Consultation Draft of proposed amendments to the Securities Act

PROPOSED EXPLANATORY NOTES

The amendments to the Securities Act repeal and re-enact Parts XI and XII of the Act which govern registration and exemptions from registration under the Act of dealers, advisers and certain other persons and companies.

The registration requirements no longer apply in respect of every trade of a security by a person or company. Under section 25 of the Act, dealers are no longer required to be registered unless they engage in or hold themselves out as engaging in the business of trading in securities. Investment fund managers must be registered under the Act.

Individuals appointed as chief compliance officers or ultimate designated persons by registered dealers, registered advisers or registered investment fund managers must be registered under the Act. Dealing representatives, advising representatives and associate advising representatives must be registered under the Act. The new definition of “representative” in subsection 1 (1) of the Act replaces the definition of “salesperson”. The registration requirement is extended to every representative who is authorized to trade securities on behalf of a registered dealer or who is authorized to provide advice on behalf of a registered adviser with respect to investing in, buying or selling securities, whether or not the representative is employed by the registered dealer or registered adviser.

New subsection 25 (6) of the Act provides criteria for determining if a person or company is engaged in a business when trading securities or providing advice with respect to investing in, buying or selling securities.

Categories of registration are set out in section 26 of the Act and additional categories and subcategories may be prescribed by the regulations. Subsection 26 (2) of the Act creates two new dealer registration categories of restricted dealer and exempt market dealer.

Under subsection 26 (5) of the Act, the adviser registration categories of portfolio manager and restricted portfolio manager include both advisers to whom the client has granted discretionary authority to manage the client’s portfolio and advisers to whom the client has not granted such discretionary authority. Persons registered in the category of restricted portfolio manager are limited by terms and conditions on registration to advising clients with respect to investing in, buying or selling only specified securities or classes of securities or securities issued by a specified class of issuers.

Subsection 27 (2) of the Act requires the Director to consider requirements prescribed in the regulations relating to proficiency, solvency and integrity as well as such other factors as the Director considers relevant when determining if a person or company is not suitable for registration.

Under subsection 27 (4) of the Act, the Commission or Director may, at any time, require a registered dealer, registered adviser or registered investment fund manager to have its auditor conduct an audit or financial review.

Section 28 of the Act authorizes the Director to revoke or suspend a registration at any time or to impose terms and conditions on a registration at any time. A right to be heard is granted to persons or companies in the circumstances described in section 29 of the Act.

Registration is automatically suspended in the circumstances described in section 30 of the Act, including on the default of payment of a fee required under the Act or the regulations and on the suspension or termination of membership of a person or company in a self-regulatory organization if the membership is a condition of registration. Registrants may surrender their registration in accordance with section 31 of the Act.

Section 32 of the Act imposes an express obligation on every person and company registered under the Act to comply at all times with Ontario securities law and to establish and maintain policies and procedures to provide reasonable assurance of compliance. Every dealer, adviser, representative and investment fund manager registered under the Act is expressly required to undertake his, her or its activities fairly, honestly and in good faith.

Section 34 of the Act exempts an adviser from the registration requirements under the Act if the adviser provides only general investment advice in the form of publications or other media without any representation that the advice is tailored to the needs of anyone who receives it. A registered dealer that provides advice to a client but does not have discretionary authority to manage the client’s investments is exempt from the requirement to register as an adviser under the Act.

A number of dealer registration exemptions are repealed that relate to trades that are not conducted in the course of engaging in a business of trading in securities. Section 35 of the Act authorizes an exemption from the dealer registration requirements for trades in,

  1. debt securities issued or guaranteed by the federal government or a provincial or territorial government;
  2. debt securities issued or guaranteed by Canadian municipalities;
  3. debt securities issued by a Canadian municipality for school funding purposes or by a corporation established under subsection 248 (1) of the Education Act;
  4. securities evidencing indebtedness secured by personal property in accordance with personal property security legislation; or
  5. securities evidencing indebtedness secured by a mortgage or charge on real property in Canada.

Additional registration exemptions relating to dealers and advisers may be prescribed by the regulations.

Under section 35.1 of the Act federal and Ontario financial institutions are exempt from the registration requirements in the Act if any activities for which they would otherwise be required to be registered as dealers or advisers under the Act are carried out under the authority of their governing legislation. Subsidiaries and affiliates of federal and Ontario financial institutions do not qualify for the exemption unless they are also financial institutions.

Section 35.2 of the Act requires that the regulations under the Act must provide an exemption to international dealers and international advisers from the registration requirements under the Act on such conditions as are prescribed in the regulations.

Related amendments are made to sections 36, 44, 119 and 134 of the Act. Amendments made to section 143 of the Act authorize the Director to make an order prohibiting a proposed change in beneficial ownership or control of a company registered under the Act or a proposed change in the ownership of a substantial portion of the assets of a registered company until the Director approves the proposed change. The Commission may make rules exempting a person or company from any requirement under the Act or regulations that is comparable to a requirement imposed on the person or company by a self-regulatory organization.

PROPOSED AMENDMENTS TO THE SECURITIES ACT

1. Subsection 1 (1) of the Securities Act is amended by adding the following definition:

“chief compliance officer” means, in respect of a registrant that is a registered dealer, registered adviser or registered investment fund manager, an individual designated by the registrant,

  1. to establish and maintain policies and procedures to uphold, monitor and report on the registrant’s compliance with Ontario securities law, and
  2. to fulfill such other compliance functions as may be prescribed by the regulations; (“chef de la conformité”)

(2) The definition of “dealer" in subsection 1 (1) of the Act is repealed and the following substituted:

“dealer” means a person or company who engages in or holds himself, herself or itself out as engaging in the business of trading in securities as principal or agent; (“courtier”)

(3) Subsection 1 (1) of the Act is amended by adding the following definitions:

“debt security” means a bond, debenture, note or other evidence of indebtedness, whether the indebtedness is secured or unsecured; (“titre de créance”)

“international adviser” means a person or company that acts as an adviser in a jurisdiction outside Canada in which its head office or principal place of business is located and,

  1. that is registered under the securities laws of that jurisdiction in a category of registration that permits it to carry on activities in that jurisdiction that a registered adviser would be permitted to carry on in Ontario, or
  2. that operates under an exemption from the requirement to be registered as an adviser under the securities laws of that jurisdiction; (“conseiller international”)

“international dealer” means a person or company,

  1. that acts as a dealer in a jurisdiction outside Canada in which its head office or principal place of business is located, and
  2. that is registered under the securities laws of that jurisdiction in a category of registration that permits it to carry on activities in that jurisdiction that a registered dealer would be permitted to carry on in Ontario; (“courtier international”)

(4) The definition of “portfolio manager” in subsection 1 (1) of the Act is repealed.

(5) The definition of “salesperson” in subsection 1 (1) of the Act is repealed and the following substituted:

“representative” means,

  1. in respect of a registered dealer, an individual who trades securities on behalf of the dealer, whether or not the individual is employed by the dealer, or
  2. in respect of a registered adviser, an individual who provides advice on behalf of the adviser with respect to investing in, buying or selling securities, whether or not the individual is employed by the adviser; (“représentant”)

(6) Clause (e) of the definition of “security” in subsection 1 (1) of the Act is repealed and the following substituted:

  1. a bond, debenture, note or other evidence of indebtedness or a share, stock, unit, unit certificate, participation certificate, certificate of share or interest, preorganization certificate or subscription other than,
    1. a contract of insurance issued by an insurance company licensed under the Insurance Act, and
    2. evidence of a deposit issued by a bank listed in Schedule I, II or III to the Bank Act (Canada), by a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies, by a loan corporation registered under the Loan and Trust Corporations Act or by an association governed by the Cooperative Credit Associations Act (Canada),

(7) Subsection 1 (1) of the Act is amended by adding the following definition:

“ultimate designated person” means, in respect of a registrant that is a registered dealer, registered adviser or registered investment fund manager, an individual designated by the registrant,

  1. to supervise the registrant’s activities that are directed towards ensuring compliance with Ontario securities law by the registrant and by each individual acting on the registrant’s behalf, and
  2. to fulfill such other supervisory and compliance functions as may be prescribed by the regulations; (“personne désignée responsable”)

2. Section 3.4 of the Act is amended by adding the following subsection:

Fees
(0.1) The Commission may collect and enforce the payment of such fees as may be prescribed by the regulations.

3. Part XI of the Act is repealed and the following substituted:

PART XI
REGISTRATION

Registration
Dealers

25. (1) Unless a person or company is exempt under Ontario securities law from the requirement to comply with this subsection, the person or company shall not act as an underwriter or engage in or hold himself, herself or itself out as engaging in the business of trading in securities unless the person or company,

  1. is registered in accordance with Ontario securities law as a dealer; or
  2. is a representative registered in accordance with Ontario securities law as a dealing representative of a registered dealer and is acting on behalf of the registered dealer.

Same, advisers

(2) Unless a person or company is exempt under Ontario securities law from the requirement to comply with this subsection, the person or company shall not engage in the business of, or hold himself, herself or itself out as engaging in the business of, advising anyone with respect to investing in, buying or selling securities unless the person or company,

  1. is registered in accordance with Ontario securities law as an adviser;
  2. is a representative registered in accordance with Ontario securities law as an advising representative of a registered adviser and is acting on behalf of the registered adviser; or
  3. is a representative registered in accordance with Ontario securities law as an associate advising representative of a registered adviser and is acting on behalf of the registered adviser under the supervision of a registered advising representative.

Same, investment fund managers

(3) Unless a person or company is exempt under Ontario securities law from the requirement to comply with this subsection, the person or company shall not act as an investment fund manager unless the person or company is registered in accordance with Ontario securities law as an investment fund manager.

Same, ultimate designated person

(4) If a registered dealer, registered adviser or registered investment fund manager is required under the regulations to designate an individual as his, her or its ultimate designated person, the individual must be registered in accordance with Ontario securities law as an ultimate designated person before acting in that capacity and shall comply with all terms and conditions, if any, to which the registration is subject.

Same, chief compliance officer

(5) If a registered dealer, registered adviser or registered investment fund manager is required under the regulations to designate an individual as his, her or its chief compliance officer, the individual must be registered in accordance with Ontario securities law as a chief compliance officer before acting in that capacity and shall comply with all terms and conditions, if any, to which the registration is subject.

Engaged in a business

(6) For the purposes of subsections (1) and (2), the following must be considered in determining if a person or company is engaged in a business when trading securities or providing advice with respect to investing in, buying or selling securities:

  1. Whether the activity is undertaken, directly or indirectly, repeatedly, regularly or on a continuing basis.
  2. Whether the activity is undertaken,
    1. for remuneration or other consideration or with the expectation of receiving either, or
    2. with a view to profit.
  3. Whether the person or company is engaged in soliciting, either directly or indirectly.
  4. Whether the activity includes inducing investors or potential investors, directly or indirectly, to rely on the person or company to trade securities or provide advice with respect to investing in, buying or selling securities.
  5. Whether the activity includes representing, directly or indirectly, to investors or potential investors that the person or company is engaged in the business of trading securities or providing advice with respect to investing in, buying or selling securities.
  6. Whether the activity is not merely an incidental part of the person or company’s principal business activity.
  7. Whether the activity satisfies such other criteria as the Director may consider relevant in the circumstances.

Note to Readers on Consultation: The Ministry of Finance invites comments from the securities industry on whether registration should be required only if activities are undertaken on a commercial basis. Should registration be required whenever the activities are carried out with the intention to earn a profit or receive compensation or only if carried out as a commercial enterprise? Do the provisions of the proposed amendments to the Act include activities not normally considered to be part of the “business” of trading securities or providing advice with respect to investing in, buying or selling securities?

Commission guidelines re engaged in a business

(7) The Commission may, by the adoption of a policy under section 143.8, establish guidelines setting out additional criteria to be considered in determining whether a person or company is engaged in a business when trading securities or providing advice with respect to investing in, buying or selling securities.

Application for registration, etc.

26. (1) An application for registration, reinstatement of registration or an amendment to an existing registration shall contain such information as the Director may reasonably require and shall be made in such form and manner and be accompanied by such fee as may be required by the regulations.

Dealer registration categories

(2) A person or company making an application under subsection (1) with respect to registration as a dealer under this Act shall indicate the category or categories of dealer registration set out in the Table in this subsection to which the application relates and shall provide such information as the Director may require to verify that the activities of the person or company will be within the permitted activity listed in the Table for each category of dealer registration.

TABLE OF DEALER CATEGORIES
Column 1
Item
Column 2
Dealer Category
Column 3
Permitted activity
1. Investment dealer Trading any securities.
2. Mutual fund dealer Trading only in,
(a) securities issued by one or more mutual funds; or
(b) securities issued by investment funds that are labour-sponsored investment fund corporations or labour-sponsored venture capital corporations under the legislation of a province.
3. Scholarship plan dealer Trading only in,
(a) securities issued by scholarship plans;
(b) securities issued by educational plans; or
(c) securities issued by educational trusts.
4. Exempt market dealer Trading only in,
(a) securities being distributed under an exemption from the prospectus requirements under this Act or the regulations;
(b) securities that, if the trade were a distribution, could have been distributed under an exemption from the prospectus requirements under this Act or the regulations;
(c) securities being distributed under a prospectus, if the distribution could have been made under an exemption from the prospectus requirements under this Act or the regulations; or
(d) securities acquired by a client in circumstances described in clause (a), (b) or (c), if the trade is with a registered dealer on behalf of the client.
5. Restricted dealer Trading only in,
(a) securities or classes of securities specified in the terms and conditions imposed on registration under this Act; or
(b) securities of a class of issuers specified in the terms and conditions imposed on registration under this Act.

Underwriter

(3) Except as provided in subsection (4), a person or company may act as an underwriter in respect of a distribution of securities only if the person or company is registered under this Act as an investment dealer.

Exception, underwriter

(4) A person or company registered under this Act as an exempt market dealer may act as an underwriter with respect to a distribution of securities that may be made under an exemption from the prospectus requirements under this Act or the regulations.

Adviser registration categories

(5) A person or company making an application under subsection (1) with respect to registration as an adviser shall indicate for which of the following categories of adviser registration he, she or it is applying and shall provide such information as the Director may require to verify that the activities of the person or company will be within the permitted activity for that category of adviser registration:

  1. Portfolio manager, authorized to provide advice to a client with respect to investing in, buying or selling any type of security, with or without discretionary authority granted by the client to manage the client’s portfolio.
  2. Restricted portfolio manager, limited by terms and conditions on registration to providing advice with respect to investing in, buying or selling only specified securities, specified classes of securities or the securities of a specified class of issuers, with or without discretionary authority granted by the client to manage the client’s portfolio of those securities.

Prescribed category

(6) If one or more categories of registration are prescribed by the regulations, a person or company applying for registration in a category prescribed by the regulations shall so indicate and provide such information as the Director may require to verify that the category is appropriate for the applicant.

Registration, etc.

27. (1) Upon receipt of an application by a person or company and all information, material and fees required by the Director and under the regulations, the Director shall register the person or company, reinstate the registration of the person or company or amend the registration of the person or company, unless it appears to the Director,

  1. that, in the case of a person or company applying for registration, reinstatement of registration or an amendment to a registration, the person or company is not suitable for registration under this Act; or
  2. that the proposed registration, reinstatement of registration or amendment to registration is otherwise objectionable.

Matters to be considered

(2) In considering for the purposes of subsection (1) whether a person or company is not suitable for registration, the Director shall consider,

  1. whether the person or company has satisfied,
    1. the requirements prescribed in the regulations relating to proficiency, solvency and integrity, and
    2. such other requirements for registration or reinstatement of registration, as the case may be, as may be prescribed by the regulations; and
  2. such other factors as the Director considers relevant.

Terms and conditions

(3) The Director may, in his or her discretion, impose terms and conditions on the registration, reinstatement of registration or amendment of registration of any person or company and, without limiting the generality of the foregoing, may,

  1. restrict the duration of the registration; and
  2. restrict the person or company to,
    1. trading only specified securities or specified classes of securities or securities of specified classes of issuers, if the person or company is registered as a dealer, or
    2. providing advice with respect to investing in, buying or selling only specified securities or specified classes of securities or securities of specified classes of issuers, if the person or company is registered as an adviser.

Right to require audit or review

(4) The Commission or the Director may, at any time, require a registrant that is a registered dealer, registered adviser or registered investment fund manager to direct its auditor, at the registrant’s expense, to conduct any audit or financial review required by the Commission or the Director and deliver a report of the findings of the audit or review to the Commission as soon as practicable.

Revocation or suspension of registration or imposition of terms and conditions

28. The Director may revoke or suspend the registration of a person or company or impose terms or conditions of registration at any time during the period of registration of the person or company if it appears to the Director,

  1. that the person or company is not suitable for registration or has failed to comply with Ontario securities law, including,
    1. any terms and conditions imposed on registration, and
    2. any requirements or orders to which the registration or the person or company is subject; or
  2. that the registration is otherwise objectionable.

Right to be heard

29. The Director shall not do any of the following without giving a person or company an opportunity to be heard:

  1. Refuse to register the person or company.
  2. Amend the registration of the person or company.
  3. Refuse to reinstate the registration of the person or company after suspending the registration or refuse a request from the person or company to amend the registration.
  4. Impose terms and conditions on the registration under subsection 27 (3) or section 28, either as a condition of registration or at any time during the period in which the person or company is registered.
  5. Suspend or revoke the registration of the person or company for any reason described in section 28.

Automatic suspension, person or company

30. (1) The registration of a person or company in a particular category of registration is suspended without notice, in accordance with the regulations, if any of the following events occurs:

  1. The person or company fails to pay a fee imposed under this Act or the regulations relating to the particular category of registration.
  2. The membership of the person or company in a self-regulatory organization is suspended or terminated in the case where the membership relates to the particular category of registration and is a condition of registration under Ontario securities law.
  3. The approval by a self-regulatory organization of the person as a representative of a registered dealer is revoked or suspended by the self-regulatory organization if,
    1. the approval of the representative relates to the particular category of registration in which the representative is registered under Ontario securities law, and
    2. membership by the dealer in the self-regulatory organization is a condition of the dealer’s registration under Ontario securities law.

Automatic suspension, representatives of suspended dealer or adviser

(2) A representative’s registration with respect to a particular registered dealer or registered adviser is suspended without notice when the registration of that dealer or adviser is suspended.

Automatic suspension, representative ceasing to represent registrant

(3) If a representative ceases to be employed by or to provide services to the registered dealer or registered adviser in respect of which the representative is registered, the registrant’s registration as a representative with respect to that dealer or adviser is suspended without notice on the day the relationship between the representative and the dealer or adviser ceases.

Automatic suspension, chief compliance officer or ultimate designated person

(4) The registration of an individual as a chief compliance officer or ultimate designated person is suspended without notice at the time the individual ceases to be the chief compliance officer or ultimate designated person of the registered dealer, registered adviser or registered investment fund manager that designated the individual.

Revocation after automatic suspension

(5) The registration of a person or company that is suspended under subsection (1), (2), (3) or (4) and not reinstated under subsection 27 (1) is revoked without notice on the second anniversary of the suspension.

Exception

(6) Despite subsection (5), if a proceeding is commenced under section 122 or 128 or a hearing is commenced under section 127 in respect of the activities of a registered dealer, registered adviser or registered investment fund manager or the activities of a representative of a person or company registered under this Act, the registration of the person or company that is the subject of the proceeding or hearing continues to remain suspended until a final order has been made by the court or a final decision is made by the Commission in the proceeding or hearing.

Surrender of registration

31. (1) On application by a person or company for the surrender of his, her or its registration, the Director may accept the application and revoke the registration if the Director is satisfied,

  1. that all financial obligations of the person or company to his, her or its clients have been discharged;
  2. that all requirements, if any, prescribed by the regulations for the surrender of registration have been fulfilled or the Director is satisfied that they will be fulfilled in an appropriate manner; and
  3. that the surrender of the registration is not contrary to the public interest.

Conditions

(2) The Director may impose such terms and conditions on a surrender of registration as the Director considers appropriate in the circumstances.

Duty to comply with Ontario securities law

32. (1) Every person and company registered under this Act shall comply at all times with Ontario securities law, including such regulations that apply to them as may be made relating to,

  1. proficiency standards;
  2. business conduct;
  3. in the case of a registrant that is a registered dealer, registered adviser or registered investment fund manager, submission of information respecting ownership, management, directors, officers and any other persons exercising control of the registrant;
  4. opening accounts and reporting trades;
  5. record-keeping;
  6. custody of clients’ assets;
  7. conflicts of interest;
  8. tied selling and referral arrangements;
  9. client complaints;
  10. appointment of auditors and preparation and filing of financial information;
  11. procedures to be followed when a relationship is terminated between a representative and a registered dealer or registered adviser or when the representative commences a new association with a different registered dealer or registered adviser; and
  12. suspension, reinstatement and revocation of registration.

Duty to establish controls, etc.

(2) Every registrant that is a registered dealer, registered adviser or registered investment fund manager shall establish and maintain policies and procedures in accordance with the regulations for controlling his, her or its activities and supervising his, her or its representatives that are sufficient to provide reasonable assurance that the registrant and its representatives are in compliance with Ontario securities law when engaging in the registrant’s business.

Duty to deal fairly, honestly and in good faith

(3) Every person or company registered as a dealer, adviser, representative, ultimate designated person or chief compliance officer shall deal fairly, honestly and in good faith with clients in engaging in the activities in respect of which he, she or it is registered.

Same, investment fund managers

(4) Every registered investment fund manager,

  1. shall exercise the powers and perform the duties of his, her or its office honestly, in good faith and in the best interests of the investment fund; and
  2. shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

Note to Readers on Consultation: The Ministry of Finance invites comments from the general public on the proposed inclusion in the Act of a statutory “duty of care” to be imposed on dealers, advisers, investment fund managers, representatives, chief compliance officers and ultimate designated persons registered under the Act.

Address for service

33. Except as otherwise permitted or required by the regulations, all applications and notices under this Act or the regulations are sufficiently served for all purposes to a person or company if they are sent by prepaid mail or delivered to the last address for service provided by the person or company to the Commission.

Further information

33.1 The Director may require further information or material to be submitted by an applicant or registrant within a specified time and,

  1. may require verification by affidavit or otherwise of any information or material that is to be submitted or that was previously submitted; or
  2. may require,
    1. the applicant or registrant,
    2. any partner of the applicant or registrant,
    3. any officer, director, governor or trustee of the applicant or registrant or any person performing a similar function, or
    4. any employee of the applicant or registrant,

to submit to examination under oath by a person designated by the Director.

4. Part XII of the Act is repealed and the following substituted:

PART XII
EXEMPTIONS FROM REGISTRATION REQUIREMENTS

Exemption from registration requirements, advisers

34. (1) Each of the following persons and companies is exempt from the requirement to be registered as an adviser under this Act while engaging in the business of advising investors and potential investors with respect to investing in, buying or selling securities:

  1. A person or company that engages in or holds himself, herself or itself out as engaging in the business of advising investors or potential investors, either directly or through publications or other media, with respect to investing in, buying, selling or holding securities if,
    1. the advice is not presented in a way that indicates either directly or indirectly that it is tailored to the needs of any investor or potential investor who receives the advice, and
    2. the person or company discloses any information required to be disclosed under subsection (2) in accordance with that subsection.
  2. A registered dealer whose representative provides advice to a client in connection with a security in which the dealer trades in circumstances in which the dealer does not manage the client’s investment portfolio through discretionary authority granted by the client.
  3. Such persons or companies or classes of persons or companies as may be prescribed by the regulations or whose activities are prescribed by the regulations.

Requirement to disclose interest

(2) If an adviser described in paragraph 1 of subsection (1) recommends investing in, buying, selling or holding a specified security or class of securities or the securities of a specified class of issuers in which any of the following has a financial or other interest, either directly or indirectly, the adviser must disclose the interest concurrently with providing the advice:

  1. The adviser.
  2. A partner, director or officer of the adviser.
  3. A person or company that would be an insider of the adviser if the adviser were a reporting issuer.

Interpretation

(3) For the purpose of subsection (2), a person or company is considered to have a financial or other interest in a security, a class of securities or the securities of a class of issuers if,

  1. the person or company has a legal or beneficial ownership interest in any securities issued by the issuer or in any option in any securities of the issuer;
  2. the person or company has received or can reasonably be expected to receive a commission or other form of remuneration from anyone in connection with a trade in securities of the issuer to which the advice relates;
  3. the person or company has a financial arrangement with anyone regarding securities of the issuer; or
  4. the person or company has a financial arrangement with any underwriter or other person or company who has an interest in the securities.

Note to Readers on Consultation:  The Ministry of Finance invites comments on the effect that the repeal of a number of exemptions as set out in the proposed amendments to the Act, in conjunction with the proposed rule changes  in NI31-103 will have on the capital market activities of financial institutions, venture capital groups and other market participants.

Exemption from registration requirements, dealers

35. A person or company is exempt from the requirement to be registered as a dealer under this Act when trading in the following types of securities:

  1. Debt securities issued by or guaranteed by the Government of Canada or the government of a province or territory of Canada.
  2. Debt securities that are,
    1. issued by a municipal corporation in Canada for elementary, secondary or vocational school purposes,
    2. issued or guaranteed by a municipal corporation in Canada, or
    3. secured by or payable out of rates or taxes levied under the law of a province or territory of Canada on property in the province or territory and collectable by or through the municipality in which the property is situated.
  3. Debt securities that are issued by a corporation established under regulations made under subsection 248 (1) of the Education Act.
  4. Securities,
    1. that are not offered for sale to individuals, and
    2. that evidence indebtedness that is secured by or under a security agreement, as defined in subsection 1 (1) of the Personal Property Security Act, or secured in a similar manner in accordance with comparable legislation of another Canadian jurisdiction that provides for the granting of a security interest in personal property.
  5. Securities that evidence indebtedness secured by a mortgage or charge on real property in Canada if the securities are offered for sale by a person or company,
    1. that is licensed under the Mortgage Brokerages, Lenders and Administrators Act, 2006 or is exempt from the requirement to be licensed under that Act, if the real property is in Ontario, or
    2. that is licensed or registered under comparable legislation in the province or territory of Canada, other than Ontario, in which the real property is located or is exempt from any legislative requirement to be licensed or registered.
  6. Such types of securities as may be prescribed in the regulations and traded in accordance with the regulations.

Exemption from registration requirement, financial institutions

35.1 (1) Subject to subsection (2), each of the following financial institutions is exempt from the requirement to be registered as a dealer or adviser under this Act if it limits its trading activities and its activities relating to providing advice with respect to investing in, buying or selling securities to only those activities authorized by its governing legislation:

  1. A bank listed in Schedule I, II or III of the Bank Act (Canada).
  2. An association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative credit society for which an order has been made under subsection 473 (1) of that Act.
  3. A loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union, caisse populaire, financial services cooperative or credit union league or federation that is authorized by a statute of Canada or Ontario to carry on business in Canada or Ontario, as the case may be.
  4. Business Development Bank of Canada.
  5. Such other financial institutions as may be prescribed by the regulations.

Affiliates and subsidiaries of financial institutions

(2) An exemption under subsection (1) does not apply to a subsidiary or affiliate of a financial institution unless the subsidiary or affiliate is itself a financial institution that is exempt under subsection (1) from the requirement to be registered as a dealer or adviser under this Act.

Note to Readers on Consultation: The Ministry of Finance invites comments from financial institutions on the effect this exemption will have on financial institutions and their subsidiaries and affiliates with respect to their activities relating to trading securities and providing advice with respect to investing in, buying and selling securities.

Exemption from registration requirements, international adviser or dealer

35.2 The regulations shall provide that a person or company that is an international adviser or international dealer is exempt from the requirement to be registered under this Act on such conditions as are prescribed in the regulations.

5. Section 36 of the Act is repealed and the following substituted:

Confirmation of trade

36. (1) Subject to the regulations, every registered dealer who has acted as principal or agent in connection with a purchase or sale of a security shall promptly send by prepaid mail or deliver to the customer a written confirmation of the transaction containing the information required by the regulations.

Disclosure of trade information to Commission

(2) Every person or company that has acted as an agent in connection with a purchase or sale of a security shall promptly disclose to the Commission, on receipt of a written request from the Commission, the name of every person or company from, to or through whom the security was bought or sold.

6. Section 44 of the Act is repealed and the following substituted:

Representation of registration

44. (1) No person or company shall represent that he, she or it is registered under this Act unless the representation is true and, when making the representation, the person or company specifies his, her or its category of registration.

Representation prohibited

(2) No person or company shall make a statement about any matter that a reasonable investor would consider relevant in deciding whether to enter into or maintain a trading or advising relationship with the person or company if the statement is untrue or omits information necessary to prevent the statement from being false or misleading in the circumstances in which it is made.

  1. Section 45 of the Act is repealed.
  2. Section 116 of the Act is repealed.
  3. Section 118 of the Act is repealed.
  4. Section 119 of the Act is repealed and the following substituted:

Trades by mutual fund insiders

119.No person or company that has access to information concerning the investment program of a mutual fund or the investment portfolio managed for a client by an adviser shall purchase or sell securities of an issuer for his, her or its account if,

  1. the portfolio securities of the mutual fund or the investment portfolio managed for a client by the adviser include securities of that issuer; and
  2. the information is used by the person or company for his, her or its direct benefit or advantage.

11. Subsection 134 (3) of the Act is repealed and the following substituted:

Liability for improper use of information, mutual funds

(3) Any person or company that has access to information concerning the investment program of a mutual fund in Ontario or the investment portfolio managed for a client by an adviser and uses that information for his, her or its direct benefit or advantage to purchase or sell securities of an issuer for his, her or its account where the portfolio securities of the mutual fund or the investment portfolio managed for the client by the adviser include securities of that issuer is accountable to the mutual fund or the client of the adviser for any benefit or advantage received or receivable as a result of the purchase or sale.

12. (1) Paragraph 1 of subsection 143 (1) of the Act is amended by striking out “cancellation” and substituting “revocation”.

(2) Subsection 143 (1) of the Act is amended by adding the following paragraphs:

1.1 Requiring registered dealers, registered advisers or registered investment fund managers to designate an ultimate designated person and prescribing classes of individuals or the qualifications required of individuals who are eligible to be designated as ultimate designated persons.

1.2 Prescribing additional functions required to be performed by an ultimate designated person in respect of the registrant by whom he or she is designated, including requiring the ultimate designated person,

    1. to supervise the activities of the registrant that are directed towards ensuring compliance with Ontario securities law by the registrant and individuals acting on the registrant’s behalf,
    2. to establish policies and procedures to promote compliance by the registrant and by individuals acting on the registrant’s behalf with Ontario securities law.

1.3 Requiring registered dealers, registered advisers or registered investment fund managers to designate a chief compliance officer and prescribing classes of individuals or the qualifications required of individuals who are eligible to be designated as chief compliance officers.

1.4 Prescribing additional functions required to be performed by a chief compliance officer in respect of the registrant by whom he or she is designated, including requiring the chief compliance officer,

    1. to establish and maintain policies and procedures for assessing compliance with Ontario securities law by the registrant and individuals acting on the registrant’s behalf,
    2. to monitor and assess compliance by the registrant and by individuals acting on the registrant’s behalf with Ontario securities law,
    3. to report to the registrant’s ultimate designated person or to its board of directors or partners with respect to compliance matters,
    4. to submit an annual report to the board of directors of the registrant or to the registrant’s partners setting out the chief compliance officer’s assessment of the level of compliance by the registrant and the individuals acting on its behalf with Ontario securities law.

1.5 Prescribing circumstances in which a suspended registration is or may be reinstated.

1.6 Prescribing activities in which a person or company whose registration is suspended or restricted may engage or activities in which he, she or it is prohibited from engaging.

(3) Paragraph 2 of subsection 143 (1) of the Act is amended by striking out the portion before subparagraph i and substituting the following:

  1. Prescribing categories or subcategories of registration, classifying registrants into categories or sub-categories, prescribing the criteria a person or company must satisfy to qualify for registration in a particular category or sub-category of registration, prescribing requirements for registrants, prescribing terms and conditions on registration, reinstatement of registration, amendment of registration or registration in a particular category or sub-category of registration, including,

. . . . .

(4) Paragraph 2 of subsection 143 (1) of the Act is amended by striking out “and” at the end of subparagraph ii, by adding “and” at the end of subparagraph iii and by adding the following subparagraph:

    1. requirements that persons and companies registered under this Act be bonded or insured on terms acceptable to the Director.

(5) The English version of paragraph 3 of subsection 143 (1) of the Act is amended by striking  out “salespersons” and substituting “representatives”.

(6) Paragraph 5 of subsection 143 (1) of the Act is repealed and the following substituted:

  1. Governing the provision of notice to the Director of a proposed change in beneficial ownership of, or direct or indirect control or direction over, securities of a person or company registered under this Act or a proposed change in ownership of a substantial portion of the assets of a person or company registered under this Act, and authorizing the Director to make an order that the proposed change must not be effected until the change has been approved by the Director.

(7) Paragraph 7 of subsection 143 (1) of the Act is repealed and the following substituted:

  1. Prescribing requirements in respect of the disclosure or furnishing of information to the public or the Commission by persons and companies registered under this Act, by their directors, partners or officers or by persons or companies that beneficially own, directly or indirectly, or exercise direct or indirect control or direction over at least 10 per cent of the voting securities of persons and companies registered under this Act or providing for exemptions from or varying the requirements under this Act in respect of the disclosure or furnishing of information to the public or the Commission by any of them.

(8) Subsection 143 (1) of the Act is amended by adding the following paragraphs:

8.1 Exempting any person or company from any requirement under this Act or the regulations that is comparable to a requirement established by a self-regulatory organization and prescribing conditions that must be satisfied for the exemption to apply.

8.2 Exempting registered dealers from the requirement under section 36 to send a client a written confirmation of a trade in a security of an investment fund if the manager or custodian of the investment fund sends the client a written confirmation of the trade.

(9) Subsection 143 (2) of the Act is amended by adding the following clause:

(a.2) any matter referred to in this Act as required by the regulations or prescribed by or in the regulations;

Note to Readers on Consultation: Transitional provisions to provide for the implementation of the changes contained in these proposed amendments to the Act are under development.

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