Credential Securities Inc. and Credential Direct - MRRS Decision

April 27, 2001

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications relief from the Suitability Requirements, as reflectedin paragraph 1.5(1)(b) of OSC Rule 31-505, pursuant to section 4.1 of OSC Rule 31-505, subject to the terms andconditions set out in the Decision Document.

Decision pursuant to s.21.1(4) of the Act, that the IDA Suitability Requirements do not apply to the Filer, subject to theterms and conditions set out in the Decision Document.

Applicable Ontario Statute

Securities Act R.S.O. 1990, c.S.5, as amended, s.21.1(4).

Ontario Rules Cited

Ontario Securities Commission Rule 31-505 Conditions of Registration (1999) 22 O.S.C.B. 731.

IDA Regulations Cited

IDA Regulation 1300.1(b), 1800.5(b), 1900.4.

IN THE MATTER OF

THE SECURITIES LEGISLATION OF BRITISH COLUMBIA,

ALBERTA, SASKATCHEWAN, ONTARIO, NOVA SCOTIA, AND NEWFOUNDLAND

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CREDENTIAL SECURITIES INC. AND CREDENTIAL DIRECT

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") has received anapplication from Credential Securities Inc. (the "Filer"), in respect of its independently operating on-line trading businessunit, Credential Direct ("Credential Direct"), for:

(a) a decision under the legislation of each Jurisdiction (the "Legislation") that the requirements of the Legislationrequiring Credential Direct and its registered salespersons, partners, officers and directors ("RegisteredRepresentatives") to make inquiries of each client of Credential Direct as are appropriate, in view of the natureof the client's investments and of the type of transaction being effected for the client's account, to determine(a) the general investment needs and objectives of the client and (b) the suitability of a proposed purchase orsale of a security for the client (collectively, the "Suitability Requirements") do not apply to Credential Directand its Registered Representatives; and

(b) a decision under the Legislation, other than the securities legislation of Newfoundland and Nova Scotia, thatthe requirements of the Investment Dealers Association of Canada (the "IDA"), in particular IDA Regulation1300.1(b), 1800.5(b) and 1900.4, requiring Credential Direct and its Registered Representatives to makeinquiries of each client of Credential Direct as are appropriate, in view of the nature of the client's investmentsand of the type of transaction being effected for the client's account, to determine (a) the general investmentneeds and objectives of the client and (b) the suitability of a proposed purchase or sale of a security for theclient (collectively, the "IDA Suitability Requirements") do not apply to Credential Direct and its RegisteredRepresentatives;

AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"),the British Columbia Securities Commission is the principal regulator for this application;

AND WHEREAS the Filer has represented to the Decision Makers that:

1. the Filer is a corporation incorporated under the Canada Business Corporations Act on September 27, 1995,is a member of the IDA, and is registered in each of the Jurisdictions except Nova Scotia where applicationsfor registration have been made;

2. Credential Direct is a division of the Filer that operates as an independent business unit using its ownletterhead, accounts, registered representatives and account documentation;

3. Credential Direct is a trade name of the Filer registered with each Jurisdiction;

4. the head offices of the Filer and Credential Direct are located in British Columbia and the Filer has officers andsalespersons located in each of the Jurisdictions, except New Brunswick and Newfoundland, where anexemption from the residency requirements has been obtained, and Nova Scotia where applications forregistration on a non-residency basis have been made;

5. Credential Direct and its Registered Representatives do not and will not, except as provided in paragraph 12below, provide advice or recommendations regarding the purchase or sale of any security and CredentialDirect has adopted policies and procedures to ensure Credential Direct and its Registered Representatives donot, with such exception, provide advice or recommendations regarding the purchase or sale of any security;

6. when Credential Direct provides trade execution services to clients it would, in the absence of this Decision,be required to comply with the Suitability Requirements and IDA Suitability Requirements;

7. clients who request Credential Direct or its Registered Representatives to provide advice or recommendationsor advice as to suitability will be referred to a registered dealer or adviser that provides those services;

8. Credential Direct does not and will not compensate its Registered Representatives on the basis of transactionalvalues;

9. each client of Credential Direct will be advised of the Decision of the Decision Makers and requested toacknowledge that:

(a) no advice or recommendation will be provided by Credential Direct or its Registered Representativesregarding the purchase or sale of any security; and

(b) Credential Direct and its Registered Representatives will not determine the general investment needsand objectives of the client or the suitability of a proposed purchase or sale of a security for the client;(both (a) and (b) shall constitute the "Client Acknowledgement");

10. the Client Acknowledgment will provide the client with sufficient detail and will explain to each client thesignificance of not receiving either investment advice or a recommendation from Credential Direct, includingthe significance of Credential Direct not determining the general investment needs and objectives of the clientor the suitability of a proposed purchase or sale of a security for the client;

11. each client of Credential Direct will be advised that he or she has the option of transferring his or her accountor accounts to a registered dealer or adviser that provides advice and recommendations at no cost to the clientif the client does not wish to provide a Client Acknowledgement (the "Account Transfer Option");

12. Credential Direct and its Registered Representatives will continue to comply with the Suitability Requirementsand IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received for sixmonths following the date of this Decision;

13. after the date six months following the date of this Decision, Credential Direct will not permit a transaction inan account for which a Client Acknowledgement has not been received unless the transaction is a sale for cashor a transfer of assets to another account;

14. all prospective clients of Credential Direct will be advised and required to acknowledge that:

(a) no advice or recommendations will be provided by Credential Direct or its Registered Representativesregarding the purchase or sale of any security; and

(b) Credential Direct and its Registered Representatives will not determine the general investment needsand objectives of the client or the suitability of a proposed purchase or sale of a security for the client,(both (a) and (b) shall constitute the "Prospective Client Acknowledgement");

prior to Credential Direct opening an account for such prospective client;

15. the Prospective Client Acknowledgment will provide the prospective client with sufficient detail and will explainto each client the significance of not receiving either investment advice or a recommendation from CredentialDirect, including the significance of Credential Direct not determining the general investment needs andobjectives of the client or the suitability of a proposed purchase or sale of a security for the client;

(a) Credential Direct has adopted policies and procedures to ensure:

(b) that evidence of all Client Acknowledgements, Prospective Client Acknowledgements and AccountTransfer Options is established and retained pursuant to the record keeping requirements of theLegislation and the IDA;

(c) client accounts of Credential Direct are appropriately designated as being a client account to whicha Client Acknowledgement or Prospective Client Acknowledgement has been received or being aclient account to which a Client Acknowledgement has not been received; and

16. for any client of Credential Direct who does not provide a Client Acknowledgement and chooses to exercisethe client's Account Transfer Option, Credential Direct will transfer the client's account in an expeditiousmanner and at no cost to the client;

17. Credential Direct has adopted policies and procedures to ensure that:

(a) it operates separate from the full-service division of the Filer;

(b) Registered Representatives of Credential Direct are clearly employed by Credential Direct and do nothandle the business or clients of the full-service division of the Filer; and

AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is that the Suitability Requirements shall notapply to Credential Direct and its Registered Representatives so long as:

1. except as permitted by 6 below, Credential Direct and its Registered Representatives do not provide any adviceor recommendations regarding the purchase or sale of any security;

2. clients who request Credential Direct or its Registered Representatives to provide advice or recommendationsor advice as to suitability are referred to a registered dealer or adviser that provides those services;

3. Credential Direct is a division of the Filer and operates as an independent business unit using its ownletterhead, accounts, Registered Representatives and account documentation;

4. Credential Direct does not compensate its Registered Representatives on the basis of transactional values;

5. each client of Credential Direct is advised of the Decision of the Decision Makers and requested to make aClient Acknowledgement or transfer his or her account to a dealer who provides advice if the client does notmake a Client Acknowledgement;

6. Credential Direct and its Registered Representatives continue to comply, for six months following the date ofthis Decision, with their Suitability Requirements and IDA Suitability Requirements for client accounts for whichno Client Acknowledgement is received;

7. commencing six months following the date of this Decision, Credential Direct will not permit transactions inan account for which a Client Acknowledgement has not been received unless the transaction is a sale for cashor a transfer of assets to another account;

8. each prospective client of Credential Direct is advised of the Decision of the Decision Makers and required tomake a Prospective Client Acknowledgement prior to Credential Direct servicing such prospective client;

9. evidence of all Client Acknowledgements, Prospective Client Acknowledgements and Account Transfer Optionsis established and retained pursuant to the record keeping requirements of the Legislation and the IDA;

10. for any client who elects to exercise the client's Account Transfer Option, Credential Direct transfers suchaccount or accounts to a registered dealer or adviser that provides advice or recommendations in anexpeditious manner and Credential Direct does not charge any transfer fees to a client who effects such atransfer;

11. Credential Direct accurately identifies and distinguishes client accounts for which a Client Acknowledgementor Prospective Client Acknowledgement has been provided and client accounts for which no ClientAcknowledgement has been provided;

12. the Filer has in force policies and procedures to ensure that:

(a) Credential Direct continues to operate separately from the full-service division of the Filer;

(b) Registered Representatives of Credential Direct are clearly employed by Credential Direct and do nothandle the business or clients of the full-service division of the Filer; and

13. if an IDA rule addressing the IDA Suitability Requirements comes into effect, the Decision with respect to theSuitability Requirements will terminate one year following the date such rule comes into force, unless theDecision Maker determines otherwise.

April 27, 2001.

"Gerry Halischuk"

THE DECISION of the Decision Makers, other than Nova Scotia and Newfoundland, is that the IDA SuitabilityRequirements do not apply to Credential Direct and its Registered Representatives so long as:

1. excepted as permitted by 6 below, Credential Direct and its Registered Representatives do not provide anyadvice or recommendations regarding the purchase or sale of any security;

3. Credential Direct is a division of the Filer and operates as an independent business unit using its ownletterhead, accounts, Registered Representatives and account documentation;

4. Credential Direct does not compensate its Registered Representatives on the basis of transactional values;

12. the Filer has in force policies and procedures to ensure that:

(a) Credential Direct continues to operate separately from the full-service division of the Filer;

(b) Registered Representatives of Credential Direct are clearly employed by Credential Direct and do nothandle the business or clients of the full-service division of the Filer; and

13. if an IDA rule addressing the IDA Suitability Requirements comes into effect, the Decision with respect to theIDA Suitability Requirements will terminate one year following the date such rule comes into force, unless theDecision Maker determines otherwise.

April 27, 2001.

"Gerry Halischuk"