Securities Law & Instruments

Headnote

US broker-dealer registered as portfolio manager in Ontario -- Relief granted to filer permitting it to file SEC Form X-17a-5 (FOCUS Report) in lieu of Form 31-103F1 -- Representation that the filer will, in the event that it provides a guarantee of any debt of a third party, deduct the total amount of the guarantee from its excess net capital on the FOCUS Report, consistent with the requirements of SEC Rule 15c3-1 -- Exemption granted from requirement to prepare financial statements on an audited unconsolidated basis -- Exemption granted from requirements to provide annual financial statements on a comparative basis and that at least one director sign the statement of financial position -- Filer to deliver the annual financial statements that it files with the SEC and FINRA -- Filer must append audited supplemental information to annual audited financial statements that corresponds with line 3480 through to and including line 3910 "Computation of Net Capital" in the FOCUS Report and the auditor's report relating to the Filer's financial statements expresses an unmodified opinion on the supplemental information -- Exemption Sought shall expire on December 31, 2014.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 12.1, 12.13, 15.1.

National Instrument 52-107 Acceptable Accounting Principles and Accounting Standards, ss. 3.15, 5.1.

October 1, 2013

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
ROBERT W. BAIRD & CO. INCORPORATED
(the Filer)

DECISION

Background

The Ontario Securities Commission (the Commission) has received an application from the Filer (the Application) for a decision under the securities legislation of Ontario (the Legislation) exempting the Filer from

(i) the requirements of section 12.1 Capital Requirements (Section 12.1) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that the Filer maintain excess working capital calculated using Form 31-103F1 Calculation of Excess Working Capital (Form 31-103F1); and

(ii) the requirements of section 12.13 Delivering financial information -- adviser of NI 31-103, that the Filer deliver a completed Form 31-103F1 showing the calculation of its excess working capital as at the end of the financial year and as at the end of the immediately preceding financial year;

so long as the Filer calculates its excess net capital using the U.S. Securities and Exchange Commission (SEC) Form X-17a-5 (the FOCUS Report) and delivers the FOCUS Report in lieu of delivering Form 31-103F1 as required by NI 31-103 (the FOCUS Report Relief) and for so long as the Filer is subject to SEC Rule 15c3-1 Net Capital Requirements for Brokers or Dealers (Rule 15c3-1) and SEC Rule 17a-5 Reports to be Made by Certain Brokers and Dealers (Rule 17a-5); and

(iii) the requirements of subsection 3.15(b) Acceptable Accounting Principles for Foreign Registrants of National Instrument 52-107Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements be prepared in accordance with U.S. GAAP, except that any investments in subsidiaries, jointly controlled entities and associates must be accounted for as specified for separate financial statements in International Accounting Standard 27 Consolidated and Separate Financial Statements (IAS 27); and

(iv) the requirements of section 12.10Annual financial statements of NI 31-103 that the Filer prepare a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and a statement of financial position for the financial year immediately preceding the most recently completed financial year and that at least one director of the Filer sign the Filer's statement of financial position;

so long as the Filer delivers to the regulator the annual audited financial statements that it files with the SEC and FINRA (the Financial Statements Relief, and, together with the Focus Report Relief, the Exemption Sought).

Interpretation

Terms defined in National Instrument 14-101 Definitions and NI 52-107 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation formed under the laws of the State of Wisconsin. The head office of the Filer is located in Milwaukee, Wisconsin.

2. The Filer provides wealth management, capital markets, private equity, and asset management services to individuals, corporations, institutional investors, and municipalities in the United States.

3. The Filer is registered as a broker-dealer and an investment adviser with the SEC and is a member of the Financial Industry Regulatory Authority (FINRA). The Filer is a member of the NASDAQ Stock Market, NYSE MKT LLC, BATS Z-Exchange, Inc., BATS Y-Exchange Inc. and the New York Stock Exchange.

4. The Filer is registered as a portfolio manager in Ontario. The Filer is not currently registered in any other capacity in any Canadian jurisdiction. The Filer does not currently rely on its registration as a Portfolio Manager for any activities in Canada.

5. The Filer relies on the international dealer exemption under section 8.18 of NI 31-103 in Ontario, Alberta, British Columbia, Quebec and Manitoba. The Filer is in compliance with the conditions of the international dealer exemption in NI 31-103 and the fee requirement for entities relying on the international dealer exemption under OSC Rule 13-502 Fees.

6. With the decision of the Director under the Legislation to grant the Exemption Sought the Filer will not be in default of the requirements of the Legislation.

7. Under NI 31-103, the Filer is required to calculate its excess working capital using Form 31-103F1.

8. The Filer is subject to regulatory capital requirements under the Securities Exchange Act of 1934, specifically Rule 15c3-1, that are designed to provide regulatory protections that are substantially similar to the protections provided by the regulations regarding excess working capital to which dealer members of the Investment Industry Regulatory Organization of Canada (IIROC) are subject. The Filer is in compliance in all material respects with Rule 15c3-1. The SEC and FINRA have the responsibility for ensuring that the Filer operates in compliance with SEC Rule 15c3-1.

9. The Filer is required to prepare and file a FOCUS Report with United States regulators, which is the financial and operational report containing a net capital calculation.

10. The FOCUS Report provides a more comprehensive description of the business activities of the Filer, and more accurately reflects those activities including client lending activity, than would be provided by Form 31-103F1, and the minimum SEC Rule 15c3-1 requirements applicable to the Filer are a substantially greater amount than the minimum requirement of NI 31-103.

11. The Filer will, in the event that it provides a guarantee of any debt of a third party, deduct the total amount of the guarantee from its excess net capital on the FOCUS Report, consistent with the required treatment of such a guarantee under Form 31-103F1.

12. The Filer is subject to certain U.S. reporting requirements under Rule 17a-5 Reports to Be Made by Certain Brokers and Dealers of the Securities and Exchange Act, 1934 (SEA Rule 17a-5), including the requirement to prepare and file annual audited financial statements. SEA Rule 17a-5 requires that the annual audited financial statements of the Filer be filed with the SEC and FINRA.

13. The SEC currently permits the Filer to file audited consolidated annual financial statements that are prepared in accordance with U.S. GAAP, whereas subsection 3.15(b) of NI 52-107 would require the Filer to prepare non-consolidated financial statements.

14. Section 12.10 of NI 31-103 provides that annual financial statements delivered to the regulator must include a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and a statement of financial position for the most recently completed financial year and the financial year immediately preceding the most recently completed financial year, along with notes thereto. Further, section 12.10 of NI 31-103 also requires that the statement of financial position be signed by at least one director of the registered firm.

15. The annual audited financial statements that the Filer prepares and files with the SEC and FINRA include the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the statement of financial position for the financial year immediately preceding the most recently completed financial year. However, the signature of a director of the Filer for the statement of financial position is not required by the SEC or FINRA and is not included. These are requirements under section 12.10 of NI 31-103.

16. The accounting principles and methods used to prepare the FOCUS Reports that the Filer deliver in lieu of Form 31-103F1 are consistent with the accounting principles and methods used to prepare the annual audited financial statements that each Filer files with the SEC and FINRA.

17. Audited supplemental information to the Filer's annual audited financial statements, as required by SEA Rule 17a-5, which includes supplemental information that correspond with line 3480 through to and including line 3910 "Computation of Net Capital" in the FOCUS Report, along with the auditor's report which expresses an unmodified opinion on this supplemental information, would allow the regulator to assess the capital position of the Filer and, therefore, achieve the same regulatory outcomes as the requirements for annual audited financial statements prepared in accordance with subsection 3.15(b) of NI 52-107 and section 12.10 of NI 31-103. Accordingly, it would be burdensome and costly for the Filer, if it was required to prepare and file unconsolidated annual audited financial statements.

Decision

The Director is satisfied that the decision meets the test set out in the Legislation for the Ontario Securities Commission to make the decision.

The decision of the Director under the Legislation is that the Exemption Sought is granted so long as:

(a) the Filer is registered, and in good standing, 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 Ontario;

(b) by virtue of the registration referred to in paragraph (a), including required membership in one or more self-regulatory organizations, the Filer is subject to SEC Rule 15c3-1 and SEC Rule 17a-5; and that the protections provided by SEC Rule 15c3-1 and SEC Rule 17a-5 in respect of maintaining excess net capital are substantially similar to the protections provided by the capital requirements of IIROC that would be applicable to the Filer respectively if they were registered under the Legislation as an investment dealer and were a member of IIROC;

(c) the Filer delivers to the Commission no later than the 90th day after the end of its respective financial year its FOCUS Report as filed with the SEC and FINRA and its annual financial statements prepared in accordance with U.S. GAAP as permitted by SEA Rule 17a-5;

(d) the Filer prepares the FOCUS Report on an unconsolidated basis;

(e) the Filer will, in the event that it provides a guarantee of any debt of a third party, deduct the total amount of the guarantee from its excess net capital on the FOCUS Report, consistent with the requirements of SEC Rule 15c3-1;

(f) the Filer notifies the Commission as soon as possible if at any time its excess net capital as reported in box 3920 of its most recently filed FOCUS Report, declines to or is less than zero, and ensures that such capital is not less than zero for 2 consecutive days;

(g) the Filer gives prompt written notice to the Commission of any significant issues arising from analysis by U.S. securities regulators of the FOCUS Report filed by the Filer pursuant to SEC and FINRA requirements;

(h) the Filer gives prompt written notice to the Commission if the Filer has received written notice from the SEC or FINRA of any material non-compliance in the preparation and filing of its annual financial statements pursuant to the requirements of SEA Rule 17a-5;

(i) the Filer provides the Commission with at least five days written notice prior to any repayment of subordinated intercompany debt or termination of a subordination agreement with respect to intercompany debt;

(j) the Filer appends audited supplemental information to its annual audited financial statements, as required by SEA Rule 17a-5, which includes supplemental information that corresponds with line 3480 through to and including line 3910 "Computation of Net Capital" in the FOCUS Report; and

(k) the auditor's report relating to the Filer's financial statements expresses an unmodified opinion on the supplemental information referred to in (j).

It is further the decision of the Director that the Exemption Sought shall expire on December 31, 2014.

"Marrianne Bridge"
Deputy Director, Compliance & Registrant Regulation
Ontario Securities Commission