Where can I locate IIROC’s financial rules?
IIROC's financial rules are located in the Dealer Member Rules section of IIROCs Rule Book. The relevant Dealer Member Rules are:
Dealer Member holding companies, related companies and diversification
Dealer Members auditors and financial reporting
Dealer Member minimum capital, conduct of business and insurance
Dealer Members rights respecting clients' indebtedness
Early Warning System
Introducing broker / carrying broker arrangements*
Clients' free credit balance
Disclosure to clients of Members financial condition and other information
Cash and securities loan transactions
Joint Regulatory Financial Questionnaire and Report
How can I determine if a security is eligible for margin?
Rule 100 sets out the minimum capital and margin requirements for the vast majority of securities that are held by a Dealer Member or its customers. Whether or not a security is eligible for margin and if so, the minimum rate to be used is set out in this Rule. The major categories of securities covered by the Rule (along with the Rule reference) are:
Bonds, debentures, treasury bills and notes
Rule 100.2(b) and (c)
Bank paper and acceptable foreign bank paper
Unhedged foreign exchange
National Housing Act (N.H.A.) mortgages
Listed and unlisted securities - general requirements
List of securities eligible for reduced margin (LSERM) - customer requirements
Precious metal certificates and bullion
Offsets involving debt, swaps, capital shares, convertible shares and exercisable securities
Commodity futures and futures contract options
Customer positions in equity and index related derivatives
Dealer Member positions in equity and index related derivatives
Over the counter options
Capital requirements for Dealer Member inventory positions
List of securities eligible for reduced margin (LSERM) - Dealer Member requirements
Term repurchase agreements
When issued trading of new and additional issues
Maximum margin required for convertible securities
What if there are no capital and margin requirements set out in Rule 100 for the particular security that I am looking for?
|While Rule 100 sets out the minimum capital and margin requirements for the vast majority of securities, there are instances in the rules where either individual issues or types of securities have no established requirements. When these situations occur, IIROC staff issues guidance notices to establish the appropriate requirements. In the absence of specific requirements or guidance, a Dealer Member may request a ruling from the Member Regulation Policy Department on the proper capital and margin treatment for a specific transaction or position. When a ruling is requested, it must be in writing and full details of the transaction/position must be provided. See IIROC Rules Notices, IDA Member Regulation Notices and IDA Compliance Interpretation Bulletins for more information.|
Is there any other information available on the application of Rule 100?
|Each year IIROC holds a Member & Panel Auditor Seminar to provide specific training to Dealer Member staff and panel auditors on a number of issues. Generally, at least one session is provided on significant changes to Rule 100 made during the past year. Furthermore, there may be additional sessions dealing with specific capital and margin related topics of interest. In the past few years these sessions have covered the following topics: capital requirements for Dealer Member inventory offsets, securities concentration charge, capital requirements for underwriting positions and provider of capital concentration charge.|
|Also, the following margin rate lists are updated regularly and are available on the Supporting Schedules page: |
- List of securities eligible for reduced margin (LSERM)
- List of foreign market indices whose constituent securities are eligible for margin
- List of floating and tracking error margin rates for qualifying Canadian index products
- List of floating and tracking error margin rates for qualifying U.S. index products
- Acceptable over-collateralization rates for financing transactions with acceptable counterparties
- List of foreign exchange (FX) spot risk margin rates for Canadian and U.S. base currency accounts
- Foreign currency group.
Where can I get a copy of the lists that are used for determining counterparty credit risk classification?
|The following lists relating to counterparty credit risk classification are available on the Supporting Schedules page: |
- Acceptable institutions / acceptable counterparties database
- Countries that qualify under the definition of Basle Accord Countries [used to determine whether a foreign counterparty may qualify as an acceptable institution or an acceptable counterparty]
- Exchanges / associations whose members qualify as regulated entities
- List of approved inter-dealer bond brokers [used to determine those inter-dealer bond brokers that may be margined in the same manner as acceptable counterparties]
- List of acceptable clearing corporations and acceptable securities locations (depositories and clearing agencies) [depositories and clearing corporations that qualify as acceptable clearing corporations receive better credit treatment as per the Notes and Instructions to Schedule 5 of IIROC Form 1]
Can I treat an institution as an acceptable institution or an acceptable counterparty even though they are not listed in the acceptable institutions / acceptable counterparties database?
|Yes, as long as you make sure that such an institution qualifies as an acceptable institution or an acceptable counterparty based on the most recent audited financial statements available for the institution. The requirements for qualifying as an acceptable institution or an acceptable counterparty are set out in the General Notes and Definitions of IIROC Form 1, the Joint Regulatory Financial Questionnaire and Report.|
Where can I get a copy of the lists that are used for determining whether a custodial location is acceptable for regulatory purposes?
|The following lists relating to custodial locations are available on the Supporting Schedules page: |
- List of acceptable clearing corporations and acceptable securities locations (depositories and clearing agencies) [depositories and clearing corporations that qualify on this list qualify as acceptable securities locations without the IIROC Dealer Member having to execute a separate custodial agreement]
- List of financial institutions / entities / mutual funds with signed Custodial Agreement [entities on this list have signed a Bare Trustee Custodial Agreement with IIROC and they qualify as acceptable securities locations for the specific investment products listed without the IIROC Dealer Member having to execute a separate custodial agreement]
- List of entities considered suitable to hold LBMA gold and silver good delivery bars [entities on this list qualify as acceptable securities locations for holding gold and silver bars that meet the London Bullion Market Associations (LBMA) gold and silver good delivery bars standards; the IIROC Dealer must still execute a separate precious metals custodial agreement].
Where are the standard industry agreements located on your website?
|Copies of standard industry agreements are maintained in a separate section within the Supporting Schedules page.|
Can an employee of a Dealer Member guarantee the trading account of another employee of the same firm or a client's account?
|An employee can guarantee another employee's trading account as long as the guarantor has sufficient excess margin in his/her account. An employee may not guarantee a client account. However, IIROC Rule 100.15 provides for certain exemptions for partners, directors or officers of a Dealer Member to guarantee a clients account, provided certain conditions are met.|
Can a family member of an investment advisor guarantee the investment advisor's account?
|IIROC Rule 100.15(d) allows immediate family members of the investment advisor to guarantee the investment advisor's account.|
Can a Dealer Member provide a financial guarantee to a third party?
|According to the Notes and Instructions to Statement B of IIROC Form 1, a Dealer Member may give, directly or indirectly, financial assistance to an individual and/or corporation by means of a loan, guarantee, the provision of security or of a covenant or otherwise, if the amount of the loan, guarantee, provision of security or of the covenant or any other assistance is limited to a fixed or determinable amount and the amount is provided for in full in computing the Dealer Members Risk Adjusted Capital.|
Do insurance companies have to be registered in Canada in order to be able to issue an FIB policy to a Dealer Member?
Insurance required to be in force by a Dealer Member pursuant to IIROC Rule 400 may be underwritten directly by either (i) an insurer registered or licensed under the laws of Canada or any province of Canada or (ii) any foreign insurer approved by the Corporation. No foreign insurer shall be approved by the Corporation unless the insurer has the minimum net worth required of $75 million on the last audited balance sheet, provided acceptable financial information with respect to such Corporation is available for inspection, and the Corporation is satisfied that the insurer is subject to supervision by regulatory authorities in the jurisdiction of incorporation of the insurer which is substantially similar to the supervision of insurance companies in Canada.
Do Dealer Members have to limit their insurance coverage to the maximum $25 million?
While Dealer Members have to ensure that they provide the minimum required insurance coverage, it would be prudent for the Dealer Member to have adequate coverage, based on their business needs, regardless of the maximum set in IIROC Rules.
Do Dealer Members have to report their client net equity on Schedule 10 even if they are providing the maximum required coverage of $25 million?
Yes, IIROC requires the client net equity to be reported on Schedule 10.
Can a Dealer Member use an insurance policy other than Form 14, as long as the policy contains the required clauses?
Yes, Dealer Members may use a policy other than Form 14, as long as the member can provide IIROC with legal opinions that the policy meets the minimums stipulated in Form 14.
Does the maximum required coverage of $25 million apply to all clauses of the FIB Policy?
The maximum coverage applies to all FIB policy clauses except for the in-transit clause C, where the required coverage must be in place on a dollar for dollar basis (IIROC Rule 400.2(c)).
Can temporary insurance coverage be arranged for the in-transit requirements should such requirement be infrequent?
Can a Dealer Member use the courier’s insurance in lieu of the in-transit coverage?
Should certified cheques be included in the calculation of the in-transit requirement if they are being transported to and from the Dealer Member’s offices?
What is the logic of requiring a double aggregate limit for the FIB policy where such limit is stipulated?
The requirement was made so that the coverage is extended to two simultaneous losses incurred by a Dealer Member at the same time.
How should a double aggregate limit of $10 million coverage be reported on Schedule 10?
Can a Dealer Member who has a required double aggregate coverage of $10 million use a single aggregate of $20 million?
Yes. The objective of the double aggregate limit requirement in IIROC Rule 400 is to ensure that two simultaneous losses are covered.
Do carriers have to include the client net equity of their introducers (type 1, 2, 3 &4) in their own calculation of their insurance coverage?
Yes. Since the carrier has access to or control of the introducers’ client assets, then all such assets must be included in the carrier’s insurance calculation. The insurance requirement is based on the concept of stealable assets.
Do introducing Dealer Members have to have their own insurance coverage or can they rely on the carrier’s coverage?
Introducers (of all categories) must have their own insurance coverage based on their own client net equity regardless of the carrier’s coverage. In spite of the duplication of the client net equity coverage, insurance requirement is a minimum membership requirement that Dealer Members have to comply with.
If a carrier picks up securities from the introducer’s premises, whose insurance coverage would be used to cover the in-transit requirement?
The carrier’s policy would cover the in-transit requirement.
If the introducer ships securities to the carrier, whose in-transit coverage would be applicable?
It would be the introducer’s coverage that would be required to cover the shipment.
Is there a limit on how high the insurance deductible can be set at?
While the answer to the question is “No”, it should be understood that the concept of self-insurance is not acceptable. In other words, it is not acceptable for a member to provide capital in lieu of the insurance requirement.
What should a Dealer Member report as the actual insurance coverage on Schedule 10 if it is different for the various clauses (A through E) of the policy?
The minimum common denominator must be used for reporting the actual insurance coverage on Schedule 10.
For IIROC Dealer Members who are cross-guaranteed, do they require separate insurance coverages?
All IIROC Dealer Members must comply with the minimum standards of membership, which includes insurance coverage. If two Dealer Members are cross-guaranteed, they could either have their own separate policies or they could both be named in the same FIB insurance policy. If the latter, IIROC Rule 400.7(a) would not be an issue because of the cross-guarantee.
Can individual or aggregate limits under the policy be affected by claims made by or on behalf of any of the Dealer Member’s subsidiaries?
According to IIROC Rule 400.7 (b)(ii), such individual or aggregate limits may only be affected by Member’s subsidiaries whose financial results are consolidated with those of the Dealer Member. Consolidation in this context applies to related companies, as defined in IIROC Rule 1.1 and not in terms of accounting consolidation of subsidiaries.
How would you deal with FIB policies that have other entities included in the policy?
Other entities may be included in the Dealer Member’s policy by way of a global policy that must contain the required provisions stipulated in IIROC Rule 400.7. The important thing to note is that the Dealer Member’s coverage is kept intact.
If a Dealer Member has a full reinstatement provision, should it be problematic to have other entities being included in the policy?
No, as long as the Dealer Member is the first named insured and the Dealer Member’s coverage is kept intact.
How soon do insurance coverage violations have to be corrected?
Violations that do not exceed 10% of the insurance requirement must be corrected within two months of their determination. For violations of 10% or more, action must be taken by the Dealer Member to correct the deficiency within 10 days of their determination and the Dealer Member must immediately notify the Corporation.
Does the insurance coverage requirement vary depending on the negotiability of securities?
In accordance with IIROC Rule 400.5(f), for the purposes of calculating insurance requirements, no distinction is to be made between securities in non-negotiable form and those in negotiable form.
What is a primary insurance coverage and how is it different from secondary coverage?
Insurance coverage may be broken into more than one policy. One or more insurers may be involved and one of the coverages might be a global type while the other may be a direct coverage. A primary coverage would normally be for a certain amount, with a deductible. The secondary coverage would represent another layer of coverage with the deductible representing the same amount of primary coverage. The secondary coverage might be part of a global-policy coverage.
Can mail insurance be part of the FIB Coverage or does it have to be the subject of a separate coverage?
The registered mail coverage can be put into place via a separate policy or through a rider to the FIB Form 14. The amount of the required coverage has to be enough to cover actual usage with no stated minimums.
Is there a minimum mail insurance requirement?
No, the required coverage is based on actual usage.
Can mail insurance be part of a global coverage?
Yes, mail insurance can be part of a global coverage. If so, however, the mail coverage should be subject to the same global policy provisions noted in IIROC Rule 400.7.
Is mail insurance subject to the requirement to provide the IIROC with a 30-day cancellation notice?
Yes, mail coverage, per IIROC Rule 400.3, should be treated no differently than normal FIB coverage.
Can a Dealer Member be exempted from the registered mail insurance requirement?
Yes, IIROC Rule 400.1 has been amended whereby the Corporation may exempt a Dealer Member from the requirement if the dealer member delivers a written undertaking to the Corporation that it will not use the mail for out-going shipment of money or securities, negotiable or non-negotiable, by first-class mail, registered mail, express or air mail.
Are agents acting in a principal/agent relationship (IIROC Rule 39) covered for insurance purposes under the standard Form 14 FIB policy?
IIROC Rule 39.4(f) requires that the financial Institution Bond and insurance policies required to be maintained by the Dealer Member pursuant to IIROC Rule 17 and IIROC Rule 400 cover and relate to the conduct of the agent. To comply with IIROC Rule 39.4(f), a Dealer Member must have an agent rider added to its FIB in order to ensure that all its agents and the employees of those agents are covered by the FIB (Form 14) to the same extent as the firm’s own individual employees.
Are Dealer Members required to have excess CIPF coverage?
Excess CIPF coverage is intended to provide added protection to clients of a Dealer Member in the event of an insolvency that is over and above the CIPF coverage limits. While this is a competitive advantage, it is not a minimum membership requirement.
When the auditor confirms the financial institution bond at the time of the year-end audit, can the confirmation be with the insurance broker or should it be confirmed with the insurance underwriter?
The audit confirmation may be made with either the insurance broker or the insurance underwriter.
Does the requirement of a double aggregate limit (where an aggregate is stipulated) apply to registered mail insurance coverage?
No. IIROC Rule 400.5 (with the double aggregate provision) does not apply to 400.1 (registered mail provision). Therefore, registered mail is not subject to the double aggregate provision.
Bare Trustee Agreement
What is the purpose of the bare trustee agreement
One of the ways for book entry investment products (including investment funds, segregated funds, guaranteed investment certificates and other evidence of deposits) distributed by an issuer or its agent to be considered held at an acceptable securities location, is for the issuer or its agent to sign a prescribed custody agreement with IIROC. The custody agreement includes the terms upon which such securities are deposited and includes provisions that no use or disposition of the securities shall be made without the prior written consent of the Dealer Member and the securities can be delivered to the Dealer Member promptly on demand. IIROC has executed these agreements on behalf of its members in order to reduce the need for the issuer or its agent to enter into individual agreements with each Dealer Member it deals with. As an alternative, an issuer or its agent may sign the prescribed custody agreement directly with the IIROC Dealer Member.
How often is the approved bare trustee list produced?
The approved listing for bare trustee agreements is updated and produced on a monthly basis. It can be found on the IIROC website under “Dealer Member Rules / IIROC Notices”.
What administrative role does IIROC play in approving the bare trustee agreement?
The former IDA (now IIROC) and the Canadian Investor Protection Fund (“CIPF”) entered into an Agreement dated May 9, 2005 in which all existing custody agreements executed in the name of the CIPF as bare trustee have been assigned to IIROC to administer on a go forward basis. In the administration of these custody agreements, IIROC carries out due diligence to ensure that the bare trustee agreement is in prescribed form and is duly executed by those in authority. Copies of the agreement on file are available upon request.
What is the role of the Dealer Member?
It remains the responsibility of the Dealer Member to carry out product due diligence and suitability assessment of investments sold to clients.
What is the role of a Fund Manager?
To fully understand the extent of the activities and role that a fund manager (sometimes referred to as a fund administrator) plays, the following are many of its primary functions:
- Calculating the NAV and the NAV per share or unit;
- Keeping the accounts and financial records;
- Preparing the annual audit file and liaising with the auditor;
- Liaising with the fund advisor, the custodian, the brokers and other service providers;
- Liaising with prospective investors and sending out the offering documentation;
- Calculating, confirming and arranging payment of all subscriptions, redemptions, fees and expenses, and arranging for the payment of all dividends or other distributions, if required;
- Maintaining the statutory books and records;
- Acting as registrar and transfer agent, handling the registration of shares and liaising with shareholders with regard to subscriptions, redemptions and transfers;
- Carrying out anti-money laundering due diligence with regard to investors;
- Acting as company secretary, responsible, amongst other things, for arranging board meetings, calling the annual general meeting and preparing board minutes;
- Maintaining a copy of the share register at its offices and, if the administration is not resident in the domicile of the fund, ensuring that the original share register is held in the registered office in that jurisdiction; and
- Ensuring that the fund complies with the terms of its offering memorandum.
What is the required documentation for including a Fund Manager on the monthly IIROC bare trustee custodial agreement listing?
- 2 signed copies of the bare trustee agreement (not negotiable in terms of amending the agreement).
- Proof that the Fund Manager or Fund Advisor is registered with either a Provincial Securities Commission as an Investment Fund Manager or the Office of the Superintendent of Financial Institutions (“OSFI”).. Any other type of securities registration will be reviewed by IIROC for approval. The fund manager is defined as the entity responsible for the fund administration. See question 5 above.
- Copy of the offering memorandum (or prospectus if applicable).
- A corporate resolution for signing authority.
- Articles of incorporation.
- A letter from an IIROC Dealer Member confirming that they will be distributing the investment product.