Securities held in custody – securities held in a foreign jurisdiction

GN-4300-21-004
Type: Rules Notice> Guidance Note
Rule connection:
IIROC Rules
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Executive Summary

Effective Date: December 31, 2021

This Guidance Note includes the following forms:

  • Foreign Custodian Questionnaire and Certificate as Appendix A, and
  • Client Consent and Waiver as Appendix B.

This Guidance Note provides guidance on:

  • the Dealer Member’s (Dealer’s) approval of foreign institutions or securities dealers as acceptable securities locations under section 4349 of the IIROC Rules1
  • the format of the client waiver that may be obtained under section 4352
  • the Dealer’s year-end audit requirements for securities held with foreign institutions or securities dealers as acceptable securities locations or for securities held in securities locations where client waivers have been obtained under section 4352.

 

  • 1In this Guidance, all rule references are to the IIROC Rules unless otherwise specified.
  1. Approval of foreign institutions or securities dealers as acceptable securities locations

A Dealer must hold securities that are not under its control or physical possession at prescribed external acceptable securities locations. A foreign institution or securities dealer may be an external acceptable securities location if it meets the applicable criteria and is approved by the IIROC as an acceptable securities location. To obtain IIROC’s approval of a foreign institution or securities dealer as an acceptable securities location, a Dealer must:

  • perform due diligence,
  • approve the foreign institution or securities dealer as an external acceptable securities location, and
  • complete a certificate in the form prescribed in Appendix A evidencing its due diligence and approval.
  1. Format of the client waiver

In some foreign jurisdictions, it may not be possible for a Dealer to hold securities in an external acceptable securities location. In these cases, the Dealer must obtain a waiver from the client under section 4352.

If a Dealer holds securities in a foreign jurisdiction that does not meet the criteria of an external acceptable securities location specified in IIROC’s requirements, and the Dealer has not obtained a client waiver, then these securities are considered to be held at a non-acceptable securities location.

Appendix B is a client consent and waiver form that may be used if a client agrees to waive the requirement for a Dealer to hold securities at an external acceptable securities location.

  1. Year-end audit requirements

  2. Annual evidence of Dealer Member’s approval of location

See requirements for “Annual approval of foreign institutions and foreign securities dealers as acceptable securities locations” in section 4351.

  1. Positive confirmation of security positions

During the course of an annual audit, a Dealer’s auditor must obtain 100% positive confirmation of all the Dealer’s security positions as at year-end. This includes positions held at:

  1. foreign institutions and securities dealers as acceptable securities locations approved by the Dealer, and
  2. securities locations where clients have provided a waiver for their securities under section 4352.

A Dealer must advise its clients of any securities held under a client waiver that are unconfirmed.

  1. IIROC Form 1 filings

For year-end IIROC Form 1 filings, a Dealer must provide as supplementary disclosure to IIROC:

  1. a list of approved foreign institutions and securities dealers as acceptable securities locations where its securities are held,
  2. the market value of securities held at those locations,
  3. a list of those locations where the Dealer’s auditor has not obtained a positive confirmation at the time of filing, and
  4. the amount of capital provided for the positions in (c).

 

  1. Applicable Rules

IIROC Rules this Guidance Note relates to:

  • Rule 4300, and
  • IIROC Form 1.
  1. Previous Guidance Note

This Guidance Note replaces MR-033 – "Other" Foreign Acceptable Securities Locations (June 6, 2000).

  1. Related documents

This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.

  1. Appendices

Appendix A – Foreign custodian questionnaire and certificate

Appendix B – Consent and waiver