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Bulletin #0494-P

Policy
Approval of Amendments to MFDA Form 1 Regarding the Definition of “Market Value”

Contact: Paige
Ward
BULLETIN #0494 – P
Director, Policy & Regulatory Affairs
October 3, 2011
Phone: 416-943-5838
E-mail: pward@mfda.ca

MFDA Bulletin

Policy

For Distribution to Relevant Parties within your Firm

Approval of Amendments to MFDA Form 1 Regarding the Definition of
“Market Value”

The securities regulatory authorities in Alberta, British Columbia, Manitoba, New Brunswick,
Nova Scotia, Ontario, and Saskatchewan (the “Recognizing Regulators”) have approved/not
objected to public interest amendments to the MFDA Form 1. The proposed amendment is
intended to explicitly include the definition of “market value” in Form 1 to ensure consistency by
MFDA Members in the valuation of their securities. The proposed amendment will be brought
forward for ratification at the November 2011 Annual General and Special Meeting of Members
(“AGM”). The amended Form is attached as Schedule “A”.

DM#259119

Schedule “A”


MUTUAL FUND DEALERS ASSOCIATION OF CANADA

FORM 1


FORM 1 – GENERAL NOTES AND DEFINITIONS

GENERAL NOTES:

1. Each Member must comply with the requirements in Form 1 as approved and amended from time to time by the
board of directors of the Mutual Fund Dealers Association of Canada (the Corporation).

Form 1 is a special purpose report that includes financial statements and schedules, and is to be prepared in
accordance with International Financial Reporting Standards (IFRS), except as prescribed by the Corporation.
Each Member must complete and file all of these statements and schedules.

2. The following are Form 1 IFRS departures as prescribed by the Corporation:

Prescribed IFRS departure
Trading balances
When reporting trading balances relating to Member and client securities and

other investment transactions, the Corporation allows the netting of
receivables from and payables to the same counterparty.
Preferred shares
Preferred shares issued by the Member and approved by the Corporation are
classified as shareholders’ capital.
Presentation
Statements A and D contain terms and classifications (such as allowable and
non-allowable assets) that are not defined under IFRS. In addition, specific
balances may be classified or presented on Statement A and D in a manner
that differs from IFRS requirements. The General Notes and Definitions, and
the applicable Notes and Instructions to the Statements, should be followed in
those instances where departures from IFRS presentation exists.

Statements B, C, E and F are supplementary financial information, which are
not statements contemplated under IFRS.
Separate financial
Consolidation of subsidiaries is not permitted for regulatory reporting
statements on a
purposes except for related companies that meet the definition of “related
non-consolidated
Member” in MFDA By-law No. 1 and the Corporation has approved the
basis
consolidation.

Because Statement D only reflects the operational results of the Member, a
Member must not include the income (loss) of an investment accounted for
by the equity method.
Statement of cash
A statement of cash flow is not required as part of Form 1.
flow
Valuation
Securities are to be valued and reported at “market value of securities”.

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3. The following are Form 1 prescribed accounting treatments based on available IFRS alternatives:

Prescribed accounting treatment
Hedge accounting
Hedge accounting is not permitted for regulatory reporting purposes. All
security and derivative positions of a Member must be marked-to-market at the
reporting date. Gains or losses of the hedge positions must not be deferred to a
future point in time.
Securities owned
A Member must categorize all investment positions as held-for-trading
and sold short as
financial instruments. These security positions must be marked-to-market.
held-for-trading

Because the Corporation does not permit the use of available for sale and hold-
to-maturity categories, a Member must not include other comprehensive
income (OCI) and will not have a corresponding reserve account relating to
marking-to-market available for sale security positions.
Valuation of a
A Member must value subsidiaries at cost.
subsidiary

4. These statements and schedules should be read in conjunction with the Corporation’s Bylaws, Rules and
Policies.

5. For purposes of these statements and schedules, the accounts of related companies that meet the definition of
“related Member” in MFDA By-law No. 1 may be consolidated.

6. For purposes of the statements and schedules, the capital calculations must be on a trade date reporting basis
unless specified otherwise in the Notes and Instructions to Form 1.

7. Comparative figures on all statements are required only at the audit date. As a transition exemption for the
changeover to International Financial Reporting Standards (IFRS) from Canadian Generally Accepted
Accounting Principles (CGAAP), Members are not required to file comparative information for the preceding
financial year as part of the first audited Form 1 under IFRS.

8. All statements and schedules must be expressed in Canadian dollars and must be rounded to the nearest dollar.

9. Supporting details should be provided, as required, showing a breakdown of any significant amounts that have
not been clearly described on the statements and schedules.

10. Mandatory security counts. Securities held in segregation and safekeeping must be counted once in the year
in addition to the count as at the year-end audit date.

11. Mandatory reconciliations. Reconciliations must be performed monthly in addition to the year-end audit date
between the Member’s records and the records of the depository or custodian where the Member holds its own
and client securities in nominee name accounts.


DEFINITIONS :

1. “acceptable entity” means:

(a) Acceptable institutions.

(b) Government of Canada, the Bank of Canada and Provincial Governments.

(c) Insurance companies licensed to do business in Canada or a province thereof.

(d) Canadian provincial capital cities and all other Canadian cities and municipalities, or their equivalents.

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(e) All crown corporations, instrumentalities and agencies of the Canadian federal or provincial governments which
are government guaranteed as evidenced by a written unconditional irrevocable guarantee or have a call on the
consolidated revenue fund of the federal or provincial governments.

(f) Canadian pension funds which are regulated either by the Office of Superintendent of Financial Institutions or a
provincial pension commission.

(g) Corporations (other than Regulated Entities) with a minimum net worth of $75 million on the last audited
balance sheet, provided acceptable financial information with respect to such corporation is available for
inspection.

(h) Members of the Corporation.

(i) Regulated entities.

2. “acceptable institutions” means:

(a) Canadian banks, Quebec savings banks, trust companies licensed to do business in Canada or a province
thereof.

(b) Credit and central credit unions and regional caisses populaires.

3. “acceptable securities locations” means those entities considered suitable to hold securities on behalf of a
Member, for both inventory and client positions, without capital penalty, given that the locations meet the
requirements outlined in the segregation Bylaws, Rules or Policies of the Corporation including, but not limited
to, the requirement for a written custody agreement outlining the terms upon which such securities are deposited
and including provisions that no use or disposition of the securities shall be made without the prior written
consent of the Member and the securities can be delivered to the Member promptly on demand. The
Corporation will maintain and regularly update a list of those foreign depositories and clearing agencies that
comply with these criteria. The entities are as follows:

(a) Depositories

i. Canada
CDS Clearing and Depository Services Inc.

ii. United States

Depository Trust Company

(b) Government of Canada, the Bank of Canada and Provincial Governments.

(c) Canadian banks, Quebec savings banks, trust companies and loan companies licensed to do business in Canada
or a province thereof.

(d) Credit and central credit unions and regional caisses populaires.

(e) Insurance companies licensed to do business in Canada or a province thereof.

(f) Mutual Funds or their Agents – with respect to security positions maintained as a book entry of securities issued
by the mutual fund and for which the mutual fund is unconditionally responsible.

(g) Regulated entities.

4. “regulated entities” means those that are Members covered by the Canadian Investor Protection Fund or
Members of recognized exchanges and associations. For the purposes of this definition, recognized exchanges
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and associations are those that are identified as a “regulated entity” by the Investment Industry Regulatory
Organization of Canada.

5. “market value of securities” means:

(a) for listed securities, the last bid price of a long security and, correspondingly, the last ask price of a short
security, as shown on the exchange quotation sheets as of the close of business on the relevant date or last
trading date prior to the relevant date, as the case may be, subject to an appropriate adjustment where an
unusually large or unusually small quantity of securities is being valued. If not available, the last sale price of a
board lot may be used. Where not readily marketable, no market value shall be assigned.
(b) for unlisted and debt securities, and precious metals bullion, a value determined as reasonable from published
market reports or inter-dealer quotation sheets on the relevant date or last trading day prior to the relevant date,
or based on a reasonable yield rate. Where not readily marketable, no market value shall be assigned.
(c) for commodity futures contracts , the settlement price on the relevant date or last trading day prior to the
relevant date.
(d) for money market fixed date repurchases (no borrower call feature), the market price is the price determined by
applying the current yield for the security to the term of maturity from the repurchase date. This will permit
calculation of any profit or loss based on the market conditions at the reporting date. Exposure due to future
changes in market conditions is covered by the margin rate.
(e) for money market open repurchases (no borrower call feature), prices are to be determined as of the reporting
date or the date the commitment first becomes open, whichever is the later. Market price is to be determined as
in (d) and commitment price is to be determined in the same manner using the yield stated in the repurchase
commitment.
(f) for money market repurchases with borrower call features, the market price is the borrower call price.

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