Exemptions Granted by IIROC in 2021

22-0077
Type: Rules Notice> Exemption
Rule connection:
UMIR
Legacy DMR Rules
Distribute internally to:
Institutional
Legal and Compliance
Regulatory Accounting
Senior Management
Trading Desk

Contact:

Mark Stechishin
Associate General Counsel
Telephone:
Email:

Executive Summary

Each year IIROC’s Board of Directors (the Board), staff and District Councils1 consider and, in appropriate cases, grant exemptions from specific Dealer Member Rules (DMR) or Universal Market Integrity Rules (UMIR). IIROC decision makers apply specific and rigorous criteria before granting exemptive relief, to protect investors and ensure the integrity of the capital markets.

This Rules Notice provides a summary of the exemptions granted in calendar year 2021, which comprised exemptions from:

  • UMIR provisions, granted by Market Regulation Policy staff to Participants or Access Persons2
  • DMR provisions, granted by the Board to Dealer Members
  • DMR provisions, granted by a District Council to Dealer Members
  • DMR provisions not related to proficiency requirements, granted by IIROC staff to Dealer Members
  • IIROC proficiency requirements, granted by IIROC staff or by Registration Subcommittees of District Councils to individuals.

For information on how to apply for an exemption from DMR, see GN-1300-21-001 Exemption applications relating to IIROC Rules. For information on how to apply for an exemption from UMIR, see UMIR 11.1 and the related guidance set out in IIROC Notice 15-0191 Obtaining a Trading Exemption or Rule Interpretation dated August 28, 2015.

  • 1IIROC has 10 District Councils that represent all provinces and territories in Canada. District Councils are comprised of members representing IIROC Dealer Members with an office in the District. District Council responsibilities encompass registration and membership matters, including the processing of exemption applications.
  • 2“Participant” and “Access Person” are defined in Part 1.1 of UMIR.
Table of contents
  1. Exemptions from UMIR Provisions Granted by IIROC Staff

Market Regulation Policy staff granted 918 exemptions to a Participant (as defined in UMIR) from a provision of UMIR in 2021.

  1. Authority to Grant Exemptions

Rule 11.1 of UMIR allows IIROC to exempt a particular transaction from UMIR provided that, in IIROC’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. Off-Marketplace Transactions

The majority of the 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), IIROC will grant a regulatory exemption:

  • in order to maintain a fair and orderly market or
  • if it is impractical for the seller, purchaser or their agents to comply with applicable securities legislation

The following table provides a breakdown of the exemptions IIROC granted in accordance with Rule

6.4(2)(b):

Type of Transaction

Exemption Description

Number

Trading during a

Regulatory Halt

 

Permits a Participant to complete a transaction off-

marketplace while the security was subject to a cease trade order pursuant to the conditions of the cease trade order or a non-objection from the applicable securities regulators

 

784

Trading During a Resale

Restriction

Permits a Participant to transfer shares subject to a

statutory hold period to one or more accredited investors

97

Designated Trades as

Principal

Permits a Participant to take on a significant block of

shares off-marketplace subject to the Participant immediately attempting to distribute the securities to

its clients

15

Exempt Take-over Bids

Permits a Participant purchasing shares in reliance on

the private agreement exemption under applicable securities legislation to do so off-marketplace

4

Distribution from

Control

Permits a controlling shareholder to trade securities of

the issuer off-marketplace

12

Intentional Cross with extended settlement

Permits a Participant to execute an intentional cross via jitney for a trade with an extended settlement period.

1

We note that the number of exemptions we granted in 2021 was significantly higher than in 2020.  This is largely due to the increase  of exemptions granted in relation to trading during a regulatory halt. This increase may be driven in part by the increasingly common practice of CSA jurisdictions including conditions in a cease trade order, which if met, would allow the sale of the security subject to the cease trade order to occur.

  1. Trading During a Restricted Period

Rule 7.7 of UMIR prohibits the trading of certain securities during a restricted period. IIROC granted five exemptions to allow the purchase of shares subject to Rule 7.7 restrictions.  We granted these exemptions on the condition the Participants complete the purchases passively in order to limit the upward pressure to the security price. The Participants were “short” due to a bona fide trading error.  We were satisfied the exemption was consistent with the principles of Rule 7.7 and was not prejudicial to the public interest or to the maintenance of a fair and orderly market.

For further information on the exemptions, please contact Sonali GuptaBhaya, Director, Market Regulation Policy at (416) 646-7272 or [email protected].       

  1. Exemptions from DMR Granted by the Board

  1. Authority to Grant Exemptions

DMR 17.15 permits the IIROC Board of Directors to exempt a Dealer Member from any provision of the DMR 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.

  1. Insurance and Custody Exemptions Related to Crypto-Asset Trading

The Board granted exemptions to a firm relating to the firm’s intention to transact in crypto assets. The Board granted the following relief:

  • An exemption to obtain Financial Institution Bond insurance coverage, pursuant to Dealer Member Rule sections 17.5, 400.2, 400.3, 400.3B, 400.4, 400.5 and 400.6, and
  • An exemption to provide capital for crypto asset positions held at the firm’s custodian, pursuant to Line 20 of Statement B of Dealer Member Rule Form 1,

subject to specific conditions.

For further information on these exemptions, please refer to IIROC Notice 21-0213.

  1. Exemption Related to Custodial Accounts Transfer

The Board extended the expiry date of previously granted exemptive relief to one Dealer Member, in respect to the transfer in of individual custodial accounts, from the requirements to:

  • complete a new account application for each client and to obtain all account documentation within 25 days of opening an account, and
  • obtain client consent in writing to waive the trade confirmation requirement,

subject to specific conditions. The conditions ensured clients received a minimum of 60-day advance notice of the opening of their new custodial account and included specific account relationship disclosure and account service agreement disclosures.

The Board was satisfied that there was no need to require the Dealer Member to comply with these requirements because clients would otherwise receive the account information they require in a timely manner.

The Board further reserved the right to revoke the exemption at any time upon notice to the applicant and imposed a sunset provision.

For further information on this exemption, please contact Richard J. Corner, Vice President and Chief Policy Advisor, Member Regulation at (416) 943-6908 or [email protected].

  1. Exemption Related to Personal Financial Dealings with Clients

The Board exempted one Dealer Member, in respect to one arrangement, from the control or authority prohibition related to personal financial dealings with clients, subject to specific conditions.

The conditions provide that the Dealer Member must:

  • designate the accounts named in the exemption order as a “non-client accounts”,
  • take all reasonable steps to ensure the Approved Person appointed as alternate Executor and Trustee does not receive, accept or keep any remuneration for that appointment, and
  • have policies and procedures for enhanced supervision of the accounts named in the exemption order and the activities of the Approved Person appointed as alternate Executor and Trustee.

The Board was satisfied that the nature of the arrangement and the relationship between the clients and Approved Person did not justify the prohibition.

The Board further reserved the right to revoke the exemption at any time upon notice to the applicant.

For further information on this exemption, please contact Richard J. Corner, Vice President and Chief Policy Advisor, Member Regulation at (416) 943-6908 or [email protected].

  1. Exemptions Related to Extended Trading Hours

The Board granted registration exemptions to Dealer Members to allow individuals, identified by the Dealer Members and located in the offices of their identified foreign affiliates, to accept and enter orders on the Montréal Exchange from clients of the Dealer Members during the period of 4:30 pm to 6 am Eastern Standard Time.

The exemptions are subject to the applicants receiving registration exemptions from relevant securities regulators under paragraph 2.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations in respect of individuals who would otherwise require registration as a Dealing Representative. The exemptions are also subject to numerous additional conditions including equivalent foreign registration, territorial limitations, a prohibition on providing advice, Dealer Member assumption of responsibility and liability, disclosure and instructions to clients, and the establishment and maintenance of written policies and procedures addressing performance and supervision requirements.

The exemptions do not alter the requirement that any foreign affiliate doing business with Canadian clients on its own behalf must be registered with the applicable securities commissions in the appropriate category or be exempt from registration.

For further information on these exemptions, please contact Marina Ripoche, Vice-President, Registration at (416) 943-5896 or [email protected].

  1. Exemptions Related to Mutual Fund Upgrade Requirements

The Board granted exemptive relief to three individuals from the requirement to upgrade proficiencies as required under Dealer Member Rule (DMR) 18.7, based on personal hardship situations encountered by these individuals. In all cases, an extension of 90 days to complete the upgrade requirements was granted. For further information on this exemption, please contact Marina Ripoche, Vice-President, Registration at (416) 943-5896 or [email protected].

  1. Exemption from Risk Adjusted Capital Requirements

The Board granted exemptive relief to an alternative trading system from the requirement to maintain risk adjusted capital greater than zero.

As an alternative trading system, the firm does not open accounts for investors and does not hold assets, and would not be subject to customer claims in the event of its insolvency. The relief is in the public interest, as it allows the firm to use its excess working capital to invest in technology upgrades or other initiatives necessary to grow its business and enhance its marketplace operations.

The exemption is subject to several conditions relating to the maintenance of early warning reserves and the filing of monthly financial information.

For further information on this exemption, please contact Suzanne Lasrado, Director, Member Regulation & Strategy at (416) 934-5880 or [email protected].

  1. Exemption from Performance and Fee Charge Reporting Requirements

The Board granted one exemption to a firm from certain elements of the annual account performance and account fee/charge reporting obligations under Dealer Member Rule 200 [IIROC Rule 3800] for its futures contract and futures contract option (“futures”) accounts. The relief mirrored that provided to several other firms in previous years.

For further information on this exemption, please contact Richard Korble, Vice President, Western Canada at (403) 260-6278 or [email protected]

  1. Exemptions from DMR Granted by an IIROC District Council

  1. Authority to Grant Exemptions

Dealer Members may apply to a District Council for an exemption from the introducing broker/carrying broker requirements of DMR 35. The District Council may grant an exemption in accordance with any standards in the relevant rule, subject to any terms and conditions it considers appropriate.

IIROC District Councils granted one exemption from DMR 35, which was related to Brexit and restructuring of the Dealer Member’s European affiliates.

For further information on this exemption, please contact Mark Stechishin, Associate General Counsel at (416) 943-5878 or [email protected].

  1. COVID-19 Related Exemptions from DMR Granted by IIROC Staff

  1. Authority to Grant Exemptions Related to Bulk Account Movements

Under DMR 2300.12 (now Rule 4866(1)), IIROC 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, IIROC staff may also impose terms and conditions on the relief granted. IIROC staff granted three bulk transfer exemptions pursuant to DMR 2300.12 in 2021.

For further information on these exemptions, please contact Mark Stechishin, Associate General Counsel at (416) 943-5878 or [email protected].  

  1. Authority to Grant COVID-Related Exemptions

On March 26, 2020, the IIROC Board of Directors approved the offering of exemptive relief in a number of areas relating to hardships Dealer Members are experiencing in complying with related IIROC Dealer Member Rules (DMRs) as a result of their preparation for, or in response to, the effects of the COVID-19 pandemic. To facilitate timely consideration of each exemption application, the Board also approved the delegation of limited discretion to certain IIROC senior staff (Decision Makers) to assess and decide upon each firm exemption application.1

  1. COVID-Related Exemptions Granted

In calendar year 2020, IIROC received a total of 221 applications from Dealer Members and granted a total of 182 exemptions in that period.

In calendar year 2021, the authority to grant relief was extended by the IIROC Board from January 1, 2021 to September 30, 2021, at which point the authority expired. During that period, IIROC received an additional 12 applications and granted relief in 8 of those cases.

For further information on these exemptions, please contact Mark Stechishin, Associate General Counsel at (416) 943-5878 or [email protected].

  1. Exemptions from Proficiency Requirements Granted by IIROC District Councils (or their delegates)

  1. Background and Authority to Grant Exemptions

An individual wishing to work at a Dealer Member in an approved role must obtain IIROC approval/registration. 

One of the three criteria IIROC uses to assess whether an individual is, or remains, “fit and proper” for IIROC approval is proficiency (the other two being integrity and solvency). Applicants must meet IIROC’s minimum education, training and experience requirements to satisfy the proficiency criteria. 

An IIROC Dealer Member may apply, on behalf of an individual, to a District Council for an exemption from the proficiency requirements, or for an extension of or exemption from a continuing education requirement.

The applicable District Council (or its delegate) has the authority to exempt individuals from the proficiency requirements, including the requirement to write or rewrite any required course or examination, subject to such terms and conditions, as the District Council considers appropriate.2   In any proficiency exemption application, the onus is on the applicant to demonstrate that her or his alternative experience and/or education is equivalent to the required proficiency or course.

  1. Summary Report of Proficiency Exemptions

In 2021, IIROC received 3883  proficiency exemption applications nationally (including applications for extensions of the time to complete a post-licensing proficiency requirement4 ). Of these, 330 proceeded to a decision by the District Council or its delegate.5 The following chart summarizes the number of applications each IIROC office processed.

IIROC Office
(District Councils)

# of applications that
proceeded to a decision

Toronto (ON)

150

Vancouver (BC)

48

Calgary (AB, SK and MB)

50

Montréal (QC and Atlantic)

82

The number of exemption applications that proceeded to a decision in 2021 was less than the number of requests in 2020.  We attribute this decrease to several factors, including, but not limited to the following:

  • Fewer exemption applications submitted in 2021 compared to 2020
  • Removal of COVID-19 pandemic and resulting restrictions on in person seminars and exam sittings
  • Early adoption of certain IIROC Rules into the Dealer Member Rules on January 1, 20216
  • Anticipation of the implementation of the plain language rules on December 31, 2021

Of the applications that proceeded to a decision, IIROC recommended:

  • approval of 301 exemptions
  • approval of 28 extensions
  • refusal of 1 exemption

The District Councils and their delegates agreed with all of IIROC staff’s recommendations. 

  1. Frequently Recurring Proficiency Exemptions

Most applications related to the following courses:

  • Portfolio Management Techniques Course (PMT)
  • Investment Management Techniques Course (IMT)
  • Advanced Investment Strategies Course (AIS)
  • Wealth Management Essentials Course (WME)
  • Partners, Directors and Senior Officers Course (PDO)

Collectively, these applications account for 74% of all proficiency exemption applications that proceeded to a decision in 2021.

Applications Processed by Course (PMT 27%, IMT 18%, AIS 12%, WME 11%, PDO 6%, OTHER 26%)

 

  1. PMT, IMT and AIS Proficiency Exemptions

IIROC received 206 PMT, IMT and/or AIS proficiency exemption applications7  in connection with a Registered Representative (RR) seeking to add portfolio management services (PM) to their IIROC approval or, in a small number of cases, an individual applying for initial approval to be an RR-PM. Of these 206 exemptions, 190 proceeded to a decision8 .

In most of these exemptions, the individual had successfully completed the IMT or AIS9 , and/or PMT.  However, as the individual completed the courses more than three years prior to their application to be an RR-PM, the validity of the courses had expired.10

Most individuals held the Canadian Investment Manager (CIM) designation, or the relatively newer Chartered Investment Manager (CIM®) designation issued by the Canadian Securities Institute (CSI). These individuals were able to demonstrate to IIROC staff’s satisfaction that they had at least four years of relevant investment management experience in the following ways:

  • while registered as an RR
  • through strong research and analysis experience
  • through robust security selection and portfolio construction experience with respect to a broad range of types of individual securities, and/or
  • while registered as an advisor11  with a CSA registrant firm

In many of these exemption applications, IIROC staff also received and considered submissions from the sponsoring Dealer regarding their internal portfolio management selection process, including the Dealer’s own review process to evaluate the applicant’s investment management experience and competencies.

  1. WME Proficiency Exemption Requests

IIROC received 42 requests12  for an extension or exemption for the WME.  Of these requests, 33 proceeded to a decision. 

Most of the requests processed were for extensions due to personal hardship circumstances preventing an individual from completing the WME by their due date.  A few extensions were also requested due to COVID-19 restrictions affecting exam availability.   IIROC recognizes the need to be flexible considering the current pandemic and recommended approving these requests to extend the due date for the post-licensing requirement.

IIROC processed five exemptions from rewriting the WME because the validity of the course had expired.  IIROC recommended these exemptions be approved as the individuals’ demonstrated equivalency to the WME with a combination of one or more of the following:

  • previous experience as an RR with an IIROC firm and subsequent experience as a registered advisor with a portfolio management firm
  • completion of additional industry-specific courses that built upon the foundational knowledge of the WME
  • completion of professional designations such as the PFP, CPA or CIM
  • experience in other relevant capacities that demonstrated the individual continued to apply and keep current the concepts learned from the WME
  1. PDO Proficiency Exemptions

IIROC received 26 exemption applications13  for the PDO in 2021.  These submissions related to individuals seeking IIROC approval in one or more of the following categories:  Executive, Director, Chief Compliance Officer, Chief Financial Officer, and Supervisor (Institutional).  The 21 requests that proceeded to a decision were granted approval.

Dealers submitted 19 exemption applications from rewriting the PDO because the validity of the course had expired.  IIROC recommended approval as these individuals’ demonstrated equivalency to the course content through a combination of the following:

  • In most cases, the individual’s PDO expired while employed by a Dealer or affiliate(s) in a non-registered senior management capacity where they applied the PDO’s core competencies 
  • the individual took additional relevant industry courses, seminars, and training and demonstrated to IIROC staff that the additional education contributed to keeping their knowledge and understanding of the PDO course material current and updated
  • the individual had relevant foreign registration and proficiencies
  • the individual had previous experience as an Officer or Executive on the IIROC platform
  • the individual had 10 to 20 years, and in several requests, more than 30 years of relevant industry experience in senior level roles

Generally, IIROC does not grant exemptions from having to write or complete baseline proficiency requirements such as the PDO. IIROC recommended approval for two exemptions from writing the PDO based on demonstrated equivalency.  These individuals previously completed IFSE’s Officers’, Partners’, and Directors’ course and had over 20 to 30 years experience in senior executive roles with CSA regulated entities.

  1. Refused or Withdrawn Proficiency Exemption Requests

Fifty-eight applications did not proceed to a decision.  Dealers withdrew these applications and did not proceed with seeking the exemption or extension. For most withdrawn applications, Staff recommended refusal or did not have sufficient information to proceed with a recommendation. In some instances, the individual decided to complete the course, had resigned, and/or no longer required the exemption. In cases where staff recommended refusal, the applicants were not able to demonstrate that their education or experience was equivalent to the proficiency requirement for which they requested an exemption.

For extensions, IIROC staff will not recommend approval of an extension unless there are compelling reasons and extreme extenuating circumstances. Individuals have more than enough time to complete the post-licensing requirement and should plan to take the required course or seminar well before its due date. In several cases, the extension was no longer required as the individual completed the required course or obtained an exam date prior to the post-licensing requirement due date.

Most of the exemption requests withdrawn were from writing or rewriting the CSC, CPH, PMT, AIS, IMT, WME, and extensions for the WME.

For further information on these exemptions, please contact Marina Ripoche, Vice-President, Registration at 416.943.5896 or [email protected].

  • 1The areas for which relief are available, are as described in the following notices: IIROC Notice 20-0063, COVID-19 Related Exemptions from IIROC Rules; IIROC Notice 20-0115, COVID-19 Related Exemptions from IIROC Rules – Applications Received and Exemptions Granted to May 31, 2020; and IIROC Notice 20-0213, Extension of Covid-19 Related Exemptive Relief Process and Applications Received and Exemptions Granted to September 30, 2020
  • 2Each of IIROC’s regional District Councils have delegated their authority to grant an exemption from the requirements of DMR 2900 to (a) a subcommittee comprising 3 to 5 members of that District Council called the Registration Subcommittee of District Council, or (b) in some cases, IIROC staff.
  • 3Of these 388, there was one class exemption from having to complete the 90-day training program while employed full-time with the Dealer Member. This request related to individuals transferring over from a related MFDA Member to the IIROC Dealer. Instead of completing the training program while employed full time at the Dealer Member, these individuals, under the supervision of a Supervisor from the Dealer, would complete the training program while still employed at the related MFDA Member firm.
  • 4Registered Representatives have 30 months after approval to complete the Wealth Management Essentials course (WME) and Supervisors of Approved Persons have 18 months after approval to attend the Effective Management Seminar. IIROC will automatically suspend anyone who does not fulfill his or her post-licensing requirements by the due date.
  • 5In 54 cases, Dealer Members withdrew their request and did not proceed with the exemption. Refer to section 5.9 for additional information on these withdrawals.
  • 6See Notice 20-0262 – Early adoption of certain IIROC Rules into the Dealer Member Rules.
  • 7Seventy-nine percent of individuals seeking relief from having to write or rewrite the IMT and/or AIS also sought relief from having to write or rewrite the PMT. That is, the vast majority of individuals sought relief from writing or rewriting the IMT or AIS, and PMT at the same time.
  • 8Sixteen exemption applications were withdrawn by the Dealer and did not proceed to a decision.
  • 9Individuals can complete either one of two different paths to qualify for the Canadian Investment Manager (CIM) or Chartered Investment Manager (CIM®) Designation. The first path includes completion of the CSC, WME, AIS, and PMT. The second path includes the CSC, IMT, and PMT.
  • 10Under the DMRs and IIROC Rules, a course is valid for three years from the date of completion or three years from when the individual was last registered in an IIROC approved person category requiring the course for licensing.
  • 11Under NI 31-103, individuals must have both the required education and experience for registration as an Advising Representative. The CIM and CIM® are among the acceptable educational course requirements.
  • 12Nine of these requests were withdrawn by the Dealer and did not proceed to a decision.
  • 13Five of these exemption applications were withdrawn by the Dealer and did not proceed to a decision.