Securities Law & Instruments

Headnote

 

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – under paragraph 4.1(1)(a) 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 – firms are not affiliated entities – first registered firm acquiring second registered firm’s client accounts – second registered firm intends to surrender registration – the second firm agrees to be subject to terms and conditions on its registration – the firms have valid business reasons for individual to be registered with both firms – individual has sufficient time to adequately serve both firms – since one firm is winding up, conflicts of interest are unlikely to arise – the firms have policies in place to handle potential conflicts of interest – the firms are exempted from the prohibition for a limited period of time.

 

Applicable Legislative Provisions

 

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

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.

 

September 20, 2016

 

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA AND ONTARIO

(the Jurisdictions)

 

AND

 

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS

IN MULTIPLE JURISDICTIONS

 

AND

 

IN THE MATTER OF

PI FINANCIAL CORP.

(PI Financial)

 

AND

 

GLOBAL SECURITIES CORPORATION

(Global and together with PI Financial, the Filers)

 

DECISION

 

Background

 

1              The securities regulatory authority or regulator in each of the Jurisdictions (Decision Makers) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement in section 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit Arthur M. Smolensky to act as a dealing representative of PI Financial and also act as a director and an officer of Global for a limited period of time following the acquisition of substantially all of the assets, including the customer accounts, of Global by PI Financial (Relief Sought).

 

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

 

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

 

(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 in all of the other provinces and territories of Canada; and


(c)           the decision is the decision of the principal regulator and evidences the decision of the regulator in Ontario.

 

Interpretation

 

2              Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 31-103 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 Filers:

 

1.             PI Financial is registered as:

 

(a)           an investment dealer in each of the jurisdictions of Canada;

 

(b)           a dealer (futures commission merchant) in Manitoba;

 

(c)           a futures commission merchant in Ontario; and

 

(d)           a derivatives dealer in Quebec, and

 

is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and has its head office in British Columbia.

 

2.             Global is registered as:

 

(a)           an investment dealer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Northwest Territories and Yukon;

 

(b)           a dealer (futures commission merchant) in Manitoba;

 

(c)           a futures commission merchant in Ontario; and

 

(d)           a derivatives dealer in Quebec, and

 

is a member of IIROC and has its head office in British Columbia.

 

3.             PI Financial and Global are each independently owned and are not affiliates of one another.

 

4.             Neither of the Filers is in default of any requirements of securities legislation in any jurisdiction of Canada.

 

5.             Mr. Smolensky is currently the Chairman, a director and a direct and indirect beneficial owner of common shares of Global.

 

6.             Mr. Smolensky is resident in British Columbia and is registered as a dealing representative of Global in British Columbia, Alberta, Manitoba, Saskatchewan, Quebec and Ontario and as a salesperson (futures commission merchant) in Ontario and a derivatives dealing representative (derivatives dealer) in Quebec.

 

7.             The application for the Relief Sought is made in relation to the transfer of substantially all of the assets of Global, including Global’s customer accounts and certain other assets to PI Financial (the Transaction). In connection with the Transaction, Mr. Smolensky will seek registration as a dealing representative, a salesperson (futures commission merchant) in Ontario and a derivatives dealing representative (derivatives dealer) in Quebec of PI Financial and will become an officer of PI Financial.

 

8.             Pursuant to section 11.9 of NI 31-103, the Filers notified the BCSC, as principal regulator of each Filer, of the Transaction by letter dated July 19, 2016.

 

9.             IIROC has provided its approval of the bulk transfer of client accounts from Global to PI Financial as part of the Transaction.

 

10.          The Filers will not complete the Transaction until all requisite approvals are obtained from IIROC.

 

11.          A notice of the Transaction, which included information about the transfer of customer accounts to PI Financial, was mailed to Global’s clients on or about June 30, 2016.

 

12.          The transfer of the customer accounts from Global to PI Financial will be completed on or about September 25, 2016 (the Transaction Date).

 

13.          On or after the Transaction Date, Mr. Smolensky will:

 

(a)           terminate his registration as a dealing representative in all applicable jurisdictions, a salesperson (futures commission merchant) in Ontario and a derivatives dealing representative (derivatives dealer) in Quebec of Global, and

 

(b)           subsequently seek registration as a dealing representative, a salesperson (futures commission merchant) in Ontario and a derivatives dealing representative (derivatives dealer) in Quebec of PI Financial and be appointed as an officer of PI Financial, and will also continue as a director and an officer of Global until the resignation of Global’s IIROC membership and the voluntary surrender of Global’s registrations under applicable securities legislation is complete (the Dual Registration).

 

14.          Upon registration as a dealing representative, a salesperson (futures commission merchant) in Ontario and a derivatives dealing representative (derivatives dealer) in Quebec of PI Financial, Mr. Smolensky will no longer be involved in trading activities on behalf of Global.

 

15.          Global has agreed to the following terms and conditions being placed upon its registration upon completion of the Transaction:

 

(a)           Global and its registered individuals will not trade in securities within the meaning of applicable securities laws and will not open any new customer accounts; and

 

(b)           Mr. Smolensky, as a director and non-trading officer of Global, will act in such capacity only to comply with regulatory requirements including, as necessary, to resign the membership of Global with IIROC and surrender the registration of Global under applicable securities legislation.

 

16.          Global will ensure that Mr. Smolensky adheres to the terms and conditions set out in representation 15 that will be imposed on Global’s registration.

 

17.          The Dual Registration will permit Mr. Smolensky:

 

(a)           as an officer and director of Global, to facilitate the orderly wind-up of Global’s registrable business and operations, including the resignation of Global’s IIROC membership and the voluntary surrender of Global’s registration under applicable securities legislation; and

 

(b)           as a dealing representative of PI Financial, to provide services in relation to former clients of Global who become clients of PI Financial that are similar to the services he currently performs on behalf of Global and to provide other support to PI Financial after the Transaction Date.

 

18.          Effective as of the Transaction Date, Global will cease its registrable activities and will not open any new client accounts. Following the Transaction Date, Global will notify IIROC and the BCSC of the completion of the Transaction, will continue with the steps required to complete the resignation of Global’s IIROC membership and will submit an application for voluntary surrender of its registration under applicable securities legislation. Global expects to complete the wind-up of its registrable business and operations by January 2017.

 

19.          Subject to the issuance of the Relief Sought, PI Financial will submit an application through the National Registration Database to register Mr. Smolensky as a dealing representative of PI Financial.

 

20.          Mr. Smolensky will have sufficient time and resources to adequately meet his obligations to both Global and PI Financial.

 

21.          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 Global and Mr. Smolensky, on behalf of Global, should result in there being few, if any, conflicts of interest.

 

22.          PI Financial has compliance and supervisory policies and procedures in place to monitor the conduct of its representatives, including Mr. Smolensky, and to ensure that PI Financial can deal appropriately with any conflicts of interest that may arise.

 

23.          PI Financial will supervise the activities that Mr. Smolensky will conduct on behalf of Global in the same way it does other outside business activities of its registered individuals, including by holding meetings regularly with him and by obtaining regular status reports from him.

 

24.          In the absence of the Relief Sought, PI Financial would be prohibited under section 4.1(1)(a) of NI 31-103 from permitting Mr. Smolensky to act as a dealing representative of PI Financial while also acting as a director and an officer of Global.

 

Decision

 

4              Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

 

The decision of the Decision Makers 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 shall expire on the earlier of the following:

 

(a)           one year after the date hereof; and

 

(b)           on the date that the registration of Global is surrendered or terminated.

 

“Mark Wang”

Director, Capital Markets Regulation

British Columbia Securities Commission