Plain language rule re-write project – Dealer Member Organization and Registration Rules – Proposed Rules 2100-2700 – Investment Industry Regulatory Organization of Canada (IIROC)

Rule 2100 --

Ownership of a Dealer Member's Securities

New

2101.

Introduction

(1)

This Rule covers the issuance of securities by a Dealer Member or its holding company and changes in ownership.

(2)

A Dealer Member must conduct its business with integrity and must maintain adequate financial resources. The Corporation has a responsibility to ensure that persons who control a Dealer Member are fit and proper. The Corporation also needs to assess whether the obligations incurred by a Dealer Member under the terms of securities it issues pose a risk to its financial health.

Rules 5.2(1)(a) and 5.2(2)

2102.

Dealer Members must have Corporation approval to issue subordinated debt

(1)

A Dealer Member or its private holding company must obtain the Corporation's approval in writing before issuing a security representing subordinated debt;

(2)

A Dealer Member or its private holding company must obtain the Corporation's approval in writing before signing an agreement to issue subordinated debt in the future.

Rule 5.2A

2103.

Repayments and additional Subordinated debt

(1)

A Dealer Member must obtain the Corporation's approval in writing for any additions and repayments in the amount of subordinated debt it is borrowing.

Rule 29.11

2104.

Agreements with Corporation

(1)

Where the Corporation is a party to a debt subordination agreement or other debt agreement with the Dealer Member, the Dealer Member must comply with the agreement in making any repayments of the debt subject to the agreement.

Rule 5.3

2105.

Corporation notification of changes of ownership

(1)

A Dealer Member must notify the Corporation in writing before issuing or transferring its securities or its private holding company's securities, including any legal or beneficial interest in either.

(2)

Subsection (1) does not apply to a class of securities if:

(i)

there is public ownership of those securities in compliance with securities laws and regulations; and

(ii)

the purchase or transfer will not result in an acquirer of the securities owning a significant equity interest as defined in section 2107.

Rule 5.6

2106.

Ownership of another Dealer Member

(1)

An industry investor must obtain the Corporation's approval before purchasing the securities of another Dealer Member or its holding company, except if:

(i)

there is public ownership of the class of securities in compliance with securities laws and regulations and the industry investor will not hold a significant equity interest after the purchase;

(ii)

the Dealer Member is a related or affiliated company of the Dealer Member in which the industry investor was approved to invest; or

(iii)

the following apply:

(a)

the investment does not exceed 10% of any class of the issued equity or voting shares;

(b)

the industry investor notified the Corporation of the investment; and

(c)

the Dealer Member that the industry investor was approved to invest in does not object to the investment.

Rule 5.4

2107.

Ownership of a significant equity interest

(1)

A Dealer Member must obtain approval from the District Council before allowing an investor, alone or together with associates and affiliates, to own or hold a beneficial interest in:

(i)

a significant equity interest in the Dealer Member; or

(ii)

special warrants or other securities that are convertible into a significant equity interest in the Dealer Member.

(2)

For the purposes of this Rule, a significant equity interest means a holding of:

(i)

10% or more of the voting securities of a Dealer Member or its holding company;

(ii)

10% or more of the outstanding participating securities of a Dealer Member or its holding company; or

(iii)

an interest of 10% or more of the total equity of the Dealer Member.

(3)

A District Council may delegate its authority under this section 2107 to a subcommittee of the District Council or to Corporation staff.

Rule 5.5

2108.

A Dealer Member's ownership of another Dealer Member

(1)

A Dealer Member or its holding company must obtain approval from the District Council before purchasing, directly or indirectly, any securities of another Dealer Member or its holding company. However, this does not apply if the ownership is a trading position held in the ordinary course of the securities business.

(2)

A District Council may delegate its authority under this section 2108 to a subcommittee of the District Council or to Corporation staff.

Rules 5.7 and 5.8

2109.

Public ownership

(1)

A Dealer Member must obtain approval from the District Council before allowing public ownership of the Dealer Member or its holding company.

(2)

When a District Council considers an application for approval:

(i)

the Dealer Member must satisfy the District Council that it meets, and will continue to meet, Corporation requirements;

(ii)

the District Council may require the Dealer Member to provide a legal opinion and any other information the District Council considers necessary; and

(iii)

the District Council may impose conditions on and require undertakings from any person it considers necessary to ensure continuing compliance with Corporation requirements.

(3)

Regardless of its own governing corporate statute, a

(i)

Dealer Member; or

(ii)

holding company of a Dealer Member that is a reporting issuer or equivalent in any Canadian jurisdiction must set up and maintain an audit committee as the Canada Business Corporations Act requires.

(4)

A District Council may exempt a Dealer Member or its holding company from the requirements of subsection (3) above.

(5)

A District Council may delegate its authority under this section 2109 to a subcommittee of the District Council or to Corporation staff.

Rules 5.9(b) and 5.10

2110.

Public distribution of a Dealer Member's securities

(1)

A Dealer Member or its holding company making a public distribution of its securities must include in the prospectus or equivalent document summaries of at least two separate valuations of its securities, if:

(i)

the Dealer Member is underwriting more than 25% of the distribution itself; or

(ii)

the distribution is offered on an agency or best efforts basis.

(2)

Independent qualified underwriters or chartered accountants must prepare the valuations and summaries. An independent qualified underwriter participating in the distribution may prepare a valuation.

(3)

Subsection (1) does not apply if securities with identical attributes have been trading on a recognized exchange for at least six months before the new distribution begins.

Rule 5.12 (except (a))

2111.

Take-over bids or amalgamations

(1)

A Dealer Member or its holding company must obtain at least two separate valuations of its securities if they are distributed through a transaction such as a take-over bid or amalgamation resulting in a publicly traded market for the securities.

(2)

Independent qualified underwriters or chartered accountants must prepare the valuations and summaries. An independent qualified underwriter participating in the distribution may prepare a valuation.

(3)

Subsection (1) does not apply if:

(i)

securities with identical attributes have been trading on a recognized exchange for at least six months before the transaction; or

(ii)

the transaction resulted from negotiations conducted at arm's-length and the District Council or its delegate determines that valuations are not required.

Rule 5.13

2112.

Secondary distribution of securities

(1)

The requirements of Sections 2110 and 2111 apply, with necessary changes, to a secondary distribution of securities of a Dealer Member or its holding company if the securities are distributed from a control position.

Rule 5.15

2113.

Soliciting trades in a Dealer Member's securities

(1)

A Dealer Member may solicit trades in its own securities or those of its holding company when:

(i)

making a distribution of its own securities under a prospectus in compliance with securities laws and regulations and Corporation Rules; or

(ii)

making a private placement of its own securities under applicable securities legislation.

(2)

A Dealer Member must not solicit trades in its own securities or its holding company in the secondary market.

(3)

A Dealer Member may accept unsolicited orders for its own securities or those of its holding company.

Rules 5.14 and 5.15, last paragraph

2114.

Dealer Member's securities in client accounts

(1)

A Dealer Member may accept its own securities or those of its holding company as security for a margin account.

(2)

A Dealer Member must not allow a discretionary account to hold the Dealer Member's securities or those of its holding company.

Rule 5.16

2115.

Research reports

(1)

A Dealer Member must not issue research reports or opinion letters on its own securities or those of its holding company.

Rules 5.17 and 5.18

2116.

Corporation approvals

(1)

A Dealer Member must apply to the Corporation using the form the Board prescribes to obtain an exemption from this Rule 2100.

(2)

The Dealer Member's application will be considered by the Board or District Council.

(3)

The applicant must pay the prescribed fee.

(4)

Within 10 days after receiving an approval or an exemption, an applicant and the Dealer Member or holding company involved must inform the Corporation of any change in the applicant's information (for example, bankruptcy or criminal proceedings).

(5)

The Board or District Council may refuse an application for approval or exemption or to withdraw any approval or exemption it has granted.

(6)

The Board or a District Council may delegate their authority under this section 2116 to a subcommittee of the District Council or to Corporation Staff.

2117. -- 2149. -- Reserved.

Rule 2150 --

Dealer Member Structure -- Business locations, holding companies,

related companies and diversification

New

2151.

Introduction

(1)

A Dealer Member must take reasonable care to organize and manage its business responsibly and effectively and must co-operate with the Corporation to promote effective and efficient self-regulation. A Dealer Member's business must be organized to enable adequate supervision of all its activities and cannot be organized to avoid Corporation requirements by conducting business through a related company that is not a Dealer Member.

Part A -- Business locations

Rule 4.6

2152.

Business locations

(1)

Under subclause 2702(2)(i)(g), a Dealer Member must notify the Corporation of the opening or closing of a business location.

Part B -- Holding companies, related companies and associates and discount brokers

Rules 6.1 and 6.2

2153.

Holding companies

(1)

A Dealer Member must ensure that the holding companies that carry on its business in Canada are legally bound to comply with the Corporation's holding company requirements.

(2)

A Dealer Member's holding company may be another Dealer Member's holding company if:

(i)

it owns all of the voting securities and participating securities of each Dealer Member; or

(ii)

the Dealer Member obtains approval from the District Council or its delegate to become the holding company of a second Dealer Member.

Rules 6.3, 6.5, 6.6 and 100.14 (first part)

2154.

Related companies and associates

(1)

A Dealer Member, or a Dealer Member's executive, director, investor, or employee, must obtain approval from the District Council before it sets up, or acquires any interest in, a related company.

(2)

A Dealer Member must obtain approval from the District Council before creating a wholly owned subsidiary whose principal business is a securities broker, dealer, or adviser.

(3)

A Dealer Member must be responsible for and guarantee its related companies' obligations to clients. Further, each of its related companies must be responsible for and guarantee the Dealer Member's obligations to its clients as follows:

(i)

A Dealer Member that holds an interest in a related company must guarantee an amount equal to 100% of the Dealer Member's financial statement capital.

(ii)

A Dealer Member that holds an interest in a related company must have the related company guarantee an amount equal to the Dealer Member's percentage ownership multiplied by the related company's financial statement capital.

(iii)

Each company that is related to another company because the same person has an ownership interest in both must guarantee each other company for an amount equal to that person's ownership percentage multiplied by the company's financial statement capital.

(4)

A Dealer Member and a Dealer Member's related company required to guarantee an amount under subsection (3) above must sign the current Corporation guarantee form.

(5)

The Board may exempt a Dealer Member from the guarantee requirement of subsection (3) above, or may decide that a guarantee for a greater amount is required, if the Board decides that either of these is appropriate.

(6)

Any guarantee provided by a Dealer Member must be of a fixed or determinable amount, unless the guarantee is given to a related company under this Rule.

(7)

A District Council may delegate its authority under this section 2154 to a subcommittee of the District Council or to Corporation staff.

Rules 1300.1(t), 3200 A(1) and 3200 A(2)(a)

2155.

Approval as a discount broker

(1)

The Corporation may approve a Dealer Member or a business unit of a Dealer Member as a discount broker if the Dealer Member's only business is an order-execution service or it provides that service in a separate business unit.

(2)

A Dealer Member's discount broker must meet Corporation requirements.

(3)

A Dealer Member must establish policies and procedures for operating its discount broker. A Dealer Member must give the Corporation a copy of its policies and procedures with its application for approval, and in future, give copies when any significant changes are made.

(4)

If operating as a separate business unit, a discount broker must have separate letterhead, accounts, account documentation, registered representatives, and investment representatives.

(5)

A Dealer Member must not compensate employees by giving them trade commissions for discount accounts.

Part C -- Non-securities business and shared premises

Rule 6.7

2156.

Business other than securities

(1)

A Dealer Member or its related company must get approval from the District Council before carrying on any business other than securities-related activities.

(2)

A Dealer Member or a Dealer Member's holding company may, without approval, own an interest in a corporation (other than the Dealer Member) that carries on non-securities business if:

(i)

the Dealer Member is not responsible for any of that corporation's liabilities, and

(ii)

the Dealer Member and its holding company give the Corporation notice before acquiring an interest in the non-securities corporation.

(3)

Subsection (1) above does not apply to a Dealer Member's related company that:

(i)

is a mutual fund dealer (and its directors, executives, employees, or representatives), and

(ii)

deals in or sells life insurance contracts issued by an insurer licensed or registered under Canadian laws.

(4)

A District Council may delegate its authority under this section 2156 to a subcommittee of the District Council or to Corporation staff.

Rule 2400 (Introduction; General Principles 1and 2; Disclosure of Securities Related Activities 1, 2 and 4; Consent for New Clients 2 through 6; Consent for Existing Clients 1; Minimum Standards for Shared Premises 3 through 7, 9 and 10)

2157.

Shared premises

(1)

A Dealer Member may share premises with another financial services entity, whether or not the Dealer Member is related to, or affiliated with, that entity.

(2)

For the purposes of this rule, a financial services entity is an entity regulated by securities legislation or another regulatory regime such as banking, mutual funds, insurance, deposit-taking, and mortgage-brokerage activities.

(3)

A Dealer Member must ensure that clients clearly understand which legal entity they are dealing with.

(4)

A Dealer Member must:

(i)

have written procedures and systems about supervising shared office premises, and

(ii)

reasonably design these procedures to ensure that representatives comply with Corporation requirements and clients know which entity they are dealing with.

(5)

A Dealer Member must have:

(i)

adequate supervisory resources to carry out the supervisory procedures;

(ii)

a system for communicating Corporation requirements to representatives at the shared office premises; and

(iii)

a process to ensure that representatives understand and meet Corporation requirements.

(6)

A Dealer Member must operate its business with a shared-premises layout that ensures confidentiality of client information and such things as client files and account process areas are effectively controlled and physically secured.

(7)

A Dealer Member must have appropriate signage and disclosure which differentiates the groups sharing the same premises.

(8)

The legal names under which the Dealer Member and other financial services entity operate must be clearly displayed in a prominent location, such as the office entrance door or reception area.

(9)

The CIPF logo and brochures must be displayed in a manner that makes it clear that they apply only to the Dealer Member and not to the other financial services organization.

(10)

When doing business in shared premises, a Dealer Member must meet the Rule 3800 requirements on using trade names.

(11)

A Dealer Member must keep client records separate from the records of another financial services organization as follows:

(i)

The financial services organization must not have access to the client's hard copy files.

(ii)

Electronic records must have separate passwords or another similar control to ensure the financial services organization has no access to the electronic client records.

(12)

When opening an account in shared premises, a Dealer Member must obtain the client's specific acknowledgement to a written disclosure statement:

(i)

outlining the relationship between the Dealer Member and the financial services entity, and

(ii)

stating that the entities are separate.

(13)

A Dealer Member must keep client information confidential and can only share the information with other financial services organizations in the shared premises if:

(i)

the client has consented to the disclosure of the confidential information in compliance with applicable federal, provincial, and territorial privacy legislation and regulations; and

(ii)

the client has consented to the disclosure of the confidential information through a specific confirmation such as a signature or initials at a designated place. A Dealer Member must not obtain a client's consent through a negative option.

(14)

An employee who works for both the Dealer Member and another financial services organization must not disclose confidential client information from one organization to the other unless performing a relevant service that the client has specifically consented to.

(15)

Non-registered personnel employed by the Dealer Member or representatives of the financial services organization may not provide the following services at the Dealer Member:

(i)

opening accounts;

(ii)

distributing or receiving order forms for securities transactions;

(iii)

assisting clients to complete order forms for securities transactions;

(iv)

giving recommendations or any advice on any activity;

(v)

completing know-your-client information on a New Client Application Form (NCAF)--other than biographical information; and

(vi)

soliciting securities transactions.

(16)

Non-registered personnel employed by the Dealer Member or representatives of the financial services organization may provide the following services at the Dealer Member:

(i)

advertising the Dealer Member's services and products;

(ii)

delivering or receiving clients' securities;

(iii)

arranging client appointments or informing of deficiencies on completed forms;

(iv)

providing the status, balances, and holdings of client accounts;

(v)

providing quotes and other market information;

(vi)

contacting the public, inviting the public to seminars, and forwarding non-securities information;

(vii)

receiving completed NCAFs to forward to the Dealer Member for approval; and

(viii)

distributing NCAFs, subject to subsection (17) below

(17)

At the business location, a manager, assistant manager, or credit officer who has a high degree of knowledge about the client's financial affairs may help the client to complete the NCAF, if:

(i)

no approved person is available; and

(ii)

before a trade is conducted for a client, a supervisor has approved the NCAF.

(18)

A mutual fund sales person may only accept orders for accounts at the dealer they are registered with and may not:

(i)

offer, or advise clients on, equities or other transactions for which specific proficiency is required, or

(ii)

communicate those client orders to a qualified person.

2158. -- 2199. -- Reserved.

Rule 2200 --

Dealer Member Membership Changes

New

2201.

Introduction

(1)

This Rule sets out how the Corporation deals with changes to the membership of Dealer Members.

Rules 8.4 and 8.6

2202.

Notice of intention to resign

(1)

If a Dealer Member intends to resign, it must notify IIROC in writing of its intention before filing a letter of resignation. IIROC will issue a Notice advising of the Dealer Member's intention to resign within one week of receiving a Dealer Member's intent to resign.

Rule 8.2

2203.

Filing letter of resignation

(1)

A resigning Dealer Member must file a resignation letter with the Corporation. The Dealer Member must file the following information with a resignation letter:

(i)

audited financial statements indicating the Dealer Member has liquid assets sufficient to meet its liabilities other than subordinated loans, or

(ii)

a report from the Dealer Member's auditor indicating that all client accounts and assets have been transferred to another Dealer Member or returned to the clients.

Rule 8.3

2204.

Acquisition and resignation

(1)

If a Dealer Member is acquired by another Dealer Member, the acquired Dealer Member may resign its membership. If the acquired Dealer Member resigns, it must provide the Corporation with:

(i)

either an undertaking from the acquiring Dealer Member accepting responsibility for all outstanding liabilities of the resigning Dealer Member or the documents required under section 2203; and

(ii)

pro forma financial statements of the continuing Dealer Member showing compliance with Corporation capital requirements.

Rule 8.3A

2205.

Amalgamation of Dealer Members

(1)

If two or more Dealer Members are amalgamated, the Dealer Members not continuing due to the amalgamation must resign their membership. The continuing Dealer Member must provide the Corporation with:

(i)

either an undertaking that it accepts responsibility for all liabilities of the Dealer Members that are amalgamating or the documents of the resigning Dealer Members required under section 2203; and

(ii)

pro forma financial statements of the continuing Dealer Member showing compliance with Corporation capital requirements.

Rule 8.3AA

2206.

Amalgamation with non-Dealer Member

(1)

A Dealer Member may amalgamate with a non-Dealer Member if the continuing Dealer Member provides the Corporation with:

(i)

information, satisfactory to the Corporation, confirming that the continuing Dealer Member will have adequate policies and procedures to enable it to carry on its business and to comply with Corporation Requirements; and

(ii)

pro forma financial statements of the continuing Dealer Member showing compliance with Corporation capital requirements.

Rule 8.5

2207.

Effective date of resignation

(1)

Resignation of a Dealer Member is effective on the date that the Corporation:

(i)

receives the documents required to support the resignation,

(ii)

receives payment of any amount owed to the Corporation; and

(iii)

confirms that no complaints or disciplinary actions are outstanding that the Corporation, in its sole discretion, determines must be resolved prior to permitting the Dealer Member to resign.

(2)

The Corporation will issue a Notice within one week of the effective date of a Dealer Member's resignation advising of the effective date of the Dealer Member's resignation.

Rule 8.7

2208.

Payment of Corporation fees

(1)

A Dealer Member resigning or surrendering its membership with the Corporation must make full payment of its annual fees for the fiscal year in which the effective date of the resignation or surrender occurs.

(2)

No portion of annual fees will be refunded if the effective date of resignation occurs in the period July 1 to March 31. A Dealer Member resigning its membership with an effective date during the period April 1 to June 30 may be entitled to a monthly pro-rata refund. Part months will be considered as full months for this purpose.

Rule 31

2209.

Inactive members

(1)

A Dealer Member may apply in writing to the Board to have its membership status temporarily changed to inactive.

(2)

The Board must impose time limits and conditions on a Dealer Member's inactive status.

(3)

When a Dealer Member's status changes to inactive, the Corporation must publish a notice indicating so.

(4)

A Dealer Member with inactive status may apply in writing to the Board for an extension to the time period of its inactive status if:

(i)

the written application is made at least 30 days before the Dealer Member's inactive status expires; and

(ii)

the same inactive status period has not been extended previously.

Rule 8.8

2210.

Suspension of membership

(1)

The Corporation may, in accordance with the provisions of the Consolidated Enforcement Rules, suspend the membership of a Dealer Member after the Dealer Member has been given an opportunity for a hearing.

(2)

A Dealer Member whose membership has been suspended under this Rule will cease to be entitled to exercise any of the rights and privileges of membership but will remain liable to the Corporation for all amounts due to the Corporation by the Dealer Member.

Rule 8.8

2211.

Termination of membership

(1)

The Corporation may, in accordance with the provisions of the Consolidated Enforcement Rules, terminate the membership of a Dealer Member after the Dealer Member has been given an opportunity for a hearing.

(2)

A Dealer Member whose membership has been terminated under this Rule will cease to be entitled to exercise any of the rights and privileges of membership but shall remain liable to the Corporation for all amounts due to the Corporation from the terminated Dealer Member.

2212. -- 2249. -- Reserved.

Rule 2250 --

Business Change Notification Requirements

New

2251.

Introduction

(1)

The Corporation may review the changes, listed in section 2252, in a Dealer Member's business to ensure they meet the Corporation's requirements.

Rule 17.12 (first sentence)

2252.

Dealer Member's notice of changes to Corporation

(1)

A Dealer Member must notify the Corporation in writing a minimum of 20 days before:

(i)

changing its name;

(ii)

changing its constitution in a way that affects voting rights;

(iii)

taking any steps to dissolve, wind up, surrender its charter, liquidate, or dispose of all or substantially all its assets; or

(iv)

altering its capital structure. This includes allotting, issuing, repurchasing, redeeming, canceling, subdividing, or consolidating of any shares in its capital.

Rule 17.12 (second sentence)

2253.

Corporation informs Dealer Member about review when necessary

(1)

A Dealer Member must not make any of the changes in Section 2252 if, within the 20-day notice period, the Corporation informs the Dealer Member that it will be submitting the proposed change(s) to the applicable District Council for approval.

Rule 17.12 (third sentence)

2254.

District Council reviews proposed changes

(1)

The District Council will review any proposed change the Corporation submits to it under Section 2253 and either:

(i)

approve the proposed action, or

(ii)

disapprove it, if it considers the action would result in the Dealer Member being unable to comply with the Corporation's rules.

2255. -- 2299. -- Reserved.

Rule 2300

Branch Offices of Dealer Members

New

2301.

Introduction

(1)

This rule describes how Dealer Members' branch offices participate in the Corporation and its districts.

Rule 4.1

2302.

Branch Office Members

(1)

Every Dealer Member's business location in a district with a supervisor who is normally present at the business location, is a branch office member of the district.

Rules 4.3, 4.4 and 4.5

2303.

Branch Office Member's representation

(1)

A branch office member may participate in governing the Corporation district as follows:

(i)

It has the same privileges in its district as any other Dealer Member, except that at a district meeting, each Dealer Member only has one vote in the district, no matter how many branch office members it has.

(ii)

Its district representative is eligible for election as chair or member of the District Council for that district.

Rule 4.2

2304.

Fees

(1)

A Dealer Member does not have to pay an annual fee or entrance fee for its branch office members.

2305. -- 2349. -- Reserved.

Rule 2350 -

Trade Names and Disclosures

New

2351.

Introduction

(1)

This rule covers a Dealer Member's use of trade names, IIROC's name and logo, and CIPF disclosure.

Rules 29.7A(1), (2), (5) and (8)

2352.

Trade names

(1)

The term trade name includes a business or style name a Dealer Member or approved person uses. It also includes a group name under which a Dealer Member and its affiliates conduct business. It does not include a recognizable variant of a Dealer Member's name such as its corporate name with "limited" or "corporation" left off.

(2)

If a Dealer Member carries on business under a trade name, it must be owned by the Dealer Member, an approved person of the Dealer Member, or an affiliated corporation of either of them.

(3)

An approved person must not conduct any business under a trade name that is not owned by the Dealer Member or its affiliated corporation without the Dealer Member's prior consent.

(4)

A Dealer Member or approved person must not use a trade name that any other Dealer Member uses unless:

(i)

the Dealer Members are related or affiliated, or

(ii)

the relationship with the other Dealer Member is that of introducing broker and carrying broker.

(5)

A Dealer Member or approved person must not use a deceptive or misleading trade name.

Rules 29.7A(3), (4) and (9)

2353.

Corporation notification

(1)

A Dealer Member must notify the Corporation before it:

(i)

uses any trade name other than the Dealer Member's legal name, or

(ii)

transfers a trade name to another Dealer Member.

(2)

The Corporation may prohibit a Dealer Member or approved person from using a trade name that is:

(i)

contrary to this Rule 2350,

(ii)

contrary to the public interest, or

(iii)

otherwise objectionable.

Rules 29.7A(6) and (7)

2354.

Displaying the full legal name

(1)

A Dealer Member must include its full legal name on all contracts and materials used to communicate with the public, whether or not it uses a trade name.

(2)

An Approved Person that uses a trade name different from that of the Dealer Member on materials used to communicate with the public must also include the Dealer Member's full legal name in size at least equal to that of the Approved Person's trade name.

Rule 29.14(b)

2355.

Compliance with Disclosure Policy of the Canadian Investor Protection Fund (CIPF)

(1)

A Dealer Member must comply with CIPF's Disclosure Policy.

Rule 700.1

2356.

Use of Corporation name and logo

(1)

A Dealer Member may only use the Corporation name in the following forms:

(i)

Dealer Member(s) of the Investment Industry Regulatory Organization of Canada;

(ii)

Membre(s) de l'Organisme Canadien de Réglementation du Commerce des Valeurs Mobilières;

(iii)

Dealer Member(s) of the Investment Industry Regulatory Organization of Canada -- Organisme Canadien de Réglementation du Commerce des Valeurs Mobilières; or

(iv)

Membre(s) de l'Organisme Canadien de Réglementation du Commerce des Valeurs Mobilières -- Investment Industry Regulatory Organization of Canada

(2)

When using the Corporation name in its office or on its windows, a Dealer Member must use the form required by this rule but, in smaller type than the name of the Dealer Member.

(3)

If a Dealer Member uses the Corporation logo in the form below together with the Corporation name, the size of the logo must give equal prominence to both the Corporation name and logo.

(4)

A Dealer Member must not use the Corporation name and logo in a manner that is misleading or confusing to the public.

Rules 22.1 and 700.1

2357.

Corporation governance of its name and logo

(1)

The Board may set certain terms and conditions for a Dealer Member's use of the Corporation name or logo.

(2)

The Corporation will prohibit a Dealer Member from using the Corporation name or logo and require the Dealer Member to destroy all materials that use the Corporation name or logo if:

(i)

the Corporation decides that the use of the name or logo is detrimental to the interests of the Corporation or its Dealer Members;

(ii)

the Dealer Member is no longer a Corporation Dealer Member; or

(iii)

the Corporation suspends or terminates the Dealer Member's membership.

(3)

When the Corporation requests, a Dealer Member must provide samples of letterhead, circulars, or other promotional materials that use the Corporation's name or logo.

(4)

The Corporation may prohibit a Dealer Member from using the Corporation name or logo and require the Dealer Member to destroy all materials that use the Corporation name or logo if:

(i)

the Dealer Member fails to respond to a request for samples; or

(ii)

the Dealer Member does not comply with the requirements for using the Corporation name or logo.

(5)

A Dealer Member's use of the Corporation name or logo does not give the Dealer Member any proprietary interest in that name or logo.

2358. -- 2399. -- Reserved.

Rule 2400 --

Principal and Agent Relationships

New

2401.

Introduction

(1)

This Rule describes the requirements of relationships between Dealer Members and their agents.

Rule 39.3

2402.

Principal and agent relationships

(1)

A Dealer Member may have a relationship with a person conducting securities related activities on behalf of the Dealer Member if that person is:

(i)

an employee; or

(ii)

an agent who is not an employee.

(2)

A Dealer Member may not have a corporation or other non-individual entity conduct securities-related activities on its behalf.

Rules 39.4(o) and (p)

2403.

Written agreement between the Dealer Member and the Corporation

(1)

Before engaging any agents, a Dealer Member must enter into a written agreement with the Corporation, in a form similar to Appendix A.

(2)

The agreement must contain terms describing the Dealer Member's responsibility:

(i)

for the agent's conduct, including the agent's compliance with Corporation requirements and applicable securities legislation; and

(ii)

to clients for the agent's acts and omissions.

(3)

The Corporation must be satisfied with the form of the agreement.

Rules 39.4(n), (p) and (q)

2404.

Written agreement between the Dealer Member and its agents

(1)

The Dealer Member and the agent must enter into a written agreement containing the terms set out in the sample agreement in Appendix B.

(2)

The agreement must not contain any terms inconsistent with the requirements of this rule.

(3)

The Corporation must be satisfied with the form of the agreement before the Dealer Member finalizes the agreement with the agent.

(4)

The Dealer Member must certify to the Corporation that the agreement complies with this rule.

(5)

The Corporation may request a legal opinion confirming subsection (4) above.

(6)

The Corporation must be satisfied that the agreement complies with applicable tax laws.

Appendix A

Agreement between a Dealer Member and the Corporation

Rule 39, Appendix B Recitals

1.

Recitals

(i)

As a Dealer Member of the Corporation, the Dealer Member agrees it is subject to Corporation requirements.

(ii)

Section 2402 requires the Dealer Member to make this agreement with the Corporation.

(iii)

This agreement is in addition to and does not alter Corporation requirements or any other agreement between the Dealer Member and the Corporation.

Rule 39, Appendix B, Item 2

2.

Agreement with the Agent

(i)

The Dealer Member must make an agreement with each of its agents as required by section 2403.

(ii)

The agreement must require that the agent complies with all applicable laws and Corporation requirements.

Rule 39, Appendix B, Items 1 and 3

3.

Supervision of the Agent

The Dealer Member must treat each of its agents as employees with respect to:

(i)

administration of Corporation requirements.

(ii)

supervision of the agent under Corporation requirements; and

(iii)

ensuring its agents comply with all applicable laws and Corporation requirements.

Rule 39, Appendix B, Item 4

4.

Disclosure of Respective Responsibilities to Clients

The Dealer Member or the agent must disclose to clients at the time of opening an account:

(i)

the business activities included or not in the securities related activities of the Dealer Member; and

(ii)

that any other business activity of the agent is not the Dealer Member's responsibility.

Rule 39, Appendix B, Item 6

5.

Disclosure to Clients

The disclosure to clients must be made using the following language in the New Client Account Form:

"If investment advisor is an agent of [the Dealer Member], [Dealer Member] is irrevocably liable to you for any acts and omissions of your investment advisor with regard to [Dealer Member's] business as if the investment advisor were an employee of [Dealer Member]."

Rule 39, Appendix B, Item 5

6.

Disclosure by Agent

If the disclosure is made by the agent, the Dealer Member must ensure that the agent has made the disclosure directly to the clients.

Rule 39, Appendix B, Item 8

7.

Governing Law

This agreement must be governed by the laws of [applicable province] and the laws of Canada.

Rule 39, Appendix B, Item 9

8.

Continuing Benefit

The agreement is for the benefit of and binding upon the parties and their successors and assigns. The Dealer Member may not assign the agreement without the Corporation's prior written consent.

DATED as of the ____________day of _______________, _______

[DEALER MEMBER]

____________________

[NAME AND TITLE OF SIGNING INDIVIDUAL]

Appendix B

Principles to include in Agreement between a

Dealer Member and Agent

Rules 39.4(a) and (q)

1.

Relationship complies with the Law

The agent and the Dealer Member confirm that this agreement:

(i)

does not violate applicable laws; and

(ii)

complies with applicable tax laws.

Rule 39, Appendix A, Item 2

2.

Confirmation of Supremacy of Rule 2400

The agent and the Dealer Member confirm that:

(i)

this agreement is made in compliance with Corporation Requirements;

(ii)

Rule 2400 must prevail if there is an inconsistency between this agreement and Rule 2400;

(iii)

any inconsistent terms will be deemed severed and deleted; and

(iv)

this agreement will be interpreted and enforced to give full effect to Rule 2400.

Rule 39.4(b) and Rule 39, Appendix A, Item 3

3.

Compliance by the Agent with Applicable Laws and Corporation Requirements

(i)

The agent warrants to the Dealer Member that it is appropriately registered or licensed, in good standing and in compliance under all applicable laws and Corporation requirements.

(ii)

The agent agrees to maintain the above throughout the term of the agreement.

Rules 39.4(d) and (k) and Rule 39, Appendix A, Item 4

4.

Conduct of the Agent's Business

(i)

The agent agrees to conduct all business in the Dealer Member's name, subject to section 2401.

(ii)

The agent agrees not to conduct any securities related activities with anyone other than the Dealer Member.

Rules 39.4(c), (d) and (e) and Rule 39, Appendix A, Items 5(a) and 5(e)

5.

Supervision of the Agent by the Dealer Member

The Dealer Member agrees to be:

(i)

responsible for the supervision of the agent's conduct to ensure compliance with Corporation requirements and the requirements of any other regulatory authority to which the Dealer Member is subject; and

(ii)

liable to clients (and other third parties) for the agent's conduct as if he or she were an employee.

Rule 39, Appendix A, Item 5(d)

6.

Written Disclosure to Clients

If the Dealer Member and the Agent have agreed that the agent will advise the clients directly:

(i)

of the business activity that is included or not in the securities related activities of the Dealer Member; and

(ii)

that any other business activity of the agent is not the Dealer Member's responsibility;

the Dealer Member agrees to be responsible for ensuring that the agent has done so.

Rule 39.4(i) Rule 39, Appendix A 5(f)

7.

Dealer Member Assumes Responsibility for Clients

(i)

In the event that:

(a)

The Corporation, or other regulatory authority has advised the Dealer Member that it has started an investigation relating to a client of the agent; or

(b)

the Dealer Member has reasonable grounds to believe that the agent's conduct relating to clients is contrary to any applicable laws or Corporation requirements,

the Dealer Member may immediately and without notice to the agent, assume responsibility for the client to the exclusion of the agent.

(ii)

The agent may not have any dealings or communications with the client as long as the Dealer Member has assumed this responsibility.

(iii)

The Dealer Member may appoint another qualified person to provide services to the client, and that person may receive any remuneration that would have been paid to the agent.

Rules 39.4(l) and (m) and Rule 39, Appendix A, Items 4(b), 5(b) and 5(c)

8.

Non-Dealer Member Business

(i)

The agent agrees not to conduct any non-Dealer Member business without disclosing to and obtaining the consent of the Dealer Member in writing.

(ii)

If the agent is involved in a non-Dealer Member business, the Dealer Member agrees to monitor and enforce compliance with the terms of this agreement directly and not through another employer or principal of the agent.

(iii)

The agent agrees to ensure that the non-Dealer Member business will not interfere with the Dealer Member or Corporation monitoring and enforcing compliance by the agent with this agreement or Corporation requirements.

Rule 39.4(h) and Rule 39, Appendix A, Item 7(b)

9.

Access to Premises

The agent agrees to give the Dealer Member unrestricted access to the premises where the agent conducts business on the Dealer Member's behalf.

Rule 39.4(g) and Rule 39, Appendix A, Items 6(a), 6(b) and 7(a)

10.

Records

The agent agrees that the books and records kept by the agent for the Dealer Member's business:

(i)

shall conform to Corporation requirements;

(ii)

are the Dealer Member's property;

(iii)

are available at all times for review by and delivery to the Dealer Member; and

(iv)

are available to the Dealer Member on termination of the agreement.

Rule 39.4(f) and Rule 39, Appendix A, Item 6(c)

11.

Insurance

The Dealer Member agrees to maintain financial institution bond and insurance policies covering the agent.

New

12.

Validity of Prior Agreements

Any agreements entered into between a Dealer Member and its agents prior to the effective date of Rule 2400 continue to be valid.

2404. -- 2449. -- Reserved.

Rule 2450 -

Acceptable Back Office Arrangements

New

2451.

Introduction

(1)

In order to manage back office expenses, Dealer Members may enter into arrangements that involve back office service sharing with another organization. Services shared may include any combination of: trade execution, trade clearing and settlement, trade financing, trade related cash and security custody and trade related books and records. In some cases, before an arrangement can commence, the parties must agree to specific Corporation arrangement conditions, including obtaining Corporation approval of the arrangement.

(2)

This Rule sets out the specific Corporation arrangement conditions for a number of arrangements that a Dealer Member may enter into and is organized as follows:

(i)

Definitions [Section 2460]

(ii)

Requirements for acceptable arrangements between two Dealer Members [Part A] including:

(a)

General requirements [Sections 2470 through 2474];

(b)

Specific requirements for Type 1 introducing broker / carrying broker arrangements [Section 2475];

(c)

Specific requirements for Type 2 introducing broker / carrying broker arrangements [Section 2476];

(d)

Specific requirements for Type 3 introducing broker / carrying broker arrangements [Section 2477]; and

(e)

Specific requirements for Type 4 introducing broker / carrying broker arrangements [Section 2478].

(iii)

Requirements for acceptable arrangement between a Dealer Member and a foreign affiliate dealer [Part B, Sections 2485 and 2486];

(iv)

Permitted arrangements that are not considered to be introducing broker / carrying broker arrangements [Part C, Sections 2490 and 2491]; and

(v)

Prohibited arrangements [Part D, Section 2495].

2452. -- 2459. -- Reserved.

Rule 35.1(a)(iii)

2460.

Definitions

In this Rule:

(1)

"Canadian financial institution" means:

(i)

a Schedule I or Schedule II Bank under the Bank Act (Canada);

(ii)

an insurance company governed by federal or provincial insurance legislation; and

(iii)

a loan or trust company governed by federal or provincial loan and trust company legislation;

New

(2)

"Canadian registered firm" means a firm registered under the securities legislation of a Canadian jurisdiction as an adviser or dealer;

New

(3)

"clearing arrangement" means an arrangement entered into between two dealers under which all of the following services are provided by one dealer ("clearing broker") to the other dealer for one or more lines of business:

(i)

trade execution;

(ii)

trade settlement; and

(iii)

client account bookkeeping.

Trade and/or account financing, custody of client cash and custody of client security and investment product positions services must not be provided as part of this arrangement; and

New

(4)

"introducing broker / carrying broker arrangement" means an arrangement entered into between two dealers under which all of the following services are provided by one dealer ("carrying broker") to the other dealer ("introducing broker") for one or more lines of business:

(i)

trade settlement;

(ii)

custody of client cash;

(iii)

custody of client security and investment product positions; and

(iv)

client account bookkeeping.

Trade execution and trade and/or account financing services may or may not be provided as part of this arrangement.

2461. -- 2469. -- Reserved.

Part A -- Arrangements between two Dealer Members -- General Requirements

Rules 35.1(e)(ii) and (v)

2470.

Arrangements that may be executed

(1)

A Dealer Member that wants to become an introducing broker may enter into the one of the following introducing broker / carrying broker arrangements with another Dealer Member:

(i)

a Type 1 or 2 Arrangement for all of its securities related activities;

(ii)

a Type 1 or 2 Arrangement for all of its securities related activities other than trading in futures contracts and options;

(iii)

a Type 3 or 4 Arrangement for one or more of its securities related activities business lines.

Rules 35.1(e)(ii), (iii) and (iv)

2471.

Additional conditions that apply to an introducing broker under a Type 1 Arrangement

(1)

A Dealer Member that is an introducing broker under a Type 1 Arrangement with another Dealer Member:

(i)

must not enter into any additional introducing broker / carrying broker arrangements with another Dealer Member unless the arrangement is a Type 1 or Type 2 Arrangement that provides back office services exclusive to trading in futures contracts and options;

(ii)

must not continue to fully service any part of its securities related activities other than fully servicing trading in futures contracts and options; and

(iii)

must use its carrying broker's facilities for its principal trading, settlement, and securities custody.

Rules 35.1(e)(ii), (iii) and (iv)

2472.

Additional conditions that apply to an introducing broker under a Type 2 Arrangement

(1)

A Dealer Member that is an introducing broker under a Type 2 Arrangement with another Dealer Member:

(i)

must not enter into any additional introducing broker / carrying broker arrangements with another Dealer Member unless the arrangement is a Type 1 or Type 2 Arrangement that provides back office services exclusive to trading in futures contracts and options;

(ii)

must not fully service any part of its securities related activities other than fully servicing trading in futures contracts and options; and

(iii)

may use brokers other than its carrying broker for its principal trading, settlement, and securities custody.

Rules 35.1(e)(iv) and (v)

2473.

Additional conditions that apply to an introducing broker under either a Type 3 or a Type 4 Arrangement

(1)

A Dealer Member that is an introducing broker under a Type 3 or Type 4 Arrangement with another Dealer Member:

(i)

may use brokers other than its carrying broker for its principal trading, settlement, and securities custody;

(ii)

may, where a business case can be made, enter into additional Type 3 or Type 4 Arrangements for one or more of its remaining securities related activities business lines;

(iii)

may fully service one or more of its remaining securities related activities business lines; and

(iv)

must not enter into any Type 1 or Type 2 Arrangements for one or more of its remaining securities related activities business lines.

Rules 35.1(b)(i), (e)(i), and (g)

2474.

Requirement for an agreement

(1)

A Dealer Member may enter into an arrangement permitted within sections 2470 through 2473 with another Dealer Member if both parties enter into a written introducing broker / carrying broker contract:

(i)

in a form acceptable to the Corporation;

(ii)

that specifies the type of arrangement being entered into is an Introducing Type 1, Type 2, Type 3 or Type 4 Arrangement;

(iii)

whose terms meet the requirements of this Rule 2450 that apply to the type of arrangement being entered into; and

(iv)

which is approved by the Corporation in advance of it coming into effect.

Rule 35.2, opening paragraph

2475.

Type 1 Arrangement -- requirements --

The parties to a Type 1 introducing broker / carrying broker arrangement (Type 1 Arrangement) must comply with the following requirements:

Rule 35.2(a)

(1)

Minimum capital requirement

(i)

The introducing broker must maintain at all times minimum capital of $75,000 for calculating RAC.

Rule 35.2(b)(ii)

(2)

Margin requirements to be provided by the introducing broker

(i)

The introducing broker must maintain the required margin for principal business it introduces to the carrying broker.

Rule 35.2(b)(i)

(3)

Margin requirements to be provided by the carrying broker

(i)

The carrying broker must maintain the required margin:

(a)

for client business it carries for the introducing broker; and

(b)

for any settlement date equity deficiency amounts relating to the principal business it carries for the introducing broker in accordance with the margin requirements for an account with another regulated entity, as set out in Note 4 of the Notes and Instructions to Schedule 5 of Form 1.

Rule 35.2(c)

(4)

Offsets of carrying broker margin requirements against deposits

(i)

The carrying broker may reduce any margin it is required to provide under section 2475(3) by the least of the following amounts:

(a)

the margin requirement;

(b)

the loan value of any introducing broker deposits held by the carrying broker; and

(c)

the introducing broker's excess RAC.

Where a reduction is taken, the carrying broker must promptly notify the introducing broker.

Rule 35.2(d)

(5)

Reporting client balances

(i)

When calculating RAC, the carrying broker must report on Statement A and Schedule 4 of Form 1 and the MFR all client accounts introduced by the introducing broker. The introducing broker must not report these accounts.

Rule 35.2(e)

(6)

Net client balances / funding

The carrying broker must meet financing requirements for client accounts introduced by the introducing broker.

Rules 35.2(c) and (f)

(7)

(i)

The carrying broker must:

(a)

segregate security deposits provided by the introducing broker;

(b)

hold cash deposits in a separate bank account in trust for the introducing broker; and

(c)

report all deposits it receives from the introducing broker as a liability on its Form 1 and MFR.

(ii)

The introducing broker must:

(a)

report as a non-allowable asset on the introducing broker's Form 1 and MFR:

(I)

any portion of a deposit that a carrying broker has used to offset its margin requirements under section 2475(4); and

(ii)

any portion of a deposit that is impaired in value because the carrying broker carries client accounts with unsecured debit balances.

(b)

report as an allowable asset on the introducing broker's Form 1 and MFR any remaining deposits not classified as a non-allowable asset under sub-clause 2475(7)(ii)(a).

Rule 35.2(g)

(8)

Concentration calculations

(i)

When completing the concentration calculations in Schedules 9 and 12 of Form 1, the carrying broker must include, and the introducing broker must not include, all client positions the carrying broker maintains for the introducing broker.

Rule 35.2(h)

(9)

Segregating client securities

(i)

The carrying broker must segregate securities for clients introduced by the introducing broker in accordance with the segregation rules. [LINK -- Rule 4400 Segregated Securities - Requirements and Internal Controls.]

Rule 35.2(i)

(10)

Free credit segregation

(i)

The carrying broker must comply with the Corporation's free credit segregation requirements for client accounts introduced by the introducing broker.

Rules 35.2(j)(i), (ii) and (iv)

(11)

Insurance coverage requirements of the introducing broker

(i)

The introducing broker must:

(a)

include all accounts introduced to the carrying broker:

(I)

when calculating client net equity for the purposes of determining minimum FIB insurance coverage levels under section 4459; and

(II)

when determining adequate insurance coverage levels for registered mail under section 4456

(b)

maintain FIB insurance coverage for the types of losses specified under section 4457 and in the amounts that meet the minimum coverage levels specified in section 4459; and

(c)

maintain adequate insurance for registered mail specified under section 4456.

Rules 35.2(j)(i) to (iv)

(12)

Insurance coverage requirements of the carrying broker

(i)

The carrying broker must:

(a)

include all accounts it carries for the introducing broker:

(I)

when calculating client net equity for the purposes of determining minimum FIB insurance coverage levels under section 4458; and

(II)

when determining adequate insurance coverage levels for registered mail under section 4456

(b)

maintain FIB insurance coverage for the types of losses specified under section 4457 and in the amounts that meet the minimum coverage levels specified in section 4458; and

(c)

maintain adequate insurance for registered mail specified under section 4456.

Rule 35.2(k)

(13)

Client account opening required disclosure

(i)

At the time of opening a client account the introducing broker must:

(a)

advise the client of:

(I)

its relationship to the carrying broker; and

(II)

the client's relationship to the carrying broker.

(b)

obtain from the client a Corporation-approved form acknowledging it has provided the client with the disclosure required by clause 2475(13)(i)(a).

Rule 35.2(l)

(14)

Parties to margin and guarantee documents

(i)

The introducing broker and the carrying broker must both be parties to any margin agreements and guarantee documents.

Rule 35.2(l)

(15)

Disclosure on contracts, statements and correspondence

(i)

To ensure ongoing disclosure of the introducing broker / carrying broker relationship to clients, the introducing broker and carrying broker must both show their names and roles on all client account contracts, statements, correspondence and other documents. Because of this ongoing disclosure, annual disclosure of the introducing broker / carrying broker relationship is not required.

Rule 35.2(m)

(16)

Clients introduced to the carrying broker

(i)

A client introduced to the carrying broker by the introducing broker must be considered a client of both the introducing broker and the carrying broker for the purposes of compliance with IIROC requirements.

Rule 35.2(n)

(17)

Compliance with non-financial requirements

(i)

The introducing broker and the carrying broker are jointly and severally responsible for compliance with all non-financial Corporation requirements for each account the introducing broker introduces to the carrying broker unless stated otherwise in this Rule 2475.

Rule 35.2(o)

(18)

Handling client cash

(i)

The introducing broker must not accept or handle client funds in the form of money.

(ii)

With the carrying broker's advance approval, the introducing broker may accept a cheque in the carrying broker's name from a client whose account is carried by the carrying broker and:

(a)

deliver it to the carrying broker; or

(b)

arrange for the carrying broker to pick it up.

Rule 35.2(p)

(19)

Reporting of introducing broker principal positions

(i)

The introducing broker must report all its principal positions carried by a carrying broker as inventory on its Form 1 and MFR.

(ii)

The carrying broker must report the introducing broker's principal positions it carries as a client account on its Form 1 and MFR.

Rule 35.3 opening paragraph

2476.

Type 2 Arrangement -- requirements --

The parties to a Type 2 introducing broker / carrying broker arrangement (Type 2 Arrangement) must comply with the following requirements:

Rule 35.3(a)

(1)

Minimum capital requirement

(i)

The introducing broker must maintain at all times minimum capital of $250,000 for calculating RAC.

Rule 35.3(b)(ii)

(2)

Margin requirements to be provided by the introducing broker

(i)

The introducing broker must maintain the required margin for principal business it introduces to the carrying broker.

Rule 35.3(b)(i) and (ii)

(3)

Margin requirements to be provided by the carrying broker

(i)

The carrying broker must maintain the required margin:

(a)

for client business it carries for the introducing broker; and

(b)

for any settlement date equity deficiency amounts relating to the principal business it carries for the introducing broker in accordance with the margin requirements for an account with another regulated entity, as set out in Note 4 of the Notes and Instructions to Schedule 5 of Form 1.

Rule 35.3(c)

(4)

Offsets of carrying broker margin requirements against deposits

(i)

The carrying broker may reduce any margin it is required to provide under section 2476(3) by the least of the following amounts:

(a)

the margin requirement;

(b)

the loan value of any introducing broker deposits held by the carrying broker; and

(c)

the introducing broker's excess RAC.

Where a reduction is taken, the carrying broker must promptly notify the introducing broker.

Rule 35.3(d)

(5)

Reporting client balances

(i)

When calculating RAC, the carrying broker must report on Statement A and Schedule 4 of Form 1 and the MFR all client accounts introduced by the introducing broker. The introducing broker must not report these accounts.

Rule 35.3(e)

(6)

Net client balances / funding

(i)

The carrying broker must meet financing requirements for client accounts introduced by the introducing broker.

Rules 35.3(c) and (f)

(7)

Deposits provided to the carrying broker by the introducing broker

(i)

The carrying broker must:

(a)

segregate security deposits provided by the introducing broker;

(b)

hold cash deposits in a separate bank account in trust for the introducing broker; and