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Becoming a Regulated Dealer



Firms interested in becoming IIROC-regulated Dealers Members will find the necessary information and forms under the sections below.

  1. Eligibility for Membership

  2. Classes of Membership

  3. Fees

  4. Requirements for Membership

    1. Dealer Registration

    2. Capital

    3. Books and Records Reports

    4. Panel Auditors and Criteria for Approval as a Panel Auditor

    5. Insurance

    6. Internal Controls

    7. Procedures

    8. Five-Year Business Plan

    9. Qualifications of Individuals

  5. Membership Application Review and Approval Process

    1. Summary of Requirements

  6. Ongoing Obligations of Applicants and Dealer Members

    1. Summary of Regulatory Filings

    2. Reporting of Material Changes

  7. Policies & Procedures Checklists - Please contact [email protected]

  8. Account Opening Documents

  9. Disclosure Table

  10. Application Forms

  11. Registration Information

  12. Introducing / Carrying Broker Relationship

  13. Supporting Documents & Frequent Asked Questions

 


 

1. Eligibility for Membership

 

A Canadian entity is eligible for Membership in IIROC if:

  • it is formed under Canadian federal, provincial or territorial law. A firm outside Canada would need to incorporate a Canadian entity that would apply for IIROC membership. The Canadian applicant would have to satisfy all requirements for membership;

  • it proposes to carry on business in Canada as a dealer;

  • it is registered or licensed in each jurisdiction in Canada where the nature of the business requires registration or licensing; and

  • it will comply with the Rules of IIROC, as will its holding and related companies and directors, partners, officers and employees.


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2. Classes of Membership

 

There are no classes of Membership. All Dealer Members are required to meet and maintain the same standards of Membership.

However, Dealer Members may elect to contract their back office, clearing and settlement operations to another Dealer Member of IIROC. This arrangement is known as an Introducing/Carrying Broker Agreement. There are four categories of Introducing Brokers and the category will depend on the responsibilities and level of risk that the Introducing Broker will assume. For more information on the Introducing/Carrying Broker Arrangement, please refer to Dealer Member Rule 35.


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3. Fees

 

Fees payable to IIROC include:

  • A one-time Entrance Fee of $25,000. The non-refundable application deposit of $10,000 will be applied to the Entrance Fee on approval of the application.

  • A one-time contribution to the IIROC Restricted Fund. This fund is administered by IIROC under the provisions of IIROC’s recognition order.

  • An Annual Fee comprising the following elements:

    • an amount based on the Dealer Member’s revenue;

    • $250 for each registered individual;

    • where the sum of the revenue component and the registered individual component is less than $27,500, a minimum fee of either $15,000 or $27,500, depending on the operating cost of IIROC’s regulatory services allocated to the Dealer Member; and

    • a risk premium for high risk firms.

Further details are provided in IIROC’s Fee Model Guidelines (last updated - 2017) and in the documents below:

  1. Fee Model Message Definition Guideline

  2. Member New Issue Levy Form

  3. New Member Applicant Fee Guideline

  4. Revenue Tier for FY2018 - New Dealer Fees

  5. CIPF Assessment


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4. Requirements for Membership

 

In order to qualify for Membership, an applicant must satisfy IIROC’s financial and operations compliance, business conduct compliance and registration requirements. These are described briefly below.

 

i. Dealer Registration

 

Registration or licensing as a dealer is a prerequisite for Membership in IIROC. The dealer license is issued by the securities commission of each province or territory in which the applicant intends to do business, with the exception of British Columbia and Alberta where the IIROC regional office can grant dealer registration. Applications for registration should be made directly with the applicable securities commission(s) or the IIROC regional office in Calgary or Vancouver or Toronto for registration in Newfoundland and Labrador.

The application for dealer registration can be made at the same as application for Membership in IIROC but the applicant will not be admitted to Membership until the application has also been approved by the applicable securities commission(s).

Please refer to the “Registration Information” Section for registration requirements.

 

ii. Capital

 

An applicant must have minimum capital of $250,000 (unless applying as a Type 1 Introducing Broker for which the minimum capital is $75,000). These are minimum capital levels only and a sufficient amount of operating capital for the applicant’s business activities must also be provided. Form 1 sets out the calculation for minimum capital.

Applicants who are not members of another Canadian self-regulatory organization (SRO) at the time of application must complete a Form 1. Form 1 must be audited and submitted with a date not longer than 90 days prior to the submission of the application for Membership.

Capital can take the form of share capital or subordinated debt. If subordinated debt will form part of the applicant’s capital, the standard Subordinated Loan Agreement must be provided in triplicate along with the application and the audited financial statements.

Once an application for Membership has been submitted, the applicant is required to submit a Monthly Financial Report (“MFR”) following each month end.

 

iii. Books and Records

 

An applicant is required to have a system of books and records to identify its business transactions and financial information properly. Minimum record requirements are set out completely in Rule 200.

Records that must be maintained and/or produced are:

  • accounting, trading and business conduct records;

  • data entry and output systems, although the EDP structure may be situated outside of Canada;

  • records relating to cage, accounting and credit operations; and

  • all communications to clients.

A letter from the applicant’s auditors stating that the applicant maintains a proper system of books and records must accompany the audited Form 1 and the application for Membership. The report submitted by the Auditor can be found below.

Books and Records Reports

  1. Recognized EDP Service Provider Types 1 and 2

  2. Recognized EDP Service Provider Types 3 and 4 and Full Service

  3. Proprietary EDP Systems

 

iv. Auditors

 

The applicant's auditors must be selected from IIROC’s approved panel.

Download the list of Panel Auditors and criteria for qualification as a Panel Auditor.

 

v. Insurance

 

An applicant is required to have a Financial Institution Bond and Mail Insurance. Specific insurance requirements and amounts are set out in Rule 400 of the Dealer Member Rules.

 

vi. Internal Controls

 

An applicant is required to establish and maintain adequate internal controls. Internal control policy statements are contained in Rule 2600 of the Dealer Member Rules.

 

vii. Procedures

 

An applicant is required to establish supervisory procedures for dealing with clients that conform with prudent business practice. Checklists to aid in the development of adequate Policies and Procedures are available by contacting [email protected]. Some procedures, such as registration and supervision procedures, are applicable to all firms. Others, such as options and managed account procedures, should only be included if the firm engages in or intends to engage in these activities. The checklist is not exhaustive and the applicant may include additional relevant procedures in its manual.

Applicants are required to submit account opening documents that will be used by the firm. Only those documents that are relevant to the firm's business should be submitted.

Monthly statements and trade confirmations must include appropriate regulatory disclosures.

For reference, the rules governing Policies and Procedures are found in Rules 4, 7, 18, 19, 35, 100, 200, 500, 1300, 1800, 1900, 2500 and 2700.

 

viii. Five-Year Business Plan

 

A five-year business plan to supplement the information in the corporate application form and supporting documents is required. The plan should take the form of both a narrative and financial forecast and include:

  • type of business activities;

  • nature of products;

  • strategy for the next three to five years;

  • statistics relating to sales volumes, sales force and finances;

  • a detailed monthly profit and loss projection for the first twelve months;

  • a monthly risk adjusted capital calculation and early warning estimate for the first twelve months

 

ix. Qualifications of Individuals

 

Executives (As per Rule 7)

 

  1. All Executives of the firm must have completed the Partners, Directors and Senior Officers Course (“PDO Course”) administered by the CSI. In order for this course to be considered valid, the course must have been written in the past 2 years or the applicant must have been previously registered as an Officer of an IIROC Dealer Member firm, within the past 3 years. Any officer who also wishes to be approved in a trading category must also complete the Canadian Securities Course, the Conduct and Practices Handbook Exam and any other courses specific to the trading category.

  2. All partners, directors or officers of the firm involved in the senior management of the Dealer Member must seek approval in the Executive category. This includes anyone fulfilling the role of chair or a vice-chair of the board of directors, chief executive officer, president, chief administrative officer, chief financial officer, chief compliance officer, member of an executive management committee, any person in a managerial position who has significant authority over daily operations of the business unit of the firm which carries on regulated activity. Executives have:

    1. significant responsibility for, or material managerial or strategic influence over, a significant business unit of the firm which carries on regulated activity; or

    2. authority to make, material decisions on the commitment of the firm’s financial resources, its financial commitments, its assets acquisitions, its liability management and its overall cash and capital planning.

  3. The Executive functioning as the chief executive officer of the firm must be appointed as the Ultimate Designated Person, responsible for the conduct of the firm and the supervision of its employees. Please refer to Rule 38.5 for further detail.

  4. One Executive must be appointed the Chief Financial Officer and have the following additional qualifications:

    • A financial accounting designation, university degree or diploma, or equivalent work experience;

    • Successfully completed the CFO Qualifying Examination, administered by the CSI,

  5. One Executive must be appointed the Chief Compliance Officer and have the following additional qualifications:

    • Successfully completed the Chief Compliance Officers Qualifying Examination administered by the CSI.

  6. At least 60% of the Executives must have experience acceptable to IIROC in the financial services industry for at least five years or such lesser period as may be approved by IIROC; “Financial services” in this context refers to a Canadian chartered bank, a Quebec savings bank, a trust or insurance company licensed to do business in Canada or a pension fund with total net assets over $5,000,000 which is an affiliate of the Dealer Member.

 

Directors (As per Rule 7)

 

40% of the Board of Directors must have the following qualifications:

  1. experience acceptable to IIROC in the financial services industry for at least five years or such lesser period as may be approved by IIROC; “Financial services” in this context refers to a Canadian chartered bank, a Quebec savings bank, a trust or insurance company licensed to do business in Canada or a pension fund with total net assets over $5,000,000 which is an affiliate of the Dealer Member;

  2. have completed the PDO Course in the past 2 years or the have been previously registered as an Officer of an IIROC Dealer Member firm, within the past 3 years

  3. Be one of the following:

    1. Be actively engaged in, and devote the major portion of their time to, the securities industry (except if on active government service or for health reasons);

    2. Be an officer or director of a securities dealer which is a related company of the Dealer Member; or

    3. Be an officer or director of a financial institution, which shall include a Canadian chartered bank, a Quebec savings bank, a trust or insurance company licensed to do business in Canada or a pension fund with total net assets over $5,000,000 which is an affiliate of the Dealer Member

 

Investors (As per Rule 7)

 

All individuals who own 10% or more of the voting shares of the firm and who are employed, or actively engaged in the business of the applicant, must

  • complete the PDO Course

  • apply for the registration category of Shareholder in specific jurisdictions and the IIROC approval category of Industry Investor.

 

Supervisory Positions

 

Individuals must be appointed to hold the following Supervisory positions;

  1. the Supervisor designated to be responsible for the opening of new accounts and the supervision of account activity under Rule 1300.2

  2. the Supervisor designated to be responsible for the supervision of discretionary accounts under Rule 1300.4

  3. the Supervisor designated to be responsible for the supervision of managed accounts under Rule 1300.15

  4. the Supervisor designated to be responsible for the supervision of options accounts under Rule 1900.2(a)

  5. the Supervisor designated to be responsible for the supervision of futures contract accounts under Rule 1800.2

  6. the Supervisor or Supervisors designated to pre-approve advertising, sales literature and correspondence, including research reports, under Rule 29.7(3) and Rule 3400, Guideline 7

 

Please refer to Rule 2900, Part I.A.1 for the proficiencies required for some of the above.

 

All other categories

 

For a description, and qualifications for all other categories, please refer to Rule 18 and Rule 2900, Parts I and II.

 

Additional Information regarding Registration: Continuing Education

 

Under IIROC’s mandatory Continuing Education program, all individuals registered in Trading categories and Supervisory positions, must participate continue to take courses throughout their careers.

 

National Registration Database (“NRD”)

 

For registration in all provinces, all individual applications must be submitted through NRD. To have the applicant firm enrolled in NRD, and to receive a password and user ID for NRD, please refer to the instructions found on the NRD Info web site.


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5. Membership Application Review and Approval Process

 

Before a membership application is submitted for approval, it undergoes an extensive review by IIROC’s financial and operations compliance, business conduct compliance and registration staff. This includes a review and analysis of the information and documents submitted, discussions with the applicant’s management and technical personnel and an on-site visit to examine premises and systems.

When staff is satisfied that the application meets membership requirements, the application is submitted to the District Council in the province where the applicant’s head office is situated. When District Council considers the application and makes a favourable recommendation, the application is submitted to the Board of Directors for approval. The applicant will be admitted to membership when administrative matters, such as the payment of any remaining fees, have been finalized.

Factors that can impact or delay the review and processing of a membership application are:

  • failure to answer all questions;

  • failure to submit all required information and documents; and

  • failure to respond to identified deficiencies in a timely manner.

Prior to submitting application materials, prospective applicants should contact IIROC’s Membership & GCO Specialist ([email protected] or 416-943-6938) to schedule a meeting with IIROC staff to review the prospective applicants’ business model and the associated IIROC application requirements. This meeting will prevent unnecessary delays arising from incorrect or incomplete application materials.

In order to submit a membership application, please contact IIROC’s Membership & GCO Specialist ([email protected]), at which time a link will be provided, which will enable prospective applicants to upload the electronic files to a secure ShareFile server. Original documentation should be submitted to the attention of the Membership & GCO Specialist.


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6. Ongoing Obligations of Applicants and Dealer Members

 

i. Summary of Regulatory Filings

 

Dealer Members and applicants are required to report on their financial position on a regular basis.

Applicants are encouraged to prepare and file electronically their Audited Form 1 using the Web-Based Securities Industry Regulatory Financial Filing System (SIRFF). This filing is in addition to the signed original and copy to be submitted with the membership application.

To use the web-based system, a User ID and Password may be obtained by telephoning Heather Barclay at 416-943-6931 or Nellie Gomes at 416-943-6937.

Applicants are required to file using the Web-Based System (SIRFF), a Monthly Financial Report (MFR) within 20 business days of each month-end during the application process.

 

ii. Reporting of Material Changes

 

It is a Dealer Member’s obligation to ensure that IIROC is informed, on an ongoing basis, of any material changes to information that was originally submitted in the corporate and individual application materials. Material changes include but are not limited to:

  • change of name or address;

  • change in registration or licensing;

  • disciplinary actions;

  • offenses under the law;

  • civil proceedings;

  • bankruptcy;

  • judgment or garnishment;

  • change in, or refusal of, surety bond;

  • change in business activities;

  • changes in ownership and control;

  • reorganizations, mergers, amalgamations and sale of assets; and

  • membership with other self-regulatory organizations.

 

IIROC staff should be consulted if there is any question as to whether a change is material.

Many of these changes require prior notification to IIROC or prior approval by either the District Council or Board of Directors. Dealer Members should refer to Rules 5, 6, 8 and 17.12 and other relevant sections of the Dealer Member Rules to determine approval and timing requirements.


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10. Application Forms

 

Corporations and Partnerships
To be completed by corporate or partnership entity applying for membership.

 

NRD Enrolment Forms

 

NRD enrolment forms used for new firm enrolments and changes to enrolment information. The firm must submit the enrollment form to CDS Inc. in order to obtain access to NRD.

 

Investor Forms

 

Investor Application Form
For applications for individuals who are investors holding greater than 10%.

Investor Notification Form
For investors holding less than 10% purchasing shares of a non-public IIROC Member firm whose accumulated holdings are less than 10%.


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