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Final Rule (effective December 23, 1998): OSC Rule - 31-505 - Conditions of Registration
Final Rule (effective December 23, 1998): OSC Rule - 31-505 - Conditions of Registration
ONTARIO SECURITIES COMMISSION RULE 31-505
PART 1 NEW ACCOUNTS AND SUPERVISION
1.1 Recognized Self-Regulatory Organization and Recognized StockExchange Member
(1) A member of The Toronto Stock Exchange may comply with arequirement of this Part by complying with a by-law, rule, regulation,policy, procedure, interpretation or practice of The Toronto StockExchange dealing with the same subject matter as that requirementthat has been approved by the Commission and published by TheToronto Stock Exchange.
(2) A member of the Investment Dealers Association of Canada maycomply with a requirement of this Part by complying with a by-law,rule, regulation, policy, procedure, interpretation or practice of theInvestment Dealers Association of Canada dealing with the samesubject matter as that requirement that has been approved by theCommission and published by the Investment Dealers Association ofCanada.
1.2 Dealing with Clients - A registered dealer or adviser shall establish andenforce written procedures for dealing with clients that conform with prudentbusiness practice and enable the dealer or adviser to serve its clientsadequately.
1.3 Designation of Compliance Officer
(1) A registered dealer or adviser shall designate a registered partner orofficer as the compliance officer who is responsible for dischargingthe obligations of the registered dealer or adviser under Ontariosecurities law.
(2) The person designated under subsection (1) by a registered dealer oradviser shall also be responsible for opening each new account,supervising trades made for or with each client and supervising adviceprovided to each client or, if a branch manager is designated undersubsection 1.4(1), for supervising the branch manager's conduct ofthe activities specified in subsection 1.4(2).
(3) Despite subsections (1) and (2), the designated compliance officermay delegate supervisory functions to an individual who reports to thecompliance officer and who meets the proficiency requirements underRule 31-502 Proficiency Requirements for Registrants for asalesperson in the same category of registration as the dealer or anofficer in the same category of registration as the adviser, that has ineach case designated the compliance officer.
(4) An applicant for registration or reinstatement of registration as adealer or adviser shall deliver to the Commission, with the application,written notice of the name of the person proposed to be designatedunder subsection (1).
1.4 Branch Manager
(1) If a registered dealer or adviser operates a branch office, theregistered dealer or adviser shall designate a registered salesperson,officer or partner as the branch manager for the branch.
(2) A branch manager is responsible for the branch for opening newaccounts, supervising trades made for or with each client andsupervising advice provided to each client and shall report directly tothe compliance officer designated under section 1.3.
(3) An applicant for registration or reinstatement of registration as adealer or adviser that proposes to operate a branch office shall deliverto the Commission, with the application, written notice of the name ofthe person proposed to be designated under subsection (1).
(4) Despite subsection (1), a mutual fund dealer that has appointed anadministration officer for a branch in accordance with the Policy of theCommission entitled "Principles of Regulations Re: Distribution ofMutual Funds by Financial Institutions" is not required to designate abranch manager for the branch until the date on which theCommission makes a rule replacing the Policy.
1.5 Know your Client and Suitability
(1) A person or company that is registered as a dealer or adviser and anindividual that is registered as a salesperson, officer or partner of aregistered dealer or as an officer or partner of a registered advisershall make such enquiries about each client of that registrant as
(a) subject to section 1.6, enable the registrant to establish theidentity and the creditworthiness of the client, and thereputation of the client if information known to the registrantcauses doubt as to whether the client is of good reputation;and
(b) subject to section 1.7, are appropriate, in view of the nature ofthe client's investments and of the type of transaction beingeffected for the client's account, to ascertain the generalinvestment needs and objectives of the client and the suitabilityof a proposed purchase or sale of a security for the client.
(2) Despite paragraph (1)(a) a registrant is not required to make enquiriesas to the creditworthiness of a client if the registrant is not financingthe acquisition of securities by the client.
1.6 Managed Accounts
(1) For each account with a registered dealer opened and traded by aregistered adviser on behalf of a client, each of the dealer, and asalesperson, officer or partner responsible for the account, shalldetermine that the adviser is creditworthy, but does not have anyresponsibility under paragraph 1.5(1)(a) if the adviser executes ordersin the adviser's name or identifies its client by means of a code orsymbols or guarantees the account.
(2) For each account with a registered dealer opened and traded by aregistered adviser on behalf of a client with no agreement thatpayment of the account is guaranteed by the adviser, each of thedealer that executes orders in the name of the client, and asalesperson, officer or partner responsible for the account, does nothave any responsibility under paragraph 1.5(1)(a), but shall obtain
(a) full information concerning the client to enable the registrant toestablish the identity and the creditworthiness of the client; or
(b) from the adviser
(i) a letter confirming the familiarity of the adviser withapplicable Ontario securities law, requirements of self-regulatory organizations and requirements of theadviser for account supervision, and
(ii) a written undertaking to make the investigationscontemplated by those requirements and to advise, ifknown, whether the client is an insider of a reportingissuer or an employee, director, officer or partner of aperson or company engaged in the securities businessand the details of the relationship.
(3) An adviser shall for each account with a registered dealer opened andtraded by the registered adviser on behalf of a client ask the client ifthe client is an insider of a reporting issuer or an employee, director,officer or partner of a person or company engaged in the securitiesbusiness and the details of the relationship.
1.7 Execution of Trades and Instruction - Paragraph 1.5(1)(b) does not applyto a registered dealer or a registered salesperson, partner or officer of aregistered dealer that executes a trade on the instruction of a registeredadviser, another registered dealer or a Canadian financial institution.
PART 2 GENERAL DUTIES
2.1 General Duties
(1) A registered dealer or adviser shall deal fairly, honestly and in goodfaith with its clients.
(2) A registered salesperson, officer or partner of a registered dealer ora registered officer or partner of a registered adviser shall deal fairly,honestly and in good faith with his or her clients.
(3) A registered salesperson, officer or partner of a registered dealer ora registered officer or partner of a registered adviser shall not act onbehalf of the dealer or adviser in a transaction of the dealer or adviserthat is not in compliance with Part XIII of the Regulation andMultilateral Instrument 33-105 Underwriting Conflicts or this Rule.
PART 3 SUPERVISORY TERMS
3.1 Supervisory Terms - A registered dealer shall supervise each of itsregistered salespersons, officers and partners and a registered adviser shallsupervise each of its registered officers and partners in accordance withOntario securities law and terms or conditions imposed by the Director or theCommission on the registration of the salesperson, officer or partner of thedealer or the officer or partner of the adviser requiring that the actions of theregistered salesperson, officer or partner of the registered dealer or theregistered officer or partner of the registered adviser be supervised in aparticular manner.
PART 4 EXEMPTION
4.1 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.
PART TITLE PAGE
PART 1 NEW ACCOUNTS AND SUPERVISION 1
1.1 Recognized Self-Regulatory Organization andRecognized Stock Exchange Member 1
1.2 Dealing with Clients 1
1.3 Designation of Compliance Officer 1
1.4 Branch Manager 2
1.5 Know your Client and Suitability 3
1.6 Managed Accounts 3
1.7 Execution of Trades and Instruction 4
PART 2 GENERAL DUTIES 5
2.1 General Duties 5
PART 3 SUPERVISORY TERMS 5
3.1 Supervisory Terms 5
PART 4 EXEMPTION 5
4.1 Exemption 5
Note: Since January 1, 1997, Regulation 1015 has been amended by OntarioRegulations 247/97, 507/97, 88/98, 130/98, 149/98, 165/98, 166/98, 268/98and 542/98.
1. Sections 114, 125, 221 and 222 of Regulation 1015 of the RevisedRegulations of Ontario, 1990 are revoked.
2. This Regulation comes into force on the same day as the rule madeby the Ontario Securities Commission on October 9, 1998 entitled "OntarioSecurities Commission Rule 31-505 Conditions of Registration".
Note: The rule made by the Ontario Securities Commission on October 9,1998 entitled "Ontario Securities Commission Rule 31-505Conditions of Registration" comes into force on December 23, 1998.