NOTICE OF PROPOSED RULE 31-508
Substance and Purpose of Proposed Rule
The substance and purpose of the proposed Rule are to introduce a permanentregistration system under the Securities Act (Ontario) (the "Act"). The Rule is being madein conjunction with a proposed National Instrument 31-101 Mutual Reliance ReviewSystem for Registration. The proposed Rule is intended to be adopted in some form in alljurisdictions in Canada.
The proposed Rule is new and is based in part on the permanent registration model underthe Securities Act (Quebec).
Summary of Proposed Rule
The proposed Rule creates a permanent registration system in Ontario. It requires aregistrant to deliver information to the Director that is necessary for the Director to ensurethat continued registration is appropriate and also to assist in the calculation of the annualfees that will continue to be payable on its annual delivery date. A registrant's annualdelivery date is either ninety (90) days after its financial year-end, or if it is not required tofile financial statements, it's registration anniversary date. The materials are the samematerials that are required to be delivered on annual renewals. However, under theproposed Rule these materials, the financial statements and fees are all filed at the sametime rather than on three separate dates as the current system requires.
Failure to deliver any of the prescribed materials will result in an automatic suspension ofthe registration of the firm and all it's individual registrants. The firm's registration may bereinstated if within ninety-one (91) days of the date on which the prescribed materials wererequired to be delivered to the Director they are so delivered and the Director approvesthe reinstatement. Failure to deliver the prescribed materials within ninety (90) days of therequired date will result in a termination of the registrant's registration.
The proposed Rule also provides that an individual registrant's registration is suspendedwhen he or she ceases to be employed by a firm registrant or the registration of his or hersponsoring firm is suspended. An individual's registration may be reinstated once theindividual becomes employed by a new sponsoring firm, or in the case of a suspension asa result of the sponsoring firm being suspended, upon the reinstatement of the sponsoringfirm's license. Reinstatement with a new sponsoring firm is subject to approval by theDirector.
As a result of the proposed regulation revocations set forth below, the current two (2) yearperiod under which a suspended license may be reinstated will be shortened to the ninety(90) day period set forth in the Rule.
The proposed Rule is related to proposed National Instrument 31-101 Mutual RelianceReview System for Registration.
Regulations to be Amended and Revoked
The Commission will revoke subsections 130(1),(2),(2.1) and (3), subsections 131(1) and(2), subsections 132(1), (2), (3), subsections 133(1) and (2), section 139 and section 140of the Regulations. The Commission will amend subsection 9(4) of Schedule 1 to the Actto make it consistent with the Rule and to provide that adjustments to annual registrationfees must be paid by the registrant on its annual delivery date.
Authority for Proposed Rule
The following provisions of the Act provide the Commission with authority to make theproposed Rule. Paragraph 143(1)1 of the Act authorizes the Commission to make rulesprescribing requirements in respect of applications for registration and the renewal,amendment, expiration or surrender of registration and in respect of suspension,cancellation or reinstatement of registration. Paragraph 143(1)2 of the Act authorizes theCommission to make rules prescribing the conditions of registration or other requirementsfor registrants or any category or sub-category of registrant.
In the process of the reformulation project, the Commission did not consider any otheralternatives.
In proposing the Rule, the Commission has not relied on any significant unpublished study,report, decision or other written materials.
Anticipated Costs and Benefits
The proposed Rule is intended to provide a benefit to registrants by streamlining theprocess for annual filings through a permanent registration model rather than annualrenewals. If implemented on a national basis, the benefit should be significant.
Interested parties are invited to make written submissions with respect to the proposedRule. Submissions received by September 25, 1998 will be considered.
Submissions should be made in duplicate to:Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
A diskette containing the submissions (in DOS or Windows format, preferablyWordPerfect) should also be submitted. As the Act requires that a summary of writtencomments received during the comment period be published, confidentiality ofsubmissions cannot be maintained.
Questions may be referred to:Nancy Ross
Legal Advisor, Registration
Ontario Securities Commission
The text of the proposed Rule follows, together with footnotes that are not part of the Rulebut have been included to provide background and explanation.
DATED: June 26, 1998.
PART 1 DEFINITIONS
1.1 Definitions - In this Rule
"annual delivery date" means for a firm registrant that is
(a) required to deliver financial information under this Rule, the day thatis ninety days following the firm registrant's financial year end; and
(b) not required to deliver financial information under this Rule, theanniversary date of the firm registrant's registration under the Act or,if the firm registrant is the successor of an amalgamation or mergerof two or more registrants, the anniversary date of the latest of theanniversary dates of the predecessor registrants;
"firm registrant" means a person or company that is registered as a dealer,adviser or underwriter;
"individual registrant" means an individual registered to trade or advise onbehalf of a firm registrant; and
"sponsoring firm" for an individual registrant of a dealer, adviser orunderwriter means the firm registrant with which the individual registrant isemployed or of which the individual registrant is a director or officer.
PART 2 REGISTRATION TERM AND SUSPENSIONS
2.1 Permanent Registration - Registration continues until it is terminated.
2.2 Annual Delivery Requirements
(1) A firm registrant, other than an international dealer, shall deliver tothe Director the following on the firm registrant's annual delivery date:
(a) a list in alphabetical order of the names of all registeredsalespersons of the firm and the branch office location foreach registered salesperson;
(b) a list in alphabetical order of the names of all registereddirectors, partners and officers of the firm and the branchoffice location for each registered officer and partner;
(c) a list in alphabetical order of all directors and non registeredpartners and officers of the firm; and
(d) a list of all branch locations of the firm listing eachsalesperson, partner and officer employed at the branch andidentifying the branch manager for the branch.
(2) A firm registrant, other than a security issuer, shall deliver thefollowing to the Director on the firm registrant's annual delivery date:
(a) the audited annual financial statements for the firm for theimmediately preceding financial year; and
(b) all other financial information and reports required to bedelivered to the Commission by the firm under sections 141and 142 of the Regulation.(3)
(3) A firm registrant, other than a limited market dealer, an internationaldealer, an international adviser or a securities adviser shall deliverthe following to the Director on the firm registrant's annual deliverydate:
(a) a copy of the insurance policy or bond evidencing compliancewith section 108 of the Regulation; and
(b) a certified copy of a resolution of the directors of the firmstating that full consideration has been given to the amount ofinsurance or bonding necessary to cover insurable risks in thebusiness of the firm and that either,
(i) the minimum amount of coverage required by theRegulation is sufficient; or
(ii) the minimum amount of coverage required by theRegulation is not sufficient but that the amount ofcoverage maintained is sufficient.(4)
(4) A firm registrant shall deliver to the Director on the firm registrant'sannual delivery date the annual registration fees required underOntario securities law.
(5) A firm registrant shall within thirty days after it receives informationfrom the Commission relating to information to be set out in thematerials required to be delivered by it under subsection (1), send anotice to the Director advising the Director of any discrepanciesbetween the information received from the Commission andinformation in the registrant's records.
2.3 Suspension of Firm Registrant
(1) A firm registrant shall ensure that the information in the materialsdelivered to the Director under subsections 2.2(1), (3) and (5) areaccurate as at the date that is ninety days before its annual deliverydate.
(2) If a firm registrant does not deliver to the Director the materialsrequired under subsections 2.2(1), (2), (3) or (4) on its annualdelivery date, the firm's registration is automatically suspended on theday after its annual delivery date.
(3) The Director may reinstate the registration of the firm registrant if thefirm registrant delivers to the Director the materials required to bedelivered to the Director under subsections 2.2(1), (2), (3) and (4)before the date that is ninety days after the firm registrant's annualdelivery date.(5)
(4) If a firm registrant does not deliver to the Director the materialsrequired to be delivered to the Director under subsections 2.2(1), (2),(3) or (4), the registration of a firm registrant is terminated on the datethat is ninety-one days after the firm registrant's annual delivery date.
2.4 Suspension of Individual Registrations
(1) The registration of an individual registrant is suspended on the datewhen:
(a) he or she ceases to be employed by his or her sponsoringfirm; or
(b) the registration of his or her sponsoring firm is suspended,terminated or expires.
(2) The registration of an individual registrant shall be reinstated on thedate when:
(a) if the registration was suspended as a result of clause2.4(1)(a), the Director has received a notice from a sponsoringfirm that the individual will be employed by the sponsoring firmand the reinstatement is approved by the Director; or
(b) if the registration was suspended as a result of clause2.4(1)(b), the registration of the sponsoring firm is reinstated.(6)
2.5 Hearing - If the registration of a firm registrant or individual registrant hasbeen suspended under this Rule, the registration continues
(a) if a hearing is commenced under the Act relating to the registration,until a decision is issued; or
(b) if the registrant exercises its right under the Act to be heard, until adecision is issued;
PART 3 EXEMPTION
3.1 Exemption - The Director may grant an exemption to this Rule, in whole orin part, subject to such conditions or restrictions as may be imposed in theexemption.
1 This Rule is new. It is intended to create a permanent registration system to replace the currentannual renewal system of registration. It is being adopted as a rule in Ontario, and the otherCanadian securities regulatory authorities, except Quebec which already has a permanent registrationsystem and the Northwest Territories which requires legislative change, are expected to amend theirregulations or rules or implement a blanket ruling or order to create a similar system in theirrespective jurisdiction. In the Northwest Territories, a legislative amendment will be proposed.
2 A general definition rule has been adopted as Rule 14-501 Definitions. It contains definitions ofcertain terms used in more than one rule. Rule 14-501 also provides, among other things, thatterms used in a rule and defined in Section 1 of the Securities Act or subsection 1(2) of theRegulation will have the respective meaning given to them in the Securities Act or Regulation, asappropriate.
3These sections of the Regulation state the form of other financial information to be provided byspecific categories of registrants.
4 This section is derived from subsection 108(4) of the Regulation.
5 Under subsection 26(3) of the Act, the Director cannot refuse to grant reinstatement of registrationwithout providing the registrant with an opportunity to be heard.
6 This provision is derived from subsection 25(2) of the Act but is expanded to include all individualregistrants. The references in the Act and the Regulation to "renewals" will become redundant asa result of the proposed Rule. See for example subsections 26(1) and (3), and section 29 of the Actand subsections 108(4) and (5) and 127(1) of the Regulation.