Exemptions granted by CIRO in 2023

1. Exemptions from UMIR provisions granted by CIRO staff

Authority to grant exemptions

Rule 11.1 of UMIR allows CIRO to exempt a particular transaction from UMIR provided that, in CIRO’s opinion, the exemption:

• would not be contrary to the provisions of any applicable securities legislation and the regulation and rules
• would not be prejudicial to the public interest or to the maintenance of a fair and orderly market
• is warranted after due consideration of the circumstances of the particular person or transaction.

1.1 Off-marketplace transactions

The majority of the UMIR exemptions granted were to allow a Participant to complete a trade off-marketplace, either for itself or for a client.

Rule 6.4 of UMIR states that a Participant may not trade or participate in a trade other than through the entry of an order on a marketplace. Rule 6.4 includes a number of exceptions to this broad requirement. However, in circumstances that are not included in the rule, a regulatory exemption is required in order to complete a transaction off-marketplace. In accordance with Rule 6.4(2)(b), CIRO may grant a regulatory exemption:

• in order to maintain a fair and orderly market and
• if it is impractical for the seller, purchaser or their agents to comply with applicable securities legislation and is warranted after due consideration of the circumstances of the particular transaction.

The following table provides a breakdown of the exemptions CIRO staff granted in accordance with Rule 6.4(2)(b):

Effective March 1, 2023, Participants no longer need to seek an exemption under UMIR 6.4(2)(b) on a per transaction basis in order to trade a listed security:

• off-marketplace during a statutory resale restriction where the trading is permitted pursuant to a prospectus exemption

• on a foreign organized regulated market during a regulatory halt where a CTO is in effect and the trading is permitted pursuant to meeting specified conditions set out in the CTO

  as those exemptions have been codified in UMIR 6.4(2)(k) and UMIR 9.1(4)(b) respectively.

1.2 Trading an intentional cross with jitney on one side

CIRO staff granted exemptions to allow the trading of intentional crosses with jitney on one side. The definition of an “intentional cross” in Rule 1.1 of UMIR prohibits Participants from executing an intentional cross while acting for a jitney Participant on one side of the trade. The exemptions were provided as they were considered warranted under the circumstances and would not be prejudicial to the public or the maintenance of a fair and orderly market.

2. Exemptions from IDPC or MFD Rules granted by the Board (or its delegate)

Authority to grant exemptions

IDPC Rule 1302 and MFD Rule 1A permit the Board to exempt a Dealer Member from any provision of the IDPC or MFD Rules, respectively, where the Board is satisfied that to do so would not be prejudicial to the interests of Dealer Members, their clients or the public. In granting an exemption, the Board may impose such terms and conditions as are considered necessary.

In all cases, the Board reserves the right to revoke the exemptions at any time upon notice to the applicant and the exemptions are void upon the date of the implementation of any amendments to applicable and relevant rules by CIRO or the provincial securities commissions (CIRO in its sole discretion, and not the applicant, will determine whether any rule amendments implemented are considered to be applicable and relevant, thereby rendering an exemption order as void).

2.1 Dual-Registration <NEW>

Effective January 1, 2023, with the amalgamation of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada, CIRO introduced rules to permit Dealer Members to become “dual registered” i.e. to operate an investment dealer and mutual fund dealer within a single legal entity. As part of these applications, the Board received and granted exemptive relief from certain IDPC rules, most of which were given to permit the Dealer Member to continue to conduct certain mutual fund dealer business within the dual-registered entity as it would have been approved to do as a mutual fund dealer.

1. Determination of insider status for mutual fund dealer clients

   The Board granted exemptive relief from IDPC Rule clauses 3202(1)(ii), 3203(1)(iv), and 3204(1)(iv) that require Dealer Members to determine the insider status of the client. The exemptive relief is limited to the Dealer Member’s mutual fund dealer business and is conditional on the Dealer Member not making exchange-traded securities or exempt market products available to mutual fund clients.

2. Designation of non-client accounts

   The Board granted exemptive relief from IDPC Rule subsection 3214(6), and clause 3945(4)(i) that require Dealer Members to designate “non-client accounts”. The exemptive relief is limited to the Dealer Member’s mutual fund dealer business and conditional on the Dealer Member not making exchange-traded securities or exempt market products available to mutual fund dealer clients.

3. Client reporting for mutual fund dealer clients

   The Board granted exemptive relief from IDPC Rule section 3816, subsection 3808(1), and section 3809 that require Dealer Members to send trade confirmations, a monthly account statement, and a quarterly report on outside holdings.

   The exemptive relief and its conditions are limited to the Dealer Member’s mutual fund dealer business and to client accounts introduced to the Dealer Member by an introducing mutual fund dealer under an introducing dealer / carrying dealer arrangement. The exemptive relief is conditional on the Dealer Member sending clients a quarterly account statement that meets the requirements of MFD Rules 5.3.1 and 5.3.2 and containing the information required in IDPC Rule subsection 3809(2). The exemptive relief related to trade confirmations is limited to trades in a security of a mutual fund where the investment fund manager of the mutual fund sends the client a written confirmation of the transaction containing the information required under MFD Rule 5.4.3.

4. Approved Persons accepting remuneration outside the Dealer Member

   The Board granted exemptive relief from the requirement under IDPC Rule subsections 2551(7) & (9), clause 3115(2)(i), and subsection 7112(2) that prohibits Approved Persons from accepting compensation from any person or entity other than the Dealer Member for any Dealer Member related activities.

   The exemptive relief allows Approved Persons to accept remuneration from the affiliated entity (a non-CIRO Member) with which they are dually-employed, and is conditional on the Dealer Member:

   • entering into agreements acceptable to CIRO staff;
   • providing written disclosure to clients that they are dealing with the Dealer Member for securities-related business;
   • maintaining oversight of its Approved Person compensation programs; and
   • not permitting the affiliated entity to redirect commissions to the personal corporations of their dually-employed Approved Persons.

5. Quarterly report on client positions held outside of the Dealer Member

   The Board granted exemptive relief from IDPC Rule section 3809 that requires Dealer Members to provide clients with a quarterly report on client positions held outside of the Dealer Member, and exemptive relief from IDPC Rule section 3810 that requires Dealer Members to consider off-book client name holdings in the annual performance report.

   The exemptive relief is time-limited to the earlier of 36 months or any relevant applicable deadline under any amendments to applicable securities rules, and is conditional on the Dealer Member:

   • not promoting or making available the option of holding client-named positions off-book;
   • returning any ongoing off-book asset compensation to the investment product issuer, or where this is not possible, donating the compensation to a registered charity;
   • maintaining off-book client name holdings at less than 2% of the dollar value of all on-book and off-book client holdings;
   • making all reasonable efforts to reduce its off-book client name holdings each year; and
   • providing CIRO with an annual report which details the Dealer Member’s level of off-book client name holdings.

6. Continuing education requirements for mutual fund dealer representatives in Québec

   The Board granted exemptive relief from the continuing education requirements under IDPC Rule clause 2704(2)(ii). The exemptive relief was limited to the Dealer Members’ mutual fund dealing representatives registered in Québec and approved by CIRO under IDPC Rule clause 2551(1)(iii) and the mutual fund dealer representatives’ activities in Québec.

   The exemption is conditional on the Dealer Member and the mutual fund dealing representatives complying with the laws and regulations governing mutual fund dealing representatives in Québec, and any other conditions imposed by the applicable securities regulatory authority under exemptive relief from National Instrument 31-103 to permit the application of IDPC Rules to the Dealer Member’s mutual fund dealer activities in Québec.

2.2 Cross-Guarantees

The Board granted an exemption from the requirement in IDPC Rule 2206(3) to execute prescribed cross-guarantee agreements. The rule requires related Dealer Members under common ownership to guarantee each other’s liabilities in amounts equal to the percentage of the Dealer Member’s capital employed that corresponds to the percentage ownership interest held by the common owner.

The Board granted the exemption because one of the related Dealer Members operates solely as an Alternative Trading System with no client accounts that would be subject to CIPF coverage and the common owner does not have control over the Dealer Member.

2.3 Trade confirmations and account statements

1. Give-up Arrangements

   The Board granted exemptive relief from the requirements under IDPC Rule sections 3808 and 3816 with respect to sending trade confirmations and monthly account statements to another Dealer Member as part of their Trade Give-up Agreement.

   The exemptive relief is conditional on the Dealer Members complying with the following provisions:

   • This exemption is limited to the specified trading activities.
   • The Dealer Members will continue to maintain an audit trail for all executed activities.
   • The Dealer Member executing the trades will continue to comply with all trading reporting requirements, UMIR, and securities laws.
   • The Dealer Member will continue to receive all trade confirmations and statements from its carrying broker.
   • The Dealer Members’ Trade Give-up agreement remains in place.
   • The Dealer Members will notify CIRO in writing in advance of any change in their operations or business model. CIRO approval is required for any change that would contravene any of the conditions provided above.

2. Affiliated institutional accounts

   The Board granted an exemption for two affiliated institutional accounts from the requirements under IDPC Rule section 3808. The client account statement delivery relief is subject to conditions including:

   • Affiliated parties continue to have unrestricted access to up-to-date information required under the client account statement requirement.
   • Monthly or quarterly account statements can be produced upon request by the affiliates.

2.4 Insurance and custody requirements related to crypto asset trading

The Board granted the following exemptive relief as it pertains to trading in crypto assets:

• An exemption from the requirement under IDPC Rule 4456 to maintain financial institution bond insurance providing coverage for all types of losses specified in that Rule, subject to specific conditions, and
• An exemption from the requirement under IDPC Rule 4342 that client assets must be held at an Acceptable Securities Location and the requirement set out in IDPC Form 1 that imposes a capital penalty equivalent to 100% of the market value of the assets held at any non-Acceptable Securities Location, subject to specific conditions.

For information on the rationale for providing the exemptions and the related conditions, please refer to CIRO Member Bulletin 24-0069.

2.5 Fully paid securities lending program

The Board granted exemptive relief from the requirement to maintain loan accounts separate from securities trading accounts as mandated under IDPC Rule clause 4603(3)(ii) and the requirement to provide out of the Dealer Member’s capital the market value deficiency on the additional collateral set aside for clients as mandated under the Notes and Instructions to Form 1, Part II, Schedule 1 (Lines 4, 8 and 12).

The full-paid lending program relief is subject to a number of conditions addressing client documentation and agreements, program restrictions, collateral requirements, policies and procedures, and books and records2.

For information on the rationale for providing the exemptive relief and the related conditions, please refer to guidance GN-4600-22-001.

2.6 Reporting requirements for a resigning Dealer Member

The Board granted exemptive relief to a resigning Dealer Member from the requirement to file with CIRO:

• a balance sheet of the Member reported by the Member’s auditor without qualification, indicating that the Member has liquid assets sufficient to meet all its liabilities other than subordinated loans, if any, in accordance with MFD Rule 8.3.1.1; or
• a report from the Member’s auditor without qualification that the Member has liquid assets sufficient to meet all its liabilities other than subordinated loans, if any, and a report from the Member’s auditor that the Member is in compliance with the Rules with respect to holding client cash, securities and other property, in accordance with MFD Rule 8.3.1.2.

The exemption was granted because the resigning Dealer Member did not have registerable activity and had no assets or clients. In addition, the resigning Dealer Member’s related company became a dual-registered firm who provided a Letter of Undertaking to accept responsibility for all outstanding liabilities of the resigning Dealer Member.

2.7 Personal financial dealings with a client

The Board granted exemptive relief in order to permit an Approved Person to act as the executor of a certain client’s estate. The client had named the Approved Person in question as the executor in their will. The conditions provide that the Dealer Member must:

• take all reasonable steps to ensure the Approved Person appointed as executor does not receive, accept or keep any remuneration for that appointment.
• have policies and procedures for enhanced supervision of the account(s) named in the exemption order and the activities of the employee or Approved Person appointed power of attorney, trustee or executor.

2.8 Account opening requirements in relation to a bulk account movement

The Board granted exemptive relief from the requirements to

• complete a new application for each new client under IDPC Rule subsection 3202(2);
• take action to obtain required documents that have not been received within 25 business days of opening the client account under IDPC Rule clause 3213(2)(iii); and
• approve each new account within one day of the initial trade in an account.

The exemptive relief is in relation to the bulk movement of accounts from the Dealer Member’s self-clearing platform to its carrying broker and is conditional on the Dealer Member complying with all of the following conditions:

• The client agreements, products, services and fees are materially the same.
• Existing KYC data is mapped from the Dealer Member’s system to its carrying broker’s system.
• Clients are fully informed in advance of the conversion and receive the introducing/carrying broker disclosure required by IDPC Rule clause 2420(14) and a summary of the changes to the client account agreement and relationship disclosure information.
• Clients are given the option to transfer out their account free of charge within 60 days of conversion.
• All client notifications be satisfactory to CIRO.

2.9 Corporate officer titles

Under the authority delegated by the Board, the President and CEO of CIRO granted an exemption to allow certain Approved Persons, as identified by the Dealer Member, to use corporate officer titles when interacting with clients, and be exempt from the requirement to be appointed by the Dealer Member to that corporate office pursuant to applicable corporate law.

The exemption is subject to the following conditions:

• The identified Approved Persons must use the corporate officer titles when interacting with non-individual institutional clients and/or corporate issuer clients.
• The corporate officer titles in question must be based on criteria including seniority and experience
• Sales activity or revenue generation must not be the primary factor in the decision to award the titles.

3. Exemptions from IDPC or MFD rules granted by CIRO staff

3.1 Bulk account movements

CIRO staff granted bulk transfer exemptions pursuant to IDPC Rule section 4866 in 2023. Under IDPC Rule section 4866, CIRO staff may provide exemptions related to bulk account movements in specified circumstances where we are satisfied that doing so would not be prejudicial to the interests of the public, the Dealer Member or its clients. Where appropriate, CIRO staff may also impose terms and conditions on the relief granted.

3.2 Branch manager proficiency requirements

CIRO staff granted exemptions from the branch manager requirements pursuant to MFD Rule 2.5.6 in 2023. Under MFD Rule 2.5.6, CIRO staff may provide exemptions related to branch manager proficiency requirements in circumstances where we are satisfied based on the individual’s experience that their knowledge and proficiency remains relevant and current.

4. Exemptions from proficiency or continuing education requirements granted by CIRO staff

4.1 Background and authority to grant exemptions

A Dealer Member may apply, on behalf of an individual, to CIRO for an exemption from the proficiency requirements3, or for an extension of or exemption from a continuing education requirement4.

An individual wishing to work at an investment dealer as an Approved Person must obtain registration/approval. One of the three criteria used to assess whether an individual is, or remains, “fit and proper” for approval is proficiency (the other two being integrity and solvency). Applicants must meet CIRO’s minimum education, training and experience requirements to satisfy the proficiency criteria.

Under the IDPC rules, CIRO has the authority to exempt individuals from a proficiency requirement, including the requirement to write or rewrite any required course, subject to such terms and conditions, as CIRO considers appropriate. In any proficiency exemption application, the onus is on the applicant to demonstrate that their experience and/or education is an acceptable alternative to the required proficiency.

4.2 Frequently recurring proficiency exemptions

The majority of applications for proficiency exemptions related to the following courses:

• Canadian Securities Course (CSC)
• Partners, Directors and Senior Officers Course (PDO),
• Wealth Management Essentials (WME), and
• 90-Day Training Program (90DTP)

• CIRO processed various requests from having to rewrite the CSC, PDO and WME because the validity of the course had expired. In all instances, the applicants were able to demonstrate their industry experience and education were an acceptable alternative to rewriting the applicable course.
• CIRO staff approved exemptions from having to write the PDO or WME. These applicants demonstrated they had extensive industry experience and qualifications equivalent to the competencies covered in the applicable course.
• CIRO staff approved extension requests for the WME. Applicants sought an extension to their post-approval due date as they had extenuating circumstances and/or demonstrated hardship that prevented them from completing the WME by their required post-approval date.
• CIRO processed requests for the 90DTP. The majority of these requests were filed in conjunction with a project to transfer individuals from a mutual fund dealer to a related investment dealer where the investment dealer and its supervisor(s) were still providing the requisite training. The remaining requests were from having to redo the 90DTP. CIRO staff granted the requests as the applicants demonstrated they continued to keep current, apply and/or build upon the knowledge originally learned from when they completed the 90DTP.

• 2CIRO has proposed amendments to IDPC Rules and IDPC Form 1 relating to fully paid securities lending and financing arrangements. For information on the proposed amendments, please refer to CIRO Rules Bulletin 24-0067.
• 3Proficiency requirements under IDPC Rule 2600.
• 4Continuing education requirements under IDPC Rule 2700.