Pollitt & Co. Inc.

Duration of Terms and Conditions

1. The Terms and Conditions shall continue and remain in full force and effect until, from the effective date of the Terms and Conditions, a period of 18 months has elapsed during which Pollitt files Monthly Financial Reports that show:

  1. Risk Adjusted Capital (RAC) exceeds $300,000;
  2. Early Warning Tests are not triggered;
  3. No material deficiency1 ; and
  4. All trades in debt securities are reported in compliance with the Corporation requirements.

For greater certainty, the Terms and Conditions will remain in full force and effect for a period of at least 18 months. At the conclusion of that period, if all of the Terms and Conditions have been satisfied, Pollitt may apply to me through the National Hearing Officer, with a copy to Staff, to have Terms and Conditions modified or removed.

Engagement of Financial Monitor:

2. Within 30 days of the effective date of the Terms and Conditions, Pollitt shall engage a qualified Financial Monitor. The Financial Monitor shall be a partner at a Chartered Professional Accounting firm approved as a Panel Auditor.

3. The Financial Monitor will provide to Staff a report on specified procedures as mutually agreed by Pollitt and Staff to verify that information reported in the MFRs is accurate and complete in accordance with the requirements, and list the deficiencies identified including RAC impact where applicable.

4. The agreement with the Financial Monitor will be subject to Staff’s written approval.

5. Any change, removal or termination of the agreement with the Financial Monitor will be pre-approved in writing by Staff, such approval not to be unreasonably withheld.

Continuance of Financial Monitor Requirement

6. Subject to paragraph 7, in the event that, over a period of six consecutive months, Pollitt submitted MFRs do not trigger Early Warning (EW) status, and maintains a RAC of not less than $300,000, and does not incur a material deficiency as identified by the Financial Monitor, the Financial Monitor shall no longer be required to perform the functions outlined in paragraph 3, but will remain available for the duration of the imposition of the Terms and Conditions.

7. The immediate requirement for the Financial Monitor to perform the procedures outlined in paragraph 3 will be renewed on a go forward basis if any of the following events occur during the term of these Terms and Conditions and are not cured as described:

  1. Early Warning Trigger – Pollitt reports an EW trigger on an MFR filing. Pollitt may cure this event by contributing, within 10 business days of the MFR due date, the amount of regulatory capital that, had it been included in Regulatory Financial Statement Capital at the relevant month end, would have resulted in Pollitt not triggering the EW test;
  2. Risk Adjusted Capital (RAC) Floor – In the event that RAC, as reported by Pollitt on its MFR, falls below $300,000. Pollitt may cure this event by contributing, within 10 business days of the MFR due date, the amount of regulatory capital that, had it been included in Regulatory Financial Statement Capital at the relevant date, would have increased RAC to an amount that exceeds $300,000; or
  3. Incurrence of material deficiencies – In the event that a material deficiency is identified, Staff, in its sole discretion, will determine if the event will be cured.

For greater clarity, if the events are cured as described, the immediate requirement for the Financial Monitor to perform the procedures outlined in paragraph 3 will not be renewed.

Other Terms and Conditions Remain in Force

8. In the event that a Financial Monitor is no longer required as provided in paragraph 3, all other Terms and Conditions remain in full force and effect for the duration of the Terms and Conditions, as set out in paragraph 1.

Fees and Report Delivery

9.  Reimburse New SRO for costs:

  1. Pollitt will pay New SRO reasonable costs and expenses incurred to administer Pollitt’s Terms & Conditions.

10. Late Filing Fee:

  1. $100 per business day for each report, as set out in paragraph 3, provided to Staff after the 10th business day of Pollitt’s MFR Filing deadline.

11. Payment of Fees:

  1. Late filing fees are due within 30 days as stipulated on the New SRO invoice. Failure to provide the late filing fee by the due date will subject the fee to interest charges.
  2. Fees are paid by EFT to New SRO.

12. Filing the report:

  1. New SRO permits the Financial Monitor to file reports electronically by encrypted email.

Transaction Reporting of Debt Securities

13. All trades in debt securities must be reported to New SRO on the Trade Date as per IDPC Rule 7200:

  1. New SRO also requires that all trades executed during the year 2021 and year to date 2022 be reported within 30 days of the effective date of the Terms and Conditions.
  2. Within 30 days of the effective date of the Terms and Conditions, comply with the reporting obligations under Rule 7200.
  • 1Materiality will be determined by Staff.

Appendix A
Terms and Conditions - Pollitt & Co. Inc.

Financial Monitor Procedures and Functions

In accordance with the Terms and Conditions imposed on Pollitt & Co. Inc. (“Pollitt”) pursuant to section 9208 of the Investment Dealer and Partially Consolidated Rules (“IDPC Rules”), the Financial Monitor (the “Monitor”) will provide to Staff a report on specified procedures, as determined by Staff, to verify that information reported in the MFRs are accurate and complete in accordance with the IDPC Rules and that the firm is meeting its reporting obligations under Rule 7200. The particulars of these specified procedures and functions are as follows:

The Monitor shall:

  1. Deliver the report to Staff within 10 business days of Pollitt’s MFR filing deadline describing the procedures and functions performed and listing the deficiencies identified, including the RAC impact of each deficiency if applicable.
  2. Discuss with management at least monthly the developments in Pollitt’s business and operations.
  3. Vouch all reported balances on Pollitt’s MFR to account balances recorded in Pollitt’s general ledger trial balance.
  4. Make reasonable inquiries as to the nature and origin of balances to conclude that balances are presented on the MFR in accordance with the Notes and Instructions to Form 1.
  5. Review the MFR reconciliation to the respective weekly RAC estimate including explanations of variances.
  6. Verify that the MFR reconciliation in procedure e) matches the weekly RAC and MFR filed on SIRFF:
    1. Determine that management’s explanations for variances are consistent with Pollitt’s business model;
    2. Determine whether there are re-occurring material discrepancies on the MFR reconciliations and whether adjustments were made to the estimate methodology to prevent reoccurrence; and
    3. Determine whether there is evidence that the CEO reviewed and approved the weekly RAC estimates.
  7. Review the bank reconciliation:
    1. Vouch the closing balance to the bank statement or online evidence of the balance;
    2. Verify the continuity of cheques issued and outstanding;
    3. Vouch reconciling items to supporting documentation and determine that the underlying transactions are properly accounted for on the general ledger, or if differences remain unresolved, that applicable margin is reported on Statement B of the MFR; and
    4. Verify evidence of review of bank reconciliation.
  8. Review broker reconciliation:
    1. Vouch closing balance to third party month-end statements;
    2. Vouch reconciling items to supporting documentation and determine that the underlying transactions are properly accounted for on the general ledger, or if differences remain unresolved, that applicable margin is reported on Statement B of the MFR; and
    3. Verify evidence of review of broker reconciliation.
  9. Review carrying broker reconciliation:
    1. Vouch general ledger balances to the carrying broker monthly invoice;
    2. Vouch reconciling items to supporting documentation and determine that the underlying transactions are properly accounted for on the general ledger, or if differences remain unresolved, that applicable margin is reported on Statement B of the MFR; and
    3. Verify evidence of review of carrying broker reconciliation.
  10. Review intercompany reconciliation:
    1. Vouch transactions in the reconciliation to written agreements; and
    2. Verify evidence of review of intercompany reconciliation.
  11. Verify, by vouching to supporting documentation, that all other allowable assets – Statement A Lines 13 through 18 – are legitimate, accurate, and presented in accordance with the Notes and Instructions to Statement A of Form 1.
  12. Determine that the netting of any assets and liabilities are in accordance with IFRS and Notes and Instructions to Statement A of Form 1.
  13. Determine that the impairment assessment on the promissory note with the Parent Company is performed accurately and recorded on the ledger.
  14. Verify that HST payable and input tax credit is accrued consistently as per Pollitt’s HST filing methodology.
  15. Average Price accounts:
    1. Verify that balances and related margin in the average price accounts are accurately and completely recorded on the MFR; and
    2. Determine that the average price policy specifies limits assigned to Traders involved in client facilitation trades.
  16. Verify that liabilities presented on Statement A and expenses reported on Statement E appear reasonable and complete:
    1. Verify that expenses, as stipulated on executed agreements, are recorded completely and accurately on the general ledger.
  17. Substantiate revenue:
    1. Vouch to supporting documentation, including contracts; and
    2. Review all contracts for services and verify that Pollitt has accounted for services performed under the contract in accordance with its accounting policies.
  18. Determine that Pollitt has recorded variable compensation and/or obligations under any revenue sharing arrangements in accordance with Pollitt’s contractual obligations.
  19. Review corporate finance deals to ensure margin for the bought deal commitment has been calculated and reported accurately.
  20. Fixed Income Principal Trading:
    1. Verify bond trading limit was established and that the limit is reasonable relative to RAC;
    2. Review evidence that bond trading activity of the proprietary trader did not exceed RAC at all times;
    3. Select a sample of the ten largest bond trades during the month and ensure that the firm had adequate capital capacity to enter the trade (bond trades are done on a principal basis only);
    4. Verify that executed bond trades have trade confirmations; and
    5. Verify that Pollitt reported all bond trades in the month to New SRO as required under Rule 7200.
  21. Verify that Pollitt’s trading activity was not comingled within related party trading accounts:
    1. Verify that the Parent company’s trading activity go through a client account in the name of the Parent company and the account is class coded as a client account on ISM. Verify that the beneficiary owner on the account is the Parent Company, and not Pollitt & Co. Inc. Verify that any under-margined amounts in the Parent Company’s trading account is captured in the NBIN monthly delinquent report; and
    2. Verify that Pollitt provided instructions to NBIN to treat account 5P-TATU-A as an inventory trading account.
  22. Review all payments to and receipts from Pollitt’s CEO and ascertain that:
    1. Payments are supported by contractual obligations for salary or management fee, and or for reimbursement of valid expenses paid by CEO; and
    2. All receipts are accounted for under IFRS in Pollitt’s general ledger.
  23. Review all payments to Pollitt’s parent company and ascertain that:
    1. Staff’s approval was obtained prior to payments being sent or transferred to Pollitt’s parent company.
  24. Review all entries and accruals to accounts reported as non-allowable assets to ascertain that Staff approval was obtained before increasing non-allowable assets or entering any new commitments that would have the effect of materially increasing the non-allowable assets of the firm.