PART A.4 – SPECIFIC REQUIREMENTS FOR TYPE 3 INTRODUCING BROKER / CARRYING BROKER ARRANGEMENTS

2420. Type 3 introducing broker/​carrying arrangement – requirements

Or jump to a Series:

    1. The parties to a Type 3 introducing broker / carrying broker arrangement  must comply with the following requirements:
    2. Minimum capital requirement

      1. The introducing broker must maintain at all times minimum capital of $250,000 for the purposes of calculating risk adjusted capital.

    3. Margin requirements to be provided by the introducing broker
      1. The introducing broker must maintain the required margin:
        1. for principal business it introduces to the carrying broker, and
        2. for client business it introduces to the carrying broker.
    4. Margin requirements to be provided by the carrying broker
      1. The carrying broker must maintain the required margin for any settlement date equity deficiency amounts relating to the principal business it carries for the introducing broker in accordance with the margin requirements for an account with another regulated entity, as set out in Note 4 of the Notes and Instructions to Schedule 5 of Form 1.
    5. Offsets of carrying broker margin requirements against deposits
      1. The carrying broker may reduce any margin it is required to provide under subsection 2420(3) by the lesser of the following amounts:
        1. the margin requirement, and
        2. the loan value of any introducing broker deposits held by the carrying broker

        Where a reduction is taken, the carrying broker must promptly notify the introducing broker.

    6. Reporting client balances
      1. When calculating risk adjusted capital, the introducing broker must report on Statement A and Schedule 4 of Form 1 and Monthly Financial Report all client accounts introduced to the carrying broker. The carrying broker must not report those accounts.
      2. The carrying broker must report on its Form 1 and Monthly Financial Report one balance owing to or from the introducing broker, representing client accounts it carries for the introducing broker.
      3. Although the carrying broker reports just one balance, its obligations and liabilities to each client whose account it carries for the introducing broker are not released, discharged, limited, or otherwise affected.
    7. Net client balances / funding
      1. The carrying broker must meet financing requirements for client accounts introduced by the introducing broker.
    8. Deposits provided to the carrying broker by the introducing broker
      1. The carrying broker must:
        1. segregate security deposits provided by the introducing broker,
        2. hold cash deposits in a separate bank account in trust for the introducing broker, and
        3. report all deposits it receives from the introducing broker as a liability on its Form 1 and Monthly Financial Report.
      2. The introducing broker must:
        1. report as a non-allowable asset on the introducing broker’s Form 1 and Monthly Financial Report any portion of a deposit that a carrying broker has used to offset its margin requirements under subsection 2420(4), and
        2. report as an allowable asset on the introducing broker’s Form 1 and Monthly Financial Report any remaining deposits not classified as a non-allowable asset under sub-clause 2420(7)(ii)(a).
    9. Concentration calculations
      1. When completing the concentration calculations in Schedules 9 and 12 of Form 1, the introducing broker must include, and the carrying broker must not include, all client positions the carrying broker maintains for the introducing broker.
    10. Segregating client securities
      1. The carrying broker must segregate securities for clients introduced by the introducing broker in accordance with IIROC requirements relating to segregation
    11. Free credit segregation
      1. The carrying broker must segregate free credits for client accounts introduced by the introducing broker in accordance with IIROC requirements including, but not limited to, Statement D of Form 1.
    12. Insurance coverage requirements of the introducing broker 
      1. The introducing broker must:
        1. include all accounts introduced to the carrying broker:
          1. when calculating client net equity for the purposes of determining minimum Financial Institution Bond insurance coverage levels under section 4457 and
          2. when determining adequate insurance coverage levels for registered mail under section 4455, 
        2. maintain Financial Institution Bond insurance coverage for the types of losses specified under section 4456 and in the amounts that meet the minimum coverage levels specified in section 4457, and
        3. maintain adequate insurance for registered mail specified under section 4455.
    13. Insurance coverage requirements of the carrying broker 
      1. The carrying broker must:
        1. include all accounts it carries for the introducing broker:
          1. when calculating client net equity for the purposes of determining minimum Financial Institution Bond insurance coverage levels under section 4457, and
          2. when determining adequate insurance coverage levels for registered mail under section 4455, 
        2. maintain Financial Institution Bond insurance coverage for the types of losses specified under section 4456 and in the amounts that meet the minimum coverage levels specified in section 4457, and
        3. maintain adequate insurance for registered mail specified under section 4455.
    14. Client account opening required disclosure
      1. At the time of opening a client account the introducing broker must advise the client of:
        1. its relationship to the carrying broker, and 
        2. the client’s relationship to the carrying broker.
    15. Parties to margin and guarantee documents
      1. The introducing broker and the carrying broker must both be parties to any margin agreements and guarantee documents.
    16. Disclosure on contracts, statements and correspondence
      1. The introducing broker must provide either ongoing or annual disclosure of its introducing broker / carrying broker relationship to clients as follows:
        1. where the introducing broker elects to provide ongoing relationship disclosure, the introducing broker and carrying broker must both show their names and roles on all client account contracts, statements, correspondence and other documents. Because of this ongoing disclosure, annual disclosure of the introducing broker / carrying broker relationship is not required, or
        2. where the introducing broker elects to provide annual relationship disclosure:
          1. the introducing broker must show its name on all client account contracts, statements, correspondence and other documents, and
          2. the introducing broker must provide an annual written disclosure to each of its clients whose accounts are carried by a carrying broker outline the relationship between:
            1. the introducing broker and the carrying broker, and
            2. the client and the carrying broker.
        3. However, if the name and role of each of the introducing broker and the carrying broker is shown on all contracts, statements, correspondence and other documents, the annual disclosure under paragraph 2420(15)(i)(b)(II) is not required.
    17. Clients introduced to the carrying broker
      1. A client introduced to the carrying broker by the introducing broker must be considered a client of both the introducing broker and the carrying broker for the purposes of compliance with IIROC requirements.
    18. Compliance with non-financial requirements
      1. For each account it introduces to the carrying broker, the introducing broker is responsible for compliance with all non-financial IIROC requirements unless stated otherwise in this section.
    19. Handling client cash
      1. The introducing broker may accept or handle client funds in the form of money.
      2. An introducing broker may facilitate transactions for a client account carried by a carrying broker by accepting client cheques:
        1. in the introducing broker’s name, and depositing those cheques in a bank account in the introducing broker’s name for eventual deposit to an account in the carrying broker’s name, or
        2. in the carrying broker’s name for deposit directly into a bank account in the carrying broker’s name.
    20. Reporting of introducing broker principal positions
      1. The introducing broker must report all its principal positions carried by a carrying broker as inventory on its Form 1 and Monthly Financial Report. 
      2. The carrying broker must report the balance of the principal trading account the introducing broker has with the carrying broker on its Form 1 and Monthly Financial Report. 

    2421. – 2424.  Reserved.

    There is no history log for this rule.

    There is no history log for this rule.