Bank of Montreal
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Filer granted exemptions from the prospectus, registration and underwriter registration requirements in connection with trades by the Filer of short term debt instruments that may not meet the "approved credit rating" requirement contained in the short-term debt exemption in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions -- Sufficient for short-term debt instruments to obtain one credit rating at or above a prescribed standard from an approved credit rating agency, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).
National Instrument 45-106 Prospectus and Registration Exemptions.
May 22, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
BANK OF MONTREAL
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that trades by the Filer in negotiable promissory notes or commercial paper, maturing not more than one year from the date of issue (Short-term Debt Instruments) be exempt from the dealer registration requirement, the underwriter registration requirement and the prospectus requirement of the Legislation (respectively, the Dealer Registration Exemption Sought, the Underwriter Registration Exemption Sought, the Prospectus Exemption Sought and, together, the Exemptions Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon.
Notwithstanding the foregoing, the Filer is not seeking to rely on the Dealer Registration Exemption Sought or Underwriter Registration Exemption Sought in Newfoundland and Labrador.
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meanings in this decision unless they are otherwise defined in this decision.
In this decision,
"financial intermediary" has the meaning ascribed to that term in Ontario Securities Commission Rule 14-501 Definitions;
"financial intermediary short-term debt registration exemption" means the exemption from the registration requirement, for a trade by a financial intermediary or an authorized foreign bank named in Schedule III of the Bank Act (Canada), set out in clause 4.1(1)(a) of Ontario Securities Commission Rule 45-501 Ontario Prospectus and Registration Exemptions, or in a successor provision thereof, insofar as that clause or provision provides an exemption from the dealer registration requirement and the underwriter registration requirement for a trade of a type described in the short-term debt dealer registration exemption;
"NI 45-106" means National Instrument 45-106 Prospectus and Registration Exemptions;
"short-term debt dealer registration exemption" means the exemption from the dealer registration requirement set out in subsection 2.35(1) of NI 45-106, or in a successor provision in NI 45-106; and
"short-term debt underwriter registration exemption" means the deemed exemption from the underwriter registration requirement contained in subsection 1.4(2) of NI 45-106, or in a successor provision in NI 45-106, insofar as the deemed exemption relates to the short-term debt dealer registration exemption.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a bank listed on Schedule I of the Bank Act (Canada). The Filer's principal executive offices are located in Toronto, Ontario.
2. The Filer is a reporting issuer in each jurisdiction of Canada having such a concept and is not in default of its obligations under the Legislation or the securities legislation of any jurisdiction of Canada.
3. The Filer is not registered as a dealer or adviser under the Legislation or the securities legislation of any jurisdiction of Canada.
4. The Filer is a market intermediary, as defined in Ontario Securities Commission Rule 14-501 Definitions, and a financial intermediary.
5. The Filer trades in and distributes Short-term Debt Instruments in the Jurisdiction and the other jurisdictions of Canada as part of its activities as principal and as agent.
6. Subsection 1.4(2) and clause 2.35(1)(b) of NI 45-106 provide that exemptions from the dealer registration, underwriter registration and prospectus requirements of the Legislation for short-term debt (the Short-term Debt Exemption) are available only where, among other things, the Short-term Debt Instrument "has an approved credit rating from an approved credit rating organization".
7. NI 45-106 incorporates by reference the definitions for "approved credit rating" and "approved credit rating organization" that are used in National Instrument 81-102 Mutual Funds (NI 81-102). The definition of an "approved credit rating" in NI 81-102 requires, among other things, that (a) the rating assigned to such debt must be "at or above" certain prescribed short-term ratings, and (b) such debt must not have been assigned a rating by any "approved credit rating organization" that is not an "approved credit rating".
8. The Filer currently trades, and proposes to continue to trade, Short-term Debt Instruments with the following general characteristics:
(a) they mature not more than one year from the date of issue;
(b) they are not convertible or exchangeable into or accompanied by a right to purchase another security other than the Short-term Debt Instrument; and
(c) they have a credit rating from at least one of the following credit rating organizations not less than the rating indicated:
9. The Short-term Debt Instruments may have a lower rating than required by the Short-term Debt Exemption and, accordingly, the Short-term Debt Exemption may not be available.
10. The Dealer Registration Exemption Sought and the Prospectus Exemption Sought were previously granted to the Filer under a prior decision dated May 17, 2006 (the Prior Decision). By its terms, the Prior Decision will terminate on the earlier of:
(a) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the securities legislation of the jurisdictions of Canada that amends section 2.35 of NI 45-106 or provides an alternate exemption; and
(b) three years from the date of the Prior Decision.
11. The Filer is not seeking to rely on the Dealer Registration Exemption Sought or Underwriter Registration Exemption Sought in Newfoundland and Labrador. In such jurisdiction, the Filer relies on Sections 173(10) and 173(1)(b) of the Securities Regulation, C.N.L.R. 805/96 and Section 36(2)(d) of the Securities Act (Newfoundland and Labrador), which provide that a financial intermediary that is regulated by the federal Office of the Superintendent of Financial Institutions is not required to obtain registration as a dealer in Newfoundland and Labrador for the purpose of trading as principal or agent in Short-term Debt Instruments, provided that any Short-term Debt Instrument traded to an individual has a denomination or principal amount of not less than $50,000.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that:
1. each Short-term Debt Instrument:
(a) matures not more than one year from the date of issue;
(b) is not convertible or exchangeable into or accompanied by a right to purchase another security other than a Short-term Debt Instrument; and
(c) has a rating issued by one of the following rating organizations, or any of their successors, at or above one of the following rating categories or a rating category that replaces a category listed below:
2. for each jurisdiction of Canada, the Prospectus Exemption Sought will terminate on the earlier of:
(a) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the securities legislation of that jurisdiction of Canada that amends the conditions of the prospective exemption contained in section 2.35 of NI 45-106 or provides an alternate exemption; and
(b) June 30, 2012.
3. for each jurisdiction of Canada other than Ontario, the Dealer Registration Exemption Sought and the Underwriter Registration Exemption Sought will terminate on the earlier of:
(a) in the case of the Dealer Registration Exemption Sought, the date when the short-term debt dealer registration exemption does not apply in that jurisdiction of Canada;
(b) in the case of the Underwriter Registration Exemption Sought, the date when the short-term debt underwriter registration exemption does not apply in that jurisdiction of Canada; and
(c) June 30, 2012.
4. in Ontario, the Dealer Registration Exemption Sought and the Underwriter Registration Exemption Sought will terminate on the earlier of:
(a) the date when the financial intermediary short-term debt registration exemption does not apply in Ontario; and
(b) June 30, 2012.
5. the Dealer Registration Exemption Sought and Underwriter Registration Exemption Sought do not apply in Newfoundland and Labrador.