Commission Approval of Rule and Companion Policy: OSC Rule - 31-501 - Registrant Relationships

Notice of Rule and Companion Policy and Rescission of Policy

The Commission has, under section 143 of the Securities Act (the "Act"), made Rule 31-501 Registrant Relationships (the "Rule").

The Rule and the material required by the Act to be delivered to the Minister of Finance were delivered on June 25, 1997. If the Minister does not approve theRule, reject the Rule or return it to the Commission for further consideration, the Rule will come into force on September 8, 1997. If the Minister approves theRule, the Rule will come into force 15 days after it is approved.

The Commission has under section 143.8 of the Act adopted Companion Policy 31-501 CP Registrant Relationships (the "Policy"). The Commission has also onthe date on which the Rule comes into force rescinded OSC Policy Statement No. 4.4 ("Policy 4.4").

Substance and Purpose of Rule and Companion Policy

The substance and purpose of the Rule are to prohibit certain registrants from registering in multiple capacities that, in the opinion of the Commission, havepotential to create conflicts of interest and to mandate adoption of policies and procedures that minimize potential conflict and disclosure to clients. The purposeof the Policy is to provide notice as to how the Director may exercise discretion in relation to registration, as well as reinstatement, amendment or renewal ofregistration, if a relationship that has the potential to create a conflict of interest is disclosed under the Rule.

The Rule and Policy are based on Policy 4.4, which they replace.

The original version of Policy 4.4, which was published in 1968, indicated that the Director would exercise his or her discretion not to register an applicant ifcertain relationships existed. Over time, administrative practice became that the Director allowed such relationships to exist in most cases after receipt of theappropriate notice, and only exercised his or her discretion to refuse registration in the case of salespersons with these relationships.

Summary of Rule and Companion Policy

Policy 4.4 currently contains guidelines relating to dual registration of registrants. The Rule and Policy incorporate certain provisions of Policy 4.4. In addition,the Rule contains requirements to disclose information to the Commission and to clients of the registrant in respect of potential conflicts.

Paragraph 1 of Policy 4.4, which has been incorporated into the Rule, prohibits a salesperson from acting as a partner or officer of the salesperson's employer, aswell as from acting as a salesperson, partner, officer or director of any other registrant. The restriction on a salesperson acting in a dual capacity for a registranthas been extended to acting as a director and a salesperson of the same registrant. An exemption is provided from that prohibition if the director is not involvedin the supervision or compliance functions of the registrant or the director meets the proficiency requirements under securities legislation for registration as anofficer or partner of the registrant.

Paragraphs 2 and 3 of Policy 4.4 are not currently applied and have not been included in the Rule or Policy.

Paragraphs 4 and 5 of Policy 4.4, which require an applicant to disclose information to the Commission describing relationships of its partners, directors andprincipal shareholders that are also partners, directors or principal shareholders of other registrants (as these relationships may have the potential to createconflicts of interest) have been incorporated into the Rule other than the requirement to file policies and procedures adopted by the registrant with theCommission. The Rule imposes an obligation on registrants having the prescribed relationships to adopt policies and procedures to minimize the potential forconflicts of interest arising from the relationships and to provide written notice of the relationship and the policies and procedures adopted to clients beforedealing with the clients.

The Policy provides guidance on how the Director will exercise his or her discretion under the Rule in granting exemptions and in determining whether to grantregistration or renewal or reinstatement of registration.

Terms used in the Policy that are defined or interpreted in the Rule or the definition instruments in force in Ontario should be read in accordance with the Rule orthese definition instruments, unless the context otherwise requires.

Related Instruments

Each of the Rule and Policy is related to the other as they deal with the same subject matter. The proposed Policy is also related to section 26 of the Act.

Summary of Written Comments Received from Commission

The Commission received one comment letter on the Rule and that comment suggested that it would be inefficient and duplicative to require that informationrelating to relationships that has already been provided to the Commission be provided a second time on each renewal. Further, the comment suggested that torequire disclosure to customers of a relationship that had already been disclosed to them would be inefficient and duplicative. The Commission agreed with thecomment and has revised the Rule accordingly to provide an exception to the disclosure requirements if there has been no change in the disclosure previouslyprovided to the Commission and to customers. The change to the Rule is not material.

The comment letter also noted that there appeared to be a significant amount of overlap with other regulatory requirements relating to customer disclosure. TheCommission agrees that there is a potential for overlap of disclosure requirements but there is no resulting duplication. All regulatory disclosure to customersmay be in whatever form the registrant determines including a comprehensive disclosure document. The Rule was not amended.

Finally the comment letter suggested that guidance should be given as to the situations for which the Director would grant an exemption from the Rule. TheCommission does not contemplate exemptions being granted except in very unusual circumstances. If guidance were to be provided, it would be provided in thecompanion policy to the Rule. The Rule was not amended and no amendment to the companion policy is appropriate at this time.

Text of Rule and Policy

The text of the Rule and Policy follows.

Rescission of Policy

The Rule and Policy will replace Policy 4.4. The Commission is rescinding that policy the date that the Rule is effective. The text of the rescission is as follows:

"The policy of the Ontario Securities Commission entitled "Ontario Securities Commission Statement Policy Statement No. 4.4" is rescinded."

DATED: June 27, 1997.

REGISTRANT RELATIONSHIPS

PART 1 REGISTRANT RELATIONSHIPS

1.1 Salesperson - The Director will consider granting an exemption from section 1.1 of Rule 31-501 Registrant Relationships to a salesperson, a partner or anofficer, registered in the United States and employed by a United States registered broker-dealer, to trade through an Ontario registered broker or investmentdealer that is affiliated with the United States broker-dealer.

1.2 Principal Shareholder, Officer, Partner and Director - In general, the Director will not grant registration or renewal or reinstatement of registration to anapplicant, or accept an amendment to the registration of a registrant, if the applicant or the registrant has a relationship described in section 2.1 of Rule 31-501Registrant Relationships unless the Director is satisfied that the relationship is supported by valid business reasons and that the applicant or registrant hasadopted or proposes to adopt policies and procedures to minimize the potential for conflict of interest.

1.3 Associates - In general, the Director will not grant registration or renewal or reinstatement of registration to an applicant, or accept an amendment to theregistration of a registrant, if the applicant or the registrant has a relationship described in section 2.2 of Rule 31-501 Registrant Relationships unless the Directoris satisfied that the applicant or the registrant will be acting independently of his or her associate.

ONTARIO SECURITIES COMMISSION RULE 31-501

REGISTRANT RELATIONSHIPS

PART 1 REGISTRATION OF SALESPERSONS

1.1 Registration of Salespersons

(1) No person registered as a salesperson of a registrant shall act or be registered as a director, partner or officer of the registrant or as a salesperson, officer,partner or director of another registrant.

(2) Despite subsection (1) a person registered as a salesperson of a registrant may act as a director of the registrant if he or she

(a) is not involved in supervision or compliance functions of the registrant; or

(b) satisfies the proficiency requirements of securities legislation for registration as an officer or partner of the registrant.

PART 2 DISCLOSURE OF RELATED REGISTRANT

2.1 Principal Shareholder, Officer, Partner and Director

(1) A person or company that

(a) applies for registration or for renewal or reinstatement of registration or amends its registration; and

(b) has a principal shareholder, officer, partner or director that is a principal shareholder, officer, partner or director of another registrant;

shall

(c) disclose in the application or amendment the details of the relationship and the business reasons for the relationship;

(d) adopt policies and procedures to minimize the potential for conflict of interest resulting from the relationship; and

(e) disclose to a customer in writing, before initially effecting a trade or providing advice to the customer and once in each calendar year after that, the details ofthe relationship and the policies and procedures adopted to minimize the potential for conflict of interest resulting from the relationship.

(2) Despite paragraph (1)(c) new disclosure is not required to be made by the applicant to the Commission or customers if there have been no changes to thedisclosure previously provided to the Commission on an application or amendment by the applicant.

(3) Despite paragraph (1)(e) new disclosure is not required to be made to customers if there have been no changes to the disclosure previously provided to thecustomer.

2.2 Associates

(1) An individual who

(a) applies for registration, or for renewal or reinstatement of registration, other than as a salesperson or amends his or her registration; and

(b) is an associate of another individual who is a registrant or a principal shareholder, officer, partner or director of a registrant

shall disclose in the application or amendment the details of the relationship.

(2) Despite subsection (1) new disclosure is not required to be made by the applicant to the Commission if there have been no changes to the disclosurepreviously provided to the Commission on an application or amendment by the applicant.

PART 3 EXEMPTION

3.1 Exemption - The Director may grant an exemption to this Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in theexemption.