Bulletin #0144-P

Mutual Fund Dealers Association of Canada
Association canadienne des courtiers de fonds mutuels
121 King Street West, Suite 1000, Toronto, Ontario, M5H 3T9
TEL: 416-361-6332 FAX: 416-943-1218 WEBSITE: www.mfda.ca

Contact: Gregory J. Ljubic
BULLETIN #0144-P
Corporate Secretary
June 17, 2005
Phone: (416) 943-5836
E-mail: [email protected]

MFDA Bulletin

Policy

For Distribution to Relevant Parties within your Firm

MFDA Investor Protection Fund Update

The following is an update on the MFDA Investor Protection Corporation (“MFDA IPC”).

Approval of MFDA IPC
On May 3, 2005, the Ontario, Alberta, British Columbia and Nova Scotia Securities Commissions and
the Saskatchewan Financial Services Commission (the “Commissions”) provided notice of the
approval of the MFDA Investor Protection Corporation (“IPC”) as a compensation fund for customers
of mutual fund dealers that are Members of the MFDA. The IPC intends to commence coverage of
customer accounts on July 1, 2005.
Links to the Commissions’ approval notices and orders are available on the Investor Protection
Corporation page of the MFDA website at www.mfda.ca.

Size of IPC Fund and Assessments

The initial size of the IPC has been set at $30 million. The Board of Directors of the MFDA
approved the transfer of $2.5 million from the MFDA’s discretionary fund to the IPC. The
MFDA discretionary fund is an account established by the MFDA to receive fine and penalty
monies arising from MFDA disciplinary proceedings. In addition, the MFDA and IPC are now
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in the process of finalizing a line of credit for the IPC in the aggregate amount of $30 million
with a Canadian bank.

Member assessments will commence July, 2005 with the first payment due September 30, 2005.
Members will be assessed on a quarterly basis. Member assessments are based on a calculation
relating to assets under administration (“AUA”), averaged over the prior two years. Each
Member will be assessed at a rate of $22 per million of AUA. However, there will be a
minimum amount of assessment as follows:

• $1,000 for Members that are Level 1, 2 or 3 dealers; and
• $3,500 for Members that are Level 4 dealers.

The MFDA is not recognized in the province of Quebec and MFDA IPC coverage for customers
with accounts in Quebec of MFDA Members will not be provided. As a result, assessments for
MFDA IPC funding will not be made in respect of AUA of Members in Quebec.

IPC Working Group
In accordance with the terms and conditions of the approval order of the Commissions, the IPC and
MFDA will be establishing a working group consisting of representatives of the MFDA IPC, the
MFDA and mutual fund dealers to review various aspects of the IPC including the following:
(i)
identification of the risks of mutual fund dealer failures leading to potential investor
losses;
(ii)
consideration of the size of fund that is appropriate having regard to:
• identified risks;
• amounts of customer property held in client name;
• amounts of customer property held in nominee name;
• average size of customer accounts;
• average cash flow of customer monies through the dealer; and
• other non-mutual fund products being covered under the fund;
(iii)
the type of products that should be covered;
(iv)
the appropriate coverage amount per customer account;
(v) assessment
methodology,
including whether it should be risk-based;
(vi)
the appropriate long term methods of funding the MFDA IPC; and
(vii)
the types of risk management tools required by the MFDA IPC.
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A written report of the working group's findings will be submitted to the MFDA IPC Board and to the
Commissions by May 3, 2006.

Advertising Requirements Related to IPC Coverage
The working group will also be reviewing the matter of advertising of IPC coverage and use by
Members of references to the IPC. Accordingly, the proposed amendments to MFDA Rule 2.7
and proposed MFDA Policy 4 (“Advertising Relating to MFDA IPC Participation”) which were
published for comment with the revised IPC Application on February 25, 2005, have not been
approved and are not in effect. In the meantime, the MFDA is currently working on a brochure
that Members will be required to provide to their customers. The brochure will outline various
aspects related to the IPC including limits of coverage; funding the IPC; who is eligible for
coverage; making a claim; etc. We will keep you informed of our progress in this regard.

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