National Bank Financial Inc. and National Bank Financial Ltd.

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 -- 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 all current and future representatives.

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.

December 12, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(THE "JURISDICTIONS")

AND

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NATIONAL BANK FINANCIAL INC.

("NBFI")

AND

NATIONAL BANK FINANCIAL LTD.

("NBFL" and, together with NBFI, 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 decisions under the securities legislation of the Jurisdictions (the "Legislation") for relief from the restriction contained in paragraph 4.1(1)(b) of Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations ("31-103") that the Filers must not permit their respective current and future registered dealing representatives to act as dealing representatives of their firm if such dealing representatives are registered as dealing representatives of the other Filer, and instead seeks to be allowed to permit their respective registered current and future dealing representatives to act as dealing representatives of their firm if such dealing representatives are registered as dealing representatives of the other Filer (the "Exemption Sought").

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

(a) the Autorité des marchés financiers ("AMF") is the principal regulator of NBFI and the Ontario Securities Commission ("OSC") is the principal regulator of NBFL for this application;

(b) the Filers have provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System ("11-102") is intended to be relied upon in all of the other Canadian jurisdictions (all such jurisdictions together with the provinces of Québec and Ontario, the "Filing Jurisdictions"); and

(c) the decisions are the decisions of the principal regulators and evidence the decisions of the securities regulatory authority or regulator in all Canadian jurisdictions.

Interpretation

Terms defined in 11-102 and Regulation 14-101 respecting Definitions have the same meaning if used in these decisions, unless otherwise defined.

Representations

These decisions are based on the following facts represented by the Filers:

1. NBFI was incorporated and is a subsisting corporation under the laws of the Province of Québec. NBFI is an indirectly wholly-owned subsidiary of National Bank of Canada ("National Bank"), a Schedule I Canadian chartered bank. NBFI is registered in the category of "investment dealer" in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Québec, Saskatchewan and Yukon. NBFI is also registered in the category of "futures commission merchant" in Ontario and in the category of "derivatives dealer" in Québec. NBFI is a member of the TSX Venture Exchange, the Canadian National Stock Exchange and the Montreal Exchange, a "participating organization" of the Toronto Stock Exchange, and a "dealer member" of the Investment Industry Regulatory Organization of Canada ("IIROC").

2. NBFL was incorporated and is a subsisting corporation under the laws of the Province of Ontario. NBFL is a wholly-owned subsidiary of NBFI and, as a result, is also an indirectly wholly-owned subsidiary of National Bank. NBFL is registered in the category of "investment dealer" in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Saskatchewan and Yukon. NBFL is also registered in the category of "futures commission merchant" in Manitoba and Ontario and in the category of "investment fund manager" in Ontario. NBFL is a "dealer member" of IIROC.

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

4. For various business and other reasons, National Bank has historically caused, and continues to require, the full-service securities brokerage businesses of its subsidiaries to be carried out through two registrants whereby, in certain Canadian jurisdictions, the retail brokerage business is carried out through one registrant and the institutional brokerage business is carried out through a second registrant. Currently, this is reflected through the respective businesses of the Filers as follows:

a) all institutional brokerage business of the Filers is carried out through NBFI;

b) retail brokerage business in all jurisdictions other than the provinces of Québec and New Brunswick is carried out through NBFL; and

c) retail brokerage business in the provinces of Québec and New Brunswick is carried out through NBFI.

5. For purposes of discharging their obligations under applicable securities legislation, stock exchange requirements and IIROC requirements, the Filers have been, and continue as of the date of this application to be, considered in all material respects as a combined entity, including:

a) for reporting purposes and regulatory capital adequacy purposes, the Filers prepare a single monthly financial report in which their net capital is computed on a joint basis;

b) a single statement of policies governs each of the Filers; and

c) in compliance with IIROC requirements, the respective obligations of the Filers are cross-guaranteed.

6. Each of the Filers carries on business under the name "National Bank Financial". It is on this basis that clients deal with each of the Filers.

7. Consistent with the foregoing, National Bank Financial has established a fully harmonized compliance organization that oversees the operations and activities of both Filers in accordance with National Bank Financial's two distinct lines of securities business, which are based on the nature of the clients served: an "Institutional" division and a "Retail" division:

a) The Institutional division forms part of the Financial Markets group of National Bank Financial Group, and consists of fixed income, institutional equities, corporate and investment banking, and certain derivatives and proprietary trading businesses. The rest of the Financial Markets group includes specialty finance and US merchant banking. The Financial Markets group includes two support units, being Corporate Development and Governance and Business Strategy Management;

b) The Retail division forms part of the Wealth Management group of National Bank Financial Group, and provides discretionary managed and non-discretionary advisory and other wealth management related services to retail clients through both Filers. The Wealth Management group is also supported by Corporate Development and Governance;

c) Although the Filers together form National Bank Financial through their operations and activities, the Institutional and Retail divisions have separate and distinct senior management structures with each a co-President and co-Chief Executive Officer ("co-CEO"), each of which reports independently to the Chief Executive Officer of National Bank and has final authority to effect decisions in respect of its division.

d) in addition, there is a separate compliance department with its own Chief Compliance Officer ("CCO") for each of the Institutional division and Retail division, and each CCO has access to its co-CEO. Note that on August 24, 2010, the Filers obtained from the AMF and the OSC a exemption notably from section 11.3 of 31-103 in order to permit the Filers to name two (2) CCOs for each of the Institutionnal and Retail divisions.

e) With respect to institutional client compliance matters, the CCO of the Institutional division heads an institutional compliance department which is supported by eleven (11) compliance officers, analysts and managers. National Bank Financial's institutional compliance department supervises all institutional activity for National Bank Financial;

f) With respect to retail client compliance matters, the CCO of the Retail division heads a retail compliance department which is supported by thirty (30) compliance officers, analysts and managers. The retail compliance department of National Bank Financial supervises all retail activity for this entity, irrespective of whether such activity is conducted through NBFI or NBFL; and

g) The National Bank Financial compliance structure has been designed to ensure that all activities conducted by National Bank Financial, whether relating to retail client trading or institutional client trading, are supervised according to the requirements established by all applicable regulatory bodies and self-regulatory organizations, irrespective of which of the Filers is conducting the subject activity.

8. National Bank Financial's compliance structure has been in place for a significant period and, accordingly, the persons responsible for compliance for the Filers are particularly sensitive to, and well structured to effectively monitor and address, the respective compliance obligations of the Filers relating to institutional client trading on the one hand and retail client trading on the other hand.

9. The Filers require the Exemption Sought because the structure of National Bank Financial does not allow for their registered dealing representatives to take full advantage of the business opportunities available to them, for the following reasons:

a) certain registered dealing representatives of NBFL have opportunities to market their services to retail clients in Québec and New-Brunswick, where NBFI is duly registered but not NBFL;

b) certain registered dealing representatives of NBFI have opportunities to market their services to retail clients in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Saskatchewan and Yukon, where NBFI does not offer any retail brokerage business services, contrarily to NBFL; and

c) certain registered dealing representatives can, as a practical matter, successfully establish accounts for both retail and institutional clients (and, in certain cases, have done so during their tenure as dealing representatives of other registrants). In most jurisdictions, such individuals could only do so through being a registered dealing representative with both NBFI (through which institutional brokerage business is carried out) and NBFL (through which retail brokerage business is carried out).

10. On October 11, 2002, the Filers obtained from the OSC, on their behalf and on behalf of their current and future registered dealing representatives, exemptions from certain of the "dual" registration restrictions of OSC Rule 31-501 -- Registrant Relationships and subsection 127(1) of Ontario Regulation 1015 -- General Regulation made under the Securities Act (Ontario), to the extent that such subsection would be interpreted to restrict dual registration of dealing representatives (the "OSC Exemptive Relief").

11. At the time the Filers obtained the OSC Exemptive Relief, the province of Ontario was the only Canadian jurisdiction which securities legislation provided that no person registered as a salesperson of a registered firm could act or be registered as a director, partner or officer of the registrant or as a salesperson, officer, partner or director of another registered firm.

12. The OSC Exemptive Relief remains valid in Ontario.

13. The National Bank Financial operational structure, which has always been organized in two distinct full-service investment dealer firms, is based on business, historical and other reasons. This operational structure has not been modified by the Filers in connection with the implementation of 31-103. The Filers now seek to ensure that the National Bank Financial operational structure remains aligned with its business model while effectively meeting the policy objectives of 31-103.

14. 31-103 was implemented on September 28, 2009.

15. On July 11, 2011, certain amendments were made to section 4.1 of 31-103, notably on subsection 1)b), whereby a registered firm must not permit an individual to act as a registered dealing representative of the registered firm if the individual is registered as a dealing representative of another registered firm.

16. As provided under subsection 4.1(2) of 31-103, the foregoing restriction does not apply in respect of a representative whose registration as a dealing representative of more than one registered firm was granted before July 11, 2011.

17. Prior to 31-103, except in the province of Ontario, there was no restriction under the securities legislation of any of the Filing Jurisdiction for a registered firm not to permit an individual to act as a registered dealing representative of the registered firm if the individual is registered as a dealing representative of another registered firm.

Decisions

Each of the Decision Makers is satisfied that the decisions meet the test set out in the Legislation for the Decision Makers to make the decisions.

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

(a) the circumstances described in paragraphs 5, 6 and 8 above remain in place; and

(b) the Filers comply with all requirements of IIROC from time to time for permitting such dual registration.