Refco Futures (Canada) Ltd. - s. 16(4) & 80 of CFA

le 6 avril 2001

Order

IN THE MATTER OF

THE COMMODITY FUTURES ACT, R.S.O. 1990, C.C.20, AS AMENDED (THE "ACT")

AND

IN THE MATTER OF

REFCO FUTURES (CANADA) LTD.

ORDER

(Sections 16(4) and 80 of the Act)

UPON the application of Refco Futures (Canada) Ltd. (the "Filer") to the Ontario Securities Commission (the "Commission") regarding the operation of a separate internal division, "Refco Futures Direct" (the "Discount Futures Division"), for:

(a) an order pursuant to Section 80 of the Act that the requirements of Sections 28(1)(b) and 28(2) of the Regulation to the Act requiring the Discount Futures Division and its registered salespersons, partners, officers and directors (the "Registered Representatives") to make inquiries of each client of the Discount Futures Division as are appropriate, in view of the nature of the client's investments and of the type of transaction being effected for the client's account, to determine (a) the general investment needs and objectives of the client; and (b) the suitability of a proposed purchase or sale of a future for the client (such requirements, the "Suitability Requirements") do not apply to the Discount Futures Division and its Registered Representatives; and

(b) a decision under Section 16(4) of the Act that the requirements of the Investment Dealers Association of Canada (the "IDA"), in particular IDA Regulation 1300.1(b) and 1800.5(b), requiring the Discount Futures Division and its Registered Representatives to make inquiries of each client of the Discount Futures Division as are appropriate, in view of the nature of the client's investments and of the type of transaction being effected for the client's account, to determine (a) the general investment needs and objectives of the client; and (b) the suitability of a proposed purchase or sale of a future for the client (such requirements, the "IDA Suitability Requirements") do not apply to the Discount Futures Division and its Registered Representatives;

AND UPON the Filer and the Discount Futures Division having represented to the Commission that:

1. the Filer is a corporation incorporated under the Canada Business Corporations Act;

2. the Filer has constituted two new internal operating divisions, namely, (a) the Discount Futures Division, an online execution service for futures and options on futures, and (b) the "Refco Securities Direct" division, an online execution service for securities and securities options (collectively, the "Divisions"). The Divisions are not separate legal entities, but will operate as distinct internal operating divisions within the Filer;

3. the head office of the Filer is located in Ontario, and the Filer also maintains offices and has executive officers and Registered Representatives in Ontario, and has Registered Representatives for securities and futures who are resident in each of Ontario, British Columbia, Alberta and Quebec;

4. the Filer is registered under the applicable securities and futures legislation in each of the Provinces of Ontario, Alberta, Quebec and British Columbia as an investment dealer and as a futures commission merchant, is a member of the IDA, and is a participating organization, approved participant or member, as the case may be, of The Toronto Stock Exchange, the Bourse de Montréal Inc. and the Canadian Venture Exchange Inc.;

5. the Divisions will operate independently, using separate letterhead, accounts, account documentation and Registered Representatives;

6. the Discount Futures Division and its Registered Representatives do not and will not, except as provided in 14 below, provide advice or recommendations regarding the purchase or sale of any future and the Filer and the Discount Futures Division have each adopted policies and procedures to ensure the Discount Futures Division and the Discount Futures Divisions' Registered Representatives will not, with such exception, provide advice or recommendations regarding the purchase or sale of any future;

7. Refco Futures Direct and Refco Securities Direct are trade names of the Filer, registered in each of the Provinces of Ontario, Alberta, Quebec and British Columbia;

8. when the Discount Futures Division provides trade execution services to clients it would, in the absence of this Decision, be required to comply with the Suitability Requirements and the IDA Suitability Requirements;

9. clients who request the Discount Futures Division or its Registered Representatives to provide advice or recommendations or a determination as to suitability will be referred to Registered Representatives of the "full-service" division of the Filer or to another "full-service" dealer. The "full-service" division of the Filer carries on business as a "full-service" investment dealer and futures commission merchant and as such, provides specific or tailored investment advice and recommendations to its clients regarding trades executed by the Filer. The Divisions operate independently from the "full service" division of the Filer and from each other, using separate letterhead, accounts, account documentation and Registered Representatives;

10. the Discount Futures Division do not and will not compensate their Respective Registered Representatives on the basis of transactional values, but rather on a system of salaries and bonuses based on performance;

11. each client of the Discount Futures Division will be advised of the Decision of the Commission and requested to acknowledge that:

(a) no advice or recommendation will be provided by the Discount Futures Division or its Registered Representatives regarding the purchase or sale of any future, and

(b) the Discount Futures Division and its Registered Representatives will no longer determine the general investment needs and objectives of the client or the suitability of a proposed purchase or sale of a future for the client; (both (a) and (b) shall constitute the "Client Acknowledgement");

12. the Client Acknowledgement will provide the client with sufficient detail and will explain to each client the significance of not receiving either investment advice or a recommendation from the Discount Futures Division, including the significance of the Discount Futures Division not determining the general investment needs and objectives of the client, or the suitability of a proposed purchase or sale of a future for the client;

13. each client of the Discount Futures Division will be advised that he or she has the option of transferring his or her account or accounts to the full-service division of the Filer or to another futures commission merchant at no cost to the client if the client does not wish to provide a Client Acknowledgement (the "Account Transfer Option");

14. the Discount Futures Division and its Registered Representatives will continue to comply with the Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received for six months following the date of this Decision;

15. after the date six months following the date of this Decision, the Discount Futures Division will not permit a transaction in an account for which a Client Acknowledgement has not been received unless the transaction is a sale for cash or a transfer of assets to another account;

16. all prospective clients of the Discount Futures Division will be advised of the Decision of the Commission and required to acknowledge that:

(a) no advice or recommendations will be provided by the Discount Futures Division or its Registered Representatives regarding the purchase or sale of any future, and

(b) the Discount Futures Division and its Registered Representatives will not determine the general investment needs and objectives of the client or the suitability of a proposed purchase or sale of a future for the client, (both (a) and (b) shall constitute the "Prospective Client Acknowledgement")

prior to the Discount Futures Division opening an account for such prospective client;

17. the Prospective Client Acknowledgement will provide the client with sufficient detail and will explain to each prospective client the significance of not receiving either investment advice or a recommendation from the Discount Futures Division, including the significance of the Discount Futures Division not determining the general investment needs and objectives of the client, or the suitability of a proposed purchase or sale of a future for the client;

18. each verbal acceptance of a client or prospective client of the Discount Futures Division constituting a Client Acknowledgement or Prospective Client Acknowledgement shall kept by the Discount Futures Division in a written special record (the "Verbal Receipts") indicating such acknowledgement of the client and the relevant particulars of same;

19. each client of the full-service division of the Filer who wishes to transfer his or her account or accounts to the Discount Futures Division of the Filer will be treated, in all respects, as a prospective client of the Discount Futures Division for which such clients will be advised of the terms of and required to provide a Prospective Client Acknowledgement;

20. the Filer and the Discount Futures Division have adopted policies and procedures to ensure:

(a) that evidence of all Client Acknowledgements, Prospective Client Acknowledgements, Verbal Receipts and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Act and the IDA,

(b) all client accounts of the Discount Futures Division are appropriately designated as being a client account to which a Client Acknowledgement or Prospective Client Acknowledgement (including Verbal Receipts) has been received or being a client account to which a Client Acknowledgement has not been received, and

(c) for any client of the Discount Futures Division who does not provide a Client Acknowledgement and chooses to exercise the client's Account Transfer Option, the Discount Futures Division will transfer the client's account in an expeditious manner at no cost to the client;

21. the Filer and the Discount Futures Division have adopted policies and procedures to ensure that:

(a) the Discount Futures Division will operate separately from any other division of the Filer,

(b) Registered Representatives of the Discount Futures Division are clearly employed by the Discount Futures Division and will not handle the business or clients of any other division of the Filer, and

AND UPON the Commission being satisfied that it would not be prejudicial to the public interest to make the order (the "Decision");

IT IS ORDERED under Section 80 of the Act that the Suitability Requirements contained in Sections 28(1)(b) and 28(2) of the Regulation to the Act shall not apply to the Discount Futures Division and its Registered Representatives so long as:

1. except as permitted by 6 below, the Discount Futures Division and its Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any future;

2. clients who request the Discount Futures Division or its Registered Representatives to provide advice or recommendations or advice as to suitability are referred to a registered commodity futures merchant that provides those services;

3. the Discount Futures Division operates independently using its own letterhead, accounts, account documentation and Registered Representatives;

4. the Discount Futures Division does not compensate its Registered Representatives on the basis of transactional values;

5. each client of the Discount Futures Division is advised of the Decision of the Commission and requested to make a Client Acknowledgement or transfer his or her account to a commodity futures merchant who provides advice if the client does not wish to make a Client Acknowledgement;

6. the Discount Futures Division and its Registered Representatives continue to comply, for six months following the date of this Decision, with the Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received;

7. commencing six months following the date of this Decision, the Discount Futures Division will not permit transactions in an account for which a Client Acknowledgement has not been received unless the transaction is a sale for cash or a transfer of assets to another account;

8. each prospective client of the Discount Futures Division is advised of the Decision of the Commission and required to make a Prospective Client Acknowledgement prior to the Discount Futures Division or its Registered Representatives servicing such prospective client;

9. evidence of all Client Acknowledgements, Prospective Client Acknowledgements, Verbal Receipts and Account Transfer Options is established and retained pursuant to the record keeping requirements of the Act and the IDA;

10. for any client who elects to exercise the client's Account Transfer Option, the Discount Futures Division transfers such account or accounts to the full-service division of the Filer or to another commodity futures merchant in an expeditious manner at no cost to the client;

11. the Discount Futures Division accurately identifies and distinguishes client accounts for which a Client Acknowledgement or Prospective Client Acknowledgement (including Verbal Receipts) has been provided and client accounts for which no Client Acknowledgement has been provided;

12. the Filer has in force policies and procedures to ensure that:

(a) the Discount Futures Division continues to operate separately from any other division of the Filer;

(b) Registered Representatives of the Discount Futures Division are clearly employed by the Discount Futures Division and do not handle the business or clients of any other division of the Filer; and

13. if an IDA rule addressing the IDA Suitability Requirements comes into effect, the Decision with respect to the Suitability Requirements will terminate one year following the date such rule comes into force, unless the Commission determines otherwise.

April 6, 2001.

Howard I. Wetston, Derek Brown

THE DECISION of the Commission pursuant to Section 16(4) of the Act is that the IDA Suitability Requirements do not apply to the Discount Futures Division and its Registered Representatives so long as:

1. except as permitted by 6 below, the Discount Futures Division and its Registered Representatives do not provide any advice or recommendations regarding the purchase or sale of any future;

3. the Discount Futures Division operates independently using its own letterhead, accounts, account documentation and Registered Representatives;

4. the Discount Futures Division does not compensate its Registered Representatives on the basis of transactional values;

6. the Discount Futures Division and its Registered Representatives continue to comply, for six months following the date of this Decision, with its Suitability Requirements and IDA Suitability Requirements for client accounts for which no Client Acknowledgement is received;

12. the Filer has in force policies and procedures to ensure that:

(a) the Discount Futures Division continues to operate separately from any other division of the Filer;

(b) Registered Representatives of the Discount Futures Division are clearly employed by the Discount Futures Division and do not handle the business or clients of any other division of the Filer; and

13. if an IDA rule addressing the IDA Suitability Requirements comes into effect, the Decision with respect to the IDA Suitability Requirements will terminate one year following the date such rule comes into force, unless the Commission determines otherwise.

April 6, 2001.

Howard I. Wetston, Derek Brown