Investor Alert:
CIRO is issuing a warning to Canadian investors regarding Canada Token Trade.
Effective Date: December 31, 2021I
IROC is publishing guidance regarding arrangements where a client pledges its securities.
This Guidance Note addresses:
Dealer Members (Dealer) generally finance client securities purchased on margin by arranging for a call loan directly with a bank and using that portion of client unpaid securities as collateral or pledge for the call loan. As required by section 3808 of the IIROC Rules, the client statement must show the security transaction, the money balance and security holdings of the client held in segregation and/or non-segregation. The stock record must show the location of all securities held on behalf of clients, including those hypothecated to the bank.
Where a client directs a Dealer to deliver any of its security holdings to a bank as a pledge against a personal bank loan, line of credit, bank guarantee etc., and the Dealer does not retain “custody” over such securities, these client assets are no longer considered under the “control” of the Dealer and must not be shown as a security position on the Dealer’s client statement and stock record.
Alternatively, where a Dealer, its client and a bank jointly enter into a tri-party agreement as the result of a loan arrangement directly between the client and a bank, and the terms of the tri-party agreement require that client securities or monies held at a Dealer cannot be withdrawn or transferred out unless prior written consent is obtained from the bank, it is acceptable to record these as security positions held on behalf of the client and not the bank on the books and records of the Dealer. This arrangement is generally used to simplify tax event reporting by the Dealer on the security positions held by the client as the beneficial owner.
IIROC has found that some Dealers participate in government sponsored “Investor Immigration Programs”. These programs invariably require a purchase by immigrant investors in “eligible” investments under the program. The following examples must be considered in determining the financing arrangement and the applicable record keeping requirements.
IIROC requires that Dealers carefully review any arrangements whereby securities of its clients have been pledged or guaranteed to a lending financial institution as to whether such securities are properly recorded on the Dealer’s client statements.
IIROC Rules this Guidance Note relates to:
This Guidance Note replaces Member Regulation Notice MR077 – Pledge of Member’s Customer Securities.
This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.