Securities Law & Instruments

Headnote

Filer exempted from section 13.12 [restriction on lending to clients] of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Variation of a previous order to extend time limitation in line with CSA Staff Notice 31-333 Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category -- The filer is registered as a restricted dealer on terms and conditions -- The filer is a registered broker-dealer with the SEC and a member of FINRA -- Terms and conditions on the exemptions require that: (i) the head office or principal place of business of the filer be in the USA; (ii) the filer be registered under the securities legislation of the USA in a category of registration that permits it to carry on the activities in the USA that registration as an investment dealer would permit it to carry on in Ontario, (iii) by virtue of the securities legislation of the USA, the filer is subject to requirements in respect of lending money, extending credit or providing margin to clients that result in substantially similar regulatory protections to those provided for under the capital and margin requirements of IIROC, that would be applicable if the filer if it were registered under the Act as an investment dealer and were a member of IIROC.

Instruments Cited

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

National Instrument 14-101 Definitions.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.12, 15.1.

March 22, 2013


IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
BNP PARIBAS PRIME BROKERAGE, INC.
(the Filer)
DECISION



Background

The principal regulator in the Jurisdiction has received a further application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) to extend the existing terms and conditions (the Existing Terms and Conditions) placed on the Filer's registration under the Legislation as a restricted dealer pursuant to a decision of the Director (the Original Decision) so as to exempt the Filer from the requirement contained in section 13.12 [restriction on lending to clients] of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that a registrant must not lend money, extend credit or provide margin to a client (the Exemption Sought). The extension of the Existing Terms and Conditions of the Original Decision is in line with CSA Staff Notice Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category.

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

(a) the Ontario Securities Commission is the principal regulator for this Application, and

(b) the Filers have 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 and Quebec.

Interpretation

Unless otherwise defined in this decision or the context otherwise requires, terms used in this decision that are defined in NI 31-103 have the same meaning, and other terms used in this decision that are defined in National Instrument 14-101 Definitions, MI 11-102 or the Original Decision have the same meaning.

Representations

This decision is based on the same representations made by the Filer in the Original Decision and which remain true and complete and for convenience are repeated below:

1. Pursuant to the Original Decision, the Filer is exempt from the requirement contained in section 13.12 of NI 31-103 that a registrant must not lend money, extend credit or provide margin to a client, provided that it complies with the Existing Terms and Conditions.

2. The Filer is a corporation incorporated under the laws of the State of Delaware, USA and its head office and principal place of business are located in New York, New York, USA.

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). This registration permits the Filer to carry on in the USA, being its home jurisdiction, substantially similar activities that registration as an investment dealer would authorize it to carry on in the Jurisdiction if the Filer were registered under the Legislation as an investment dealer.

4. The Filer is engaged primarily in providing prime brokerage services to investment funds.

5. The Filer routinely lends money, extends credit and provides margin to its clients in connection with, and as an integral part of, its prime brokerage services. These services are provided in order to facilitate, among other things, the purchase and short-selling of securities by clients.

6. The Filer is subject to regulations of the Board of Governors of the U.S. Federal Reserve System (the Board), FINRA and the SEC 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 under Regulation T promulgated by the Board, under the Securities Exchange Act of 1934, as supplemented by FINRA Rule 4210.

7. The Filer is registered, or has applied to be registered, as a restricted dealer in Ontario, British Columbia and Quebec.

8. Once registered under the Legislation the Filer will be subject to the prohibition contained in s. 13.12 of NI 31-103 on lending money, extending credit or providing margin to a client.

9. 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 certain 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".

Decision

The principal regulator is satisfied that this 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 so long as:

(a) the head office or principal place of business of the Filer is in the USA;

(b) the Filer is licensed or registered under the securities legislation of the USA, in a category of licensing or registration that permits it to carry on the activities in the USA 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.

It is further the decision of the principal regulator that, in line with CSA Staff Notice 31-333 Follow-Up to Broker-Dealer Registration in the Exempt Market Dealer Category, the Exemption Sought shall expire on the date that is the earlier of:

(a) The date on which amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations come into force limiting brokerage activities in which exempt market dealers or restricted dealers engage; and

(b) December 31, 2014.

"Erez Blumberger"
Deputy Director, Compliance & Registrant Regulation
Ontario Securities Commission