Guidance on Investment in a Dealer Member – Notification and Approval

1. Notification of Investments of less than 10% in a Dealer

1.1 Initial Investment

For an initial investment of less than 10% in a non-publicly traded Dealer or its holding companies, the Dealer must file a written notification with IIROC’s General Counsel’s Office at [email protected] at least 20 days before the transaction date and submit:

1. a completed Investor Notification Form
2. pre/post-corporate-organization charts and updated investor schedules.1

For acquisitions less than 10%, there is no requirement to file on National Registration Database (NRD).

1.2 Subsequent Investment(s)

Subsequent purchases by the same investor require the Dealer to submit only a notification letter to IIROC’s Membership & GCO Specialist with updated investor schedules, unless the purchase results in a significant equity interest in the Dealer or its holding companies (see section 2). The Dealer must also send a notification letter for the subsequent purchase to IIROC’s Membership & GCO Specialist at least 20 days before the transaction.

2. District Council Approval of Investments of 10% or more in a Dealer2

2.1 When does this process apply?

The approval process for ownership of a Dealer or its holding companies applies to any investment considered a “significant equity interest”,3  whether the Dealer’s or its holding companies’ shares are publicly traded or not. This includes:

1. 10% or more of the voting securities of the Dealer or its holding companies
2. 10% or more of the outstanding participating securities of the Dealer or its holding companies
3. an interest of 10% or more of the total equity of the Dealer.

If an investor holds or proposes to acquire convertible securities of the Dealer, we will consider the investor’s ownership to include partial or full conversion of all classes of convertible securities held or proposed to be acquired by that investor.

2.2 Initial Investment

2.2.1 Before the Transaction

Dealers must file a written notification with IIROC’s Membership & GCO Specialist (see section 2.6) at least 30 days before the proposed closing date and must:

1. obtain District Council4  approval for an investment by an investor of a significant equity interest
2. submit an Investor Application Form for all significant equity interest holders, pre/post corporate organization charts, and updated investor schedules
3. if the investor in a Dealer is an individual, file an Initial Registration submission Form 33-109F4 Registration of Individuals and Review of Permitted Individuals (Form F4) through NRD under the IIROC Investor category and include the Permitted Individual/Shareholder5  category, unless the individual is already approved with a Dealer (an Approved Person)
4. if the investor is an Approved Person, file a Change of Individual Categories Form 33-109F2 Change or Surrender of Individual Categories under the IIROC Investor category and include Permitted Individual/Shareholder category where applicable under Item 4 – Adding categories.

Dealers must determine if the transaction triggers the filing of a notice under section 11.9 and/or 11.10 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), and if so, make any necessary filing.

2.2.2 After the Transaction

After the transaction is completed, Dealers must submit:

1. a Form 33-109F4 Item 17 - Ownership of Securities and Derivatives Firms Change (through NRD) if the investor in a Dealer is a Permitted Individual/Shareholder
2. A Form 33-109F5 Change of Registration Information (Form F5) with the applicable securities regulatory authority6  to update the information in its Form 33-109F6 Firm Registration (Form F6).

2.3 Subsequent Investment(s)

For subsequent purchases by the same investor, Dealers must submit a notification letter and updated investor schedules to IIROC’s Membership & GCO Specialist. Instead of a notification letter, Dealers may file a Form F5 along with the updated investor schedule. Dealers also may be required to file an update through NRD.

Additionally, Dealers must update Item 3.12 of Form F6 through a Form F5 and submit this to the applicable securities regulatory authority.7

Where applicable, a Dealer must file a Form F4 Item 17 – Ownership of Securities and Derivatives Firm submission within 15 days of closing if the investor in a Dealer is a Permitted Individual/Shareholder.

2.4 Dealer Change of Control

Where a proposed transaction involves a change of Dealer control and the acquirer intends to make significant changes to the Dealer’s business and/or operations, a more detailed review may be necessary. IIROC Staff may consider treating the proposed transaction as a new Dealer application.

2.5 Items Addressed in Approval Requests

IIROC Staff’s recommendation to District Council8  depends on whether the transaction is:

1. likely to give rise to conflicts of interest
2. likely to hinder the Dealer in complying with IIROC requirements9  and securities legislation
3. inconsistent with an adequate level of investor protection
4. otherwise prejudicial to the public interest.

2.6 Content of Written Notice

When preparing their written notice or request under sections 2106 or 2108, Dealers should consider including the following information. The relevancy of each item depends on the type and facts of the transaction.

1. Explain the business reasons for the transaction.
2. Provide details on the Dealer’s operations and business plan if the transaction closes. The information on business operation changes should include the details required in Item 3.1 of Form F6 (i.e. primary business activities, target market, and the products and services the Dealer provides to clients).
3. Provide details of the entities involved in the transaction, including their business description, corporate address, full legal name of officers, directors and investors – including their dates of birth, current names, former names they may have been known as and any other names they may be known as and their residential addresses for the past five years.
4. Detail any changes to the Ultimate Designated Person (UDP), the Chief Compliance Officer (CCO), key management, directors, officers, permitted individuals and Approved Persons that may flow from the proposed transaction. If the Dealer making the application is not contemplating personnel changes, confirm this.
5. Provide details of the Dealer’s policies and procedures that address conflicts of interest that may arise because of the transaction.
6. If there is a potential conflict of interest arising from the transaction, explain how the Dealer making the application will address this conflict of interest.
7. Confirm the parties to the transaction have the resources to comply with all applicable conditions of registration and provide details supporting this.
8. Provide details on whether directors, officers, partners and Approved Persons of the Dealer, if applicable, will comply with section 4.1 of NI 31-103 (restrictions on acting for another registered firm) and whether any cross registrations arise from the transaction.
9. Provide details of all client communications that have occurred or are planned. If the Dealer does not propose to communicate with clients about the transaction, confirm and explain why.
10. Provide the draft press release announcing the transaction. If the Dealer does not plan to issue a press release, confirm this and explain why.
11. Confirm the proposed closing date.
12. Provide details of the corporate structure, both before and after the closing of the proposed transaction, including all affiliated companies and subsidiaries of the acquirer and any registered firm involved in the proposed transaction whether interests in a company, partnership or trust are held directly or through a holding company, trust or other entity.

2.7 Other Considerations

The Partners, Directors and Senior Officers Course must be completed by:

1. Any Director of a Dealer who directly or indirectly owns or controls a voting interest in the Dealer of 10% or more.
2. Any person other than a Director of a Dealer, who is actively engaged in the business of a Dealer and directly or indirectly owns or controls a voting interest in the Dealer of 10% or more.

2.8 Approval

The Dealer will receive approval directly from IIROC and through NRD for the investor.

3. Applicable Rules

IIROC Rules this Guidance relates to:

• section 2106, and
• section 2108.

4. Previous Guidance Notes

This Guidance replaces GN-2100-21-001 – Guidance on Investment in a Dealer Member – Notification and Approval.

5. Related documents

This Guidance Note was published under Notice 22-0080: Updated Guidance – Disclosure and approval of outside activities and investment in a Dealer Member

• 1The investor schedules must show the number of shares owned (with percentages), both before and after the proposed transaction.
• 2This approval authority will be changed to “the Corporation” on January 1, 2023.
• 3See definition of “significant equity interest” in sub-section 2102(1) of the IIROC Rules.
• 4This approval authority will be changed to “the Corporation” on January 1, 2023.
• 5See paragraph 1.1 (b) and (c) in NI 33-109 for the “permitted individual” definition. See “Terms” section of Form F4 for the “shareholder” definition.
• 6In jurisdictions where the provincial securities regulator has delegated firm registration authority to IIROC, Dealers must submit the Form F5 to IIROC, with a copy to the provincial securities regulator. In jurisdiction where the provincial securities regulator has not delegated firm registration authority to IIROC, Dealers must submit the Form F5 to their local provincial securities regulator.
• 7In jurisdictions where the provincial securities regulator has delegated firm registration authority to IIROC, Dealers must submit the Form F5 to IIROC, with a copy to the provincial securities regulator. In jurisdiction where the provincial securities regulator has not delegated firm registration authority to IIROC, Dealers must submit the Form F5 to their local provincial securities regulator.
• 8This approval authority will be changed to “the Corporation” on January 1, 2023.
• 9See definition of “IIROC requirements” in subsection 1201(2) of the IIROC Rules.