BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltee/Ltd. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Decision pursuant to section 3.1 of Rule 31-501 -- Registrant Relationships (the Rule) exempting salespersons, directors and officers of the applicants, which are affiliated companies, from certain of the dual registration restrictions set out in the Rule.
Determination made pursuant to subsection 127(2)(h) of the Regulations under the Securities Act (Ontario) (the Regulation) that salespersons of the applicants are carrying on activities which will not in the circumstances interfere with their duties and responsibilities as salespersons and there are no conflicts of interest arising from the individuals' duties as salespersons and their outside activities so as to permit the registration of such salespersons despite the fact that they are not employed full-time for either applicant as required by subsection 127(1) of the Regulation.
Statutes Cited
Ontario Regulation 1015, R.R.O. 1990, as am., ss. 127(1), 7(2)(h).
Rules Cited
Ontario Securities Commission Rule 31-501 -- Registrant Relationships, ss. 1(1), 1.
October 21, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION
OF ALBERTA, ONTARIO AND QUEBEC (the Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BMO NESBITT BURNS INC. AND
BMO NESBITT BURNS LTEE/LTD. (the Filers)
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) that a determination be made under the Legislation in each Jurisdiction (the Regulations) that individuals who are salespersons for both Filers are carrying on activities which will not in the circumstances interfere with their duties and responsibilities as salespersons and there are no conflicts of interest arising from the individuals' duties as salespersons and their outside activities so as to permit the registration of such salespersons despite the fact that they are not employed full-time for either Filer (the Full-Time Salesperson Determination).
The Ontario Securities Commission (the OSC) has received an application from the Filers for a decision under the Legislation in the Province of Ontario for an exemption from the provisions of Ontario Securities Commission Rule 31-501 -- Registrant Relationships (the Rule) which would otherwise prohibit individuals who are salespersons, officers and/or directors of one of the Filers from also being salespersons, officers and/or directors of the other Filer (the Dual Registration Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the OSC is the principal regulator for this application, and
(b) the MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filers:
1. Each of the Filers is an indirectly wholly-owned subsidiary of Bank of Montreal (BMO), a Schedule I Canadian chartered bank. Further, BMO Nesbitt Burns Ltee/Ltd. (BMO NB Ltee) is a wholly-owned subsidiary of BMO Nesbitt Burns Inc. (BMO NB Inc.).
2. Each of the Filers is a Member Firm of the Investment Dealers Association of Canada (the IDA). In addition, BMO NB Inc. is (i) registered as a dealer under the Act in the categories of investment dealer and futures commission merchant, (ii) a Participating Organization of the Toronto Stock Exchange, (iii) a Member Firm of the TSX Venture Exchange, (iv) a Participant of the Winnipeg Commodity Exchange, and (v) an Approved Participant of the Montreal Exchange.
3. For various business and other reasons, BMO has historically caused, and continues to require, the securities brokerage businesses of its subsidiaries to be carried out through two registrants whereby, in the Province of Québec, retail brokerage business is carried out through one registrant while institutional brokerage business is carried out through both registrants. Currently, this is reflected through the respective businesses of BMO as follows:
(a) institutional brokerage business of BMO is carried out through both Filers;
(b) retail brokerage business in all provinces other than Quebec is carried out through BMO NB Inc.; and
(c) retail brokerage business in the Province of Quebec is carried out through BMO NB Ltee.
4. For purposes of discharging their obligations under applicable securities legislation, stock exchange requirements and IDA requirements, the Filers are considered in all material respects as a combined entity, including:
(a) for reporting purposes and regulatory capital adequacy purposes, the Filers prepare a single monthly financial report in which their net capital is computed on a joint basis;
(b) a single statement of policies governs each of the Filers; and
(c) in compliance with IDA requirements, the respective obligations of the Filers are cross-guaranteed.
5. Each of the Filers carries on business under the name "BMO Nesbitt Burns" and it is on this basis that clients deal with each of the Filers.
6. A fully harmonized compliance organization has been established for the Filers.
7. BMO's compliance structure has been in place for a significant period and, accordingly, the persons responsible for compliance for the Filers are particularly sensitive to, and well structured to effectively monitor and address, the respective compliance obligations of the Filers relating to institutional client trading on the one hand and retail client trading on the other hand. In addition, the persons responsible for overseeing compliance in respect of client trading are already required, in certain provinces, including Ontario, to monitor the conduct of both institutional client trading and retail client trading.
8. The Filers have determined that certain of their salespersons could, as a practical matter, successfully establish accounts for both retail and institutional clients and have requested the right to do so.
9. With the current BMO structure, in the Province of Quebec, such individuals could only do so through being a registered salesperson with both BMO NB Inc. (through which institutional brokerage business is carried out) and BMO NB Ltee (through which both institutional and retail brokerage business is carried out).
10. The Regulations provide that no individual may be registered as a salesperson unless he or she is employed full-time as a salesperson (emphasis added). Although not explicit, it may well be implicit that the Regulations are intended to require such full-time employment with one registrant.
11. The Regulations permit the Decision Makers to make a determination that individuals who are salespersons for both Filers are carrying on activities which will not in the circumstances interfere with their duties and responsibilities as salespersons and there are no conflicts of interest arising from the individuals' duties as salespersons and their outside activities so as to permit the registration of such salespersons despite the fact that they are not employed full-time for either Filer.
12. Section 1.1(1) of the Rule provides that no person registered as a salesperson of a registrant may act or be registered as a director, partner or officer of the registrant or as a salesperson, officer, partner or director of another registrant.
13. Section 3.1 of the Rule provides that the Director under the Legislation in the Province of Ontario (the Director) may grant an exemption from the Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.
14. Section 1.1 of the Companion Policy to the Rule (the Companion Policy) provides that the Director will consider granting an exemption from Section 1.1 of the Rule to salespersons, officers or directors registered in the United States and employed by a United States registered broker-dealer to trade through an Ontario registered broker or investment dealer that is affiliated with the United States broker-dealer.
15. Section 1.2 of the Companion Policy provides that the Director will not provide an exemption from the "Related Registrant" restrictions under Section 2.1 of the Rule unless the Director is satisfied that the relationship is supported by valid business reasons and that the applicant or registrant has adopted or proposes to adopt policies and procedures to minimize the potential for conflict of interest.
16. The by-laws of the IDA permit dual employment of registered representatives (being salespersons for the purposes of the Regulations and the Rule) and trading officers of affiliated registrants, provided that any potential conflicts of interest are addressed and such affiliates have cross-guaranteed their obligations.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of:
(a) the Decision Makers, under the Legislation, is that the Full-Time Salesperson Determination is granted; and
(b) the OSC, under the Legislation in the Province of Ontario, is that the Dual Registration Relief is granted,
provided that (i) the circumstances described in paragraphs 3, 4, 5 and 6 above remain in place, and (ii) the Filers comply with all requirements of the IDA from time to time for permitting such dual registration.