CDC IXIS North America Inc. - MRRS Decision

Headnote

MRRS for Exemptive Relief Applications - applicationfor relief from the registration requirements and the prospectusrequirements in connection with certain trades in over-the-counter("OTC") derivatives entered into between certain wholly-ownedsubsidiaries of the applicant and certain counterparties - applicationfor relief from fees required to be paid in respect of suchOTC derivatives transactions - relief granted subject to theconditions that (i) each trade involves an OTC Derivative whichmeets certain conditions, and (ii) each trade is between a subsidiaryand Qualified Party (as defined), each acting as principal,and is marketed by a subsidiary.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53 and 74(1).

Applicable Ontario Regulations

Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am., s. 59(1).

Rules Cited

Proposed OSC Rule (not in force) 91-504 - Over-the-CounterDerivatives.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ONTARIO AND QUEBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CDC IXIS NORTH AMERICA INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof Ontario and Quebec (collectively, the "Jurisdictions")has received an application from CDC IXIS North America Inc.(the "Applicant") for a decision under the securitieslegislation (the "Legislation") of the Jurisdictionsthat (i) the requirements in the Legislation to be registeredto trade in a security (the "Registration Requirement")and to file and obtain a receipt for a preliminary prospectusand a prospectus in respect of such security (the "ProspectusRequirement") shall not apply to trades in over-the-counterderivatives ("OTC Derivatives") entered into betweencertain subsidiaries of the Applicant (the "Subsidiaries")and certain counterparties, and (ii) any fees required to bepaid under the Legislation in respect of such OTC derivativestransactions shall not be required to be paid in the Jurisdictions;

AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS the Applicant has representedto the Decision Makers that:

1. The Applicant is a corporation organizedunder the laws of the State of New York. The Applicant isthe holding company for the North American operations of CDCFinance-CDC IXIS ("CDC IXIS"), a French bank. TheApplicant is 100% owned by CDC IXIS.

2. CDC IXIS is a fully licensed bank underFrench law. It is controlled by Caisse des Dépôtset Consignations, a special national legislative entity ofthe Republic of France.

3. The Applicant, through its Subsidiaries,services clients consisting primarily of institutional investors,financial institutions, corporations, governments and highnet worth individuals. The Applicant, through its Subsidiaries,provides its clients with a broad range of financial services,including direct investment, arbitrage, financing, asset securitization,investment advisory services, portfolio immunization and creditenhancement, securities sales and trading activities in theUnited States and international capital markets.

4. The Applicant's Subsidiaries include:

(a) Caisse des Dépôts SecuritiesInc. ("CDC Securities"), a broker/dealer and investmentadviser registered with the Securities and Exchange Commission(the "SEC") and the National Association of SecuritiesDealers. CDC Securities is also registered as an internationaldealer under the Securities Act (Ontario), as a futurescommission merchant with the U.S. Commodity Futures TradingCommission, and as a commodity pool operator and commoditytrading adviser with the National Futures Association.

(b) CDC Derivatives Inc., a broker/dealerregistered with the SEC, whose business consists of eligibleOTC derivative instruments, as defined by SEC Rule 3b-13,and which benefits from a guarantee from CDC IXIS in respectof all its obligations arising out of all financial andcapital markets transactions.

(c) CDC Financial Products Inc. and CDCFunding Corp., which transact capital markets and borrowingactivities in the United States and which also benefit froma guarantee from CDC IXIS.

5. As subsidiaries of a French bank, the Applicantand each of the Subsidiaries are subject to regulation bythe Banque de France and to direct oversight by the CommissionBancaire, the regulatory arm of the Banque de France. Amongother things, the Commission Bancaire conducts periodic auditsof the Applicant and the Subsidiaries and monitors their compliancewith applicable regulatory capital requirements under Frenchbanking legislation.

6. Neither the Applicant nor any of its Subsidiariesis a reporting issuer in either of the Jurisdictions.

7. The Applicant, through its Subsidiaries,designs, creates and markets a range of derivative productsthat address the broad financing, risk management and investmentneeds of its clients.

8. The Applicant is proposing to engage, throughcertain of its Subsidiaries, in the marketing and tradingof OTC Derivatives with certain counterparties in the Jurisdictions.These OTC Derivatives may consist of one or more of the following:an option, a forward contract, a swap or a contract for differencesof a type commonly considered to be a derivative, in which:

8.1 the agreement relating to, and the materialeconomic terms of the option, forward contract, swap orcontract for differences have been customized to the purposesof the parties to the agreement and the agreement is notpart of a fungible class of agreements that are standardizedas to their material economic terms;

8.2 the creditworthiness of a party havingan obligation under the agreement would be a material considerationin entering into or determining the terms of the agreement;and

8.3 the agreement is not entered into ortraded on or through an organized market, stock exchangeor futures exchange and is not cleared by a clearing corporation.

9. The underlying interest of the OTC Derivativestransacted between the Subsidiaries and the counterpartieswill consist entirely of an interest rate, Canadian or foreigncurrency, a foreign exchange rate, a commodity, a security,an index, a benchmark or other variable, another OTC Derivative,or some relationship between, or combination of, one or moreof any of them.

10. The counterparties to such transactionswill consist exclusively of parties that meet the followingcriteria:

10.1 they are Qualified Parties, as definedin Appendix 1 to this MRRS Decision Document;

10.2 they have a high level of businessand financial sophistication;

10.3 they have access to their own independentadvisors who can assist in the determination of the suitabilityof the transaction and the creditworthiness of the relevantSubsidiary; and

10.4 they enter into OTC Derivative tradesin order to hedge or otherwise manage specific risks associatedwith their businesses or investments as part of the ordinarycourse of their businesses (or investing activity).

11. Each of the Subsidiaries which will engagein such OTC Derivative trading activities will be wholly-owned,directly or indirectly, by one or more companies whose votingshares are 100% owned by the Applicant.

AND WHEREAS pursuant to the System, thisMRRS Decision Document evidences the decision of the DecisionMakers (the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the Subsidiaries and their counterpartieswho are Qualified Parties shall each be exempt from the RegistrationRequirement and the Prospectus Requirement in respect of tradesin OTC Derivatives subject to the following conditions:

(i) each trade involves an OTC Derivativeof which the underlying interest consists entirely of an interestrate, Canadian or foreign currency, a foreign exchange rate,a commodity, a security, an index, a benchmark or other variable,or another OTC Derivative, or some relationship between, orcombination of, one or more of any of them; and

(ii) each trade is between a Subsidiary andQualified Party, each acting as principal, and is marketedby a Subsidiary.

AND IT IS FURTHER ORDERED that tradesentered into in reliance on this Decision be hereby exemptedfrom the notice requirements and fees that would otherwise applyin connection with such OTC Derivative transactions under theOntario Securities Legislation.

June 10, 2003.

APPENDIX 1

OVER-THE-COUNTER DERIVATIVESQUALIFIED PARTIES

Interpretation

(1) The terms "subsidiary" and "holdingbody corporate" used in paragraphs (w), (x) and (y) ofsubsection (3) of this Appendix have the same meaning as theyhave in the Business Corporations Act (Ontario).

(2) All requirements contained in this Appendixthat are based on the amounts shown on the balance sheet ofan entity apply to the consolidated balance sheet of the entity.

Qualified Parties Acting as Principal

(3) The following are Qualified Parties forall OTC derivatives transactions, if acting as principal:

Banks

(a) A bank listed in Schedule I, II or IIIto the Bank Act (Canada).

(b) The Business Development Bank of Canadaincorporated under the Business Development Bank of CanadaAct (Canada).

(c) A bank subject to the regulatory regimeof a country that is a member of the Basle Accord, or thathas adopted the banking and supervisory rules set out inthe Basle Accord, if the bank has a minimum paid up capitaland surplus, as shown on its last audited balance sheet,in excess of $25 million or its equivalent in another currency.

Credit Unions and Caisses Populaires

(d) A co-operative credit society, creditunion central, federation of caisses populaires, creditunion or regional caisse populaire, in each case, locatedin Canada.

Loan and Trust Companies

(e) A loan corporation or trust corporationregistered under the Loan and Trust Corporations Act (Ontario)or under the Trust and Loan Companies Act (Canada), or undercomparable legislation in any other province or territoryof Canada.

(f) A loan company or trust company subjectto the regulatory regime of a country that is a member ofthe Basle Accord, or that has adopted the banking and supervisoryrules set out in the Basle Accord, if the loan company ortrust company has a minimum paid up capital and surplus,as shown on its last audited balance sheet, in excess of$25 million or its equivalent in another currency.

Insurance Companies

(g) An insurance company licensed to dobusiness in Canada or a province or territory of Canada;

(h) An insurance company subject to theregulatory regime of a country that is a member of the BasleAccord, or that has adopted the banking and supervisoryrules set out in the Basle Accord, if the insurance companyhas a minimum paid up capital and surplus, as shown on itslast audited balance sheet, in excess of $25 million orits equivalent in another currency.

Sophisticated Entities

(i) A person or company that, together withits affiliates:

(i) has entered into one or more transactionsinvolving OTC Derivatives with counterparties that arenot its affiliates, if

(A) the transactions had a total grossdollar value of or equivalent to at least $1 billionin notional principal amount; and

(B) any of the contracts relating toone of these transactions was outstanding on any dayduring the previous 15-month period, or

(ii) had total gross marked-to-marketpositions of or equivalent to at least $100 million aggregatedacross counterparties, with counterparties that are notits affiliates in one or more transactions involving OTCDerivatives on any day during the previous 15-month period.

Individuals

(j) An individual who, either alone or jointlywith the individual's spouse, has a net worth of at least$5 million, or its equivalent in another currency, excludingthe value of his or her principal residence.

Governments/Agencies

(k) Her Majesty in right of Canada or anyprovince or territory of Canada and each crown corporation,instrumentality and agency of a Canadian federal, provincial,or territorial government.

(l) A national government of a country thatis a member of the Basle Accord, or that has adopted thebanking and supervisory rules set out in the Basle Accord,and each instrumentality and agency of that government orcorporation wholly-owned by that government.

Municipalities

(m) Any Canadian municipality with a populationin excess of 50,000 and any Canadian provincial or territorialcapital city.

Corporations and other Entities

(n) A company, partnership, unincorporatedassociation or organization, trust or estate, other thanan entity referred to in paragraph (a), (b), (c), (d), (e),(f), (g) or (h), with total revenue or assets in excessof $25 million or its equivalent in another currency, asshown on its last financial statements, to be audited onlyif otherwise required.

Pension Plan or Fund

(o) A pension fund that is regulated byeither the Office of the Superintendent of Financial Institutions(Canada) or a provincial pension commission, if the pensionfund has total net assets, as shown on its last auditedbalance sheet, in excess of $25 million, provided that,in determining net assets, the liability of a fund for futurepension payments shall not be included.

Mutual Funds and Investment Funds

(p) A mutual fund or non-redeemable investmentfund if each investor in the fund is a Qualified Party.

(q) A mutual fund that distributes its securitiesin any of the Jurisdictions, if the portfolio manager ofthe fund is registered as an adviser under the Legislationor securities legislation elsewhere in Canada.

(r) A non-redeemable investment fund thatdistributes its securities in any of the Jurisdictions,if the portfolio manager of the fund is registered as anadviser under the Legislation or securities legislationelsewhere in Canada.

Brokers/Investment Dealers

(s) A person or company registered underthe Legislation or securities legislation elsewhere in Canadaas a broker or an investment dealer or both.

(t) A person or company registered underthe Legislation as an international dealer if the personor company has total assets, as shown on its last auditedbalance sheet, in excess of $25 million or its equivalentin another currency.

Futures Commission Merchants

(u) A person or company registered underthe Commodity Futures Act (Ontario) as a dealer inthe category of futures commission merchant, or in an equivalentcapacity elsewhere in Canada.

Charities

(v) A registered charity under the IncomeTax Act (Canada) with assets not used directly in charitableactivities or administration, as shown on its last auditedbalance sheet, of at least $5 million or its equivalentin another currency.

Affiliates

(w) A wholly-owned subsidiary of any ofthe organizations described in paragraph (a), (b), (c),(d), (e), (f), (g), (h), (j), (n), (o), (s), (t) or (u).

(x) A holding body corporate of which anyof the organizations described in paragraph (w) is a wholly-ownedsubsidiary.

(y) A wholly-owned subsidiary of a holdingbody corporate described in paragraph (x).

(z) A firm, partnership, joint venture orother form of unincorporated association in which one ormore of the organizations described in paragraph (w), (x)or (y) have a direct or indirect controlling interest.

Guaranteed Party

(aa) A party whose obligations in respectof the OTC Derivative transaction for which the determinationis made is fully guaranteed by another Qualified Party.

Qualified Party Not Acting as Principal

(4) The accounts of a person, company, pensionfund or pooled fund trust that are fully managed by a portfoliomanager or financial intermediary referred to in paragraphs(a), (d), (e), (g), (s), (t), (u) or (w) of paragraph (3)or a broker or investment dealer acting as a trustee or agentfor the person, company, pension fund or pooled fund trustare Qualified Parties, in respect of all OTC Derivative transactions.

Subsequent Failure to Qualify

(5) A party is a Qualified Party for the purposeof any OTC Derivative transaction if it, he or she is a QualifiedParty at the time it, he or she enters into the transaction.

Qualified Party for Specified Commodity DerivativeTransaction

(6) A commercial user is a Qualified Partywith respect to any specified commodity derivative transaction.For these purposes:

"commercial user" meansa person or company that enters into a specified commodityderivative transaction, if

(a) the person or company deals in itsbusiness with a specified commodity, and

(b) the transaction involves a specifiedcommodity derivative of which the underlying interest,or a material component of the underlying interest, is

(i) a specified commodity referred toin paragraph (a),

(ii) a related specified commodity toa specified commodity referred to in paragraph (a),or

(iii) a specified commodity derivative,the underlying interest of which is

(A) a specified commodity, or

(B) a related specified commodityto a specified commodity referred to in paragraph(a);

"related specified commodity"means a specified commodity that is part or all of an underlyinginterest of a specified commodity derivative that is usedby a commercial user to hedge its exposure to a risk resultingfrom its use of another specified commodity in its business;

"specified commodity" means

(a) whether in the original or a processedstate, an agricultural product, forest product, productof the sea, mineral, metal, hydrocarbon fuel product orprecious stone or other gem,

(b) a pollutant emission level,

(c) electricity,

(d) a liability from an insurance contract,and

(e) a matter designated by the Commissionsas a specified commodity, if that designation has notbeen revoked; and

"specified commodity derivative"means an OTC derivative of which an underlying interestis:

(a) a specified commodity, or

(b) another OTC derivative of which theunderlying interest is a specified commodity.