Paragraphs 4.1(1)(a) and 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual acts as an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned firm or if the individual is registered as a dealing, advising or associate advising representative of another registered firm – firms are not affiliated entities – first mutual fund dealer acquiring second mutual fund dealer’s book of business – second mutual fund dealer intends to resign from MFDA and surrender registration – Filers have valid business reasons for individual to be registered with both dealers – individual has sufficient time to adequately serve both firms – as one firm winding down, conflicts of interest are unlikely to arise – policies in place to handle potential conflicts of interest – Filers exempted from the prohibition for a limited period of time.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
December 19, 2014
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
FUNDEX INVESTMENTS INC.
INVESTMENT FINANCIAL GROUP INC.
(IFGI, and together with FundEX, the Filers)
The regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief from the requirements in paragraphs 4.1(1)(a) and 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit Mr. Donald Thomas McGrath to be registered as a dealing representative of FundEX and as a dealing representative, director, officer, ultimate designated person (UDP) and chief compliance officer (CCO) of IFGI for a limited period of time (the Relief Sought) for the purposes of maintaining the registration of IFGI to facilitate the transfer of IFGI’s client accounts (the Accounts), the resignation of IFGI’s membership in the Mutual Fund Dealers Association of Canada (MFDA) and the approval by the Ontario Securities Commission (OSC) of IFGI’s voluntary surrender of its registration and servicing the Accounts until their transfer out of IFGI is complete.
Terms defined in National Instrument 14-101 Definitions have the same meaning in this decision unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. IFGI is currently registered as a mutual fund dealer with the OSC. IFGI is a member of the MFDA. Its head office is in Keswick, Ontario.
2. FundEX is registered as a mutual fund dealer and exempt market dealer in all thirteen Canadian jurisdictions and is a member of the MFDA. The head office of FundEX is in Vaughan, Ontario.
3. FundEX and IFGI are each independently owned and are not affiliates of one another.
4. Mr. McGrath is registered as the UDP, CCO and sole dealing representative of IFGI and has been approved as an officer, director and shareholder of IFGI in Ontario. He is a resident of Ontario.
5. The application for the Relief Sought is made in relation to the transfer of IFGI’s book of business to FundEX (the Proposed Transaction). As part of the Proposed Transaction, Mr. McGrath is seeking to become registered as a dealing representative with FundEX.
6. Pursuant to section 11.9 of NI 31-103, the Filers notified the OSC as principal regulator of the Proposed Transaction by letter dated November 11, 2014 (the Notice). Following further discussions with Staff of the OSC, the Notice was filed on December 17, 2014 with each of the other twelve securities regulatory authorities with whom FundEX is registered.
7. The MFDA approved the Proposed Transaction by letter on April 2, 2014.
8. A notice of the Proposed Transaction, which included information about the transfer of client accounts to FundEX, was mailed to IFGI’s clients on May 1, 2014.
9. The transfer of the Accounts from IFGI to FundEX will be initiated on December 19, 2014 (the Transaction Date). A bulk transfer of client accounts from one mutual fund dealer to another mutual fund dealer can take approximately one month, or longer, to be completed.
10. On or after the Transaction Date, Mr. McGrath will register as a dealing representative of FundEX, and will also continue as a dealing representative, director, officer, UDP and CCO of IFGI for a limited period of time (the Dual Registration).
11. Upon registration as a dealing representative with FundEX, Mr. McGrath will limit his trading activities on behalf of IFGI to trades on behalf of existing IFGI clients pending transfer of their accounts from IFGI to FundEX or another registered firm.
12. Upon Mr. McGrath’s registration as a dealing representative with FundEX, IFGI has agreed to the following terms and conditions being placed upon its registration:
IFGI, including its registered individual Mr. McGrath, will limit its trading activities to trades on behalf of existing IFGI clients pending transfer of their accounts from IFGI to FundEX or to another registered firm.
13. The Dual Registration will facilitate the completion of the Proposed Transaction, and will permit Mr. McGrath to:
a. facilitate the orderly wind-up of IFGI’s business and operations, including the transferring out of the Accounts, the resignation of IFGI’s MFDA membership and the voluntary surrender of IFGI’s registration to the OSC; and
b. provide services to the IFGI client accounts that have not yet transferred out of IFGI that are similar to the services those accounts would have received (from FundEX or another receiving dealer) had they already been transferred out, until all Accounts have transferred out of IFGI (the Account Transfer Completion Date).
14. Effective as of the Account Transfer Completion Date, IFGI will cease its registrable activities and will not open any new client accounts. On or immediately after the Account Transfer Completion Date, IFGI will notify the MFDA and the OSC of the Account Transfer Completion Date and submit an application for voluntary surrender of its registration to the OSC, its principal regulator.
15. IFGI has agreed to certain terms and conditions being placed on its registration immediately on or after the Account Transfer Completion Date, including:
a. IFGI and its registered individual will not trade in securities under securities law and will not open any new client accounts, and
b. Mr. McGrath, as its sole director, officer, UDP and CCO, will act in such capacity only to comply with regulatory requirements including, as necessary, to resign the membership of IFGI with the MFDA, and has agreed to abide by, and ensure that IFGI adheres to the terms and conditions imposed on the registration of IFGI by the OSC.
16. The terms and conditions referred to in paragraph 12 of this decision will be removed from IFGI’s registration when the terms and conditions referred to in paragraph 15 of this decision are placed on its registration.
17. A filing to add FundEX as an additional sponsoring firm for Mr. McGrath will be made via the National Registration Database as soon as the Relief Sought has been granted.
18. Mr. McGrath will have sufficient time and resources to adequately meet his obligations to both IFGI and FundEX.
19. The Filers have in place policies and procedures to address any conflicts of interest that may arise as a result of the Dual Registration. The limited activities of IFGI and Mr. McGrath will facilitate this, by largely or entirely avoiding any conflicts of interest.
20. Furthermore, FundEX has compliance and supervisory policies and procedures in place to monitor the conduct of its representatives, including Mr. McGrath, and to ensure that FundEX can deal appropriately with any conflicts of interest that may arise.
21. FundEX will supervise the activities that Mr. McGrath will conduct on behalf of IFGI, including by holding meetings regularly with him and by obtaining regular status reports from him.
22. In the absence of the Relief Sought, Mr. McGrath would be prohibited under paragraphs 4.1(1)(a) and 4.1(1)(b) of NI 31-103 from acting as a dealing representative of FundEX while also acting as a dealing representative, officer, director, UDP and CCO of IFGI.
The regulator is satisfied that the decision meets the test set out in the Legislation for the regulator to make the decision.
The decision of the regulator under the Legislation is that the Relief Sought is granted provided that (1) the circumstances described above remain in place, and (2) the Relief Sought expires on the earlier of the following:
i) one year from the date hereof;
ii) the date on which the surrender of IFGI’s registration is approved by the OSC.
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission