Notice of Proposed Rule: OSC Rule 33-505 - (Commodity Futures Act) Permanent Registration

Substance and Purpose of Proposed Rule

The substance and purpose of the proposed Rule are to introduce a permanent registration system under the Commodity Futures Act (the "CFA").

The proposed Rule is based in part on the proposed Ontario Securities Commission Rule 31-508 Permanent Registration (published for comment on June 26, 1998).

This Rule is expected to be implemented in Manitoba if proposed Rule 31-509 (Commodity Futures Act) National Registration Database is also implemented in that jurisdiction.

Summary of Proposed Rule

The proposed Rule creates a permanent registration system to replace the current annual renewal system of registration. It provides that on December 15 of each year every registered firm will be required to deliver to the Director an annual registration fee for itself and its registered individuals.

If a firm fails to pay its annual registration fee on December 15, the registration of the firm will be suspended on December 31 of the same year. The registration of a firm that has been suspended for this reason will expire on the second anniversary of the suspension unless an application for reinstatement of registration is filed in the interim.

If a registered firm delivers its annual registration fee after December 15 but before the end of the day on December 31 of the same year, the Director may approve the continuation of the firm's registration.

The proposed Rule provides that the registration of a registered individual with a sponsoring firm is suspended on the date that the individual ceases to act on behalf of the firm or the registration of the sponsoring firm is suspended, is terminated, or expires. A registration that is suspended for this reason will expire on the second anniversary of the suspension unless an application for reinstatement of registration is filed in the interim.

The proposed Rule requires that an application for reinstatement of registration shall be made in the form that is prescribed by the Commission for an application for registration. Despite this requirement, until Rule 33-505 (Commodity Futures Act) National Registration Database is effective, an application for reinstatement of registration filed by a salesperson within six months of the salesperson being suspended shall be made in the form that is prescribed by the Director.

Related Rules

The proposed Rule is related to proposed Multilateral Instrument 33-108 Permanent Registration, which is also being published for comment in this bulletin. The proposed Rule is also related to proposed Multilateral Instrument 31-102 National Registration Database and proposed Rule 31-509 (Commodity Futures Act) National Registration Database, which have yet to be published for comment.

Regulations to be Amended and Revoked

The Commission will revoke sections 40, 41 and Forms 9 and 10 of the Regulation since they are inconsistent with the proposed Rule.

The Commission will add a section to the Regulation requiring that registered firms and individuals provide the particulars of every change in the information provided on a firm's or individual's application for registration that have not been provided to the Commission since the change. This section is intended to replace the current requirement in Forms 9 and 10 to provide notice of such information.

The Commission will amend section 7 of the Regulation by deleting "anniversary date" from the list of terms defined in that section.

The Commission will amend sections 9, 10, 18, 21 and 27 of the Regulation by deleting the references in those sections to renewals of registration. Subsection 21(1), which currently requires that a certified statement regarding an applicant's insurance coverage be delivered with the application for renewal of registration, will be amended to provide that the statement must be delivered within ninety days after the end of the registrant's financial year.

The Commission will also amend sections 1 to 9 of Schedule 1 to the CFA to make them consistent with the Rule. The amendments to Schedule 1 will indicate that the fees currently required with an application for renewal of registration will be required on December 15 of each year. The amendments will also indicate that the fees required with an application for reinstatement of registration will equal those required with an application for registration except for salespersons who have been suspended for less than six months. The amendments will provide that no fee will be required with an application for reinstatement of registration for salespersons made within six months of the suspension.

Authority for Proposed Rule

The following provisions of the CFA provide the Commission with authority to make the proposed Rule. Paragraph 143(1)1 of the CFA authorizes the Commission to make rules prescribing 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)7 of the CFA authorizes the Commission to make rules prescribing requirements in respect of the disclosure or furnishing of information to the Commission by registrants.

Alternatives Considered

As an alternative to requiring that annual registration fees are paid on December 15 of each year, the Commission considered whether the fees should be paid ninety days after a registered firm's financial year end. The latter payment date was proposed in Rule 31-508 and would correspond to the date when certain registered firms are required to deliver financial reports to the Commission. However, during the current development of the National Registration Database, an Internet based system which will permit registrants to submit registration fees electronically, it was determined that a single registration fee payment date would be more economical. A single fee payment date for all registered firms will reduce the complexity, and therefore the cost, of the National Registration Database. This benefit is expected to exceed any benefit resulting from requiring that registration fees be paid when financial reports are due, particularly since fees will be submitted electronically through the National Registration Database while financial reports will be delivered outside the system.

Unpublished Materials

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 expected to benefit registrants by harmonizing annual registration fee payment dates in the jurisdictions implementing the National Registration Database.

The Rule will eliminate the administrative costs borne by staff in the process of reviewing applications for renewal of registration. Staff of the Commission has found that renewing registration is largely an administrative process and that concerns with a registrant's suitability for registration are typically discovered through compliance reviews, enforcement investigations and public complaints.

Although the Director will no longer have the opportunity to refuse to grant a renewal of registration under section 23 of the CFA, implementing a permanent registration system will not diminish the Commission's ability to suspend or terminate registrations. Under a permanent registration system, where staff have determined that a registrant is no longer suitable for registration, staff will continue its current practice of seeking an order from the Commission under section 60 of the CFA to terminate the registration. Furthermore, the Commission may choose to assign to the Director, pursuant to section 3.1(1) of the CFA, the ability to suspend or terminate registrations.
 

Comments

Interested parties are invited to make written submissions with respect to the proposed Rule. Submissions received by June 18, 2001 will be considered.

Submissions should be made in duplicate to:

John Stevenson, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario
M5H 3S8
[email protected]
 

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As the CFA requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.

Questions may be referred to:

Dirk de Lint
Legal Counsel, NRD Project Team 
Ontario Securities Commission
(416) 593-8090
 

Proposed Rule

The text of the proposed Rule follows, together with footnotes that are not part of the Rule but have been included to provide background and explanation.
 

DATED: , 2001

PART 1 DEFINITIONS

1.1 Definitions - In this Rule

"registered firm" means a person or company that is registered as a dealer or adviser;

"registered individual" means an individual registered to trade or advise on behalf of a registered firm; and

"sponsoring firm" means, for a registered individual, the registered firm on whose behalf the individual is registered to trade or advise.
 

PART 2 TERM OF REGISTRATION

2.1 Permanent Registration - Registered firms and registered individuals continue to be registered until their registration expires or is terminated.

2.2 Annual Payment of Fees - A registered firm shall deliver to the Director on December 15 of each year the annual registration fees required under the regulations for itself and its registered individuals.

2.3 Suspension of Registered Firms

(1) If a registered firm does not deliver the fees on a December 15 as required under section 2.2, the firm's registration is suspended at the end of the day on December 31 of the same year.

(2) Despite subsection (1), if a registered firm delivers the annual registration fees required for itself and its registered individuals after December 15 but before the end of the day on December 31 of the same year, the Director may approve the continuation of the firm's registration.

(3) A registration that is suspended under subsection (1) expires on the second anniversary of the suspension unless an application for reinstatement of registration is filed in the interim.

(4) An application for reinstatement of registration shall be made in the form that is prescribed by the Commission for an application for registration and shall be accompanied by the fee required under the regulations.
 

2.4 Suspension of Registered Individuals
 

(1) The registration of a registered individual with a sponsoring firm is suspended on the date that

(a) the registered individual ceases to act on behalf of the sponsoring firm; or

(b) the registration of the sponsoring firm is suspended, is terminated, or expires.

(2) A registration that is suspended under subsection (1) expires on the second anniversary of the suspension unless an application for reinstatement of registration is filed in the interim.

(3) An application for reinstatement of registration shall be made in the form that is prescribed by the Commission for an application for registration and shall be accompanied by the fee required under the regulations.

(4) Despite subsection (3) and until Rule 31-509 (Commodity Futures Act)⁽²⁾ is effective, an application for reinstatement of registration filed by a salesperson within six months of the salesperson being suspended under subsection (1) shall be made in the form that is prescribed by the Director.

2.6 Hearing - If the registration of a registered firm or registered individual has been suspended under this Rule and a hearing is commenced under the Act relating to the registration, the registration shall continue in suspension until a decision is issued.
 

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 the exemption.

1. This Rule is new. It is intended to create a permanent registration system to replace the current annual renewal system of registration.

2. This is the proposed Ontario rule under the Commodity Futures Act for the National Registration Database.