Member Resignations and Reorganizations

(Updated March 4, 2013)

This Notice is intended to provide guidance to Members regarding the procedure for obtaining MFDA approval of resignations, corporate reorganizations and changes in ownership and control pursuant to section 13 of MFDA By-law No. 1.

Resignations

A Member wishing to resign, or that ceases to carry on business as a mutual fund dealer in accordance with section 13 (Resignations, Reorganizations and Terminations) of By-law No. 1, must address a letter of resignation to the MFDA Board of Directors in the care of the Corporate Secretary. The letter must state the reasons for the Member’s resignation. If the Member is resigning because it is transferring its book of business, the resigning Member must notify and receive the prior approval of the MFDA pursuant to section 13.7 (Reorganizations, etc.) of By-law No. 1 (see “Corporate Reorganizations” below).

The resigning Member must also provide the following:

• An audited Statement of Financial Position, as of such date as the MFDA may require, indicating that the Member has liquid assets sufficient to meet its liabilities other than subordinated loans, if any, or a report from the Member’s auditor without qualification that in the auditor’s opinion the Member has liquid assets sufficient to meet all its liabilities other than subordinated loans, if any.
• Report on Compliance for Segregation of Cash and Securities (in the case of a Level 3 or 4 dealer).
• Details regarding the procedure to transfer client accounts including any documentation sent to clients relating to the transfer. Clients of the resigning Member must be given sufficient advance notice and an opportunity to direct that their accounts be transferred elsewhere.
• Copies of the documentation sent to the securities commission(s) surrendering registration and corresponding confirmation of this event from the securities commission(s) if applicable.

Corporate Reorganizations

Pursuant to section 13.7 of MFDA By-law No. 1, corporate reorganizations, mergers and amalgamations require prior notification to, and approval by, the MFDA. Members that effect a corporate reorganization without notifying and receiving the approval of the MFDA may be subject to regulatory sanctions.

A Member must notify the MFDA in writing not less than 30 days prior to the proposed effective date of any reorganization, merger or amalgamation. The notice must be addressed to the Corporate Secretary and should include a description of the proposed transaction and the proposed date of completion.

Upon receipt of such notice, MFDA staff will review the proposed transaction and may request certain additional information as it deems necessary. MFDA staff will either:

• Approve the proposed transaction (which may be subject to terms and conditions); or
• Direct that the transaction not be completed if MFDA staff determines in its sole discretion that the obligations of the Member to its clients cannot be satisfied or the By-laws and Rules will not be complied with by the Member or any continuing, new or reorganized entity, as the case may be.

Changes in Ownership and Control

Pursuant to sections 13.7 and 13.9 (Ownership) of MFDA By-law No. 1, a Member must notify and receive the approval of the MFDA prior to the transfer or acquisition of a “significant equity interest” in the Member. A “significant equity interest” means the holding of:

• voting securities carrying 20 per cent or more of the votes carried by all voting securities of the Member or of a holding company of the Member;
• 20 per cent or more of the outstanding participating securities of the Member or of a holding company of a Member; or
• an interest of 20 per cent or more of the total equity in the Member.

The notice should be directed to the Corporate Secretary and should include a description of the proposed transaction including information regarding how the acquired Member will operate going forward. In particular, the notice should advise as to whether the acquired Member will continue to operate separately or whether the business and operations of the Member will be amalgamated with the acquiring Member at some point in the future. Separate MFDA approval must be requested and obtained in accordance with section 13.7 prior to any such amalgamation. Upon receipt of the notice, MFDA staff will review the proposed transaction and request additional information as it deems necessary. Such additional information may include an updated corporate organization chart or details regarding any changes in directors or officers.