Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System – National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – National Instrument 33-109 Regis-tration Information (NI 33-109) and Derivatives Regulation (Québec) – relief from certain filing requirements of NI 33-109 and Derivatives Regulation (Québec) in connection with a bulk transfer of business locations and registered individuals pursuant to an asset purchase in accordance with section 3.4 of Companion Policy 33-109CP to NI 33-109.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System.
National Instrument 33-109 Registration Information, ss. 2.2, 2.5, 3.2, 4.1 and 5.2.
Companion Policy 33-109CP Registration Information, s. 3.4 and Appendix C.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
Derivatives Act (Québec).
Derivatives Regulation (Québec).

August 1, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
THE DERIVATIVES LEGISLATION OF
QUÉBEC

AND

IN THE MATTER OF
INDUSTRIAL ALLIANCE SECURITIES INC.
(IAS)
AND
SCOTIA CAPITAL INC.
(SCI, and collectively with IAS, the Filers)

DECISION


Background

The securities regulatory authority in Québec (the Principal Decision Maker) and the regulator in Ontario (the Ontario Decision Maker) have received an appli-cation (the 33-109 Application) from the Filers for a decision under the securities legislation of each of Québec and Ontario (the Legislation) providing exemptions from the requirements contained in sections 2.2, 2.3 2.5, 3.2 and 4.2 of National Instrument 33-109 Registration Information (NI 33-109) pursuant to section 7.1 of NI 33-109 to allow the bulk transfer (the Bulk Transfer) of certain dealing representatives and business locations from SCI to IAS, on the Completion Date (as defined below), in accordance with section 3.4 of the Companion Policy to NI 33-109 (the Exemption Sought).

The Principal Decision Maker has also received an application (the Derivatives Legislation Application) from the Filers for a decision under the derivatives legislation of Québec for relief from section 11.1 of the Derivatives Regulation (Québec) pursuant to section 86 of the Derivatives Act (Québec) to allow the Bulk Transfer of certain individuals registered under Québec derivatives legislation and business locations from SCI to IAS, on the Completion Date (as defined below), in accordance with section 3.4 of the Companion Policy to NI 33-109 (the Derivatives Exemption Sought).

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

(a)           the Principal Decision Maker is the principal regulator for the 33-109 Application,

(b)           for the decision of the Principal Decision Maker in respect of the Exemption Sought, 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 each jurisdiction of Canada outside of Québec and Ontario (together with Québec and Ontario, the Jurisdictions and each a Jurisdiction),

(c)           the decision with respect to the Exemption Sought is the decision of the Principal Decision Maker and evidences the decision of the Ontario Decision Maker (the Principal Decision Maker and the Ontario Decision Maker are collectively referred to as the Dual Decision Makers), and

(d)           the decision with respect to the Derivatives Exemption Sought is the decision of the Principal Decision Maker.

Interpretation

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

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

SCI

1.             SCI is a corporation existing under the laws of Ontario, and is wholly-owned, indirectly, by The Bank of Nova Scotia (BNS).

2.             SCI’s head office is located in Toronto, Ontario.

3.             SCI is registered as:

(a)           an investment dealer in each Jurisdiction;

(b)           a dealer (Futures Commission Merchant) in Manitoba and in Ontario; and

(c)           a derivatives dealer in Québec.

4.             SCI is a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).

5.             SCI carries on Canadian investment dealer business through three distinct lines of securities business, each a substantial business operation for SCI (all numbers are as at October 31, 2016, the financial year end for BNS):

(a)           HollisWealth comprises the full service retail brokerage business conducted by 652 registered individual agents of SCI from 267 offices across Canada (the HollisWealth Division);

(b)           ScotiaMcLeod comprises the full service retail brokerage business and the Scotia iTrade discount online brokerage busi-ness conducted by 1,532 registered individual employees of SCI from 109 offices across Canada (the Scotia-McLeod Division); and

(c)           Global Banking and Markets comprises the corporate, institutional and govern-ment business conducted by 182 regis-tered individual employees of SCI from 4 offices across Canada (the Global Banking and Markets Division).

6.             Although each above mentioned division is part of the same corporate entity, namely SCI, each division functions as a stand-alone, substantial business operation within SCI based on the nature of the clients, the types of securities products and services which are provided by them, and whether dealing representatives are agents or employees of SCI.

7.             For greater certainty, following the completion of the Transaction (as defined below), SCI will continue to carry on registerable activities in the Jurisdictions via the ScotiaMcLeod Division and the Global Banking and Markets Division.

8.             Upon the completion of the Transaction (as defined below), SCI will have sold the HollisWealth Division to IAS.

9.             As at October 31, 2016, the assets of SCI amounted to approximately $91 billion, of which approximately $810 million (1%) were derived from the HollisWealth Division, and the revenues of SCI amounted to approximately $2.1 billion, of which approximately $220 million (11%) were derived from the HollisWealth Division.

10.          SCI is not in default of securities legislation in any Jurisdiction.

IAS

11.          IAS is a corporation existing under the laws of Canada.

12.          IAS’s head office is located in Montréal, Québec.

13.          As at the date hereof, IAS is registered as an investment dealer in each Jurisdiction, and as a derivatives dealer in Québec.

14.          IAS is a dealer member of IIROC.

15.          IAS has two wholly-owned subsidiaries: IA Securities (USA) Inc. and FIN-XO Securities Inc. IA Securities (USA) Inc. is a registered broker dealer with the Financial Industry Regulatory Authority (USA) dealing with valid institutional clients in the United States and has a separate regulatory structure. FIN-XO Securities is a dealer member of IIROC without any dealing representative.

16.          Industrial Alliance Insurance and Financial Services Inc. (IAIFS) owns, directly, all of the issued and outstanding shares of IAS.

17.          IAS offers brokerage services. It offers financial products such as stocks, bonds and mutual funds for retail and institutional clients.

18.          IAS is not in default of securities legislation in any Jurisdiction.

The Purchase Agreement

19.          Pursuant to a purchase agreement dated as of December 5, 2016, as amended (the Purchase Agreement), IAS will purchase the HollisWealth Division from SCI for cash consideration (the Transaction).

20.          It is anticipated that the Transaction will be completed as soon as practicable after August 4, 2017 (the Completion Date), provided that, among other things, all necessary regulatory notices, non-objections, and approvals have been given and, explicitly or implicitly, received.

21.          As part of the Transaction, 652 registered representatives of SCI (the Transferred Repre-sentatives), and 267 business locations of SCI (the Transferred Business Locations), will be transferred from SCI to IAS. All numbers are as at October 31, 2016.

Additional Representations

22.          It is anticipated that the Transaction will not disrupt the HollisWealth Division’s business and will not affect the retail brokerage business clients.

23.          Subject to obtaining the Exemption Sought and the Derivatives Exemption Sought, no disruption in the services provided by the Transferred Representatives to clients of SCI is anticipated as a result of the Transaction and it is anticipated that the completion of the Transaction will not result in any substantive changes for the transferred clients of the HollisWealth Division; they will continue to deal with the same registered representatives, and will receive the same or substantially similar financial services, as they did prior to the Completion Date.

24.          HollisWealth Division clients have been made aware of the Transaction via a press release dated December 5, 2016.

25.          To supplement the press release, SCI and IAS will engage in a comprehensive joint communication process that will provide registered represen-tatives that are proposed to be transferred from SCI to IAS with prior notice of the Transaction, thereby ensuring that they are fully informed about the Transaction and its consequences in advance of the Completion Date.

26.          To supplement the press release and to avoid client confusion, SCI will deliver a letter prior to the Completion Date that will inform clients that are proposed to be transferred from SCI to IAS about the Transaction and its implications, including that their accounts and related documentation will be transferred to IAS effective as of the Completion Date, subject to their rights to have such accounts and documentation transferred (free of charge) to another investment dealer/IIROC dealer member in lieu of IAS, or to have their assets returned to them and their accounts with SCI subsequently closed (the Client Account Letter), in either case, upon client instruction to SCI on or before the prescribed date. If such instructions are not received by SCI on or before the prescribed date, SCI will process any such instructions on a best efforts basis. Otherwise, such accounts and documentation will be transferred to IAS effective as of the Completion Date, subject to IAS’s overriding obligation to transfer out the client accounts after the Completion Date upon client request.

27.          In addition, the Client Account Letter will inform the clients having registered accounts and not being opposed to the transfer of their accounts that the trustee of their Registered Retirement Savings Plans, Life Income Funds, Locked-in Retirement Accounts, or Registered Retirement Income Funds, will be changed to Industrial Alliance Trust Inc., or to Natcan Trust Company if their accounts are Registered Education Savings Plans or Registered Disability Savings Plans.

28.          Neither the Exemption Sought nor the Derivatives Exemption Sought will have any negative con-sequences on the ability of SCI or IAS to comply with any applicable regulatory requirements or their ability to satisfy any obligations in respect of their clients.

29.          At the time of the Bulk Transfer, all of the Transferred Representatives will be the only dealing representatives of the HollisWealth Division and the Transferred Business Locations will be the only branches and sub-branches of the HollisWealth Division. Accordingly, the transfer of the Transferred Registered Representatives and Transferred Business Locations on the Completion Date by means of the Bulk Transfer can be implemented without any significant disruption to the activities of the Transferred Representatives, the Transferred Business Locations, or the Filers.

30.          Given the number of Transferred Representatives and Transferred Business Locations to be transferred from SCI to IAS on the Completion Date, it would be unduly time consuming and difficult to transfer each of the Transferred Representatives and Transferred Business Loca-tions through the National Registration Database in accordance with the requirements of NI 33-109 if the Exemption Sought and the Derivatives Exemption Sought is not granted.

31.          IAS and SCI are each registered as investment dealers in each Jurisdiction. This will allow the transfer of all of the HollisWealth Division clients to IAS, and will afford the opportunity to seamlessly transfer the Transferred Representatives and Transferred Business Locations to IAS, on the Completion Date by way of a Bulk Transfer while at the same time ensuring that there is no interruption in registration.

32.          Allowing the Bulk Transfer of the Transferred Representatives and Transferred Business Locations to occur on the Completion Date will benefit (and is anticipated to have no detrimental impact on) the clients of the Filers by facilitating seamless service on the part of the Transferred Representatives and the Filers.

33.          The HollisWealth Division and IAS will continue to comply with all applicable Legislation and Québec derivatives legislation.

34.          The Transaction will not proceed without the prior non-objection or approval of the Principal Decision Maker, the Ontario Decision Maker, and IIROC.

35.          As mentioned above, the HollisWealth Division clients have been, or will be, made aware of the Transaction via: (i) a press release; and (ii) their receipt of the notice required under Section 14.11 of NI 31-103 and IIROC’s client account bulk transfer protocols.

36.          The Exemption Sought and the Derivatives Exemption Sought comply with the requirements of, and the reasons for, a bulk transfer as set out in Section 3.4 of the Companion Policy to NI 33-109 and Appendix C thereto.

Decision

Each of the Dual Decision Makers is satisfied that the following decisions meet the tests set out in the Legislation and the Derivatives Act (Québec), as applicable, for each of them to make the following decisions.

The decision of the Dual Decision Makers under the Legislation is that the Exemption Sought is granted provided that the Filers make acceptable arrangements with CGI Information Systems and Management Consultants Inc. in respect of the Bulk Transfer and that the Filers make these arrangements in advance of the Bulk Transfer.

The decision of the Principal Decision Maker under the Derivatives Act (Québec) is that the Derivatives Exemption Sought is granted provided that the Filers make acceptable arrangements with CGI Information Systems and Management Consultants Inc. in respect of the Bulk Transfer and that the Filers make these arrangements in advance of the Bulk Transfer.

“Eric Stevenson”
Superintendent, Client Services and Distribution Oversight