Securities Law & Instruments



NOTICE OF NATIONAL INSTRUMENT 35-101 AND
COMPANION POLICY 35-101CP CONDITIONAL EXEMPTION FROM
REGISTRATION FOR UNITED STATES BROKER-DEALERS AND AGENTS

 

Notice of National Instrument and Companion Policy

The Commission has made National Instrument 35-101 Conditional Exemption from Registration for United States Broker-Dealers and Agents (the "National Instrument") under section 143 of the Securities Act (the "Act").

The National Instrument and the material required by the Act to be delivered to the Minister of Finance were delivered on October 25, 2000. If the Minister does not approve the National Instrument, does not reject the National Instrument or return it to the Commission for further consideration by December 24, 2000 the National Instrument will come into force on January 8, 2001. If the Minister approves the National Instrument on or before December 17, 2000, the National Instrument will come into force, pursuant to section 5.1 of the National Instrument, on January 1, 2001.

The Commission has adopted Companion Policy 35-101CP Conditional Exemption from Registration for United States Broker-Dealers and Agents (the "Companion Policy") under section 143.8 of the Act. The Companion Policy will come into force on the date that the National Instrument comes into force.

The National Instrument and Companion Policy are being adopted by all members of the Canadian Securities Administrators (the "CSA").

Substance and Purpose of National Instrument and Companion Policy

The substance and purpose of the National Instrument are to provide United States of America (the "U.S.A.") broker-dealers and their agents with a conditional exemption from the applicable registration and prospectus requirements under Canadian securities legislation in order to facilitate certain cross-border trading in foreign securities between U.S.A. broker-dealers and their clients from the U.S.A. who are present in a Canadian jurisdiction (the "exemption").

Summary of National Instrument and Companion Policy

The National Instrument provides certain U.S.A. broker-dealers and their agents with an exemption from the applicable registration and prospectus requirements under Canadian securities legislation. Under the exemption, a U.S.A. broker-dealer and its agents may engage in specific types of cross-border trading activities in foreign securities.

Each of the Canadian securities regulatory authorities retains the authority to revoke the exemptions, subject to applicable statutory provisions governing hearings and reviews, as it applies to a particular broker-dealer or agent if it considers the broker-dealer's or agent's conduct to be contrary to the public interest.

The Companion Policy advises that the CSA are of the view that a person does not normally cease to be "ordinarily resident" in the U.S.A. while retaining status as "temporarily resident" in Canada under the National Instrument. The Companion Policy also provides guidance on the operation of the exemptive relief provided in the National Instrument and information about the types of inquiries the CSA may make about past conduct of broker-dealers and their agents in Canada.

Related Instruments

The National Instrument and Companion Policy are related. The Companion Policy is also related to section 127 of the Securities Act (Ontario).

Text of National Instrument and Companion Policy

The text of the National Instrument and Companion Policy follow.


Dated
: November 17, 2000.

 

APPENDIX A TO NOTICE 35-101
CONDITIONAL EXEMPTION FROM REGISTRATION
FOR UNITED STATES BROKER-DEALERS AND AGENTS

Summary of Comments Received

During the comment period, which ended January 19, 1998, the CSA received 36 comment letters. Below is a summary of the comments received, accompanied by CSA responses.

1.Reciprocity

Every comment letter addressed the issue of ensuring that Canadian dealers received reciprocal treatment from U.S.A. state and federal securities authorities.

At the time of the request for comments twelve state securities authorities had implemented substantially similar regulatory accommodations but the Securities and Exchange Commission (the "SEC") had yet to do so.

Twenty-three comment letters recommended that unless the SEC's restriction was lifted, the implementation of that part of the National Instrument relating to individual's tax-advantaged retirement savings plans should be delayed.

Seven comment letters urged the CSA to defer making any part of the National Instrument effective until U.S.A. state and federal securities authorities granted reciprocity to Canadians who are either:

(i)temporarily resident in the U.S.A.; or

(ii)permanent residents in the U.S.A. and holding assets in Canadian tax-advantaged accounts.

One commenter recommended amending the National Instrument to provide that the exemptions apply only to broker-dealers in jurisdictions which afford reciprocal relief to Canadian SRO-member dealers.

Another commenter suggested that the CSA should proceed with the implementation of the National Instrument with a "sunset provision" with the express intention that the CSA will consider withdrawing the National Instrument after a prescribed period of time in the event that the reciprocity in the U.S.A. is not achieved to the CSA's satisfaction.

CSA response:

The SEC has adopted new Rule 237 under the Securities Act of 1933, new Rule 7d-2 under the Investment Company Act and amendments to Rule 12g3-2 under the Securities Exchange Act of 1934. The SEC has also issued an order conditionally exempting Canadian dealers that are members of the Investment Dealers Association or of a Canadian exchange from the broker-dealer registration requirements and related provisions of the Securities Exchange Act of 1934 to the extent they effect transactions for Canadian tax-deferred individual retirement accounts. Currently, twenty-four state securities regulators provide a form of reciprocal relief.

The relief provided by the National Instrument is broader than the relief provided by the SEC in that the exemptions from registration requirements are limited to transactions involving Canadian tax-deferred retirement accounts. Therefore, except as permitted under Rule 15a-6, Canadian residents temporarily in the United States are not able to manage their investments in Canadian accounts that are not tax-deferred retirement accounts. By contrast, U.S. residents temporarily in Canada will be able to manage all of their accounts with their U.S. broker-dealers. The CSA have asked the SEC to expand its relief so as to harmonize completely with that provided in the National Instrument.

The exemptions provided by the National Instrument will be extended to broker-dealers in all U.S.A. jurisdictions. At the expiration of two years from the effective date, the National Instrument will be revisited and may be amended to provide that the exemptions will be applied only to U.S.A. jurisdictions which provide reciprocal relief to Canadian SRO-member
dealers.

2.Inquiries Regarding Past Activities

One commenter expressed concern respecting the lack of reciprocity of the waiver of possible past registration transgressions set out in Part 4 of the Companion Policy. The commenter stated that only certain state securities regulators in the U.S.A. have agreed not to make inquiries of Canadian dealers or salespersons on a reciprocal basis. In light of this, the commenter recommended that the CSA consider withholding its agreement not to make enquiries concerning possible failures to register in respect of past trading activities until a greater degree of reciprocity is achieved in the U.S.A.

CSA response:

The proposal approved by the members of the North American Securities Administrators Association ("NASAA") in 1995, which is the genesis of the National Instrument, had included a notice to be issued by each participating securities regulatory authority stating that it would not make inquiries into any possible failure to register in the state, province or territory in relation to past trading activities up to a certain time. The purpose of the waiver is to encourage the participation of all broker-dealers and their agents who are acting under the National Instrument. By withholding its agreement not to make enquiries concerning the CSA believes that it would discourage the participation of some broker-dealers and their agents.

3.Documentation and Agent for Services

(a) One commenter addressed the requirement in former section 2.4 of the National Instrument that the broker-dealer deliver the most recent copy of its Form BD, evidence of membership in a National Association of Securities Dealers and evidence that the broker-dealer is registered in the U.S.A. state from which the trade took place. The commenter questioned the utility of requiring these materials to be delivered stating that, among other things, the utility of requiring materials to be delivered will likely not outweigh the burden of reviewing and maintaining them.

CSA response:

Former sections 2.4 and 3.2 (now sections 2.1(f) and 3.1(f)) have been amended such that materials required to be delivered would be limited to a one page notice that registrants are using the exemption and a certificate stating that they are registered in the state from which the trade took place.

(b) One commenter suggested that the CSA may not wish to impose a requirement that the broker-dealer has an agent for service of process in each Canadian jurisdiction in which the broker-dealer has clients pursuant to this exemption. The commenter questioned the need for agents for service of process given that the customers accessed pursuant to the National Instrument are those which have pre-existing relationships with the broker-dealer and are well aware that they are not dealing with a Canadian dealer. The commenter suggested that the CSA may instead wish to require that the broker-dealer indicate in their prescribed client disclosure statement that they have not submitted to the Canadian jurisdiction or appointed an agent for service therein.

CSA response:

It is the opinion of the CSA that it is integral to the protection of investors in Canadian jurisdictions to ensure that their U.S.A. broker-dealers and salespersons have submitted to the Canadian jurisdiction and have appointed an agent for service in each jurisdiction in which business is conducted.

4.Solicitations

Section 2.2 of the published draft of the proposed National Instrument (now section 2.1(e)) read as follows:

"The broker-dealer shall not advertise for or solicit new accounts in any jurisdiction."

A commenter suggested that if the intention is to preclude solicitation of accounts with individuals other than pre-existing clients of the U.S.A. broker-dealer, the phrase "new accounts" is overly broad and could be replaced by "new clients". The commenter argued that a broker-dealer should not be precluded from soliciting new business from an existing client that becomes a temporary resident in Canada provided that any resulting trades are made in compliance with the exemptions provided in section 2.1 of the National Instrument.

CSA response:

The CSA agree with this comment and the recommended amendment has been made to the National Instrument.

5.Ordinarily Resident

One commenter recommended that the CSA consider whether it is appropriate to require that an individual be "ordinarily resident" in the U.S.A. in order for the exemption set forth in clause 2.1(c)(i) of the National Instrument to be available or whether it would be sufficient to require that the individual be "temporarily resident" in Canada and previously resident in the U.S.A. The commenter suggested the CSA should either:

(i)confirm or clarify that it would not be possible to cease to be "ordinarily resident" in the U.S.A. and to remain "temporarily resident" in Canada; or

(ii)consider amending clause 2.1(c)(i) to ensure that all temporary work assignments, particularly those of longer duration, are covered by the exemption, regardless of the individual's residency status in the U.S.A.

CSA response:

The Companion Policy has been amended to clarify that it is the CSA's view that it would not be possible to cease to be "ordinarily resident" in the U.S.A. while still retaining status as a U.S.A. resident "temporarily resident" in Canada under the National Instrument.

6.Relief for Advising Activities

One commenter is of the view that many of the advising activities which the U.S.A. broker-dealers and advisers might seek to conduct with their U.S.A. clients that become resident in Canada, temporarily or otherwise, would not likely fall within the exemption provided by section 2.1 of the National Instrument, since these activities would not be solely incidental to trades made pursuant to the section 2.1 exemption. The commenter is concerned that advising activities may have been overlooked as a meaningful area of investment activity, and believes that due consideration be given to providing corollary relief in respect of these activities.

CSA response:

The CSA does not want to broaden exemptions from registration for advising activities.
Sections 2.3 and 3.3 permit advising activities which are incidental to broker-dealer and agent activities on the same basis that it is permitted for domestic registrants.

 

APPENDIX B TO NOTICE 35-101
CONDITIONAL EXEMPTION FROM REGISTRATION
FOR UNITED STATES BROKER-DEALERS AND AGENTS

The CSA received comment letters from the following parties:

1.CT Securities International Inc.
2.Pope & Company
3.Caldwell Securities Ltd.
4.Research Capital Corporation
5.TD Securities Inc.
6.RBC Dominion Securities Inc.
7.Investment Dealers Association of Canada
8.Thomas Kernaghan & Co. Limited
9.MacDougall, MacDougall & MacTier Inc.
10.Acker Finley Inc.
11.Sprott Securities Limited
12.Royal Bank Action Direct Inc.
13.Loewen, Ondaatje, McCutcheon Limited
14.Goepel Shields & Partners Inc.
15.MD Management Limited
16.Maison Placements Canada Inc.
17.CIBC Securities Inc.
18.Ocean Securities Inc.
19.The Investment Funds Institute of Canada
20.Nesbitt Burns Inc.
21.Scotia Securities Inc.
22.Merrill Lynch Canada Inc.
23.Midland Walwyn Capital Inc.
24.Canadian Bankers Association
25.MMI Group Inc.
26.ScotiaMcLeod Inc.
27.The Vancouver Stock Exchange
28.TD Asset Management Inc.
29.CT Investment Management Group Inc.
30.Investment Dealers Association of Canada - Saskatchewan District Council
31.Deacon Capital Corporation
32.Osler, Hoskin & Harcourt
33.Investment Dealers Association of Canada - Manitoba District Council
34.Nomvra Canada Inc.
35.Valeurs mobiliäres Desjardins
36.Department of Finance Canada

 

NATIONAL INSTRUMENT 35-101
CONDITIONAL EXEMPTION FROM REGISTRATION FOR
UNITED STATES BROKER-DEALERS AND AGENTS

TABLE OF CONTENTS

PARTTITLE

PART 1DEFINITIONS
1.1Definitions

PART 2BROKER-DEALER EXEMPTION
2.1Exemption from Dealer Registration Requirement
2.2Termination Notice
2.3Exemption from Adviser Registration Requirement

PART 3AGENTS EXEMPTION
3.1Agents Exemption
3.2Termination Notice
3.3Exemption from Adviser Registration Requirement

PART 4EXEMPTION FROM PROSPECTUS AND UNDERWRITER REQUIREMENTS
4.1Exemption from Prospectus and Underwriter Requirements

PART 5 EFFECTIVE DATE
5.1Effective Date

 

NATIONAL INSTRUMENT 35-101
CONDITIONAL EXEMPTION FROM REGISTRATION FOR
UNITED STATES BROKER-DEALERS AND AGENTS

PART 1DEFINITIONS

1.1Definitions - In this Instrument,

"agent" means a partner, officer, director or salesperson of a broker-dealer who is acting on behalf of a broker-dealer in effecting trades of securities;

"broker-dealer" means a "broker" or "dealer", as those terms are defined in the 1934 Act, that has its principal place of business in the United States of America;

"foreign security" means a security

(a)that is listed for trading or quoted on an exchange or market outside of Canada; or

(b)of an issuer that is not incorporated, continued or organized under the laws of Canada or a jurisdiction of Canada; and

"NASD" means the National Association of Securities Dealers in the United States of America.


PART 2BROKER-DEALER EXEMPTION

2.1Exemption from Dealer Registration Requirement - The dealer registration requirement does not apply to a broker-dealer if

(a)the broker-dealer has no office or other physical presence in any jurisdiction in Canada;

(b)the broker-dealer is trading in a foreign security;

(c)the trading is with or for

(i)an individual ordinarily resident in the United States of America who is temporarily resident in the local jurisdiction and with whom the broker-dealer had a broker-dealer client relationship before the individual became temporarily resident in the local jurisdiction; or

(ii)an individual if the trade is for the individual's tax-advantaged retirement savings plan or with the individual's tax-advantaged retirement savings plan, and

(i)the plan is located in the United States of America,

(ii)the individual is a holder of or contributor to the plan, and

(iii)the individual was previously resident in the United States of America;

(d)the broker-dealer has not advertised for or solicited new clients in the local jurisdiction;

(e)the broker-dealer is a member of the NASD;

(f)the broker-dealer has delivered, or immediately after the broker-dealer first relies on this section delivers, to the securities regulatory authority

(i)a notice that the broker-dealer is relying on an exemption from the registration requirement provided under this Instrument;

(ii)a statement of the broker-dealer certifying that the broker-dealer is registered in the state of the United States of America where the broker-dealer was located when the broker-dealer first relied on this section; and

(iii)an executed Form 35-101F1 Submission to Jurisdiction and Appointment of Agent for Service of Process;

(g)the broker-dealer has delivered a notice to the securities regulatory authority describing any criminal or quasi-criminal proceeding brought against the broker-dealer or its agents in any jurisdiction or foreign jurisdiction, or of any decision, order, ruling, or other requirement made with respect to or imposed on the broker-dealer or its agents in a jurisdiction or foreign jurisdiction as a result of any administrative, self-regulatory or regulatory action, hearing or proceeding involving fraud, theft, deceit, misrepresentation or similar conduct;

(h)the broker-dealer has disclosed to the client that the broker-dealer and its agents are not subject to the full regulatory requirements otherwise applicable under local securities legislation; and

(i)the broker-dealer, in the course of its dealings with clients, acts fairly, honestly and in good faith.

2.2Termination Notice - A broker-dealer shall immediately notify the securities regulatory authority if the broker-dealer will no longer engage in trading or advising activities under section 2.1.

2.3Exemption from Adviser Registration Requirement - The adviser registration requirement does not apply to advising activities of the broker-dealer if those activities are solely incidental to trading activities of the broker-dealer under section 2.1.

PART 3AGENTS EXEMPTION

3.1Agents Exemption
- The dealer registration requirement does not apply to an agent if

(a) the trading is on behalf of a broker-dealer that has notified the agent of its intent to rely on the exemption under section 2.1;

(b)the agent has no office or other physical presence in any jurisdiction in Canada;

(c)the agent is trading in a foreign security;

(d)the trading is with or for

(i)an individual ordinarily resident in the United States of America who is temporarily resident in the local jurisdiction and with whom the broker-dealer on whose behalf the agent is trading had a broker-dealer client relationship before the individual became temporarily resident in the local jurisdiction; or

(ii)an individual if the trade is for the individual's tax-advantaged retirement savings plan or with the individual's tax-advantaged retirement savings plan, and

(i)the plan is located in the United States of America,

(ii)the individual is a holder of or contributor to the plan, and

(iii)the individual was previously resident in the United States of America;

(e)the agent has not advertised for or solicited new clients in the local jurisdiction;

(f)the agent has delivered, or immediately after the agent first relied on this section delivers, to the securities regulatory authority

(i) a notice that the agent is relying on this Instrument for an exemption from the registration requirement;

(ii)a statement of the agent certifying that the agent is registered in the state in the United States of America where the agent was located when the agent first relied on this section; and

(iii)an executed Form 35-101F2 Submission to Jurisdiction and Appointment of Agent for Service of Process;

(g)the agent has delivered a notice to the securities regulatory authority describing any criminal or quasi-criminal proceeding brought against the agent in any jurisdiction or foreign jurisdiction, or of any decision, order, ruling, or other requirement made with respect to or imposed on the agent in a jurisdiction or foreign jurisdiction as a result of any administrative, self-regulatory or regulatory action, hearing or proceeding involving fraud, theft, deceit, misrepresentation or similar conduct;

(h)the agent, in the course of its dealings with the broker-dealer's clients, acts fairly, honestly and in good faith.

3.2Termination Notice - An agent shall immediately notify the securities regulatory authority if the agent will no longer engage in trading or advising activities under section 3.1.

3.3Exemption from Adviser Registration Requirement - The adviser registration requirement does not apply to advising activities of the agent if those activities are solely incidental to trading activities of the agent under section 3.1.


PART 4EXEMPTION FROM PROSPECTUS AND UNDERWRITER REQUIREMENTS

4.1Exemption from Prospectus and Underwriter Requirements
- The prospectus requirement and underwriter registration requirement do not apply to a distribution of foreign securities if that distribution

(a)is made by a broker-dealer or agent that is exempt from the adviser registration requirement and the dealer registration requirement under section 2.1 or 3.1; and

(b)is made in compliance with all applicable

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

(ii)state securities legislation in the United States of America.

PART 5 EFFECTIVE DATE

5.1Effective Date
- This Instrument comes into force on January 1, 2001.

 

NATIONAL INSTRUMENT 35-101
CONDITIONAL EXEMPTION FROM REGISTRATION FOR
UNITED STATES BROKER-DEALERS AND AGENTS

FORM 35-101F1
FORM OF SUBMISSION TO JURISDICTION AND APPOINTMENT
OF AGENT FOR SERVICE OF PROCESS BY BROKER-DEALER

Instructions: Complete this form for each of the jurisdictions in which the broker-dealer seeks the conditional exemption from registration in National Instrument 35-101 (the "exemption"). Insert the name of the jurisdiction at each "o".


1.Name of broker-dealer (the "Broker-Dealer");

2.Jurisdiction of incorporation of the Broker-Dealer;

3.Name of agent for service of process (the "Agent for Service");

4.Address for service of process on the Agent for Service in o;

5.The Broker-Dealer designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the Broker-Dealer's activities in o under the exemption, and irrevocably waives any right to raise as defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

6.The Broker-Dealer irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of o and any administrative proceeding in o, in any Proceeding arising out of or related to or concerning the Broker-Dealer's activities in o under the exemption.

7.Until six years after the Broker-Dealer ceases to use the exemption, the Broker-Dealer shall file:

a.a new Submission to Jurisdiction and Appointment of Agent for Service of Process in this form at least 30 days before termination for any reason of this Submission to Jurisdiction and Appointment of Agent for Service of Process; and

b.An amended Submission to Jurisdiction and Appointment of Agent for Service of Process at least 30 days before any change in the name or above address of the Agent for Service.

8.This submission to Jurisdiction and Appointment of Agent for Service of Process is governed by and construed in accordance with the laws of o.


Dated:
(Signature of Broker-Dealer or
authorized signatory)



(Name and Title of Authorized
Signatory)



Acceptance


The undersigned accepts the appointment as agent for service of process on (Insert name of Broker-Dealer) under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service of Process.



Dated:
(Signature of Agent for Service or
authorized signatory)



(Name and Title of Authorized
Signatory)

 

NATIONAL INSTRUMENT 35-101
CONDITIONAL EXEMPTION FROM REGISTRATION FOR
UNITED STATES BROKER-DEALERS AND AGENTS

FORM 35-101F2
FORM OF SUBMISSION TO JURISDICTION AND
APPOINTMENT OF AGENT FOR SERVICE OF PROCESS
BY AGENTS OF THE BROKER-DEALER

Instructions: Complete this form for each of the jurisdictions in which agents of the broker-dealer seek the conditional exemption from registration in National Instrument 35-101 (the "exemption"). Insert the name of the jurisdiction at each "o".


1.Name of the broker-dealer (the "Broker-Dealer");

2.Jurisdiction of incorporation of the Broker-Dealer;

3.Name(s) and address(es) of agent(s) of the Broker-Dealer filing this form (the "Broker-Dealer Agents");

4.Name of agent for service of process (the "Agent for Service");

5.Address for service of process on the Agent for Service in o;

6.Each Broker-Dealer Agent designates and appoints the Agent for Service at the address of the Agent for Service stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the Broker-Dealer Agent's activities in o under the exemption, and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

7.Each Broker-Dealer Agent irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of o and any administrative proceeding in o, in any Proceeding arising out of or related to or concerning the Broker-Dealer Agent's activities in o under the exemption.

8.Until the earlier of (i) the termination of a Broker-Dealer Agent’s position as an agent of the Broker-Dealer and six years after the Broker-Dealer ceases to use the exemption, the Broker-Dealer Agent shall file:

a.new Submission to Jurisdiction and Appointment of Agent for Service of Process in this form at least 30 days prior to termination for any reason of this Submission to Jurisdiction and Appointment of Agent for Service of Process; and

b.an amended Submission to Jurisdiction and Appointment of Agent for Service of Process at least 30 days before any change in the name or above address of the Agent for Service.

9.This Submission to Jurisdiction and Appointment of Agent for Service of Process is governed by and construed in accordance with the laws of o.


Dated:
(Signature of Broker-Dealer Agent)


Dated:
(Signature of Broker-Dealer Agent)


Dated:
(Signature of Broker-Dealer Agent)


Dated:
(Signature of Broker-Dealer Agent)


Acceptance


The undersigned accepts the appointment as agent for service of process on (Insert name(s) of Broker-Dealer Agent(s)) pursuant to the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service of Process.




Dated:
(Signature of Agent for Service or
authorized signatory)



(Name and Title of Authorized
Signatory)

 

COMPANION POLICY 35-101CP
CONDITIONAL EXEMPTION FROM REGISTRATION FOR
UNITED STATES BROKER-DEALERS AND AGENTS

TABLE OF CONTENTS

PARTTITLE

PART 1INTRODUCTION
1.1Introduction

PART 2GENERAL PRINCIPLES
2.1General
2.2Temporarily Resident
2.3Tax-Advantaged Plans
2.4Prospectus and Underwriter Exemption

PART 3OPERATION OF EXEMPTIVE RELIEF
3.1Affiliates
3.2Limitation of Exemptions
3.3Retention of Authority
3.4Receipt of Documentation
3.5Fees

PART 4 INQUIRIES REGARDING PAST ACTIVITIES
4.1Restricted Activities
4.2Other Activities

 

COMPANION POLICY 35-101CP
CONDITIONAL EXEMPTION FROM REGISTRATION FOR
UNITED STATES BROKER-DEALERS AND AGENTS

PART 1INTRODUCTION

1.1Introduction
- Cross-border trading activities between Canada and the United States of America often take place because of the movement of residents between the two countries. In order to facilitate certain cross-border trading activities that may arise between United States broker-dealers and their existing clients who are now located in Canada, the Canadian securities regulatory authorities have adopted National Instrument 35-101 Conditional Exemption From Registration for United States Broker-Dealers and Agents (the "Instrument") which provides certain broker-dealers, and their agents, resident in the United States of America with a conditional exemption from the applicable registration requirements and the prospectus requirement. This approach is consistent with the Instrument's underlying policy that investors will be relying primarily upon the regulation by securities regulators and statutory liability imposed by legislation in the broker-dealer's or agent's home jurisdiction for protection.


PART 2GENERAL PRINCIPLES

2.1General
- The Instrument provides that a United States broker-dealer and its agents may engage in two specific types of cross-border trading activities in foreign securities with an individual who was previously resident in the United States of America, and is now located in Canada, regardless of nationality. In Quebec, the term foreign securities includes futures.

2.2Temporarily Resident - The first category of activity provided for under clause 2.1(c)(i) and clause 3.1(d)(i) of the Instrument permits brokers-dealers and their agents to deal in foreign securities with an individual ordinarily resident in the United States of America who is temporarily resident in a Canadian jurisdiction and with whom the broker-dealer had a broker-dealer client relationship before the individual became temporarily resident in the Canadian jurisdiction. This aspect of the Instrument is intended to allow persons from the United States who are on a temporary work assignment in Canada, or who may be in Canada on vacation or for other reasons, to trade with their home broker-dealer and agent in the United States of America. The concept of "temporarily" as it appears in the National Instrument is based upon SEC Rule 15a-6 which exempts certain non-United States broker-dealers from registering under the 1934 Act.

The Canadian Securities Administrators are of the view that a person that ceases to be "ordinarily resident" in the United States of America would not retain status as a United States resident "temporarily resident" in Canada under the Instrument.

2.3Tax-Advantaged Plans - The second category of activity provided for under clause 2.1(c)(ii) and clause 3.1(d)(ii) of the Instrument permits broker-dealers and their agents to deal in foreign securities with an individual who was previously resident in the United States of America and who is resident in a Canadian jurisdiction for trades for and with the individual's tax-advantaged retirement savings plan (for example, an Individual Retirement Account), if the plan is located in the United States and the individual is either a holder of, or contributor to, the plan. Under laws of the United States of America, tax-advantaged retirement savings plans must be located in the United States of America and result in adverse tax consequences for United States individuals if collapsed. For these reasons, individuals are permitted by the Instrument to continue this type of trading activity with a broker-dealer and its agent in the United States of America whether or not there was a pre-existing relationship with the broker-dealer or agent while the individual was in the United States of America.

2.4Prospectus and Underwriter Exemption - Part 4 of the Instrument exempts a distribution of foreign securities by United States broker-dealers and their agents under the registration exemptions provided for in the Instrument from the prospectus requirement and the underwriter registration requirement. However, the distribution of foreign securities must comply with applicable United States federal securities law and state law requirements in the United States of America, which include securities registration and prospectus delivery.


PART 3OPERATION OF EXEMPTIVE RELIEF

3.1Affiliates
- Section 2.1 of the Instrument requires that the broker-dealer have "no office or physical presencein any jurisdiction". A broker-dealer that has a Canadian affiliate in any jurisdiction is still able to take advantage of the exemptions provided for under the Instrument. The Canadian affiliate, however, is not able to take advantage of the exemptions.

3.2Limitation of Exemptions - Any activity beyond the scope of the exemptions will constitute unregistered activity and will be subject to the applicable enforcement provisions provided for under Canadian securities legislation.

3.3Retention of Authority - Under Canadian securities legislation, each of the Canadian securities regulatory authorities retains the authority to revoke the exemptions as they apply to a broker-dealer or agent if the broker-dealer's or agent's conduct is considered to be contrary to the public interest.

3.4Receipt of Documentation - The Canadian securities regulatory authorities will acknowledge receipt of material sent by broker-dealers and agents under the Instrument.

3.5Fees - No fees will be imposed on broker-dealers or agents by the Canadian securities regulatory authorities under the exemptions provided for under the Instrument.

PART 4 INQUIRIES REGARDING PAST ACTIVITIES

4.1Restricted Activities
- A Canadian securities regulatory authority will not make inquiries about any possible failure by broker-dealers or their agents to register that rely on the exemption from registration for their

(a)trading activities and related incidental advising activities that may have been conducted with an individual from the United States of America that take place before the date which is 120 days after the coming into effect of the Instrument in the jurisdiction in which the Canadian securities regulatory authority is situate, if the individual

(i)was temporarily resident in the jurisdiction and the broker-dealer or agent had a broker-dealer client relationship with the individual before the individual became temporarily resident in the jurisdiction, or

(ii)if the trades were for or with a tax-advantaged retirement savings plan located in the United States of America and the individual was either the holder of, or contributor to, the plan; and

(b)any other trading and related incidental advising activities that may have been conducted in the jurisdiction before September 1, 1996.

4.2Other Activities - A Canadian securities regulatory authority may make inquiries if it comes to its attention that a broker-dealer or its agent may have been engaged in improper activities in the jurisdiction in which the Canadian securities regulatory authority is situate beyond failing to register.