National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Trades by a U.S. registered broker dealer, an affiliate of an Ontario registered investment dealer whose shared premises are located in Ontario, exempted from requirements of paragraph 25(1) of the Act, for trades made to clients that are resident in the U.S.A., where the trade is made by the U.S. dealer (in its own right, or on behalf of clients that are resident in the U.S.) through individuals that are dealing representatives of both the U.S. dealer and the Ontario registrant -- Individuals must be appropriately registered to make the trade on behalf of the Ontario registrant if instead the Ontario registrant were making the trade to an Ontario resident.
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Foreign registered broker-dealer and its representatives exempted, subject to certain conditions, from the dealer, adviser and underwriter registration requirements and the prospectus requirements that permit dealing with individuals referred to in sections 2.1 and 3.1 of National Instrument 35-101 -- Conditional Exemption from Registration for United States Broker-Dealers and Agents, notwithstanding that the Filer has no principal office in the U.S., only has an office or other physical presence in Canada, and is not limited to trading in foreign securities.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(2), 25(3), 53.
National Instrument 35-101 Conditional Exemption from Registration for United States Broker-Dealers and Agents, ss. 2.1, 3.1.
April 12, 2013
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
MACQUARIE PRIVATE WEALTH INC. AND
MACQUARIE PRIVATE WEALTH CORP.
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for the Exemptions Sought, as defined below.
The Filers seek a decision, exempting:
(a) Macquarie Private Wealth Corp. (Macquarie US) and the individuals who are its dealing representatives or the equivalent, and who are also registered under the Legislation to trade on behalf of Macquarie Private Wealth Inc. (Macquarie Canada) as its dealing representatives (the Dual Representatives) from the dealer and dealer representative registration requirements under subsection 25(1) of the Legislation, respectively, where Macquarie US and the Dual Representatives act on behalf of Macquarie US in respect of certain trades in the Jurisdiction with, or on behalf of, clients that are resident in the United States (the US Clients); and
(b) Macquarie US and the Dual Representatives from the dealer/underwriter and dealer representative registration requirements under subsection 25(1) of the Legislation, the adviser and adviser representative registration requirements under subsection 25(3) of the Legislation and the prospectus requirement under section 53 of the Legislation so as to permit them to deal with an individual referred to in paragraph 2.1(c)(ii) and paragraph 3.1(d)(ii) of National Instrument 35-101(NI 35-101) -- Conditional Exemption from Registration for United States Broker-Dealers and Agents (NI 35-101 Clients), and so as to permit the Dual Representatives to act on behalf of Macquarie US in respect of trades in securities with or on behalf of NI 35-101 Clients, provided that such dealings are conducted in accordance with all terms and conditions of NI 35-101, save and except for the requirements that: (i) Macquarie US have its principal place of business in the United States, (ii) Macquarie US or its agents have no office or physical presence in any jurisdiction of Canada, and (iii) Macquarie US and the Dual Representatives trade in a foreign security (as defined in NI 35-101), such relief being collectively hereinafter referred to as the "Exemptions Sought".
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) The Ontario Securities Commission (the 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 Alberta, British Columbia and Quebec (the Passport Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
(a) Macquarie Canada is incorporated under the laws of the Province of Ontario. Its head office is located in Toronto, Ontario.
(b) Macquarie Canada is registered as an investment dealer under the Legislation or equivalent legislation of the Passport Jurisdictions and is a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).
(c) Macquarie Canada is not registered under United States securities laws to carry on the business of a registered broker dealer in the United States.
(d) Macquarie Canada does not trade in securities with or on behalf of US Clients (other than in respect of registered retirement savings plan accounts (RRSPs) held by US Clients who were formerly resident in Canada and who have moved to the United States with RRSPs).
(e) Macquarie US is a wholly-owned subsidiary of Macquarie Canada and was incorporated on March 3, 2000, under the laws of Ontario.
(f) Macquarie US and Macquarie Canada operate their head offices out of the same premises in Toronto, Ontario. Macquarie US does not currently have an office located in the United States. Wherever Macquarie US has an office in Canada, it operates out of the same premises as Macquarie Canada.
(g) Macquarie US is registered as a broker-dealer under the U.S. Securities Exchange Act of 1934, as amended (SEA), and is a member of the Financial Industry Regulatory Authority (FINRA).
(h) Each of the Dual Representatives is employed in one of the Filers' offices located in the Jurisdiction or the Passport Jurisdictions. In addition to being registered as a dealing representative of Macquarie Canada under the Legislation or equivalent legislation of the Passport Jurisdictions, each Dual Representative is registered as a registered representative of a FINRA member firm. There are no representatives of Macquarie US who are only registered with Macquarie US.
(i) Each of the Dual Representatives will act in either the Jurisdiction or one of the Passport Jurisdictions on behalf of Macquarie US in respect of providing trading services to US Clients and NI 35-101 Clients.
(j) Macquarie US expects that the amount of revenue derived from US Clients will represent approximately 1% of the revenue generated by Canadian clients of Macquarie Canada. If the revenue derived from US Clients exceeds 10% of the revenue generated from Canadian clients, the Filers will file forthwith a letter to the Commission advising of the same. The letter will refer to this decision document and this requirement, the percentage of the revenue derived from US Clients, and the date on which the revenue exceeded 10% of the revenue generated from Canadian clients. The letter will also refer to the date on which the exceeded revenue threshold was discovered.
(k) Some of the former US Clients of Macquarie US have moved to Canada with Individual Retirement Accounts (IRA Accounts) and wish to continue to place trades with Macquarie US in foreign securities (as defined in NI 35-101) as well as securities of issuers incorporated, continued or organized under the laws of Canada or a jurisdiction in Canada that are listed for trading or quoted on an exchange or market in Canada (collectively,Canadian Securities), with or for their IRA Accounts.
(l) NI 35-101 provides for exemptions from the registration requirements and prospectus requirement for U.S. broker-dealers and their agents trading with or for NI 35-101 Clients, upon satisfying certain conditions.
(m) It is a condition of the exemption for U.S. broker-dealers to have a principal place of business located in the United States. Macquarie US is unable to rely on NI 35-101 since it does not currently have a principal place of business located in the United States.
(n) It is a condition of the exemption for U.S. broker-dealers in clause (a) of Section 2.1 of NI 35-101 and for their agents in clause (b) of Section 3.1 of NI 35-101, that the broker dealer and the agent have no office or other physical presence in any jurisdiction in Canada. Macquarie US is unable to rely on NI 35-101 as it has an office or other physical presence in Canada as a result of its Toronto, Ontario head office and other Canadian offices.
(o) It is a further condition of the exemption for U.S. broker-dealers and their agents to trade only in foreign securities (as defined in NI 35-101). NI 35-101 Clients, who are now resident in Canada, wish to place trades with Macquarie US in both foreign securities and Canadian securities. Accordingly, Macquarie US and the Dual Representatives wish to trade in both foreign securities and Canadian Securities on behalf of such NI 35-101 Clients.
(p) Macquarie US will not trade in securities with or on behalf of persons who are resident in Canada other than the NI 35-101 Clients.
(q) Dual Representatives will not, on behalf of Macquarie US, solicit or contact clients that are resident or located in Canada other than the NI 35-101 Clients.
(r) The trading services offered to the NI 35-101 Clients is ancillary to Macquarie US' principal business.
(s) Where Macquarie US and the Dual Representatives trade with or on behalf of US Clients and NI 35-101 Clients, they will comply with all applicable United States securities laws in respect of those trades.
(t) Macquarie US will file with the Commission such reports as to its trading activities as the Commission may require from time to time. For purposes of the Legislation, and as a market participant, each of the Filers is required by subsection 19(1) of the Legislation to: (i) keep such books, records and other documents as are necessary for the proper recording of its business transactions and financial affairs, and the transactions that it executes on behalf of others; and (ii) keep such books, records and documents as may otherwise be required under the Legislation.
(u) All US Clients and NI 35-101 Clients of Macquarie US will enter into a customer agreement and associated accounting opening documentation with Macquarie US. All communications with US Clients and NI 35-101 Clients will be through Macquarie US and will be under Macquarie US branding.
(v) All US Clients will be advised at the time they enter into a customer agreement with Macquarie US (and periodically thereafter) that, if they reside in Canada, their accounts (other than their IRAs) must be transferred to Macquarie Canada or any other investment dealer registered under the Legislation.
(w) To avoid client confusion, all US Clients will also receive disclosure that explains the relationship between Macquarie US and Macquarie Canada.
(x) In addition, Macquarie US will describe in disclosure provided to US Clients at the time of account opening with Macquarie US (and annually thereafter) how US Clients may enforce any legal rights, arising out of, related to, or concerning Macquarie US' activities in the Jurisdiction or Passport Jurisdictions. The disclosure must also include a statement that Macquarie US is resident outside of the United States; Macquarie US is not registered as a dealer under the Legislation, and accordingly, the protection available to clients of a dealer registered under the Legislation will not be available to US Clients.
(y) The Filers were acquired by Macquarie Bank Limited on December 31, 2009, following which most of the senior management of the Filers was replaced with the current management team. The current management team had believed that the Filers had previously obtained the relief contained in the Exemptions Sought, and has acted in reliance upon such belief. It has since come to the attention of the current management of the Filers that such relief may not have been obtained, and the Filers now seek to address this by applying for the relief sought herein.
(z) Subject to paragraph (y), to the best of its knowledge, Macquarie US is not in default of Canadian securities laws.
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 Exemptions Sought are granted provided that:
(a) Macquarie Canada remains registered under the Legislation as an investment dealer and is a dealer member of IIROC;
(b) Macquarie US remains registered as a broker-dealer under the SEA and is a member of FINRA;
(c) Macquarie US and each of the Dual Representatives are in compliance and remain in compliance with any applicable dealer licensing or registration requirements under applicable securities legislation of the United States;
(d) When providing trading services for the benefit of NI 35-101 Clients, Macquarie US and the Dual Representatives will comply with all terms and conditions of NI 35-101 except for the requirements that:
i. Macquarie US has no office or physical presence in any jurisdiction of Canada;
ii. Macquarie US has its principal place of business located in the United States;
iii. Macquarie US and the Dual Representatives trade only in foreign securities.
(e) The relief granted with respect to trading services on behalf of NI 35-101 Clients will cease to be effective in a jurisdiction on the same date that rule amendments are made effective in the jurisdiction to the equivalent exemptions that are presently provided for in NI 35-101 where such amendments materially affect the subject matter of this decision, in respect of any such trading or advising activities of Macquarie US or the Dual Representatives carried out after that effective date.