Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application from U.S. broker-dealer for relief from dealer registration requirement, adviser registration requirement for incidental advice, and the prospectus requirement for the distribution of foreign securities that are traded pursuant to the registration exemptions on conditions that are similar to those provided in NI 35-101 Conditional Exemption from Registration for United States Broker-Dealers and Agents -- Dealer registration relief includes relief for the filer and its dual representatives to trade in any securities for an individual ordinarily resident in the US who is temporarily resident in Ontario, or for an individual's tax-advantaged retirement savings plan if the plan is located in the US and the individual was previously resident in the US.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74.

Multilateral Instrument 11-102 Passport System, s. 4.7.

National Instrument 14-101 Definitions.

National Instrument 35-101 Conditional Exemption from Registration for United States Broker-Dealers and Agents.

OSC Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers servicing U.S. Clients from Ontario.

February 26, 2016

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CANACCORD GENUITY WEALTH MANAGEMENT (USA) INC. (the Filer)

DECISION

Background

1 The securities regulatory authority or regulator in British Columbia and the securities regulatory authority or regulator in Ontario (the Dual Exemption Decision Makers) have received an application from the Filer for a decision under the securities legislation of those jurisdictions (the Legislation) for an exemption that:

(a) the dealer registration requirement and the adviser registration requirement do not apply to the Filer and its agents, who are also registered under the Legislation to trade on behalf of Canaccord Genuity Corp. (Canaccord Canada) as its dealing representatives (the Dual Representatives), in respect of trades to, with, or on behalf of, individuals referred to in section 2.1 and section 3.1 of National Instrument 35-101 Conditional Exemption from Registration for United States Broker-Dealers and Agents (such instrument, NI 35-101, and such individuals, NI 35-101 Clients), and in respect of advising activities that are solely incidental to the trading activities provided to NI 35-101 Clients by the Filer and the Dual Representatives, provided that such dealing and advising activities are conducted in accordance with all the terms and conditions of NI 35-101, except for the requirements that the Filer and its agents only trade in foreign securities (as defined in NI 35-101), that the Filer has its principal place of business in the United States of America (the U.S.), and that the Filer has no office or other physical presence in any jurisdiction in Canada (the NI 35-101 Client Relief); and

(b) the prospectus requirement and underwriter registration requirement do not apply to a distribution of a foreign security made by the Filer and the Dual Representatives when acting on behalf of the Filer, in respect of the NI 35-101 Clients, if they satisfy the conditions to the NI 35-101 Client Relief, and if the distribution is made in compliance with all applicable U.S. federal securities laws and state securities legislation in the U.S. (the NI 35-101 Distribution Relief, together with the NI 35-101 Client Relief, the Dual Exemptive Relief).

The securities regulatory authority or regulator in British Columbia has received an application from the Filer for a decision under the securities legislation of British Columbia (the Local Legislation) for an exemption that:

(a) the dealer registration requirement and the adviser registration requirement do not apply to the Filer and its Dual Representatives in respect of trades in securities to, with, or on behalf of, persons or entities who are resident in the U.S. (U.S. Clients) and with respect to investment advice provided to such U.S. Clients while the Filer and the Dual Representatives are located in Canada (the Passport Exemptive Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the British Columbia Securities Commission is the principal regulator for this application;

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-202 Passport System (MI 11-102) is intended to be relied upon in Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Yukon Territory, the Northwest Territories and Nunavut (collectively, the Passport Jurisdictions);

(c) with respect to the Passport Exemptive Relief, the decision is the decision of the principal regulator; and

(d) with respect to the Dual Exemptive Relief, the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

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

Representations

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

1. The Filer is registered as a broker-dealer under the 1934 Act, and is a member of the Financial Industry Regulatory Authority (FINRA). The Filer is not registered as a dealer in Canada.

2. The Filer is registered as an investment adviser with the SEC. The Filer is not registered as an adviser in Canada.

3. The Filer is an indirect subsidiary of Canaccord Genuity Group Inc., a reporting issuer in every jurisdiction of Canada and whose common shares are listed on the Toronto Stock Exchange and the London Stock Exchange.

4. The Filer was incorporated under the laws of the state of Minnesota and has its head office in British Columbia.

5. Canaccord Genuity Group Inc. is also the parent company of Canaccord Canada which is registered as a dealer under the Legislation in the category of investment dealer and is a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).

6. Canaccord Canada is not registered under U.S. federal securities laws or otherwise to carry on the business of a registered broker-dealer or investment adviser in the U.S.

7. The Filer and Canaccord Canada operate their head offices out of the same premises in British Columbia. The Filer does not currently have an office located in the U.S. Wherever the Filer has an office in Canada; the Filer operates out of the same premises as Canaccord Canada.

8. The Dual Representatives are representatives of the Filer who are registered under U.S. federal securities laws in respect of their trading activities and are also registered under the Legislation to trade on behalf of Canaccord Canada as dealing representatives of Canaccord Canada.

9. The Filer and its representatives are members of FINRA and the Filer's representatives are permitted to act on behalf of the Filer in respect of trades in securities to, with, or on behalf of, both institutional and retail U.S. Clients. The Filer and its representatives are subject to the full oversight and compliance requirements of FINRA.

10. The Filer is registered with the SEC to permit its representatives to provide discretionary and non-discretionary advice to U.S. Clients on behalf of the Filer. The Filer is subject to the full oversight and compliance requirements of the SEC.

11. In the course of the relationship between the Filer and its U.S. Clients, some U.S. Clients move to Canada with U.S. individual tax-advantaged retirement savings plans (U.S. Plans) maintained in the U.S. These U.S. Clients wish to continue to place trades through representatives of the Filer for their U.S. Plans.

12. NI 35-101 provides for exemptions from the dealer registration requirement, adviser registration requirement, prospectus requirement and underwriter registration requirement, for U.S. broker-dealers and their agents trading with or for NI 35-101 Clients, upon satisfying certain conditions.

13. The exemptions in NI 35-101 require that the U.S. broker-dealer have their principal place of business in the U.S. The Filer is unable to rely on the exemptions in NI 35-101 since its principal place of business is not in the U.S.

14. It is a condition of the exemption for U.S. broker-dealers in subsection 2.1(a) of NI 35-101, and for their agents in subsection 3.1(b) of NI 35-101, that the broker-dealer and their agents have no office or other physical presence in any jurisdiction in Canada. The Filer is unable to rely on the exemptions in NI 35-101 because the Filer has offices in Canada.

15. It is also a condition of the exemption for U.S. broker-dealers in subsection 2.1(b) of NI 35-101, and for their agents in subsection 3.1(c) of NI 35-101, to only trade in foreign securities. NI 35-101 Clients, who are now resident in Canada, wish to place trades with the Filer in both foreign securities and Canadian securities as their U.S. Plans permit investments in both foreign securities and Canadian securities. Accordingly, the Filer and the Dual Representatives wish to trade in both foreign securities and Canadian securities on behalf of such NI 35-101 Clients and therefore cannot rely on the exemptions in NI 35-101.

16. Other than NI 35-101 Clients, the Filer does not conduct any registrable activity with residents of Canada.

17. Where the Filer and the Dual Representatives trade to, with, or on behalf of U.S. Clients and NI 35-101 Clients, they comply with all U.S. federal securities law, and any other applicable U.S. securities law, in respect of those trades.

18. All U.S. Clients and NI 35-101 Clients of the Filer will enter into a customer agreement and associated account opening documentation with the Filer. All communications with U.S. Clients and NI 35-101 Clients will be through the Filer and be clearly identified as communications of the Filer.

19. The Filer commenced operations in Canada on or about October 1999. Its activities have been restricted to executing trades for and providing non-discretionary advice to U.S. Clients and NI 35-101 Clients. The activities of the Filer were conducted in compliance with applicable U.S. registration requirements and U.S. federal securities law. The Filer acknowledges that by virtue of engaging in registrable activity while having offices and employees located in a jurisdiction of Canada, the Filer is subject to applicable registration requirements in the applicable jurisdictions of Canada.

20. Other than engaging in registrable activity in Canada since 1999 without registration, or a registration exemption, as described above, the Filer is not in default of securities legislation in any jurisdiction of Canada.

21. The trading services offered by the Filer to NI 35-101 Clients is ancillary to the Filer's principal business.

22. British Columbia Instrument 32-525 Exemptions from the dealer registration requirement and the adviser registration requirement in respect of trades and advice for U.S. resident clients, and the related orders issued by the Passport Jurisdictions (collectively, the Parallel Orders), provide an exemption from the dealer registration requirement and adviser registration requirement for U.S. advisers, broker-dealers, and their agents who are located in Canada and advising or trading for U.S. Clients, upon satisfying certain conditions.

23. It is a condition of the Parallel Orders that the U.S. broker-dealer or U.S. adviser does not trade securities for or advise clients resident in British Columbia and the Passport Jurisdictions.

24. The Filer and the Dual Representatives are unable to rely on the Parallel Orders as the Filer and Dual Representatives provide trading and advising services to NI 35-101 Clients, some of whom are resident in Canada.

25. In Ontario, the Filer and its Dual Representatives rely on Ontario Securities Commission Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers servicing U.S. Clients from Ontario with respect to advising services provided to U.S. Clients and trades in securities to, with, or on behalf of U.S. Clients. As such, the Filer is not seeking the Passport Exemptive Relief in Ontario.

Decision

4 Each of the principal regulator and the securities regulatory authority or regulator in Ontario is satisfied that the decision meets the test set out in the Legislation for the relevant regulator or securities regulatory authority to make the decision.

The decision of the Dual Exemption Decision Makers under the Legislation is that the Dual Exemptive Relief is granted provided that:

1. the dealer registration requirement and the adviser registration requirement do not apply to the Filer and the Dual Representatives in respect of trades to, with, or on behalf of NI 35-101 Clients, and in respect of advising activities that are solely incidental to the trading activities provided to NI 35-101 Clients by the Filer and the Dual Representatives, only if

(a) such activities are conducted in accordance with all the terms and conditions of NI 35-101, except for the requirements that the Filer and its agents only trade in foreign securities, that the Filer has its principal place of business in the U.S., and that the Filer has no office or other physical presence in any jurisdiction in Canada; and

(b) the only physical presence or offices that the Filer has in any jurisdiction of Canada are the premises it shares with Canaccord Canada;

2. the prospectus requirement and underwriter registration requirement do not apply to a distribution of foreign securities to NI 35-101 Clients if that distribution:

(a) is made by the Filer or a Dual Representative that is exempt from the dealer registration requirement and the adviser registration requirement under paragraph 1 hereof; and

(b) is made in compliance with all applicable

(i) U.S. federal securities laws, and

(ii) state securities legislation in the U.S.; and

3. the Dual Exemptive Relief granted by this decision 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 the Filer or the Dual Representatives carried out after that effective date.

The decision of the principal regulator under the Local Legislation is that the Passport Exemptive Relief is granted provided that:

1. the only physical presence or offices that the Filer has in any jurisdiction of Canada are the premises it shares with Canaccord Canada;

2. the Filer and each of the Dual Representatives are in compliance with all applicable licensing and registration requirements under applicable U.S. federal securities law and state securities legislation in the U.S.;

3. the Filer and the Dual Representatives are permitted to engage in such activities with U.S. Clients under applicable U.S. federal securities law and state securities legislation in the U.S.;

4. the Filer is subject to full FINRA and SEC oversight and compliance;

5. the Filer does not act as an adviser to, or trade to, with, or on behalf of, persons who are resident of any jurisdiction of Canada, other than NI 35-101 Clients;

6. the Filer, and the Dual Representatives acting on behalf of the Filer, will not solicit clients that are resident or located in any jurisdiction of Canada other than existing NI 35-101 Clients;

7. the Filer files with the regulator all information and records about its trading and advising activities as the regulator may request from time to time; and

8. the Filer files, with the regulator in each applicable jurisdiction, the information report required by the Parallel Orders before relying on this decision, and files an updated information report, with each applicable regulator, within 10 days of a change to a previously filed information report.

"Mark Wang"
Director, Capital Markets Regulation
British Columbia Securities Commission