Caldwell Securities Ltd.
Headnote
Multilateral Instrument 11-102 -- Passport System -- Relief from requirement that registrant appoint its CEO as UDP to allow filer to appoint its President as UDP -- President is functional equivalent of CEO -- President has ultimate authority for compliance related activity throughout the firm -- President reports directly to the Board of Directors of the filer -- President is also a member of the Board of Directors of the filer -- Relief is granted only in respect of the named individuals for as long as they continue in their respective roles -- section 11.2 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 5.1 and 11.2.
December 9, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CALDWELL SECURITIES LTD. (the Filer)
DECISION
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the requirement contained in section 11.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) in order to permit the Filer to designate its current president (the President), instead of its current chief executive officer (CEO), as the ultimate designated person (UDP) of the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that Subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and Saskatchewan (Non-Principal Jurisdictions and together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is registered as an investment dealer in the category of dealer in each of Alberta, British Columbia, Manitoba, Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and Saskatchewan. The Filer is a member of the Investment Industry Regulatory Organization of Canada.
2. The Filer is a corporation amalgamated under the laws of Ontario, with its head office located in Toronto, Ontario.
3. The Filer is not in default of applicable securities legislation in the Jurisdictions.
4. The Filer is a wholly owned subsidiary of Caldwell Financial Ltd. (CFL), a Canadian financial services company. CFL is not a registrant firm under the securities legislation of any Canadian jurisdiction. CFL is also the sole owner of Caldwell Investment Management Ltd. (CIM), a firm registered in the categories of investment fund manager in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Ontario, Quebec and Saskatchewan, and in the category of portfolio manager in Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan.
5. CFL is a majority employee-owned firm that, through its subsidiaries, provides independent, personalized and innovative wealth management strategies, investment solutions and insurance products for families, corporations and trusts and foundations.
6. The Filer was founded in 1980 by Thomas S. Caldwell, who is the current CEO and UDP of the Filer. Mr. Caldwell has always led the setting of the long-term strategy at the Filer, in consultation with the Board of Directors and staff of the Filer. Clients, staff and industry colleagues view Mr. Caldwell as the highest-ranking officer and visionary at the Filer.
7. Mr. Caldwell has been dually registered as a dealing representative of the Filer and as an advising representative of CIM since before July 11, 2011 and, therefore, exempt from the prohibition in paragraph 4.1(1)(b) of NI 31-103.
8. The Board of Directors of the Filer believes it is prudent to start implementing changes to address succession issues. The Board of Directors of the Filer is transitioning the current CEO's responsibilities to the current President, Angela T. Stirpe.
9. Ms. Stirpe, the current President, is also a director of the Filer, its Chief Operating Officer and head of the Filer's Executive Committee, a committee of the Filer's Board of Directors. Ms. Stirpe is also the current Chief Compliance Officer (CCO) of the Filer and is responsible for overseeing the activities at the Filer that require registration under Canadian securities legislation. Ms. Stirpe is also president of CFL,
10. The Exemption Sought would permit the Filer to designate Ms. Stirpe, instead of Mr. Caldwell, as UDP of the Filer.
11. Despite their different titles, Ms. Stirpe, as President, will perform duties and have responsibilities in relation to the Filer that make her the functional equivalent of a chief executive officer.
12. If the Exemption Sought is granted:
(a) The Filer will designate a new CCO and Ms. Stirpe, as President, will be designated as UDP.
(b) Ms. Stirpe will devote a substantial majority of her time to the Filer's business and will acquire responsibility for the day-to-day operations of the Filer.
(c) The CEO, Mr. Caldwell, will remain as Chairman of the Board of Directors, engaged with long term strategy and external brand management, and will have diminished involvement in the Filer's day-to-day operations, leaving such operations to the oversight of Ms. Stirpe as President.
(d) As President, Ms. Stirpe will be responsible for key decisions at the Filer. Even though she does not hold the title of chief executive officer, Ms. Stirpe will:
(i) be accountable for the business operations of the Filer and provide reports to the Filer's Board of Directors regarding the Filer's performance;
(ii) provide clear leadership and promote a culture of compliance, collaboration and responsibility "at the top";
(iii) have ultimate authority over compliance related matters for the Filer;
(iv) supervise the Filer's business activities, and monitor and resolve all compliance related issues to ensure compliance with securities legislation;
(v) have senior management of the Filer, including members of the Filer's Executive Committee, report directly and/or indirectly to her;
(vi) be responsible for, along with other members of the Filer's Executive Committee and the CEO, creating and developing the strategic plan for the Filer;
(vii) in respect of activities that require registration under securities legislation, report directly and have access to the Filer's Board of Directors.
(collectively, the President Responsibilities).
(e) Any activities performed by Mr. Caldwell as a registered dealing representative of the Filer will be subject to the authority of the President and UDP of the Filer, who will be the most senior decision maker in the firm in respect of securities regulatory matters.
(f) The CEO will no longer direct the day-to-day decisions of the firm in respect of management of staff, financial operations or securities regulatory compliance matters, other than receiving the annual report of the CCO pursuant to NI 31-103 in his capacity as a member of the Board of Directors of the Filer. The CEO will not have authority over the firm as a whole or the individuals acting on its behalf in relation to matters of compliance.
(g) In case of disagreement between the CEO and the President in respect of activities that require registration under securities legislation, it is contemplated that the views of the President would prevail, subject only to the overall responsibility of the Board of Directors to manage the business and affairs of the Filer in accordance with applicable law and prudent business practices. The Filer's governance records, including by-laws, will be amended to reflect this arrangement.
13. Under section 11.2 of NI 31-103, a registered firm is required to designate an individual to be the UDP of the firm and the individual must be the chief executive officer of the registered firm or, if the firm does not have a chief executive officer, an individual acting in a capacity similar to a chief executive officer.
14. Under section 5.1 of NI 31-103, the UDP is responsible for (i) supervising the activities of the firm that are directed towards ensuring compliance with securities legislation by the firm and each individual acting on the firm's behalf; and (ii) promoting compliance by the firm, and individuals acting on its behalf, with securities legislation.
15. The President Responsibilities are substantively the responsibilities of a chief executive officer. Further, as a member of the Filer's Executive Committee and Board of Directors, Ms. Stirpe is involved in and responsible for all key business, strategic and financial decisions of the Filer.
16. If the Exemption sought is granted, Ms. Stirpe will have the responsibility to supervise the activities of the Filer's business to ensure compliance with securities legislation and promote a culture of compliance with securities legislation by the Filer and its employees.
17. For these reasons, the President of the Filer is more appropriately placed to fulfill the obligations of UDP than the CEO.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) Ms. Stirpe,
(i) continues as President of the Filer,
(ii) is the most senior decision maker in the firm, responsible for the President Responsibilities or responsibilities in the future that are substantively similar;
(iii) has ultimate authority for all compliance related matters for the Filer and all of its employees;
(iv) has access and reports directly to the Filer's Board of Directors; and
(b) Mr. Caldwell,
(i) continues as CEO of the Filer,
(ii) is primarily engaged with long term strategy and external brand management, and
(iii) exercises no authority over the President in respect of the Filer's day-to-day operations, management of staff, financial operations or securities regulatory compliance matters.
"Felicia Tedesco"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission
OSC File #: 2021/0412