatives dealer in Québec. NBCN is a member of IIROC and has its head office in Ontario.

3. Each of the Filers is an indirectly wholly-owned subsidiary of National Bank of Canada (NBC), a Schedule I Canadian chartered bank.

4. The Filers are not, to the best of their knowledge, in default of any requirement of securities legislation in any of the Filing Jurisdictions.

5. NBDB currently offers discount brokerage services to a wide range of clients including portfolio managers, all of which are served through the specialized NBDB Institutional Services team. A decision has been made between the two affiliated dealers, NBDB and NBCN, to transfer the PM Business from NBDB to NBCN. The Filers intend to implement the transfer in two phases commencing on or about October 31, 2011, and anticipate that the transfer of all clients (approximately 90% are resident in Québec) will be completed by no later than April 30, 2012.

6. Each of the Representatives is currently registered as a dealing representative of NBDB in one or more of the Filing Jurisdictions and is resident in Québec. Each Representative is expected to remain resident in Québec after the transfer of the PM Business.

7. In connection with the proposed transfer of the PM Business from NBDB to NBCN, the Filers are proposing to transfer the registration of the Representatives from NBDB to NBCN. To facilitate the transfer of the PM Business, the intention is that the Representatives will be registered with both Filers for a limited period of time while they are involved with the transition of clients from NBDB to NBCN. The Dual Registration is required to allow the Representatives to continue to service clients while their accounts transition from NBDB to NBCN.

8. The PM Business will be carried on through NBCN in a manner that is similar in all material respects to the manner it is currently carried on through NBDB. While registered through both NBDB and NBCN, the Representatives will be engaging in the same types of activities that they currently carry on solely through NBDB and will do so with the same clients that they currently work with through NBDB. Accordingly, the Filers do not expect that the Dual Registration will create any additional work for the Representatives other than the work associated with the transition of clients to NBCN, and are comfortable that the Representatives will continue to have sufficient time to adequately serve both firms.

9. Each client will receive correspondence within a reasonable period of time prior to the proposed transfer describing the proposed transfer and the manner in which the transfer of the client's account(s) will be completed. Each retail client will receive a letter explaining the roles of NBDB and NBCN including confirmation that all terms and conditions of the clients' client agreements and contracts with NBDB will be honoured by NBCN (in accordance with an exemption from IIROC, NBCN will re-document each retail client's account when the proposed Client Relationship Model is implemented by IIROC). In addition, a letter will be sent to all retail clients with their November 2011 end of month statements, issued by both NBDB and NBCN, to confirm that these retail clients' accounts were transferred from NBDB to NBCN on November 1, 2011 and that their relationship is now solely with NBCN going forward. Non-retail clients of NBDB will attend a meeting where the advantages of the transfer of the PM Business to NBCN are outlined. The transfer of the PM Business in respect of the non-retail clients will be completed by having each non-retail client sign a new client agreement with NBCN prior to the date that their non-retail client accounts are transferred to NBCN (the expected transfer date is on or about December 14, 2011).

10. During the transition period, the Representatives will be subject to supervision by, and the applicable compliance requirements of, both Filers. Existing compliance and supervisory structures will apply depending on which regulatory entity the client assets are held with.

11. The Filers are each indirectly wholly-owned subsidiaries of NBC and accordingly, the Dual Registration will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm's length firms.

12. The Filers have in place policies and procedures to address conflicts of interest that may arise as a result of the Dual Registration, and believe that they will be able to appropriately deal with these conflicts.

13. In the absence of the Exemption Sought, the Filers would be prohibited from permitting a Representative to act as a dealing representative of NBCN while the individual is a dealing representative of NBDB even though NBCN is an affiliate of NBDB.

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 Maker under the Legislation is that the Exemption Sought is granted provided that the Exemption Sought expires on April 30, 2012.

"Patrick Déry"
Superintendant, Client Services,
Compensation and Distribution
Autorité des marchés financiers

 

Schedule "A"

List of Representatives

Diane Blain
Steve Blouin
Giovanni Panepinto
Éric-Olivier Savoie