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 institutional clients that are resident in the U.S., where the trade is made by the U.S. dealer (in its own right, or on behalf of institutional clients that are resident in the U.S.) through individuals that are dealing representatives of both the U.S. dealer and the Ontario registrant -- Head Office of the U.S. registered broker dealer is in the U.S. and it relies on the international dealer exemption under section 8.18 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) -- Advice provided to clients under section 34(1) of the Act and section 8.25(2) of NI 31-103 -- 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.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 34(1).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 8.18, 8.25(2).
July 23, 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
BMO CAPITAL MARKETS CORP.
IN THE MATTER OF
BMO NESBITT BURNS INC.
The principal regulator in the Jurisdiction has received an application from BMO Capital Markets Corp. (CMC) and BMO Nesbitt Burns Inc. (NBI) (collectively, the Filers) for a decision under the securities legislation of the Jurisdiction (the Legislation), exempting CMC and the individuals who are dealing representatives or the equivalent of CMC, and who are also registered under the Legislation to trade on behalf of NBI as its dealing representatives (CMC Dual Representatives) from the dealer and dealer representative registration requirements under subsection 25(1) of the Legislation, respectively, where CMC and the CMC Dual Representatives act on behalf of CMC in respect of certain trades in the Jurisdiction with, or on behalf of, institutional customers within the meaning of the Investment Industry Regulatory Organization of Canada (IIROC) Dealer Member Rule 1.1 (such clients of CMC which deal with CMC Dual Representatives, the U.S. Institutional Clients) that are resident in the United States (U.S.) (the Exemption 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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador (collectively, 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:
1. CMC 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). CMC is not a registered investment dealer in any jurisdiction in Canada.
2. CMC is incorporated under the laws of Delaware with its head office in New York. Its client base consists only of institutional clients. It relies on the international dealer exemption in section 8.18 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) in the Jurisdiction and the Passport Jurisdictions.
3. CMC is an affiliate of NBI, which is registered as a dealer under the Legislation or equivalent legislation of the Passport Jurisdictions in the category of investment dealer and is a dealer member of IIROC. NBI's head office is located in Toronto, Ontario.
4. NBI is not registered under applicable U.S. securities laws to carry on the business of a registered broker dealer in the U.S.
5. NBI does not trade in securities with or on behalf of the U.S. Institutional Clients.
6. CMC is also an affiliate of BMO Nesbitt Burns Securities Ltd. (NBSL).
7. NBSL is a corporation incorporated under the laws of Canada with its head office in Toronto, Ontario. It is registered as a broker-dealer under the SEA, and is a member of FINRA. NBSL is not a registered investment dealer in any jurisdiction in Canada.
8. NBSL is a vehicle for trading in securities with or on behalf of U.S. resident clients and NI 35-101 Clients, as defined below.
9. On April 11, 2012, a decision (the NBSL Decision) was issued by the Commission exempting:
(i) NBSL and its dealing representatives from the dealer registration requirement in respect of trades in securities in the Jurisdiction on behalf of NBSL by dealing representatives of NBSL, who are also registered under the Legislation to trade on behalf of NBI (the NBSL Dual Representatives), with U.S. resident clients; and
(ii) NBSL from the dealer/underwriter and adviser registration requirements and prospectus requirement so as to permit it to deal with an individual referred to in paragraphs 2.1 and 3.1 of National Instrument 35-101 (NI 35-101) Conditional Exemption from Registration for United States Broker-Dealers and Agents (NI 35-101 Clients) and to permit the NBSL Dual Representatives to act on behalf of NBSL in respect of trades in securities with or on behalf of NI 35-101 Clients, provided that such dealings are conducted in accordance with NI 35-101, save and except for the requirement that NBSL has no office or physical presence in any jurisdiction of Canada.
10. Each of CMC, NBI and NBSL are wholly-owned indirect subsidiaries of Bank of Montreal.
11. NBSL is currently servicing: (i) U.S. retail clients (i.e. U.S. resident clients that are not U.S. Institutional Clients), (ii) U.S. Institutional Clients and (iii) NI 35-101 Clients.
12. In connection with the reorganization of certain U.S. business lines, each of CMC, NBSL and NBI wish to move the U.S. Institutional Clients from NBSL to CMC, such that CMC will service only the U.S. Institutional Clients and NBSL will service only: (i) U.S. retail clients and (ii) NI 35-101 Clients.
13. Further to the aforementioned reorganization of certain U.S. business lines, each of CMC, NBSL and NBI wish to transfer certain personnel from NBSL to CMC, such that the NBSL Dual Representatives who are servicing the U.S. Institutional Clients will cease to be dealing representatives of NBSL and will become CMC Dual Representatives. In all cases, the dealing representatives being transferred from NBSL to CMC will be continue to be dealing representatives of NBI.
14. The principal reason for which CMC and the CMC Dual Representatives will be servicing the U.S. Institutional Clients is to provide the U.S. Institutional Clients with access to the Canadian stock exchanges.
15. The NBSL Dual Representatives who are servicing the U.S. retail clients and the NI 35-101 Clients will remain NBSL Dual Representatives. Each of the NBSL Dual Representatives will continue to be registered under the Legislation or equivalent legislation of the Passport Jurisdictions as a dealing representative of NBI in order to provide trading services to retail clients of NBI.
16. Each of the CMC Dual Representatives will be employed in one of NBI's offices located in the Jurisdiction or the Passport Jurisdictions.
17. Each of the CMC Dual Representatives will be registered under the Legislation or equivalent legislation of the Passport Jurisdictions as a dealing representative of NBI in order to provide trading services to institutional clients of NBI.
18. The CMC Dual Representatives will act primarily for NBI, but may also act in the Jurisdiction or one of the Passport Jurisdictions on behalf of CMC, a FINRA member firm, in order to provide trading services to the U.S. Institutional Clients only.
19. There are no dealing representatives of CMC in the Jurisdiction or the Passport Jurisdictions who will only be registered with CMC.
20. CMC and the CMC Dual Representatives will not provide any investment advice to the U.S. Institutional Clients, other than in accordance with the exemptions from the adviser registration requirement set out in section 34(1) of the Legislation in the Jurisdiction and section 8.25(2) of NI 31-103 in the Passport Jurisdictions.
21. CMC and the CMC Dual Representatives will not provide any portfolio management services to the U.S. Institutional Clients.
22. Where CMC and the CMC Dual Representatives trade with or on behalf of the U.S. Institutional Clients, they will comply with all applicable U.S. securities laws in respect of those trades.
23. The CMC Dual Representatives will not, when acting on behalf of CMC, solicit or contact clients that are resident or located in Canada.
24. CMC will not trade in securities with or on behalf of persons or entities who are resident in Canada at its offices located in the Jurisdiction or the Passport Jurisdictions.
25. NBI and NBSL operate their head offices out of the same premises in Toronto, Ontario. Wherever CMC has an office in Canada, it will operate out of the same premises as NBI and NBSL.
26. All the U.S. Institutional Clients of CMC will enter into a customer agreement and associated account opening documentation with CMC. All communications with the U.S. Institutional Clients will be through CMC and will be under CMC branding.
27. All the U.S. Institutional Clients will be advised at the time they enter into a customer agreement with CMC (and periodically thereafter) that, if they reside in Canada, their accounts must be transferred to NBI or any other investment dealer registered under the Legislation.
28. To avoid client confusion, all the U.S. Institutional Clients will also receive disclosure that explains the relationship between CMC and NBI.
29. CMC expects that the amount of revenue derived from the U.S. Institutional Clients will represent less than 1% of the revenue generated by Canadian clients of NBI. If the revenue derived from the U.S. Institutional Clients exceeds 10% of the revenue generated from Canadian clients of NBI, 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 the U.S. Institutional Clients, and the date on which the revenue exceeded 10% of the revenue generated from Canadian clients of NBI. The letter will also refer to the date on which the exceeded revenue threshold was discovered.
30. CMC 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.
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 is granted, provided that:
a. NBI remains registered under the Legislation as an investment dealer and is a dealer member of IIROC;
b. CMC remains registered as a broker-dealer under the SEA and is a member of FINRA; and
c. CMC and each of the CMC Dual Representatives are in compliance and remain in compliance with any applicable dealer licensing or registration requirements under applicable securities legislation of the U.S.
July 23, 2013