State Street Bank and Trust Company - MRRS Decision
Headnote
MRRS - Underwriter and advisor registration relief for Schedule III Bank - prospectus and registration relief for tradeswhere Schedule III bank purchasing as principal and first trade relief for Schedule III bank - prospectus and registrationrelief for trades of bonds, debentures and other evidences of indebtedness of a guaranteed by Schedule III Bankprovided trades involve only specified purchases - prospectus and registration relief for evidences of deposits issuedby Schedule III bank to specified purchases - fee relief for trades made in reliance on Decision.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., 25(1)(a)&(c), 34(a), 35(1)(3)(i), 35(2)1(c), 53(i), 72(l)(a)(i), 73(1)(a), 74(1),147.
Regulations Cited
Regulation made under the Securities Act, R.R.O. Reg. 1015, as am., s.151, 206, 218. Schedule 1 Section 28.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NEW BRUNSWICK, NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLAND, YUKON TERRITORY,
AND NORTHWEST TERRITORIES
AND
IN THE MATTER OF
THE MUTUAL RELIANCE
REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
STATE STREET BANK AND TRUST COMPANY
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provincesof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince EdwardIsland, Newfoundland, and the Northwest Territories and Yukon Territory (with the exception of Nunavut) (the"Jurisdictions"), has received an application (the "Application") from State Street Bank and Trust Company ("State Street")for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that State Street be exempt fromvarious registration, prospectus and filing requirements of the Legislation in connection with the banking activities to becarried on by State Street in the Jurisdictions;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS it has been represented by State Street to the Decision Makers that:
1. State Street was originally incorporated in the State of Massachusetts as the Union Bank in 1792. The charterunder which it now operates was authorized by a special act of the Massachusetts Legislature in 1891, and itspresent name was adopted in 1960. It is a member of both the Federal Reserve System and the U.S. FederalDeposit Insurance Corporation. State Street has maintained an active presence in Canada since 1988. StateStreet Trust Company Canada ("SSTCC") is a federally incorporated trust company and is a wholly ownedsubsidiary of State Street International Holdings, which in turn is a wholly owned subsidiary of State Street.SSTCC is currently registered as a trust company in all provinces and territories (with the exception of Nunavut)under provincial trust or financial services legislation.
2. SSTCC was originally incorporated (as State Street Canada Inc.) on May 19, 1988 and was continued as afederal trust company on May 3, 1995. SSTCC has offices in Toronto and Montreal as well as a sales officein Vancouver. As at July 31, 2000, SSTCC had 356 employees in the following five divisions:
(i) Pension and Institutional Custody which provides global custody services to collective investmentfunds including manager-sponsored pooled funds and fund accounting to pension funds andmanager-sponsored pooled funds;
(ii) Mutual Fund and Insurance which provides global custody services to Canadian registered mutualfunds and insurance company segregated funds;
(iii) Securities Operations which provides safekeeping and settlement services in relation to the Canadiansecurities of State Street's clients;
(iv) Support Services which includes Finance, Human Resources, Sales and Marketing, InformationTechnology, and Legal divisions; and
(v) State Street Global Markets ("SSGM") which provides foreign exchange trading services, moneymarket services, currency risk management services, e-finance and deposit taking services for thecustody clients of SSTCC and other third party funds.
3. SSTCC has other wholly owned subsidiaries. State Street Global Advisors, Ltd. ("SSgA"), provides investmentcounselling and portfolio management services to institutional clients and was incorporated under the CanadaBusiness Corporations Act in May of 1990. It is registered in Ontario as a limited market dealer (conditional),investment counsel, portfolio manager and commodity trading manager. SSgA is also registered in theprovinces of Quebec, Alberta, British Columbia, Manitoba, New Brunswick and Nova Scotia and is seekingregistration in the remaining provinces. State Street Brokerage Services Canada Inc. ("SSBSC") wasincorporated under the Canada Business Corporations Act in April of 1999 and provides brokerage servicesprimarily, but not limited to, Canadian institutional investors. It is a member of the Toronto Stock Exchange andthe Investment Dealers Association of Canada. SSBSC is registered as an investment dealer in Ontario, anon-resident investment dealer in Alberta and British Columbia and is in the process of obtaining registrationsin Quebec.
4. The treasury function within SSTCC also engages in proprietary risk taking activities through the SSGM divisionincluding interest rate and currency trading. The treasury function also manages the investment portfolio ofSSTCC holding Canadian government debt and the use of derivative products as asset/liability managementtools.
5. State Street 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 eitherof those rights and includes a municipal or public body empowered to perform a function ofgovernment in Canada, or an entity controlled by Her Majesty in either of those rights;
(b) the government of a foreign country or any political subdivision thereof, an agency of the governmentof a foreign country or any political subdivision thereof, or an entity that is controlled by thegovernment of a foreign country or any political subdivision thereof;
(c) an international agency of which Canada is a member, including an international agency that is amember of the World Bank Group, the Inter American Development Bank, the Asian DevelopmentBank, the Caribbean Development Bank and the European Bank for Reconstruction and Developmentand any other international regional bank;
(d) a financial institution (i.e.: (a) a bank or an authorized foreign bank under the Bank Act (Canada); (b)a body corporate to which the Trust and Loan Companies Act (Canada) applies; (c) an associationto which the Cooperative Credit Association Act (Canada) applies; (d) an insurance company or afraternal benefit society to which the Insurance Companies Act (Canada) applies; (e) a trust, loan orinsurance corporation incorporated by or under an Act of the legislature of a province; (f) a cooperativecredit society incorporated and regulated by or under an Act of the legislature of a province or territoryin Canada; (g) an entity that is incorporated or formed by or under an Act of Parliament or of thelegislature of a province or territory in Canada and that is primarily engaged in dealing in securities,including portfolio management and investment counselling, and is registered to act in such capacityunder the applicable legislation; and (h) a foreign institution that is (i) engaged in the banking, trust,loan or insurance business, the business of a cooperative credit society or the business of dealing insecurities or is otherwise engaged primarily in the business of providing financial services, and (ii) isincorporated or formed otherwise than by or under an Act of Parliament or of the legislature of aprovince or territory in Canada;
(e) a pension fund sponsored by an employer for the benefit of its employees or employees of an affiliatethat is registered and has total plan assets under administration of greater than $100 million;
(f) a mutual fund corporation that is regulated under an Act of the legislature of a province or territory inCanada or under the laws of any other jurisdiction and has total assets under administration of greaterthan $10 million;
(g) an entity (other than an individual) that has for the fiscal year immediately preceding the initial deposit,gross revenues on its own books and records of greater than $5 million; or
(h) any other person if the deposit is, in the aggregate, greater than $150,000;
collectively referred to for purposes of this Decision Document as "Authorized Purchasers".
6. In June of 1999 amendments to the Bank Act (Canada) were proclaimed that permit foreign commercial banksto establish direct branches in Canada. These amendments have created a new Schedule III listing foreignbanks permitted to carry on banking activities through branches in Canada;
7. State Street has published on January 6, 2001, its notice of intention to apply for an order under the Bank Act(Canada) permitting it to establish a full-service branch under Schedule III to the Bank Act (Canada). StateStreet will take over the current wholesale deposit-taking, corporate lending, custody and treasury functionscurrently conducted by the SSGM division of SSTCC. State Street intends to restructure its present operationsin Canada by establishing a full-service branch, while maintaining SSTCC to support its custodial and fiduciaryactivities.
8. The Legislation applicable in each Jurisdiction refers to either "Schedule I and Schedule II banks", "banks","savings institutions" or "financial institutions" in connection with certain exemptions however no reference ismade in any of the Legislation to entities listed on Schedule III to the Bank Act (Canada).
9. In order to ensure that State Street, as an entity listed on Schedule III to the Bank Act (Canada), is able toprovide banking services to businesses in the Jurisdictions it requires similar exemptions applicable to bankinginstitutions incorporated under the Bank Act (Canada) to the extent that the current exemptions applicable tosuch banking institutions are relevant to the banking business being undertaken by State Street in theJurisdictions.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (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 pursuant to the Legislation is that in connection with the bankingbusiness to be carried on by State Street in the Jurisdictions:
1. State Street is exempt from the requirement under the Legislation, where applicable, to be registered as anunderwriter with respect to trading in the same types of securities that an entity listed on Schedule I or II to theBank Act (Canada) may act as an underwriter in respect of without being required to be registered under theLegislation as an underwriter.
2. State Street is exempt from the requirement under the Legislation to be registered as an adviser where theperformance of the service as an adviser is solely incidental to its primary banking business.
3. A trade of a security to State Street where State Street purchases the security as principal shall be exempt fromthe registration and prospectus requirements of the Legislation of the Jurisdiction in which the trade takes place(the "Applicable Legislation") provided that:
(i) the forms that would have been filed and the fees that would have been paid under the ApplicableLegislation if the trade had been made, on an exempt basis, to an entity listed on Schedule I or II tothe Bank Act (Canada) purchasing as principal (referred to in this Decision as a "Schedule I or II BankExempt Trade") are filed and paid in respect of the trade to State Street; and
(ii) the first trade in a security acquired by State Street pursuant to this Decision is deemed a distribution(or primary distribution to the public) under the Applicable Legislation unless:
(a) the issuer of the security is a reporting issuer, or the equivalent, under the ApplicableLegislation and, if State Street is in a special relationship (where such term is defined in theApplicable Legislation) with such issuer, State Street has reasonable grounds to believe thatsuch issuer is not in default of any requirements of the Applicable Legislation;
(b) (i) the securities are listed and posted for trading on a stock exchange, that isrecognized by the Decision Maker of the applicable Jurisdiction for purposes of theresale of a security acquired in a Schedule I or II Bank Exempt Trade and complywith the requirements set out in paragraph (a) or (b) of Appendix A to this Decisionand have been held at least six months from the date of the initial exempt trade toState Street or the date the issuer became a reporting issuer, or the equivalent,under the Applicable Legislation, whichever is the later; or
(ii) the securities are bonds, debentures or other evidences of indebtedness issued orguaranteed by an issuer or are preferred shares of an issuer and comply with therequirements set out in paragraph (a) or (c) of Appendix A to this Decision and havebeen held at least six months from the date of the initial exempt trade to StateStreet or the date the issuer became a reporting issuer, or the equivalent, under theApplicable Legislation, whichever is the later; or
(iii) the securities are listed and posted for trading on a stock exchange, that isrecognized by the Decision Maker of the applicable Jurisdiction for purposes ofresale of a security acquired in a Schedule I or II Bank Exempt Trade or are bonds,debentures or other evidences of indebtedness issued or guaranteed by thereporting issuer, or the equivalent, under the Applicable Jurisdiction whosesecurities are so listed, and have been held at least one year from the date of theinitial exempt trade to State Street or the date the issuer became a reporting issuer,or the equivalent, under the Applicable Legislation, whichever is later; or
(iv) the securities have been held at least eighteen months from the date of the initialexempt trade to State Street or the date the issuer became a reporting issuer, or theequivalent, under the Applicable Legislation, whichever is later; and
(c) State Street files a report within 10 days of the trade prepared and executed in accordancewith the requirements of the Applicable Legislation that would apply to a Schedule I or IIBank Exempt Trade;
provided that no unusual effort is made to prepare the market or to create a demand for suchsecurities and no extraordinary commission or consideration is paid in respect of such trade andprovided State Street does not hold a sufficient number of securities to materially affect the control ofthe issuer of such securities but any holding by State Street of more than 20 per cent of theoutstanding voting securities of the issuer of such securities shall, in the absence of evidence to thecontrary, be deemed to affect materially the control of such issuer.
4. Provided State Street only trades the types of securities referred to in this paragraph 4 with AuthorizedPurchasers, trades of bonds, debentures or other evidences of indebtedness of or guaranteed by State Streetshall be exempt from the registration and prospectus requirements of the Legislation.
5. Evidences of deposit issued by State Street to Authorized Purchasers shall be exempt from the registration andprospectus requirements of the Legislation.
THE FURTHER DECISION of the Decision Maker in Ontario is that the registration requirements of theLegislation of Ontario does not apply to a trade by State Street:
(i) of a type described in subsection 35(1) of the Securities Act (Ontario) R.S.O. 1990 c.S.5 (as amended)(the "Ontario Act") or section 151 of the Regulations made under the Ontario Act; or
(ii) in securities described in subsection 35(2) of the Ontario Act.
THE FURTHER DECISION of the Decision Maker in Ontario is that:
A. Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O. 1990 c.S.5 (as amended) the ("Ontario Act") doesnot apply to a trades by State Street of the type described in s. 1.1 of Rule 32-503 to the Ontario Act.
B. Except as provided for in paragraph 3 of this Decision, section 28 of Schedule I to the Regulations made underthe Ontario Act shall not apply to trades made by State Street in reliance on this decision.
May 10, 2001.
"Howard I. Wetston" "Robert W. Davis"
APPENDIX A
(a) are preferred shares of a corporation if,
(i) the corporation has paid a dividend in each of the five years immediately preceding the date of theinitial exempt trade at least equal to the specified annual rate upon all of its preferred shares; or
(ii) the common shares of the corporation are, at the date of the initial exempt trade, in compliance withparagraph (b) of this Appendix A;
(b) are fully paid common shares of a corporation that during a period of five years that ended less than one yearbefore the date of the initial exempt trade has either,
(i) paid a dividend in each such year upon its common shares; or
(ii) had earnings in each such year available for the payment of a dividend upon its common shares;
of at least 4% of the average value at which the shares were carried in the capital stock account of the corporation duringthe year in which the dividend was paid or in which the corporation had earnings available for the payment of dividendsas the case may be;
(c) are bonds debentures or other evidences of indebtedness issued or guaranteed by,
(i) a corporation if, at the date of the initial exempt trade, the preferred shares or the common shares ofthe corporation which comply with paragraph (a) or (b) of this Appendix A; or
(ii) a corporation if its earnings in a period of five years ended less than one year before the date of theinitial exempt trade have been equal in sum total to at least ten times and in each of any four of thefive years have been equal to at least 1-1/2 times the annual interest requirements at the date of theinitial exempt trade on all indebtedness of or guaranteed by it, other than indebtedness classified asa current liability in its balance sheet, and, if the corporation at the date of the initial exempt tradesowns directly or indirectly more than 50% of the common shares of another corporation, the earningsof the corporations during the said period of five years may be consolidated with due allowance forminority interests, if any, and in that event the interest requirements of the corporation shall beconsolidated and such consolidated earnings and consolidated interest requirements shall be takenas the earnings and interest requirements of the corporation, and, for the purpose of this subclause,"earnings" mean earnings available to meet interest charges on indebtedness other than indebtednessclassified as a current liability.