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Series 4000: Dealer Member Financial and Operational Rules

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4100: GENERAL DEALER MEMBER FINANCIAL STANDARDS – MINIMUM CAPITAL, EARLY WARNING, FINANCIAL REPORTS AND AUDITORS
4101. Introduction

PART A - MINIMUM CAPITAL LEVEL AND RELATED REQUIREMENTS

4110. Introduction
4111. Maintaining a positive risk adjusted capital amount
4112. Negative risk adjusted capital and other early warning test failure situations
4113. Calculating current risk adjusted capital amount - general requirements
4114. Calculating current capital position - weekly documentation
4115. Calculating current capital position - monthly documentation and reconciliation
4116. Dealer Member capital adequacy reporting system - adequate policies and procedures
4117. Consolidation of financial position with related companies
4118. Options for calculating risk adjusted capital available to well-capitalized Dealer Members
4119. Dealer Member guarantees

PART B - EARLY WARNING TESTS AND RELATED REQUIREMENTS

4130. Introduction
4131. Definitions
4132. Early warning designation, levels and tests
4133. Early warning related requirements
4134. Discretion to designate a Dealer Member as being in early warning
4135. Restrictions on a Dealer Member in early warning
4136. Additional restrictions
4137. Prohibited transactions
4138. Lifting an early warning designation

PART C - REGULATORY FINANCIAL REPORT FILING REQUIREMENTS

4150. Introduction
4151. Dealer Member financial filings
4152. Extending deadline for financial filings
4153. Late filing fee

PART D - APPOINTMENT OF AUDITORS AND AUDIT REQUIREMENTS

4170. Introduction
4171. Approved auditors
4172. Dealer Member’s auditor
4173. Responsibilities of a Dealer Member’s auditor
4174. No limitation on scope or procedures
4175. Audit in accordance with Canadian Auditing Standards
4176. Test procedures as at the fiscal year-end date
4177. Account for all securities, currencies, and other like assets
4178. Verify securities in transfer and in transit
4179. Review the Dealer Member’s position balancing and account reconciliations
4180. Review bank reconciliations
4181. Review custodial agreements and approvals
4182. Obtain written positive confirmations
4183. Selection of accounts for positive confirmation
4184. Written confirmation of clients’ accounts with no balance
4185. Effect on capital if no positive written confirmation received for a guarantee
4186. Review a sample of signed guarantee agreements
4187. Tests and procedures on statements and schedules of Form 1
4188. Test statements for a description of securities held in safekeeping
4189. Dealer Member obligations to auditor
4190. Calculations for Form 1 and other reporting
4191. Auditor’s records
4192. Auditor’s obligation to report to IIROC
4200: GENERAL DEALER MEMBER FINANCIAL STANDARDS – DISCLOSURE, INTERNAL CONTROLS, CALCULATIONS OF PRICES AND PROFESSIONAL OPINIONS
4201. Introduction

PART A - FINANCIAL DISCLOSURE TO CLIENTS

4202. Introduction
4203. Summary statement of financial position available
4204. Summary statement of financial position - contents
4205. Audited or unaudited summary statement of financial position
4206. Publishing a summary statement of financial position
4207. List of current Executives and Directors
4208. Disclosures available to clients
4209. Consolidated financial statements - similar named entity

PART B - GENERAL INTERNAL CONTROL REQUIREMENTS

4220. Introduction
4221. Definitions
4222. Adequate internal controls
4223. Preventive controls
4224. Written record
4225. Review and written approval of internal controls

PART C - PRICING INTERNAL CONTROL REQUIREMENTS

4240. Introduction
4241. Pricing procedures
4242. Independent price verification and adjustment
4243. Retention of supporting documents
4244. Access to records

PART D - CALCULATION OF PRICES ON A YIELD BASIS

4260. Introduction
4261. Definitions
4262. Calculating price if no method is stated for calculating unexpired term
4263. Exceptions
4264. Unexpired term - Bonds with unexpired terms to maturity up to and including 10 years
4265. Unexpired term - Bonds with unexpired terms to maturity over 10 years
4266. Calculating the price and price precision
4267. New issues

PART E - PROFESSIONAL OPINIONS

4270. Introduction
4271. Definitions
4272. Application
4273. General requirement
4274. General disclosure
4275. Disclosure - formal valuations
4276. Disclosure - fairness opinion
4300: PROTECTION OF CLIENT ASSETS – SEGREGATION, CUSTODY AND CLIENT FREE CREDIT BALANCES
4301. Introduction

PART A - SEGREGATION AND RELATED INTERNAL CONTROL REQUIREMENTS

4310. Definitions

PART A.1 - GENERAL SEGREGATION REQUIREMENTS

4311. Introduction
4312. Fully paid and excess margin securities
4313. Restricted and non-negotiable securities
4314. Segregation of client securities

PART A.2 - BULK SEGREGATION CALCULATION

4315. Steps for bulk segregation calculation
4316. Net loan value and market value of securities in a client’s account
4317. Calculating the number of client securities to be segregated in bulk
4318. Determining securities to comply with segregation requirements
4319. Frequency and review of bulk segregation calculation

PART A.3 - SECURITY USAGE RESTRICTIONS AND CORRECTING SEGREGATION DEFICIENCIES

4320. General restrictions
4321. Correcting segregation deficiencies
4322. Call loan segregation deficiency
4323. Securities loan segregation deficiency
4324. Inventory or trading account short position segregation deficiency
4325. Client declared short sales segregation deficiency
4326. Fails – client or other Dealer Members

PART A.4 - MINIMUM SEGREGATION POLICIES AND PROCEDURES

4327. General
4328. Records of segregated securities
4329. Twice-weekly report of items requiring segregation
4330. Reporting segregation deficiency
4331. Authorized employees to move securities
4332. Daily supervisory review of segregation report

PART B - CUSTODY AND RELATED INTERNAL CONTROL REQUIREMENTS

PART B.1 - GENERAL CUSTODY REQUIREMENTS

4340. Introduction
4341. Definitions
4342. Hold securities in an acceptable securities location
4343. Timely deposit

PART B.2 - ACCEPTABLE SECURITIES LOCATIONS

4344. Acceptable internal storage location
4345. Acceptable internal storage location requirements
4346. Acceptable transfer locations
4347. Securities not under a Dealer Member’s physical possession
4348. Entities that may be external acceptable securities locations
4349. Approval of foreign institutions and foreign securities dealers
4350. Application to IIROC for approval of foreign institutions and foreign securities dealers
4351. Annual approval of foreign institutions and foreign securities dealers as acceptable securities locations
4352. Obtaining a client waiver when an external acceptable securities location is unavailable

PART B.3 - WRITTEN CUSTODIAL AGREEMENT REQUIREMENT

4353. Agreement with each external securities location
4354. Bare trustee custodial agreement

PART B.4 - CONFIRMATION AND RECONCILIATION REQUIREMENTS

4355. Securities in transit
4356. Confirmations from external acceptable securities locations
4357. Confirmations from transfer locations in Canada
4358. Confirmations from transfer locations in the United States
4359. Confirmations from transfer locations outside Canada and the United States
4360. Confirmations of stock dividends receivable and stock splits
4361. Reconcile records for mutual funds and evidences of deposit

PART B.5 - MARGIN REQUIREMENTS

4362. Acceptable securities location
4363. Margin charges – non-acceptable securities location
4364. Non-acceptable internal storage and non-acceptable securities location
4365. No confirmation from securities location
4366. No written custodial agreement
4367. Records - reconciliation
4368. Difference accounts

PART C - CLIENT FREE CREDIT BALANCE REQUIREMENTS

4380. Introduction
4381. Definitions
4382. Dealer Member’s use of client free credit balances
4383. Notation on client account statements
4384. Calculating usable free credit balances
4385. Weekly calculation
4386. Daily compliance review
4400: PROTECTION OF CLIENT ASSETS – SAFEKEEPING CLIENT ASSETS, SAFEGUARDING CASH AND SECURITIES, AND INSURANCE
4401. Introduction

PART A - SAFEKEEPING REQUIREMENTS

4402. Introduction
4403. Written safekeeping agreement
4404. Securities free from encumbrance
4405. Procedures to keep securities apart
4406. Identifying securities held for safekeeping in records
4407. Release of securities held in safekeeping

PART B - INTERNAL CONTROL REQUIREMENTS FOR SAFEGUARDING CASH AND SECURITIES

4420. Introduction
4421. Safeguarding client and Dealer Member cash and securities
4422. Receipt and delivery of securities
4423. Restricting access to securities
4424. Clearing
4425. Protecting securities
4426. How to handle security records
4427. Rules for counting securities
4428. Moving certificates and securities between branches
4429. Transferring securities
4430. Re-organization
4431. Handling dividends and interest
4432. Reconciling internal accounts
4433. Cash

PART C - INSURANCE REQUIREMENTS

4450. Introduction
4451. Definitions
4452. Dealer Member must have insurance
4453. Qualified insurance carriers
4454. Foreign insurers
4455. Mail insurance
4456. Financial institution bond
4457. General minimum insurance requirement
4458. Minimum insurance requirement for certain introducing brokers
4459. Double aggregate limit
4460. Calculating minimum insurance requirement and risk adjusted capital provisions
4461. Correction of insufficient coverage
4462. Global financial institution bonds
4463. Notify IIROC of underwriter insurance termination
4464. When insurance ends due to take-over
4465. Notify IIROC of claims
4466. Board of directors review and designation
4467. Executive review
4468. Executive prompt action
4500: FINANCING ARRANGEMENTS - REPURCHASE MARKET TRADING PRACTICES
4501. Introduction
4502. Definitions
4503. General
4504. Marking to market
4505. Forward repo trade confirmations
4506. Obligation to make coupon payments
4507. Substitutions
4508. General collateral repurchase agreement or reverse repurchase agreement allocations
4509. Confidentiality
4600: FINANCING ARRANGEMENTS - CASH AND SECURITIES LOAN, REPURCHASE AGREEMENT, AND REVERSE REPURCHASE AGREEMENT TRANSACTIONS
4601. Introduction
4602. Definitions
4603. General requirements
4604. Written agreement requirement
4605. Cash and securities loans between a Dealer Member and an acceptable institution or acceptable counterparty
4606. Cash and securities loans between regulated entities
4607. Cash and securities loans with other counterparties
4700: OPERATIONS – BUSINESS CONTINUITY AND GENERAL TRADING AND DELIVERY STANDARDS
4701. Introduction

PART A - BUSINESS CONTINUITY PLAN

4710. Introduction
4711. Creating a business continuity plan
4712. Business continuity plan procedures
4713. Update business continuity plan
4714. Annual review and test

PART B - GENERAL TRADING AND DELIVERY STANDARDS APPLICABLE TO ALL TRANSACTIONS

4750. Introduction
4751. Definitions
4752. Use of a clearing corporation
4753. Use of a trade matching utility
4754. Trade classification where a Dealer Member enters a trade into the matching utility
4755. Trade classification where a Dealer Member does not enter a trade into the matching utility
4756. Trade matching quarterly compliant trade percentage
4757. Payment or delivery through client settlement agent
4758. Early registration of securities
4759. Repurchase agreement or reverse repurchase agreement transactions and option granting transactions with clients
4760. When issued trading
4761. Tax payments
4800: OPERATIONS – TRADING AND DELIVERY STANDARDS FOR NON-CENTRALLY CLEARED TRANSACTIONS, ACCOUNT TRANSFERS AND BULK ACCOUNT MOVEMENTS
4801. Introduction

PART A - TRADING AND DELIVERY STANDARDS APPLICABLE TO TRANSACTIONS THAT ARE NOT CLEARED AND SETTLED THROUGH A CLEARING CORPORATION.

4802. Introduction

PART A.1 – FIXED INCOME TRANSACTIONS

4803. Fixed income accrued interest
4804. Fixed income trading units
4805. Fixed income delivery
4806. Fixed income redemption payment

PART A.2 – STOCK TRANSACTIONS

4807. Stock trading units
4808. Stock delivery
4809. Stock dividend claims

PART A.3 - BUY-IN TRANSACTIONS

4810. Buy-ins

PART B - ACCOUNT TRANSFERS AND BULK ACCOUNT MOVEMENTS

4850. Introduction
4851. Definitions

PART B.1 - ACCOUNT TRANSFERS

4852. Transferring a full or partial account
4853. Transfer through a recognized depository
4854. Communications between Dealer Members
4855. Receiving Dealer Member - responsibilities for documents
4856. Delivering Dealer Member - response to request for transfer
4857. Asset transfer
4858. Transfer impediment
4859. Failure to settle
4860. Non-certificated mutual funds
4861. Interest or dividend receipt balances
4862. Margin
4863. Responsibility for margining account
4864. Fees and charges
4865. IIROC exemption

PART B.2 - BULK ACCOUNT MOVEMENTS

4866. Bulk account movements exemption
4900: OTHER INTERNAL CONTROL REQUIREMENTS – DERIVATIVES RISK MANAGEMENT
4901. Introduction

DERIVATIVES RISK MANAGEMENT

4910. Introduction
4912. Risk management process
4913. Role of board of directors
4914. Role of an appropriate Executive
4915. Pricing