On April 23, 2015, the Ontario Securities Commission (OSC) published proposed OSC Rule 32-505 - Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario (the Rule).
The OSC notes that there are US broker-dealers and US advisers not registered or relying on an exemption in Ontario, but have offices or employees in Ontario and are (i) trading to, with, or on behalf of, clients that are resident in the US (US clients), or (ii) acting as an adviser to US clients. Registration as an adviser or a dealer, or an exemption from such registration requirements, is required for a firm and its representatives who act as a dealer or an adviser in Ontario, even if the firm’s clients are not resident in Ontario; therefore, US broker-dealers and US advisers may be acting off-side of Ontario securities laws by not being registered or relying on an exemption from the requirement to register.
The Rule provides exemptions from the relevant dealer and adviser registration requirements in Ontario, subject to certain conditions, for US broker-dealers and US advisers that are trading to, with, or on behalf of, US clients, or acting as advisers to US clients, but that trigger the requirement to register as a dealer or adviser in Ontario because they have offices or employees in Ontario.
To rely on the exemption contained in the Rule, certain conditions and filing requirements must be met.
The exemptions under the Rule are not available where trading or advising involves Ontario residents, whether directly or indirectly. In considering the availability of the exemptions under the Rule, the OSC has advised that it will look to the substance of trades or advice in question when determining if Ontario residents are involved.
By relying on the exemptions in the Rule, a US broker-dealer or US adviser will become a “market participant” and be subject to the provisions under Ontario law applicable to a market participant, including those related to record keeping and compliance reviews.
The Rule is expected to come into force on July 7, 2015. US broker-dealers and US advisers that are currently carrying out activities from Ontario but are not registered or relying on an exemption from registration should note the OSC has stated the exemptions in the Rule will only be effective as of the date they are relied on (i.e., reliance on the exemptions in the Rule will not cure any prior non-compliance with Ontario securities laws).
Note as well that blanket orders that offer US broker-dealers and US advisers substantially the same relief as is contained in the Rule have been issued by the securities regulatory authorities in all other Canadian provinces and territories.