MFDA Rule 1.1.7 – Use of Business, Style or Trade Names by Members and Approved Persons

(Updated March 4, 2013)

This Notice is intended to clarify the MFDA’s requirements with respect to the use of trade names by Members and Approved Persons.

Background

MFDA Rule 1.1.7 (Business Styles, Names, Etc.) requires that, except as permitted to pursuant to MFDA Rule 1.1.6 (Introducing and Carrying Arrangement), all business carried on by a Member or by any person on its behalf shall be in the name of the Member or a business or trade or style name owned by the Member or an affiliated corporation of the Member.

An Approved Person may conduct business under a trade name other than that of the Member, if the Member has given its prior written consent, and all other requirements of Rule 1.1.7 have been satisfied. However, whenever an Approved Person’s trade name is used in such circumstances, there is a potential for client confusion as to the Member’s responsibility for these activities. One of the principal objectives of the Rule is to ensure that clients are aware of the fact that there is a registered mutual fund dealer through which all securities related business is being conducted.

Use of Trade Names by Approved Persons

Legal Name of Member to Accompany Approved Person’s Trade Name

The use of an Approved Person’s trade name on communications in the absence of the Member’s legal name can lead to client confusion as to which legal entity is responsible and liable to the client. Rule 1.1.7 requires that, where an Approved Person’s trade name is used on communications to the public and clients, the legal name of the Member must always appear.

Contracts, Account Statements and Confirmations

Contracts, account statements and confirmations are official dealer documents, the form and content of which are prescribed by legislation and MFDA Rules. The Rule permits the trade name of an Approved Person to be included along with the Members’ legal name on contracts, account statements and trade confirmations, but the legal name of the Member must appear in at least equal size and prominence to the Approved Person’s trade name. This is to ensure that the client is clear as to the legal entity that is responsible for the information contained in these documents.

Other Communications

On communications other than contracts, account statements and confirmations, the trade name of an Approved Person may also be used, provided that either:

• the Member’s legal name appears in at least equal size and prominence to the trade name used by the Approved Person, or
• the trade name of the Member appears in at least equal size and prominence to the trade name of the Approved Person, along with the legal name of the Member, which need not be of equal size.

Use of Corporate Names by Approved Persons

Rule 1.1.7 only permits the use of business, trade or style names by Approved Persons and does not allow for the use of corporate names, apart from the Member’s legal name, in relation to Member business. Further, any name used by a Member or Approved Person must comply with the requirements of all applicable legislation. The use of trade names with corporate endings such as “limited” or “incorporated” or abbreviations of these may contravene business names or corporate legislation, and in any case is misleading to clients as to the nature of the entity with which they are dealing.

The use of a trade name may be subject to registration or approval requirements under provincial legislation. The MFDA does not provide such services and has no authority with respect to the administration of such matters. For more information on the process of registering a trade name, the appropriate provincial ministry should be contacted.

Notification of Trade Names

In a number of compliance examinations that have been completed to date, MFDA staff has found instances where Members and their Approved Persons have used trade names without providing proper notification to the MFDA. Members are reminded that notification of the trade name to the MFDA Membership Services Department is required before the name can be used.

In addition, Members are reminded that they must notify the MFDA of any change with respect to trade, business or style names used by the Member or any of its Approved Persons. This includes situations where the Member or Approved Person has ceased to use a trade name. For trade names of Approved Persons, the name of the Approved Person, the trade or business name the Approved Person is using, and the Approved Person’s branch location must be provided.

Use of Trade Names Contrary to Rule 1.1.7

Improper Use of Approved Person Trade Names

MFDA staff is also aware of some cases where Members have registered trade names essentially on behalf of particular Approved Persons and allowed these individuals to carry on business exclusively under that name. Legal ownership may have been transferred to the Member for a nominal fee. However, the names are not broadly used by or associated with the Member in carrying on its business, and will typically be used by only one Approved Person or at only one office location. The name by which the Member is generally known or carries on business may not be openly provided to clients. MFDA staff is of the view that to allow such a practice would defeat the purpose of the disclosure requirements in the Rule. The Member, by registering the name used by the Approved Person in carrying on his or her personal business activities as its trade name, will only serve to increase confusion by masking the fact that there is a separate dealer that is also legally responsible to the client. MFDA staff is of the view that the use of a trade name by a Member/Approved Person in the circumstances described above is contrary to Rule 1.1.7(g).

Assessing Compliance with Rule 1.1.7

A number of factors will be considered by MFDA staff in assessing whether the use of a business trade or style name by a Member complies with the provisions of Rule 1.1.7. These include the following:

1. evidence that the trade name is broadly used by the Member in carrying on its business activities;
2. evidence that clients would commonly associate the name with the business of the Member;
3. whether there are other activities carried by an Approved Person under the trade name in question and whether these are reflected on the books and records of the Member or an affiliate, and supervised by the Member or an affiliate;
4. whether the trade name complies with applicable legislation; and
5. whether the name is otherwise deceptive or misleading or is likely to deceive or mislead the public.

Prohibition of Trade Names

Members must ensure that trade names used by the Member and its Approved Persons fully comply with the Rule and are consistent with the public interest. Staff reserves the right to prohibit a Member or Approved Person from using any trade name that fails to meet the provisions of the Rule, or is otherwise objectionable. If, after considering the factors noted above, MFDA staff concludes that the use of a trade, business or style name by a Member does not comply with the provisions of Rule 1.1.7, MFDA staff may: (a) prohibit the Member or Approved Person from using the name in question; (b) require that the Member’s legal name or another widely-recognized trade, business or style name of the Member be disclosed in addition to the name in question; or (c) where warranted, refer the matter to the Enforcement Department for investigation.