HSBC Bank USA - MRRS Decision
Headnote
MRRS- Underwriter and advisor registration relief for Schedule IIIBank - prospectus and registration relief for trades where ScheduleIII Bank purchasing as principal and first trade relief for ScheduleIII Bank - prospectus and registration relief for trades of bonds,debentures and other evidences of indebtedness of or guaranteedby Schedule III Bank provided trades involve only specified purchasers- prospectus and registration relief for evidences of depositsby Schedule III Bank to specified purchasers - fee relief fortrades made in reliance on Decision.ApplicableOntario Statutory Provisions
SecuritiesAct, R.S.O. 1990, c.S.5, as am. ss. 25(1)(a)&(c), 34(a), 35(1)(3)(i),35(2)1(c), 53(i), 72(1)(a)(i), 73(1)(a), 74(1), 147.RegulationsCited
Regulationmade under the Securities Act, R.R.O. 1990, Reg. 1015, as am.ss. 151, 206, 218, Schedule 1 s. 28.INTHE MATTER OF
THESECURITIES LEGISLATION OF
BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO,QUEBEC, NEW BRUNSWICK, NOVA SCOTIA,
PRINCEEDWARD ISLAND, NEWFOUNDLAND AND LABRADOR,
YUKONTERRITORY, NORTHWEST TERRITORIES,
ANDNUNAVUT TERRITORY
AND
INTHE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVERELIEF APPLICATIONS
AND
INTHE MATTER OF
HSBCBANK USA
MRRSDECISION DOCUMENT
WHEREASthe local securities regulatory authority or regulator(the "Decision Maker") in each of British Columbia, Alberta, Saskatchewan,Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, PrinceEdward Island, Newfoundland and Labrador, Northwest Territories,Nunavut Territory and Yukon Territory (the "Jurisdictions") hasreceived an application (the "Application") from HSBC Bank USA("HBUS") for a decision pursuant to the securities legislationof the Jurisdictions (the "Legislation") that HBUS is exempt fromvarious registration, prospectus and filing requirements of theLegislation in connection with the banking activities to be carriedon by HBUS in Canada; ANDWHEREAS, pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System"), the OntarioSecurities Commission is the principal regulator for this application; ANDWHEREAS it has been represented by HBUS to the DecisionMakers that: 1.HBUS is a corporation duly organized and existing under the lawsof the State of New York and is a validly existing banking organizationunder the banking laws of the State of New York. HBUS is a wholly-ownedsubsidiary and the principal banking subsidiary of HSBC USA Inc.,an indirectly-held, wholly-owned subsidiary of HSBC Holding plc. 2.HBUS is the third largest depository institution and has the mostextensive branch network in the State of New York, with more than420 branches. It also has branches in Florida, Pennsylvania, Californiaand Panama. In addition to its branch network, HBUS has the thirdlargest factoring service in the United States of America andis the largest US bank-owned factor. It also conducts one of theworld's largest precious metals operations and has also enteredinto Internet banking. 3.HSBC is not, and has no current intention of becoming, a reportingissuer in any province of Canada, nor are any of its securitieslisted on any stock exchange in Canada. 4.HBUS does not currently have a presence in Canada. An affiliateof HBUS, HSBC Bank Canada, currently provides retail banking,commercial lending and corporate treasury products in Canada.The full service branch of HBUS intends to leverage its AA creditrating to provide commercial lending services to corporate andinstitutional banking clients which have credit requirements thatexceed the single name limit in Canada (an A credit rating). Inaddition, HBUS plans to engage in certain treasury related activities; 5.In June 1999, amendments to the Bank Act were proclaimedthat permit foreign commercial banks to establish direct branchesin Canada. These amendments have created a new Schedule III listingforeign banks permitted to carry on banking activities throughbranches in Canada; 6.In October, 2001, HBUS made an application (the "Bank Act Application")to the Office of the Superintendent of Financial InstitutionsCanada ("OSFI") for an order under the Bank Act permittingit to establish a full service branch under the Bank Actand designating it on Schedule III to the Bank Act; 7.Upon approval of the Bank Act Application, HBUS will establishand commence business as a foreign bank branch under the BankAct. HBUS expects to receive all OSFI approvals on or before March1, 2002. 8.HBUS will only be involved in wholesale deposit-taking, commerciallending and related treasury functions; 9.HBUS will only accept deposits from the following: (a)Her Majesty in right of Canada or in right of a province or territory,an agent of Her Majesty in either of those rights and includesa municipal or public body empowered to perform a function ofgovernment in Canada, or an entity controlled by Her Majesty ineither of those rights; (b)the government of a foreign country or any political subdivisionthereof, an agency of the government of a foreign country or anypolitical subdivision thereof, or an entity that is controlledby the government of a foreign country or any political subdivisionthereof; (c)an international agency of which Canada is a member, includingan international agency that is a member of the World Bank Group,the Inter-American Development Bank, the Asian Development Bank,the Caribbean Development Bank and the European Bank for Reconstructionand Development and any other international regional bank; (d)a financial institution (i.e.: (a) a bank or an authorized foreignbank under the Bank Act; (b) a body corporate to whichthe Trust and Loan Companies Act (Canada) applies, (c)an association to which the Cooperative Credit AssociationAct (Canada) applies, (d) an insurance company or a fraternalbenefit society to which the Insurance Companies Act (Canada)applies, (e) a trust, loan or insurance corporation incorporatedby or under an Act of the legislature of a province or territoryin Canada, (f) a cooperative credit society incorporated and regulatedby or under an Act of the legislature of a province or territoryin Canada; (g) an entity that is incorporated or formed by orunder an Act of Parliament or of the legislature of a provinceor territory in Canada and that is primarily engaged in dealingin securities, including portfolio management and investment counseling,and is registered to act in such capacity under the applicableLegislation, and (h) a foreign institution that is (i) engagedin the banking, trust, loan or insurance business, the businessof a cooperative credit society or the business of dealing insecurities or is otherwise engaged primarily in the business ofproviding financial services, and (ii) is incorporated or formedotherwise than by or under an Act of Parliament or of the legislatureof a province or territory in Canada); (e)a pension fund sponsored by an employer for the benefit of itsemployees or employees of an affiliate that is registered andhas total plan assets under administration of greater than $100million; (f)a mutual fund corporation that is regulated under an Act of thelegislature of a province or territory in Canada or under thelaws of any other jurisdiction and has total assets under administrationof greater than $10 million; (g)an entity (other than an individual) that has gross revenues onits own books and records of greater than $5 million as of thedate of its most recent annual financial statements; or (h)any other person if the trade is in a security which has an aggregateacquisition cost to the purchaser of greater than $150,000; collectivelyreferred to for purposes of this Decision as "Authorized Customers". 10.The only advising activities which HBUS intends to undertake willbe incidental to its primary business and it will not advertiseitself as an adviser or allow itself to be advertised as an adviserin the Jurisdictions; 11.The Legislation applicable in each Jurisdiction currently refersto either "Schedule I and Schedule II banks", "banks", "savingsinstitutions" or "financial institutions" in connection with certainexemptions however no reference is made in any of the Legislationto entities listed on Schedule III to the Bank Act; 12.In order to ensure that HBUS, as an entity listed on ScheduleIII to the Bank Act, is able to provide banking servicesto businesses in the Jurisdictions it requires similar exemptionsenjoyed by banking institutions incorporated under the BankAct to the extent that the current exemptions applicableto such banking institutions are relevant to the banking businessbeing undertaken by HBUS in the Jurisdictions; ANDWHEREAS pursuant to the System this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the"Decision"); ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met; THEDECISION of the Decision Makers pursuant to the Legislationis that upon the establishment by HBUS of a branch designatedon Schedule III to the Bank Act and in connection withthe banking business to be carried on by HBUS in the Jurisdictionsby such branch: 1.HBUS is exempt from the requirement under the Legislation, whereapplicable, to be registered as an underwriter with respect totrading in the same types of securities that an entity listedon Schedule I or II to the Bank Act may act as an underwriterin respect of without being required to be registered under theLegislation as an underwriter; 2.HBUS is exempt from the requirement under the Legislation to beregistered as an adviser where the performance of the serviceas an adviser is solely incidental to its primary banking business; 3.A trade of a security to HBUS where HBUS purchases the securityas principal shall be exempt from the registration and prospectusrequirements of the Legislation of the Jurisdiction in which thetrade takes place (the "Applicable Legislation") provided that: (i)the forms that would have been filed and the fees that would havebeen paid under the Applicable Legislation if the trade had beenmade, on an exempt basis, to an entity listed on Schedule I orII to the Bank Act purchasing as principal (referredto in this Decision as a "Schedule I or II Bank Exempt Trade")are filed and paid in respect of the trade to HBUS; (ii)except in Quebec, the first trade in a security acquired by HBUSpursuant to this Decision is deemed a distribution or primarydistribution to the public under the Applicable Legislation unlessthe conditions in subsections 2 or 3, as applicable, of section2.5 of Multilateral Instrument 45-102 - Resale of Securitiesare satisfied; and (iii)in Quebec, the first trade in a security acquired by HBUS pursuantto this Decision will be a distribution unless, (a)at the time HBUS acquired the security: (i) the issuer of thesecurity is a reporting issuer in Quebec; (ii) the issuer is nota Capital Pool Company as defined in Policy 2.4 of The CanadianVenture Exchange Inc.; (iii) the issuer has a class of securitieslisted on an acceptable exchange, has not been advised that itdoes not meet the requirements to maintain that listing and isnot designated inactive, or the issuer has a class of securitiesthat has an approved rating from an approved rating organization;for purposes of this Decision, the acceptable exchanges includethe Toronto Stock Exchange, tier 1 and 2 of The Canadian VentureExchange Inc., the American Stock Exchange, Nasdaq National Market,Nasdaq SmallCap Market, the New York Stock Exchange and the LondonStock Exchange Limited; and (iv) the issuer has filed an annualinformation required under section 159 of the Regulation madeunder the Securities Act (Quebec), as amended from timeto time, (the "Quebec Act") within the time period contemplatedby that section, or, if not required to file an annual information,has filed a prospectus that contains the most recent financialstatements; (b)the issuer has been a reporting issuer in Quebec for 4 monthsimmediately preceding the trade; (c)HBUS has held the securities for at least 4 months; (d)no extraordinary commission or other consideration is paid; (e)no effort is made to prepare the market or to create a demandfor the securities; (f)if HBUS is an insider of the issuer, HBUS has no reasonable groundsto believe that the issuer is in default under the Quebec Act;and (g)HBUS files a report within 10 days of the trade prepared and executedin accordance with the requirements of the Quebec Act that wouldapply to a trade made in reliance on section 43 or 51 of the QuebecAct. 4.Provided HBUS only trades the types of securities referred toin this paragraph 4 with Authorized Customers, trades of bonds,debentures or other evidences of indebtedness of or guaranteedby HBUS shall be exempt from the registration and prospectus requirementsof the Legislation; and 5.Evidences of deposit issued by HBUS to Authorized Customers shallbe exempt from the registration and prospectus requirements ofthe Legislation. THEFURTHER DECISION of the Decision Maker in Ontario isthat: A.Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O.1990 c. S.5 (as amended) (the "Act") does not apply to atrade by HBUS: (i)of a type described in subsection 35(1) of the Act or section151 of the Regulations made under the Act; or (ii)subject to paragraph 4 above, in securities described in subsection35(2) of the Act; B.Subsection 25(1)(a) and section 53 of the Ontario Act do not applyto a trade by HBUS in: (i)a security of a mutual fund, if the security is sold to a pensionplan, deferred profit sharing plan, retirement savings plan orother similar capital accumulation plan maintained by the sponsorof the plan for its employees, and (a)the employees deal only with the sponsor in respect of their participationin the plan and the purchase of the security by the plan, or (b)the decision to purchase the security is not made by or at thedirection of the employee; or (ii)in a security of a mutual fund that: (a)is administered by a body corporate to which the Trust andLoan Companies Act (Canada) applies or a trust, loan or insurancecorporation incorporated by or under an Act of the legislatureof a province or territory in Canada; (b)consists of a pool of funds that: (A)results from, and is limited to, the combination or comminglingof funds of pension or other superannuation plans registered underthe Income Tax Act (Canada), and (B)is established by or related to persons or companies that areassociates or affiliates of or that otherwise do not deal at armslength with the promoters of the mutual fund, except the trust,loan or insurance corporation that administers the fund; and (c)is managed, in whole or in part, by a person who is registeredor who is exempt from registration under the Ontario Act; and C.Except as provided for in paragraph 3 of this Decision, section28 of Schedule I to the Regulations made under the Act shall notapply to trades made by HBUS in reliance on this Decision. February26, 2002. "PaulM. Moore" "R. Stephen Paddon"