Final Rule (effective August 17, 2000): OSC Rule - 31-502 - Proficiency Requirements for Registrants

OSC Rule

August 18, 2000

NOTICE OF MINISTER OF FINANCE APPROVAL OF
FINAL RULE UNDER THE SECURITIES ACT
AND
NOTICE OF AMENDMENT TOREGULATION 1015
OF THE REVISEDREGULATIONS OF ONTARIO,1990
MADEUNDER THE SECURITIES ACT
IN CONNECTION WITH OSC RULE 31-502

The Minister of Finance approved Rule 31-502 Proficiency Requirements for Registrants and Companion Policy (the "Rule") on August 2, 2000. Previously, materials related to the Rule were published in the Bulletin on August 30th, 1996; Jan 23rd, 1998, August 21st, 1998 and June 23rd, 2000. The Commission adopted the Rule on June 20th, 2000 and the Rule was published in final form on June 23rd, 2000. The Rule and Companion Policy 31-502 will come into force on August 17, 2000.

The Minister of Finance has also approved a regulation to amend and revoke certain of Regulation 1015 of the Revised Regulations of Ontario, 1990 made under the Securities Act (the "Regulation") in connection with the Rule, which were filed as O. Reg. 468 100 on August 14th, 2000 and will be published in the Ontario Gazette on Sept 2nd, 2000. The amendments and revocations to the Regulation will come into force at the time that the Rule comes into force on August 17, 2000.

The Rule, Companion Policy and related regulation are published in Chapter 5 of the OSC Bulletin.

ONTARIO SECURITIES COMMISSION RULE 31-502

PROFICIENCY REQUIREMENTS FOR REGISTRANTS

TABLE OF CONTENTS

PART 1 DEFINITIONS AND INTERPRETATION

1.1 Definitions

1.2 Time Limits on Completion of Courses and Previous Registrations

PART 2 PROFICIENCY REQUIREMENTS FOR DEALERS

2.1 Salespersons of Brokers, Investment Dealers and SecuritiesDealers

2.2 Salespersons of Mutual Fund Dealers

2.3 Salespersons of Scholarship Plan Dealers

2.4 Brokers, Investment Dealers, Securities Dealers and their Partners,Officers, Branch Managers and Compliance Officers

2.5 Mutual Fund Dealers and their Partners, Officers, BranchManagers and Compliance Officers

2.6 Trading in Labour Sponsored Investment Fund Securities byMutual Fund Dealers

2.7 New Entrants Equivalency

PART 3 PROFICIENCY REQUIREMENTS FOR ADVISERS

3.1 Securities Advisers and their Representatives, Partners, Officers,Branch Managers and Compliance Officers

3.2 Investment Counsel and Portfolio Managers and theirRepresentatives, Partners, Officers, Branch Managers andCompliance Officers

3.3 Associate Representatives, Associate Partners and AssociateOfficers of Investment Counsel and Portfolio Managers

PART 4 EXEMPTION

4.1 Exemption

ONTARIO SECURITIES COMMISSION RULE 31-502

PROFICIENCY REQUIREMENTS FOR REGISTRANTS

PART 1 DEFINITIONS AND INTERPRETATION

1.1 Definitions - In this Rule

"Branch Compliance Officer Course" means the course prepared andconducted by the Institute of Canadian Bankers and so named on theeffective date and every successor to that course that does not materiallynarrow the content of the significant subject matter of the course;

"Branch Managers Course" means the course prepared and conducted bythe Canadian Securities Institute and so named on the effective date, everypredecessor to that course and every successor to that course that does notmaterially narrow the content of the significant subject matter of the course;

"Canadian Investment Funds Course" means the course prepared andconducted by the Education Division of The Investment Funds Institute ofCanada and so named on the effective date, every predecessor to that courseand every successor to that course that does not materially narrow the contentof the significant subject matter of the course;

"Canadian Investment Manager Program" means the program prepared andconducted by the Canadian Securities Institute and so named on the effectivedate, every predecessor to that program and every successor to that programthat does not materially narrow the content of the significant subject matter of theprogram;

"Canadian Securities Course" means the course prepared and conducted by theCanadian Securities Institute and so named on the effective date, everypredecessor to that course and every successor to that course that does notmaterially narrow the content of the significant subject matter of the course;

"Chartered Financial Analyst Examination Program" means the programprepared and conducted by the Association for Investment Management andResearch and so named on the effective date, every predecessor to thatprogram and every successor to that program that does not materially narrowthe content of the significant subject matter of the program;

"Conduct and Practices Course" means the course prepared and conducted bythe Canadian Securities Institute and so named on the effective date, everypredecessor to that course and every successor to that course that does notmaterially narrow the content of the significant subject matter of the course;

"effective date" means the date on which this Rule comes into force;

"Investment Funds in Canada Course" means the course prepared andconducted by the Institute of Canadian Bankers and so named on the effectivedate, every predecessor to that course and every successor to that course thatdoes not materially narrow the content of the significant subject matter of thecourse;

"LSIF course" means a course designated by the Commission as a laboursponsored investment funds course that provides instruction about laboursponsored investment funds and their securities that is relevant to a personengaged in trading in the securities of labour sponsored investment funds;

"Mutual Fund Branch Managers Course" means the course prepared andconducted by the Education Division of The Investment Funds Institute ofCanada and named the "Branch Managers Course" on the effective date, everypredecessor to that course and every successor to that course that does notmaterially narrow the content of the significant subject matter of the course;

"Mutual Fund Officers, Partners and Directors Course" means the courseprepared and conducted by the Education Division of The Investment FundsInstitute of Canada and named the "Officers, Partners and Directors Course" onthe effective date, every predecessor to that course and every successor to thatcourse that does not materially narrow the content of the significant subjectmatter of the course;

"New Entrants Examination" means an examination prepared and conducted bythe Canadian Securities Institute for new entrants to the securities industry andso named on the effective date, every predecessor to that examination andevery successor to that examination that does not materially narrow the contentof the significant subject matter of the examination;

"Options Supervisors Course" means the course prepared and conducted to theCanadian Securities Institute and so named on the effective date, everypredecessor to that course and every successor to that course that does notmaterially narrow the content of the significant subject matter of the course;

"Partners, Directors and Senior Officers Qualifying Examination" means theexamination prepared and conducted by the Canadian Securities Institute andso named on the effective date, every predecessor to that examination andevery successor to that examination that does not materially narrow the contentof the significant subject matter of the examination;

"Professional Financial Planning Course" means the course prepared and conducted by the Canadian Securities Institute and so named on the effectivedate and every predecessor to that course and every successor to that coursethat does not materially narrow the content of the significant subject matter of thecourse;

"restricted representative" means a salesperson of a broker, investment dealer or securities dealer whose registration is restricted to

(a) the sale of mutual fund securities, or

(b) accepting unsolicited trade orders from clients provided no advice isprovided to clients on the trade order;

"scholarship plan dealers course" means a course designated by theCommission as a scholarship plan dealers course that provides instruction aboutscholarship plans and their securities that is relevant to a person engaged intrading in the securities of scholarship plans; and

"U.S. Series 7 Examination" means the examination prepared and conducted bysecurities regulators in the United States of America and so named on theeffective date and every predecessor to that examination and every successor tothat examination that does not materially narrow the content of the significantsubject matter of the examination.

1.2 Time Limits on Completion of Courses and Previous Registrations

(1) For the purposes of satisfying Parts 2 and 3, except subsection 2.1(2), anapplicant for registration or reinstatement of registration must havecompleted a specified course or examination not more than three yearsbefore the date of the applicant's application for registration orreinstatement of registration, or have been previously registered in therelevant category at any time during the three-year period immediatelybefore the date of the applicant's application for registration orreinstatement of registration.

(2) Despite subsection (1), if a person or company completes, within thethree-year period referred to in subsection (1), a specified course orexamination for which another specified course or examination is aprerequisite, the specified course or examination that is the prerequisiteneed not have been completed during the three-year period.

PART 2 PROFICIENCY REQUIREMENTS FOR DEALERS

2.1 Salespersons of Brokers, Investment Dealers and Securities Dealers

(1) Except as provided in Ontario securities law, an individual shall not begranted registration as a salesperson of a broker, investment dealer orsecurities dealer unless the individual has

(a) been granted registration previously as a salesperson, partner orofficer of a broker or investment dealer, other than as a restrictedrepresentative, or as a broker or investment dealer;

(b) been granted registration after the effective date as a salesperson,partner or officer of a securities dealer, other than as a restrictedrepresentative, or as a securities dealer;

(i) the Canadian Securities Course, and

(ii) the Conduct and Practices Course or the Partners, Directors and Senior Officers Qualifying Examination; or

(d) been granted registration as such by his or her principal regulator, as that term is defined in National Instrument 31-101 Mutual Reliance Review System for Registration, and that registration has not been suspended or terminated.

(2) A registration as a salesperson of a broker, investment dealer or securities dealer granted after the effective date is suspended on the last day of the thirtieth month after the date the registration was granted, despite any renewals in the interim, unless the salesperson has

(a) completed the Professional Financial Planning Course or the first course of the Canadian Investment Management Program before the registration was granted; or

(b) before the end of the thirty-month period

(i) completed the Professional Financial Planning Course or the firstcourse of the Canadian Investment Management Program, and

(ii) delivered a notice to the Director disclosing the completion of theproficiency in the form required by Ontario securities law for changesto registration information.

(3) Despite subsection (1), an individual that does not meet the requirementsfor registration set out in that subsection may be granted registration as asalesperson of a broker, investment dealer or securities dealer if

(a) the registration is restricted to the sale of mutual fund securities;

(b) the individual has

(i) been granted registration previously as a salesperson, partner or officer of a mutual fund dealer or as a mutual fund dealer, or

(ii) completed any one of the Canadian Securities Course, the Canadian Investment Funds Course or the Investment Funds in Canada Course; and

(c) at the date the registration for the individual is granted, the broker, investment dealer or securities dealer that is sponsoring the application has registered with it not more than the lesser of

(i) 100 restricted representatives whose registration is restricted to the sale of mutual funds; and

(ii) that number of restricted representatives whose registration is restricted to the sale of mutual funds equal to 5% of the total number of representatives registered with the broker, investment dealer or securities dealer.

(4) Subsection (2) does not apply to a restricted representative.

(5) Despite subsection (2), a registration as a salesperson of a broker, investment dealer or securities dealer that was a restricted registration is suspended on the last day of the thirtieth month after the date that the restrictions on the registration were removed, despite any renewals in the interim, unless the salesperson has met the requirements of paragraph2(b).

(6) The registration of an individual as a salesperson under subsection (3)expires on the date that is 270 days after the date that registration wasgranted, despite any renewals in the interim, unless the salesperson hascompleted each of

(a) the Canadian Securities Course; and

(b) the Conduct and Practices Course or the Partners Directors and Senior Officers Qualifying Examination.

2.2 Salespersons of Mutual Fund Dealers - An individual shall not be granted registration as a salesperson of a mutual fund dealer unless the individual has

(a) been granted registration previously as a salesperson, partner or officer of a broker, investment dealer, securities dealer or mutual fund dealer oras a broker, investment dealer, securities dealer or mutual fund dealer; or

(b) completed any one of the Canadian Securities Course, the Canadian Investment Funds Course or the Investment Funds in Canada Course.

2.3 Salespersons of Scholarship Plan Dealers - An individual shall not be granted registration as a salesperson of a scholarship plan dealer unless the individual has

(a) been granted registration previously as a salesperson of a scholarshipplan dealer; or

(b) completed a scholarship plan dealers course.

2.4 Brokers, Investment Dealers, Securities Dealers and their Partners, Officers, Branch Managers and Compliance Officers

(1) An individual shall not be granted registration as a broker, investment dealer or securities dealer or as a partner or officer of a broker, investment dealer or securities dealer or be designated as the compliance officer under section 1.3 of Rule 31-505 Conditions of Registration by a broker, investment dealer or securities dealer unless the individual has

(a) been granted registration previously as a partner or officer of a brokeror investment dealer or as a broker or investment dealer;

(b) been granted registration after the effective date as a partner or officerof a securities dealer or as a securities dealer;

(d) been granted registration as such by his or her principal regulator, asthat term is defined in National Instrument 31-101 NationalRegistration System, and that registration has not been suspended orterminated.

(2) An individual shall not be designated as a branch manager under section1.4 of Rule 31-505 Conditions of Registration by a broker, investmentdealer or securities dealer unless the individual has

(a) been granted registration previously as a partner or officer of a brokeror investment dealer or as a broker or investment dealer;

(b) been granted registration after the effective date as a partner or officerof a securities dealer or as a securities dealer; or

(i) either

(A) the Partners, Directors and Senior Officers QualifyingExamination, or

(B) the Branch Managers Course and the Conduct and PracticesCourse, and

(ii) if the individual is responsible for supervising persons who trade inoptions, the Options Supervisors Course.

(3) Despite paragraph (2)(c), an individual that is designated as branchmanager on the effective date may continue to be so designated until thelast day of the thirtieth month after the effective date without successfullycompleting the Canadian Securities Course or the Branch ManagersCourse.

(4) Despite paragraph (2)(c)(ii), an individual that is designated as branchmanager on the effective date may continue to be so designated withoutsuccessfully completing the Options Supervisors Course.

2.5 Mutual Fund Dealers and their Partners, Officers, Branch Managers andCompliance Officers

(1) An individual shall not be granted registration as a mutual fund dealer oras a partner or officer of a mutual fund dealer or designated as thecompliance officer under section 1.3 of Rule 31-505 Conditions ofRegistration by a mutual fund dealer unless the individual has

(a) been granted registration previously as a partner or officer of a broker,investment dealer, securities dealer or mutual fund dealer or as abroker, investment dealer, securities dealer or mutual fund dealer; or

(b) completed

(i) any one of the Canadian Securities Course, the Canadian InvestmentFunds Course or the Investment Funds in Canada Course, and

(ii) either the Partners, Directors and Senior Officers QualifyingExamination or the Mutual Fund Officers, Partners and DirectorsCourse.

(2) An individual shall not be designated as a branch manager under section1.4 of Rule 31-505 Conditions of Registration by a mutual fund dealerunless the individual has

(b) completed

(i) any one of the Canadian Securities Course, the Canadian InvestmentFunds Course or the Investment Funds in Canada Course, and

(ii) any one of the Branch Managers Course, the Mutual Fund BranchManagers Course, the Branch Compliance Officer Course, thePartners, Directors and Senior Officers Qualifying Examination or theMutual Fund Officers, Partners and Directors Course.

2.6 Trading in Labour Sponsored Investment Fund Securities by Mutual FundDealers

(1) A mutual fund dealer shall not trade in the securities of a laboursponsored investment fund unless

(a) the trade is made through one of its registered salespersons, partnersor officers who satisfies the proficiency requirements in subsection (2);

(b) the mutual fund dealer has delivered a notice to the Director statingthe names of each of its registered salespersons, partners and officerswho will be trading in the securities of a labour sponsored investmentfund and the date on which the applicable course referred to insubsection (2) was completed by each individual; and

(c) within ninety days after the mutual fund dealer's financial year end, themutual fund dealer delivers a notice to the Director stating the names ofeach of its registered salespersons, partners and officers who will betrading in the securities of a labour sponsored investment fund and thedate on which the applicable course was completed by each individual.

(2) A registered salesperson, partner or officer of a mutual fund dealer shallnot trade in the securities of a labour sponsored investment fund onbehalf of a mutual fund dealer unless the salesperson, partner or officerhas completed

(a) an LSIF course;

(b) the Canadian Securities Course on or after October 25, 1993; or

(c) the Canadian Securities Course before October 25, 1993 and has beenregistered and employed as a registrant at any time during the three yearperiod immediately before the trade.

2.7 New Entrants Equivalency - In this Part, an individual may meet a requirementto complete the Canadian Securities Course or the Conduct and PracticesCourse by completion of the New Entrants Examination and the U.S. Series 7Examination.

PART 3 PROFICIENCY REQUIREMENTS FOR ADVISERS

3.1 Securities Advisers and their Representatives, Partners, Officers, BranchManagers and Compliance Officers

(1) An individual shall not be granted registration as a securities adviser or arepresentative, partner or officer of a securities adviser unless

(a) the individual has been granted registration previously as arepresentative, partner or officer or an associate partner or associateofficer of a securities adviser, investment counsel or portfolio manageror as a securities adviser, investment counsel or portfolio manager;

(b) the individual has

(i) completed the Canadian Investment Manager Program or the first yearof the Canadian Financial Analyst Examination Program, and

(ii) established that the individual performed research involving thefinancial analysis of investments for at least two years under thesupervision of a registered adviser; or

(c) the individual has been granted registration as such by his or herprincipal regulator, as that term is defined in National Instrument 31-101Mutual Reliance Review System for Registration, and that registration hasnot been suspended or terminated.

(2) An individual shall not be designated by a securities adviser as thecompliance officer under section 1.3 of Rule 31-505 Conditions ofRegistration or as a branch manager under section 1.4 of Rule 31-505Conditions of Registration unless the individual has been grantedregistration previously as a representative, partner or officer of asecurities adviser, investment counsel or portfolio manager.

3.2 Investment Counsel and Portfolio Managers and their Representatives,Partners, Officers, Branch Managers and Compliance Officers

(1) An individual shall not be granted registration as an investment counselor portfolio manager or as a representative, partner or officer of aninvestment counsel or portfolio manager unless the individual

(a) has been granted registration previously as a representative, partneror officer of an investment counsel or portfolio manager or as aninvestment counsel or portfolio manager, other than in reliance onsection 3.3 or under a registration subject to terms and conditionsrequiring the individual's advising activities to be supervised;

(b) has

(i) completed either

(A) the Canadian Investment Manager Program and the first year ofthe Chartered Financial Analysts Examination Program; or

(B) the Chartered Financial Analyst Examination Program, and

(ii) established that the individual has been employed for five yearsperforming research involving the financial analysis of investments,and that three of the five years have been under the supervision of aregistered adviser having the responsibility on a discretionary basis forthe management or supervision of investment portfolios having anaggregate value of not less than $5,000,000;

(i) the individual has

(A) had three years experience as an associate representative,associate partner or associate officer of an investmentcounsel or portfolio manager;

(B) had three years experience as a registered salesperson of abroker, investment dealer or securities dealer and two yearsexperience as an associate representative, associatepartner or associate officer of an investment counsel orportfolio manager;

(C) had three years experience as a research analyst for abroker or investment dealer and two years experience as anassociate representative, associate partner or associateofficer of an investment counsel or portfolio manger; or

(D) been responsible for the management or supervision ofinvestment portfolios on a discretionary basis having anaggregate value of not less than $5,000,000 for a period offive years while employed by a Canadian financial institutionor a pension fund; and

(ii) the individual has, at the time of application for registration, andhas had for a period of one year prior to the time of application,under his or her direct administration on a discretionary basisinvestment portfolios having an aggregate value of not less than$5,000,000; or

(d) has been granted registration as such by his or her principal regulator,as that term is defined in National Instrument 31-101 Mutual RelianceReview System for Registration, and that registration has not beensuspended or terminated.

(2) An individual shall not be designated by an investment counsel orportfolio manager as the compliance officer under section 1.3 of Rule 31-505 Conditions of Registration or as a branch manager under section 1.4of Rule 31-505 Conditions of Registration unless the individual has beengranted registration previously as a representative, partner or officer of aninvestment counsel or portfolio manager, other than in reliance on section3.3 or under a registration subject to terms and conditions requiring theindividual's advising activities to be supervised, or as an investmentcounsel or portfolio manager.

3.3 Associate Representatives, Associate Partners and Associate Officers ofInvestment Counsel and Portfolio Managers

(1) An individual may be granted registration as an associate representative,associate partner or associate officer of an investment counsel or portfoliomanager if the individual has

(a) completed

(i) the Canadian Investment Manager Program and the first year of theChartered Financial Analyst Examination Program, or

(ii) the Chartered Financial Analyst Examination Program; and

(b) been employed for

(i) two years performing research involving the financial analysis ofinvestments, or

(ii) two years as a registered salesperson of a broker, investment dealeror securities dealer.

(2) An individual who is registered as an associate representative, associatepartner or associate officer of an investment counsel or portfolio managershall not give advice unless the advice has been approved by adesignated registered representative, partner or officer of the investmentcounsel or portfolio manager that employs the individual.

(3) An investment counsel or portfolio manager that employs an associaterepresentative, associate partner or associate officer shall designate arepresentative, partner or officer that is not an associate representative,associate partner or associate officer to approve advice given by anassociate representative, associate partner or associate officer.

(4) The designated representative, partner or officer described in subsection(3) shall be employed at the same location as the associaterepresentative, associate partner or associate officer whose advice mustbe approved.

PART 4 EXEMPTION

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

ONTARIO SECURITIES COMMISSION COMPANION POLICY 31-502CP

PROFICIENCY REQUIREMENTS FOR REGISTRANTS

PART 1 PROFICIENCY REQUIREMENTS FOR REGISTRANTS

1.1 Alternative Qualifications for LSIF Salespersons - The Director will consider grantingan exemption to section 2.6 of Rule 31-502 Proficiency Requirements for Registrants (the"Rule") to any person or company if the Director is satisfied that to do so would not beprejudicial to the public interest, having regard to the spirit and intent of the CommunitySmall Business Investment Funds Act.

1.2 Alternative Qualifications - The Director will consider granting an exemption to any ofsections 2.1 to 2.5 and 3.1 to 3.3 of the Rule to any person or company if the Director issatisfied that the person or company has qualifications or experience that are equivalent to,or more appropriate in the circumstances than, the qualifications or experience requiredunder the section.

1.3 Supervision by Non-Registered Advisers - For the purposes of establishing experiencethat is equivalent to, or more appropriate in the circumstances than, the experience underthe supervision of a registered adviser in subparagraph 3.1(1)(b)(ii) and subparagraph3.2(1)(b)(ii) of the Rule, the Director will consider, among other relevant factors,experience under the supervision of

(a) an unregistered investment manager of a Canadian financial institution;

(b) an adviser that is registered in a jurisdiction other than Ontario or a foreignjurisdiction; or

(c) an adviser that is not required to be registered under the laws of the jurisdiction orforeign jurisdiction in which the adviser carries on business.

ONTARIO SECURITIES COMMISSION STAFF NOTICE 31-702 OF ONTARIO SECURITIES COMMISSION DESIGNATION OFCOURSES UNDER RULE 31-502 PROFICIENCY REQUIREMENTS FOR REGISTRANTS

PART 1 INTERPRETATION

1.1 Interpretation - In this Designation, terms defined in Rule 31-502 ProficiencyRequirements for Registrants (the "Rule") have the respective meaningsascribed to them in that Rule.

PART 2 DESIGNATIONS

2.1 LSIF Courses

(1) The course, which, at the effective date of the Rule, is entitled "LabourSponsored Investment Funds" prepared and conducted by the InvestmentFunds Institute of Canada and every successor to that course that does notnarrow the significant subject matter of the course is designated by theCommission as an LSIF course under the Rule.

(2) The course, which, at the effective date of the Rule, is entitled "LabourSponsored Investment Funds" prepared and previously conducted bySteven G. Kelman and Associates Limited ("Kelman")(the "KelmanCourse") is designated by the Commission as an LSIF course under theRule for registrants who completed the course prior to December 1, 1998.

2.2 Scholarship Plan Dealers' Courses

(1) The scholarship plan dealers' courses prepared and conducted by each ofScholarship Consultants of North America, C.S.T. Consultants Inc.,Canadian American Financial Corp. (Canada) Limited, Global EducationalMarketing Corporation and Education Fund Services Inc. as they exist onthe effective date, every predecessor of one of those courses and everysuccessor to one of those courses that does not narrow the scope of thesignificant subject matter of the course, are designated by the Commissionas scholarship plan dealers' courses under Rule 31-502 ProficiencyRequirements for Registrants.

(2) If the Commission is of the view that it is in the public interest to terminateany of the designations in subsection (1), it may do so after giving theaffected party the opportunity to be heard.