National City Bank - 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 or guaranteed by Schedule III Bankprovided trades involve only specified purchasers - fee relief for trades made in reliance on Decision.
Statutes Cited
Securities Act, 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) and147.
Regulations Cited
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss. 151, 206, 218, Schedule I s.28.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF BRITISH COLUMBIA,
ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO,
QUEBEC, NEW BRUNSWICK, PRINCE EDWARD ISLAND, NOVA SCOTIA,
NEWFOUNDLAND, THE NORTHWEST TERRITORIES,
NUNAVUT AND THE YUKON TERRITORY
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
NATIONAL CITY BANK
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island, Nova Scotia,Newfoundland, the Northwest Territories, Nunavut and the Yukon Territory (the "Jurisdictions") has received anapplication from National City Bank (the "Bank") for a decision pursuant to the securities legislation of the Jurisdictions(the "Legislation") that, upon being recognized as an "authorized foreign bank" (as defined in the Bank Act (Canada) (the"Bank Act")), the Bank be exempt from various registration, prospectus and filing requirements of the Legislation inconnection with the authorized foreign bank activities of the Bank.
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 the Bank to the Decision Makers that:
1. The Bank is a United States incorporated bank and is a "foreign bank", as such term is defined in section 2 ofthe Bank Act.
2. The Bank currently conducts commercial lending activities in Canada through National City Canada, Inc.("NCC"), its wholly-owned Canadian subsidiary. NCC is a private corporation incorporated under the OntarioBusiness Corporations Act and is not a financial institution regulated by the Bank Act.
3. Until recently, a foreign bank was not allowed under the Bank Act to establish a branch in Canada and couldonly carry on commercial lending activities by establishing a foreign bank subsidiary in Canada or, with theconsent of the Minister of Finance, by establishing a private corporation. The Bank and NCC received an orderof the Minister of Finance to establish NCC.
4. In 1999, the Bank Act was amended to add Part XII.1, which creates the concept of an "authorized foreignbank". Under the Bank Act, an "authorized foreign bank" is a foreign bank that has applied to the Minister ofFinance (the "Minister") for an order under section 524(1) of the Bank Act (an "AFB Order") permitting suchforeign bank to become an authorized foreign bank. An authorized foreign bank is permitted to establish abranch in Canada to, among other things, carry on commercial lending activities.
5. The Bank received an AFB Order on December 8, 2000. The Bank expects to commence commercial lendingactivities by setting up a Canadian branch upon receipt of this MRRS decision document. The Bank expectsthat it will likely wind up NCC once the new branch is in place. Once established, the Bank's branch operationswill be limited to commercial lending activities. The Bank will not operate a retail lending business nor be adeposit taking institution in Canada.
6. For purposes of this Decision "Authorized Purchasers" shall mean:
(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; (b) a bodycorporate to which the Trust and Loan Companies Act (Canada) applies; (c) an association to whichthe Cooperative Credit Association Act (Canada) applies; (d) an insurance company or a fraternalbenefit society to which the Insurance Companies Act (Canada) applies; (e) a trust, loan or insurancecorporation incorporated by or under an Act of the legislature of a province or territory in Canada; (f)a cooperative credit society incorporated and regulated by or under an Act of the legislature of aprovince or territory in Canada; (g) an entity that is incorporated or formed by or under an Act ofParliament or of the legislature of a province or territory in Canada and that is primarily engaged indealing in securities, including portfolio management and investment counseling, and is registered toact in such capacity under the applicable Legislation; and (h) a foreign institution that is (i) engagedin the banking, trust, loan or insurance business, the business of a cooperative credit society or thebusiness of dealing in securities or is otherwise engaged primarily in the business of providingfinancial services, and (ii) is incorporated or formed otherwise than by or under an Act of Parliamentor of the legislature of a province 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 trade, grossrevenues on its own books and records of greater than $5 million; or
(h) any other person if the trade is, in the aggregate, greater than $150,000.
7. The relief requested will be necessary to facilitate the daily operations of the branch to be established by theBank pursuant to its AFB Order.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of the 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 pursuant to the Legislation is that, in connection with the authorizedforeign banking activities to be carried on by the Bank in the Jurisdictions:
1. The Bank is exempt from the requirement under the Legislation, where applicable, to be registered as anunderwriter with respect to the same types of securities that an entity listed on Schedule I or II to the Bank Actmay act as an underwriter in respect of without being required to be registered under the Legislation as anunderwriter.
2. The Bank 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 the Bank where the Bank purchases the security as principal shall be exempt from theregistration 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 purchasing as principal (referred to in this Decision as a "Schedule I or II Bank ExemptTrade") are filed and paid in respect of the trade to the Bank, and
(ii) the first trade in a security acquired by the Bank pursuant to this Decision is deemed a distribution (orprimary 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 the Bank is in a special relationship (where such term is defined in theApplicable Legislation) with such issuer, the Bank 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 tothe Bank or the date the issuer became a reporting issuer, or the equivalent, underthe 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, andhave been held at least six months from the date of the initial exempt trade to theBank 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 of theresale 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 the Bank 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 the Bank or the date the issuer became a reporting issuer, or theequivalent, under the Applicable Legislation, whichever is later; and
(c) the Bank files a report within 10 days of the trade prepared and executed in accordance withthe requirements of the Applicable Legislation that would apply to a Schedule I or II BankExempt Trade,
provided that no unusual effort is made to prepare the market or to create a demand for such securities andno extraordinary commission or consideration is paid in respect of such trade and provided the Bank does nothold sufficient number of securities to materially affect the control of the issuer of such securities but anyholding by the Bank of more than 20 per cent of the outstanding voting securities of the issuer of such securitiesshall, in the absence of evidence to the contrary, be deemed to affect materially the control of such issuer.
4. Provided the Bank 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 the Bankshall be exempt from the registration and prospectus requirements of the Legislation.
THE FURTHER DECISION of the Decision Maker in Ontario is that in connection with the authorized foreignbanking activities to be carried on by the Bank in Ontario:
A. Subsection 25(1)(a) of the Securities Act (Ontario) R.S.O. 1990 c. S.5 (as amended) (the "Act") does not applyto a trade by the Bank:
(i) of a type described in subsection 35(1) of the Act or section 151 of the Regulations made under theAct; or
(ii) in securities described in subsection 35(2) of the Act.
B. Except as provided for in paragraph 3 of this Decision, section 28 of Schedule I to the Regulations made underthe Act shall not apply to trades made by the Bank in reliance on this Decision.
January 5th, 2001.
"J. A. Geller" "H. I. Wetston"
(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 ofat least 4% of the average value at which the shares were carried in the capital stock account of thecorporation during the year in which the dividend was paid or in which the corporation had earningsavailable for the payment of dividends as 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.