TD Securities Inc. and TD Waterhouse Canada Inc. - s. 127 of the Regulations to the Act and s. 3.1 of Rule 31-501
Headnote
Decision pursuant to to section 3.1 of Rule 31-501 -- Registrant Relationships (the Rule) and subsection 127(2)(h) of the Regulations under the Securities Act (Ontario) exempting salespersons, directors and officers of the applicants, which are affiliated companies, from certain of the dual registration restrictions out in the Rule and exempting their salespersons from the provisions of subsection 127(1) of the Regulations, to the extent that those provisions would prohibit salespersons of one applicant from also being salespersons of the other applicant.
Statutes Cited
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss.127(1), 127(2).
Rules Cited
Ontario Securities Commission Rule 31-501 ss. 1(1), 3.1.
June 7, 2007
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)
AND
IN THE MATTER OF
R.R.O. 1990, REGULATION 1015,
AS AMENDED (the Regulation)
AND
ONTARIO SECURITIES COMMISSION RULE 31-501
REGISTRANT REGLATIONSHIPS
(the Rule)
AND
IN THE MATTER OF
TD SECURITIES INC. AND
TD WATERHOUSE CANADA INC.
DECISION
(Section 127(2)(h) of the Regulation
and Section 3.1 of the Rule)
UPON the Director (as defined in the Act) having received an application (the Application) from TD Securities Inc. (TDSI) and TD Waterhouse Canada Inc. (TD Waterhouse and, together with TDSI, the TD Registrants) for a decision (or its equivalent) pursuant to section 3.1 of the Rule, exempting the current and future salespersons (the Salespersons), directors and officers of TD Waterhouse (the Representatives) from the dual registration restrictions of subsection 1.1(1) of the Rule (the Dual Registration Relief) and that a determination be made under subsection 127(2)(h) of the Regulation that the Salespersons are carrying on activities which will not in the circumstances interfere with their duties and responsibilities as salespersons and that 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 with both TD Registrants despite the fact that they are not employed full-time for either of the TD Registrants as required by subsection 127(1) of the Regulation (the Full-Time Salesperson Determination).
AND UPON considering the Application and the recommendation of staff of the Ontario Securities Commission (the Commission);
AND UPON the TD Registrants having represented to the Director that:
1. TDSI is a corporation incorporated under the laws of the Province of Ontario.
2. TDSI is a wholly-owned subsidiary of The Toronto-Dominion Bank (TD Bank).
3. TDSI is registered as an investment dealer or its equivalent under the securities legislation of all provinces and territories of Canada, it is a member of the Investment Dealers Association of Canada (IDA) and the TSX Venture Exchange, it is an approved participant of the Montreal Exchange (ME) and it is a participating organization of The Toronto Stock Exchange (TSX).
4. TD Waterhouse is a corporation incorporated under the laws of the Province of Ontario.
5. TD Waterhouse is a wholly-owned subsidiary of TD Bank.
6. TD Waterhouse is registered as an investment dealer or its equivalent in all provinces and territories of Canada, it is a member of the IDA and it is an approved participant of the ME.
7. As members of the IDA, and affiliates of each other, each of TD Waterhouse and TDSI has cross-guaranteed the obligations of the other in accordance with Section 6.6 of the IDA By-Laws.
8. For various business and other reasons, TD Bank has historically caused, and continues to require, its securities brokerage business to be conducted through two registrants whereby its retail brokerage business is conducted through TD Waterhouse and its institutional brokerage business is conducted through TDSI.
9. TDSI has a client base that is currently limited to institutional clients, as that term is defined in IDA Policy No. 4 Minimum Standards for Institutional Account Opening, Operation and Supervision.
10. TDSI has been approached by a high net worth client of TD Waterhouse (the Prospective Client) who wishes to establish a prime brokerage account with TDSI in order to take advantage of the prime brokerage services that TDSI currently provides to its institutional clients. The Prospective Client is an accredited investor (an Accredited Investor) as that term is defined in National Instrument 45-106 Prospectus and Registration Exemptions.
11. TDSI proposes to begin undertaking a very limited retail prime brokerage business (the Retail Prime Brokerage Business) that will cater to high net worth individuals (the TDSI Clients). The TDSI Clients are or will be Accredited Investors.
12. TDSI proposes to dually register certain Representatives with TDSI to act on behalf of the TDSI Clients and such Representatives have, or will have, extensive experience providing trade execution services to retail investors. The Representatives have, or will have, met the proficiency requirements as required by the IDA and be approved to trade with retail clients.
13. The Representatives generally receive, or will receive, client orders through registered salespersons and trading officers of TD Waterhouse, introducing brokers for whom TD Waterhouse acts as a carrying broker and third party portfolio managers. Accordingly, with the exception of a limited number of TD Waterhouse's high net worth clients, the Representatives generally do not, and will not, trade directly with individual clients and they do not, and will not, engage in any inventory or proprietary trading on behalf of TD Waterhouse.
14. The Representatives transmit, or will transmit, all orders for clients of TD Waterhouse (TD Waterhouse Clients) directly to the TSX trading system through TDSI in accordance with Rule 2-501 of the TSX Rules.
15. In order to accommodate the establishment of the Retail Prime Brokerage Business, TDSI has established written policies and procedures for dealing with retail clients in accordance with IDA Policy No. 2 Minimum Standards for Retail Account Supervision.
16. The Representatives are, or will be, under the direct supervision and control of both TD Registrants and they are, or will be, subject to all securities -- related and conflicts of interest policies and procedures of both TD Registrants.
17. The dual registration of the Representatives will not be a source of any client confusion or conflicts of interest because:
(a) when acting on behalf of TD Waterhouse, the Representatives generally do not, and will not, trade directly with clients save and except for a limited number of high net worth clients of TD Waterhouse;
(b) when acting on behalf of TD Waterhouse, the Representatives do not, and will not, provide advice and all trading orders received by the Representatives will be unsolicited;
(c) when acting on behalf of TDSI, the Representatives trading activities are, or will be, limited to dealing with high net worth individuals as part of the Retail Prime Brokerage Business;
(d) when acting on behalf of TDSI, the Representatives do not, and will not, provide advice and most of the trading orders received by the Representatives will be unsolicited;
(e) prior to conducting dealing activities on behalf of a TDSI Client, the Representatives will notify the TDSI Client of their dual registration with both TDSI and TD Waterhouse; and
(f) the Representatives shall act in the best interests of both their TDSI Clients and their TD Waterhouse Clients and deal fairly, honestly and in good faith.
18. Section 127(1) of the Regulation provides that (subject to subsection (2) of such section) no individual may be registered as a salesperson unless he or she is employed full-time as a salesperson. Although not explicit, it may be implicit that such subsection is intended to require such full-time employment with one registrant.
19. Section 127(2) of the Regulation permits the Director to exempt a person from the full-time requirement under subsection 127(1) of the Regulation where the other activities of the subject salesperson will not interfere with his or her duties and responsibilities as a salesperson and there is no conflict of interest arising from his or her duties as a salesperson and his or her outside activity.
20. Section 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.
21. Section 3.1 of the Rule provides that the Director may grant an exemption from the Rule, in whole or in part.
22. 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.
23. 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 Director is satisfied that the applicant or registrant has adopted or proposes to adopt policies and procedures to minimize the potential for conflicts of interest.
24. The IDA By-Laws permit dual employment of registered representatives (being salespersons for purposes of the Act, the Regulation 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.
AND UPON the Director being satisfied, based upon the representations set forth above, that there is no potential conflict of interest in the conduct of brokerage business as between the TD Registrants;
AND UPON the Director being satisfied that registration of individuals as salespersons of both TD Registrants would not result in interference with their duties to either TD Registrant and that there is no conflict of interest which would arise from such dual registration;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS THE DECISION of the Director pursuant to section 3.1 of Rule 31-501 and section 127(1)(h) of the Regulation that, for a period of three years, effective the date of the Decision:
(a) the Full-Time Salesperson Determination is granted; and
(b) the Dual Registration Relief is granted,
provided that the trading activity that is conducted by the Representatives on behalf of TDSI is limited to trading with clients who are Accredited Investors of TDSI's Retail Prime Brokerage Business and that the TD Registrants comply with all requirements of the IDA from time to time for permitting such dual registration.