7305. IIROC requirements for inter‑dealer bond broker approval and continued approval

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    1. An inter‑dealer bond broker must comply with the requirements in section 7305 to be approved by IIROC and to retain its approval.

    2. An inter‑dealer bond broker must have and maintain at least $500,000 of shareholders’ equity, or have a parent corporation with at least $500,000 of shareholders’ equity irrevocably guarantee that amount.

    3. An inter‑dealer bond broker  must:

      1. provide evidence to IIROC that all of its inter‑dealer bond broker clients are and will continue to be:

        1. Dealer Members,

        2. Canadian chartered banks or other organizations described in clause 7305(4)(iii) below, or

        3. any other IIROC approved financial institution,

      2. require each new inter‑dealer bond broker client, other than a Dealer Member or Canadian chartered bank, to provide it with recent financial statements or other evidence of financial condition and a favourable reference letter from a participant in an IIROC approved inter‑dealer bond broker, and

      3. provide evidence to IIROC that all of the inter‑dealer bond broker traders for its inter‑dealer bond broker clients will be located in Canada.
    4. Clause 7305(3)(iii) does not apply to an inter-dealer bond broker trader trading for an inter-dealer bond broker client that:

      1. is a Schedule I chartered bank or its affiliate (other than an affiliate, or its subsidiary, whose business is mainly securities),

      2. is a Schedule II chartered bank or its subsidiary of such a bank whose primary business is not securities (this exception does not apply to inter‑dealer bond broker traders of other affiliates of chartered banks), or

        1. is a Dealer Member or branch office member,

        2. is a Dealer Member’s affiliate that has entered into an agreement as subsection 7305(7) describes and that either is regulated by the United States Financial Industry Regulatory Authority or is a member of any other self-regulatory organization or regulatory authority, or

        3. has entered into an agreement as subsection 7305(7) describes and:

          1. is not a Dealer Member’s affiliate,

          2. is regulated by the United States Financial Industry Regulatory Authority or is a member of any other self‑regulatory organization or regulatory authority, and

          3. gives IIROC a satisfactory legal opinion stating that the inter‑dealer bond broker client does not contravene the registration requirements of securities laws.

    5. The inter‑dealer bond broker must only deal in domestic debt securities as agent on behalf of its inter-dealer bond broker clients and must not act as principal, either directly or indirectly.

    6. The inter‑dealer bond broker must provide accurate and timely information regarding details of orders and trades for domestic debt securities to the information processor, as required by National Instrument 21-101.

    7. Inter-dealer bond broker clients outside Canada must sign an agreement under sub‑clauses 7305(4)(iii)(b) and 7305(4)(iii)(c) that complies with the following provisions:

      1. the parties to the agreement must include IIROC, the inter-dealer bond broker client outside Canada and, if applicable, the inter-dealer bond broker client’s affiliated Dealer Member,

      2. an inter-dealer bond broker client outside Canada must state that it is carrying out its trading:

        1. in a jurisdiction in which it either is regulated by the United States Financial Industry Regulatory Authority or is a member of any other self‑regulatory organization or regulatory authority, or

        2. from a jurisdiction in which IIROC is satisfied that one of the self‑regulatory organizations specified in sub-clause 7305(7)(ii)(a) has jurisdiction over its trading activities,

      3. an inter-dealer bond broker client outside of Canada must agree to give a Dealer Member its domestic debt securities trading activity information so that the Dealer Member can regularly report its aggregated trading to IIROC under IIROC requirements,

      4. if IIROC requests this information for a specific inquiry about domestic debt securities trading, the inter‑dealer bond broker client outside Canada must agree to give it, subject to appropriate confidentiality provisions, additional information, and

      5. the agreement must adapt the requirements in clauses 7305(7)(i) through 7305(7)(iv) to the circumstances of the inter-dealer bond broker client.  

    8. Commission schedule requirements:

      1. An inter-dealer bond broker must publish a commission schedule showing commissions charged for a trade.

      2. An inter-dealer bond broker must not charge a commission greater than those listed in its commission schedule.

      3. A change to an inter-dealer bond broker’s commission schedule may be effective from the date the inter-dealer bond broker gives written notice to all its inter‑dealer bond broker clients.

    9. Operating procedures manual and other requirements:

      1. An inter-dealer bond broker must have a current operating procedures manual and appropriate enforcement or compliance procedures to ensure its provisions are observed.

      2. The  inter-dealer bond broker’s operating procedures manual must:

        1. have a code of ethics that includes the following:

          1. the inter-dealer bond broker will keep confidential all information received from or about its inter‑dealer bond broker clients or their activities, unless that information must be disclosed for regulatory or compliance reasons,

          2. all inter-dealer bond broker clients will receive fair treatment, and

          3. the inter‑dealer bond broker will not give to an inter-dealer bond broker client’s partner, director, officer, employee, agent or shareholder or any associate of such persons  any gift or other incentive to do business unless it is non‑monetary, of minimal value and infrequent such that it will not cause a reasonable person to question whether it created a conflict of interest,

        2. and

        3. describe the minimum capital requirements for its inter-dealer bond broker clients and the procedure to establish the requirements. 

      3. An approved inter-dealer bond broker must provide a copy of its operating procedures manual to each inter‑dealer bond broker client.

      4. The inter-dealer bond broker must give its inter-dealer bond broker clients two weeks prior written notice of any amendment to its operating procedures manual, unless IIROC approves a shorter notice period.

    10. An inter-dealer bond broker must give each of its inter-dealer bond broker clients a daily report that describes the net amount of outstanding deliveries and the total amount of outstanding deliveries that the inter‑dealer bond broker clients had with every other inter-dealer bond broker client at the previous day’s close of business in each of the following categories:

      1. domestic debt securities, with 10 years or less to maturity, issued or guaranteed by the Government of Canada or by a Canadian province or municipality,

      2. domestic debt securities with more than 10 years to maturity, issued or guaranteed by the Government of Canada or a Canadian province or municipality,

      3. domestic debt securities issued by a corporation, and

      4. other debt securities, including domestic debt securities not in another category. 

    11. An inter-dealer bond broker must file with IIROC:

      1. within 140 days of its financial year end, summary statement of financial position information and an auditor’s report, prepared in accordance with generally accepted accounting principles, and 

      2. within 60 days of the interim-period date, interim semi-annual statement of financial position information prepared in accordance with generally accepted accounting principles.

    12. An inter-dealer bond broker must have its auditor confirm to IIROC, at least annually, that the inter-dealer bond broker has met IIROC requirements for continued approval under Rule 7300.  At a minimum, the confirmation must state the following:

      1. “In the course of our audit, nothing came to our attention that caused us to believe that the company held a position in securities for its own account or dealt with any person that is not eligible to be an inter-dealer bond broker client of the company under Rule 7300.”

    13. The parties to an inter‑dealer bond broker client agreement must agree that any disagreement between inter-dealer bond broker clients, or between an inter‑dealer bond broker client and the inter-dealer bond broker, about who is responsible for a financial loss of less than $100,000 must go to arbitration under the Arbitrations Act (Ontario).  The parties must agree that the following provisions govern any arbitration:

      1. Three arbitrators must resolve the disagreement.  The arbitrators must be selected as follows:

        1. one arbitrator must be the Chair of IIROC Fixed Income Committee or, if the Chair is involved in the disagreement, the Chair’s designate,

        2. the parties to the disagreement must unanimously agree on the selection of one arbitrator from among all IIROC approved inter‑dealer bond brokers and their inter-dealer bond broker clients, and

        3. the parties must unanimously agree on the selection of one arbitrator who is unconnected to either an inter-dealer bond broker client or an inter‑dealer bond broker.  If the parties cannot unanimously agree, then a party may apply to have a judge select one or both arbitrators.

      2.  Subject to co-operation from the parties, the arbitrators must make their decision within two weeks of being notified in writing of their appointment.  However, the parties may agree on a later notification date.

      3. The parties may not appeal the arbitrators’ award under the Arbitrations Act (Ontario).

    There is no history log for this rule.

    There is no history log for this rule.