On October 6, 2009, the Canadian Securities Administrations (CSA) published the final version of National Instrument 23-102 Use of Client Brokerage Commissions and the accompanying companion policy. The instrument and policy seek to regulate soft dollar arrangements across Canada, stipulating the types of goods and services that may be acquired with client brokerage commissions and prescribing related disclosure requirements. The instrument and policy apply to registered advisers, who obtain the goods and services and to registered dealers, who accept the brokerage commissions.
NI 23-102 and its companion policy were initially published in July 2006. The 2006 proposals applied to all types of transactions where brokerage commissions or similar transaction-based fees were charged, and imposed duties on advisers to ensure that soft dollars were used to benefit the client and were reasonable in relation to the value of goods and services received. The proposals further specified that the goods and services acquired using client brokerage commissions were restricted to "order execution services" and "research", and prescribed detailed disclosure requirements for advisers. In response to comments submitted, the CSA republished the proposals in January 2008. Substantive changes were made to the 2006 proposals regarding: (i) the breadth of the application of the instrument and policy; (ii) definitions of order execution services and research services; (iii) the framework for client brokerage commission practices; (iv) disclosure of client brokerage commission practices; and (v) the addition of a transition period.
In the final version of NI 23-102 released yesterday, the CSA have made further changes to clarify the requirements of the instrument and respond to comments received. Specifically, the changes incorporated into the final version of the materials include:
- amendments to the temporal standard for order execution goods and services. The temporal standard now begins when an adviser "makes an investment or trading decision" (emphasis added).
- a reversion to the broader 2006 definition of eligible "research goods and services" with a corresponding narrowing of the scope of eligible "order execution goods and services", which brings NI 23-102 more in line with U.S. requirements;
- clarifications respecting the instrument's application to futures contracts and foreign advisers;
- clarifications to the obligations of advisers and dealers; and
- changes to disclosure requirements, including eliminating the requirements from the 2008 proposals for quantitative disclosure.
Subject to Ministerial approval, NI 23-102 is intended to come into force on June 30, 2010 (with a six-month transition period), at which time Ontario Securities Commission Policy 1.9 - Use by dealers of brokerage commissions as payment for goods or services other than order execution services and Policy Statement Q-20 of the Autorité des marchés financiers will cease to apply.