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 and 15.1

March 27, 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 MERRILL LYNCH
PROFESSIONAL CLEARING CORP.
(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 dated October 21, 2011 (the Original Decision) so as to exempt the Filer from the requirement contained in section 13.12 [restriction on lending to clients] of National Instrument31-103 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 to the Existing Terms and Conditions of the Original Decision is in line with CSA Staff Notice 31-333 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 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 Alberta, British Columbia and Quebec (the Non-principal Jurisdictions, or together with the Jurisdiction,the Filing Jurisdictions).

Interpretation

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

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. Its head office is located at 222 Broadway 6th Floor, New York, NY 10036, U.S.A.

3. The Filer is a subsidiary of Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a wholly-owned subsidiary of Merrill Lynch & Co., Inc., which in turn is a wholly-owned subsidiary of Bank of America Corporation.

4. The Filer is registered as a restricted dealer, with terms and conditions including that it may only deal with permitted clients as defined in section 1.1 of NI 31-103, under the Legislation and under the securities legislation of the Non-principal Jurisdictions. As a restricted dealer under the securities legislation of the Filing Jurisdictions, the Filer is subject to the prohibition on lending money, extending credit or providing margin to a client in section 13.12 of NI 31-103.

5. The Filer is registered as a broker-dealer with the United States 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 U.S.A., 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.

6. The Filer is registered as a Futures Commission Merchant with the U.S. Commodity Futures Trading Commission, and is a member of the National Futures Association. Pursuant to these registrations, the Filer is authorized to handle customer orders and receive and hold customer margin deposits, and otherwise act as a futures broker, in the United States.

7. Services provided by the Filer to its clients include prime brokerage, securities financing, brokerage and clearing services to broker-dealers, introducing broker-dealers and other professional trading entities on a fully-disclosed basis. The Filer also trades as an option market maker on the International Securities Exchange.

8. 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 the Investment Industry Regulatory Organization of Canada (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".

9. The Filer is subject to regulations of the United States Federal Reserve, the SEC, FINRA, the New York Stock Exchange, the U.S. Commodity Futures Trading Commission and the National Futures Association as well as the relevant exchanges and markets regarding the lending of money, extension of credit and provision of margin to clients (the U.S. Margin Regulations) that provide protections that are substantially similar to the protections provided by the requirements regarding the lending of money, extension of credit and provision of margin to clients to which dealer members of IIROC are subject. In particular, the Filer is subject to the margin requirements imposed by the United States Federal Reserve, including Regulations T and X and under applicable SEC rules and the rules of the New York Stock Exchange. The Filer is in compliance in all material respects with all applicable U.S. Margin Regulations.

Decision

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 by the Filer is granted so long as:

(a) the head office and principal place of business of the Filer is in the United States;

(b) the Filer is registered under the securities legislation of the United States in a category of 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;

(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 are substantially similar to the capital and margin requirements of IIROC that would be applicable to the Filer if it were registered under NI 31-103 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