[Federal Register Volume 65, Number 116 (Thursday, June 15, 2000)]
[Notices]
[Pages 37678-37679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15087]



  Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / 
Notices  

[[Page 37678]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42906; International Series Release No. 1227]


In the Matter of the Investment Dealers Association of Canada; 
Order Granting Exemption

June 7, 2000.
    On January 7, 1999, the Investment Dealers Association of Canada, 
on behalf of itself and the Toronto Stock Exchange, the Vancouver Stock 
Exchange, the Alberta Stock Exchange, and the Montreal Exchange 
(collectively, the ``Canadian SROs''), requested that the U.S. 
Securities and Exchange Commission (``Commission'') issue an exemptive 
order under sections 15(a)(2) and 36 of the Securities Exchange Act of 
1934 (``Exchange Act'') with respect to the broker-dealer registration 
requirements and certain related provisions of the Exchange Act. This 
request, which is outlined below, has been considered in connection 
with two new rules being adopted today by the Commission that will 
permit foreign securities to be offered and sold to certain Canadian 
tax-deferred retirement accounts without being registered under the 
Securities Act of 1933 (``Securities Act''), and that will permit 
foreign investment companies to offer and sell their securities to 
those accounts without registering under the Investment Company Act of 
1940 (``Investment Company Act'').\1\ The relief we provide today 
responds to this request but applies to a broader group of account 
holders and retirement accounts in order to be consistent with these 
new rules.\2\
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    \1\ See Rule 237 under the Securities Act (``Rule 237'') and 
Rule 7d-2 under the Investment Company Act (``Rule 7d-2''); Release 
Nos. 33-7860, 34-42905, IC-24491, International Series Release No. 
1226 (June 7, 2000)
    \2\ The Canadian SROs' request is limited to specified 
activities of member broker-dealers with respect to certain Canadian 
retirement accounts, known as Registered Retirement Savings Plans 
(``RRSPs'') and Registered Retirement Income Funds (``RRIFs''), 
maintained by U.S. persons. As discussed in more detail below, the 
relief we provide today will apply not only to RRSP and RRIF 
accounts, but also to certain Canadian retirement accounts that meet 
the criteria set forth in Rule 237 and Rule 7d-2.
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    Specifically, the Canadian SROs request that, subject to the 
conditions set forth below, the Commission grant exemptive relief 
pursuant to section 15(a)(2) of the Exchange Act for Canadian broker-
dealers that are members of the Canadian SROs. The requested relief 
would permit such broker-dealers to offer their services with respect 
to RRSP or RRIF accounts to persons formerly resident in Canada who 
established RRSP or RRIF accounts and who now reside in the United 
States, but continue to maintain their RRSP and RRIF accounts in 
Canada.\3\
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    \3\ The Canadian SROs note that the exemption in Rule 15a-
6(a)(4)(iii) under the Exchange Act is available to Canadian broker-
dealers only to the extent they effect transactions with persons who 
are temporarily present in the U.S.
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    In addition, the Canadian SROs request that the Commission grant 
such member Canadian broker-dealers exemptive relief pursuant to 
section 36 of the Exchange Act, with respect only to the services 
relating to RRSP or RRIF accounts described above, from the reporting 
and other requirements specifically imposed by the Exchange Act and the 
rules and regulations thereunder on a broker or a dealer that is not 
registered with the Commission. Such exemptive relief would be 
conditioned on compliance by the member Canadian broker-dealer with all 
of the terms and conditions to the exemptive relief under section 
15(a)(2) of the Exchange Act.
    The Canadian SROs advance several grounds for the relief sought. 
First, because Canadian law requires that RRSP and RRIF accounts 
maintain 80% of their assets in Canadian securities and comply with 
various tax regulations, account holders will be disadvantaged if they 
cannot continue to deal with Canadian broker-dealers familiar with both 
Canadian securities and the requirements of Canadian tax law. Second, 
because Canadian law requires that these accounts be sited in Canada 
with a Canadian trustee and maintained by a qualified Canadian 
financial institution, the transfer of RRSP and RRIF accounts to a U.S. 
broker-dealer is highly impracticable, if not impossible, if the 
account holder wishes to avoid immediate taxation of such funds. Third, 
the requested relief will apply only to Canadian broker-dealers that 
are members of the Canadian SROs. Finally, the requested relief would 
promote the public policies of both the U.S. and Canadian governments 
of encouraging individuals to save for retirement.\4\
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    \4\ The Canadian SROs also note that the North American 
Securities Administrators Association (``NASAA'') adopted an 
amendment to the Uniform Securities Act that would enable Canadian 
broker-dealers to trade on behalf of individual owners of RRSPs and 
RRIFs, including those present in the U.S., without registering as 
broker-dealers under state law. (NASAA Cross Border Trading 
Committee Bulletin, Nov. 9, 1995).
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    To further the protection of investors, the Canadian SROs propose 
five conditions to the relief sought. These conditions, among other 
things, help assure that the permitted activities are limited to those 
necessary to maintain pre-existing relationships with respect to RRSP 
and RRIF accounts (with certain narrow exceptions), that U.S. account 
holders know that these accounts and Canadian broker-dealers are not 
fully regulated under U.S. securities laws, and that Canadian broker-
dealers relying upon the exemption provide the Commission with 
information relating to their U.S. transactions upon request. 
Specifically, the Canadian SROs represent, on behalf of their member 
Canadian broker-dealers, that (1) the member broker-dealers and their 
respective associated persons will not advertise RRSPs or RRIFs in the 
United States; (2) the member broker-dealers will disclose to U.S. 
account holders, at least annually (and at any time a new account is 
opened as described below), that RRSP and RRIF accounts are not 
regulated under the securities laws of the United States and the member 
broker-dealers are not subject to the broker-dealer regulations of the 
United States; (3) except as provided below, the member broker-dealers 
and their respective associated persons will not solicit individuals 
residing in the United States for new RRSP or RRIF accounts; (4) except 
as provided below, the member broker-dealer or the associated person 
will have had a bona fide pre-existing relationship with the account 
holder before he or she entered the U.S.; and (5) the member broker-
dealers will provide the Commission with the information, documents, 
testimony, and assistance contemplated by Rule 15a-6(a)(3)(i)(B) under 
the Exchange Act with respect to RRSP and RRIF account transactions 
subject to the exemption. Notwithstanding the foregoing clauses (3) and 
(4), associated persons of member broker-dealers may solicit existing 
clients who reside in the United States and continue to hold RRSP or 
RRIF accounts at each time that the associated person soliciting such 
account changes brokerage firms, so that the account holder may elect 
whether the relationship maintained by the account holder is with the 
brokerage firm or the associated person. In addition, a bona fide pre-
existing relationship will not be required to the extent the account 
holder, having determined to switch broker-dealers, establishes the 
relationship with the member broker-dealer or the associated person in 
an unsolicited transaction that meets the requirements of the exemption 
set forth in Rule 15a-6(a)(1) under the Exchange Act.
    The matter has been considered and the Commission finds, on the 
basis of the information provided by the

[[Page 37679]]

Canadian SROs, that granting the requested exemptions is appropriate 
and consistent with the public interest and the protection of 
investors. We believe it is clearly in the public interest to encourage 
individuals to save for retirement. In conjunction with this exemptive 
order, the Commission is adopting Rule 237 which would permit foreign 
securities to be offered to U.S. participants in certain Canadian tax-
deferred retirement accounts, and sold to those accounts, without being 
registered under the Securities Act, and Rule 7d-2 which would permit 
foreign investment companies to offer and sell their securities to 
those accounts without registering under the Investment Company Act.\5\ 
For purposes of clarity and consistency, this exemptive order applies 
to ``Participants'' (rather than ``account holders'') and ``Canadian 
Retirement Accounts'' (including, but not limited to RRSPs and RRIFs) 
as these terms are defined in Rules 237 and 7d-2.\6\
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    \5\ 5 See fn. 1, supra.
    \6\ Rules 237(a)(2) and 7d-2(a)(2) define a ``Canadian 
Retirement Account'' as a trust or other arrangement, including, but 
not limited to, a ``Registered Retirement Savings Plan'' or 
``Registered Retirement Income Fund'' administered under Canadian 
law, that is managed by the Participant and: (i) Operated to provide 
retirement benefits to a Participant; and (ii) Established in 
Canada, administered under Canadian law, and qualified for tax-
deferred treatment under Canadian law. Rules 237(a)(6) and 7d-
2(a)(6) define a ``Participant'' as a ``natural person who is a 
resident of the United States, or is temporarily present in the 
United States, and who contributes to, or is or will be entitled to 
receive the income and assets from, a Canadian Retirement Account.''
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    The Commission notes that the exemptions are narrow in scope, and 
are intended only to permit member Canadian broker-dealers that are not 
registered in the U.S. to conduct activities necessary to allow 
individuals, who have established Canadian Retirement Accounts and 
later moved to the U.S., to effectively manage the assets in those 
accounts.
    Accordingly, It Is Ordered, pursuant to section 15(a)(2) of the 
Exchange Act, that any Canadian broker-dealer that is a member of a 
Canadian SRO shall be exempt from the requirements of section 15(a)(1) 
of the Exchange Act, to the extent it effects transactions in 
securities with or for, or induces or attempts to induce the purchase 
and sale of any security by, Participants for their Canadian Retirement 
Accounts. This exemption is subject to compliance by any member 
Canadian broker-dealer intending to rely upon it with all of the 
following conditions:
    (1) Except as provided below, the member broker-dealer and its 
associated persons will not advertise Canadian Retirement Accounts in 
the United States;
    (2) The member broker-dealer will disclose to its Participants, at 
least annually (and at any time a new account is opened as described 
below), that Canadian Retirement Accounts are not regulated under the 
securities laws of the United States and the member broker-dealer is 
not subject to the broker-dealer regulations of the United States;
    (3) Except as provided below, the member broker-dealer and its 
associated persons will not solicit individuals residing in the United 
States for new Canadian Retirement Accounts;
    (4) Except as provided below, the member broker-dealer or the 
associated person will have had a bona fide pre-existing relationship 
with the Participant before he or she entered the U.S.; and
    (5) The member broker-dealer will provide the Commission with the 
information, documents, testimony, and assistance contemplated by Rule 
15a-6(a)(3)(i)(B) under the Exchange Act with respect to Canadian 
Retirement Account transactions subject to this exemption (as if such 
Rule applied to this exemption).
    Notwithstanding the foregoing clauses (1) and (3), a Canadian 
broker-dealer may provide its Participants with the ability to effect 
transactions in their Canadian Retirement Accounts (and access 
information relating to those accounts), as well as provide all 
Participants with general information regarding Canadian Retirement 
Accounts, through the broker-dealer's Web site.\7\
    Notwithstanding the foregoing clauses (3) and (4), an associated 
person of a member broker-dealer may solicit existing clients who 
reside in the United States and continue to hold Canadian Retirement 
Accounts at each time that the associated person soliciting such 
clients changes brokerage firms. This exception is intended to allow 
the Participant to elect whether the relationship maintained by the 
Participant is with the brokerage firm or the associated person.
    Notwithstanding the foregoing clause (4), a member broker-dealer 
may open a Canadian Retirement Account for a Participant who has 
determined to switch broker-dealers in an unsolicited transaction that 
meets the requirements of the exemption set forth in Rule 15a-6(a)(1) 
under the Exchange Act. Although a transaction over a foreign broker-
dealer's Web site ordinarily would be solicited for purposes of Rule 
15a-6(a)(1),\8\ for purposes of this order only, a Canadian broker-
dealer will be permitted to rely on the Rule 15a-6(a)(1) exemption if 
Participants access, and subsequently transfer their Canadian 
Retirement Accounts to the broker-dealer through that broker-dealer's 
Web site.\9\
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    \7\ The Commission recognizes how, under the unique and limited 
circumstances addressed by this order, the ability of Participants 
to access, and effect transactions in, their Canadian Retirement 
Accounts over the Internet might serve as an effective tool in the 
overall management of these accounts. The Commission also recognizes 
that general Canadian Retirement Account information contained on 
the Web sites of Canadian broker-dealers may help all Participants 
to continuously assess and evaluate the effectiveness of their 
retirement accounts. However, a Canadian broker-dealer must continue 
to take reasonable measures to ensure that it does not otherwise 
effect, induce, or attempt to induce, securities transactions with 
any other U.S. resident (this includes soliciting Participants for 
new Canadian Retirement Accounts who are not existing clients of the 
broker-dealer), or in any other type of account of a U.S. resident 
that is a Participant, as a result of these Internet activities. 
These measures should be consistent with the Commission's position 
on foreign broker-dealer advertising and solicitation over the 
Internet. See Interpretation Re: Use of Internet Web Sites to Offer 
Securities, Solicit Securities Transactions, or Advertise Investment 
Services Offshore; Securities Exchange Act Release No. 39779 (March 
23, 1998) (``Internet Release'').
    \8\ See Internet Release, fn. 56 and accompanying text.
    \9\ However, any Canadian broker-dealer that has a Web site and 
intends to rely on Rule 15a-6(a)(1) for transactions with any other 
U.S. resident, or in any other type of account of a U.S. resident 
that is a Participant, should continue to ensure that the 
``unsolicited'' customer's transactions are not in fact solicited, 
either directly or indirectly, through customers accessing its Web 
site. Id.
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    It Is Further Ordered, pursuant to section 36 of the Exchange Act, 
that any such member Canadian broker-dealer shall be exempt, with 
respect only to the services relating to Canadian Retirement Accounts 
described above, from all reporting and other requirements specifically 
imposed by the Exchange Act and the rules and regulations thereunder, 
on a broker or a dealer that is not registered with the Commission.\10\
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    \10\ Such member Canadian broker-dealers remain subject to all 
other applicable provisions of the federal securities laws, 
including without limitation Section 10(b) of the Exchange Act and 
Rule 10b-5 thereunder.
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    This exemption is subject to compliance by any member Canadian 
broker-dealer intending to rely upon it with all of the conditions to 
the exemption under section 15(a)(2) under the Exchange Act described 
above.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-15087 Filed 6-14-00; 8:45 am]
BILLING CODE 8010-01-U