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Bulletin #0659-P

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Paige Ward
General Counsel, Corporate Secretary and Vice President, Policy
Policy
For Distribution to Relevant Parties within your Firm

Notice of Exemption Granted Pursuant to Section 37 of By-law No.1

The Regulatory Issues Committee of the MFDA Board of Directors has granted an exemption from the requirements of MFDA Rule 1.1.1(a) (“Business Structures”) to Steadyhand Investment Funds Inc. (“SIFI”) from the requirement that Members and Approved Persons engage in all securities related business for the account of the Member and through the facilities of the Member.  SIFI is an affiliate of Steadyhand Investment Management Ltd. (“SIML”).  SIML is the manager of a family of mutual funds (the Steadyhand Funds) of which SIFI is the principal distributor.  The relief will permit an advising representative (portfolio manager) of SIML to also become registered as a dealing representative of SIFI.

The relief granted is subject to the terms and conditions set out in the Decision Document of the Regulatory Issues Committee of the MFDA Board of Directors (attached to this Bulletin).

445826


MUTUAL FUND DEALERS ASSOCIATION OF CANADA
DECISION DOCUMENT

Background

  1. The MFDA has received an application from the Applicant by letter dated May 1, 2015 for exemptive relief from the requirements of MFDA Rule 1.1.1(a).
  2. MFDA Rule 1.1.1(a) provides as follows:
    1. “No Member or Approved Person (as defined in By-law 1.1) in respect of a Member shall, directly or indirectly, engage in any securities related business (as defined in By-law 1.1) except in accordance with the following:
      1. all such securities related business is carried on for the account of the Member, through the facilities of the Member (except as expressly provided in the Rules) and in accordance with the By-laws and Rules, other than:
        1. such business as relates solely to trading in deposit instruments conducted by any Approved Person not on account of the Member; and
        2. such business conducted by an Approved Person as an employee of a bank and in accordance with the Bank Act (Canada) and the regulations thereunder and applicable securities legislation.”
  3. The requirement in Rule 1.1.1(a) that Members and Approved Persons engage in all securities related business for the account of the Member and through the facilities of the Member is intended to ensure that the MFDA can appropriately discharge its regulatory mandate, to prevent client confusion and potential conflicts of interest and to limit the extent to which the MFDA Investor Protection Corporation (“MFDA IPC”) is subject to inappropriate exposure to claims liability.
  4. Pursuant to section 37 of MFDA By-law No. 1, the Board of Directors has discretionary authority to exempt any Member, Approved Person, or any other person subject to the jurisdiction of the MFDA from the requirements of any provision of the By-laws, Rules and Forms where it is satisfied that to do so would not be prejudicial to the interests of the Members, their clients or the public, and subject to such terms and conditions as are considered necessary or desirable. The MFDA Board of Directors has delegated the consideration and disposition of exemptive relief applications to the Regulatory Issues Committee of the Board pursuant to section 3.6.4 of MFDA By-law No. 1.

Representations of the Applicant

This decision is based on the following facts represented to the MFDA by the Applicant:

  1. The Applicant is a mutual fund dealer registered with the securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario and is a member of the MFDA.
  2. The Applicant is an affiliate of Steadyhand Investment Management Ltd. (“SIML”). SIML is registered under the categories of investment fund manager and portfolio manager with the securities regulatory authorities in British Columbia and Ontario. SIML is the manager of a family of mutual funds (collectively, the “Steadyhand Funds”) distributed pursuant to a simplified prospectus. SIML is the portfolio manager for the Steadyhand Founders Fund, a fund of funds which invests using the other Steadyhand Funds (all managed by sub-advisors). The Applicant is the principal distributor of the Steadyhand Funds.
  3. SIML is registered as a portfolio manager under securities laws to facilitate acting as an investment fund manager. SIML manages investment funds but does not, otherwise, have any clients.
  4. This exemptive relief is being sought so that Mr. Salman Ahmed, currently registered as an advising representative (portfolio manager) of SIML in both British Columbia and Ontario, may also become registered as a dealing representative of the Applicant in British Columbia and Ontario.
  5. Mr. Ahmed, in his role as an advising representative of SIML, conducts portfolio management duties on behalf of the Steadyhand Founders Fund and also assists with the oversight of the sub-advisors for the other Steadyhand Funds. Mr. Ahmed does not deal with any clients or members of the public and his portfolio management duties are almost exclusively research and analysis. Mr. Ahmed also reviews and approves funding allocations for the Steadyhand Founders Fund.
  6. Mr. Ahmed does not make trades on behalf of the Steadyhand Funds.
  7. The dual registration of Mr. Ahmed at each of the Applicant and SIML would create operational efficiencies and optimization of resources for the two affiliated entities.
  8. If the requested relief is granted, each of the Applicant and SIML will have policies and procedures in place to handle potential conflicts of interest.
  9. Mr. Ahmed will have sufficient time to adequately serve clients of the Applicant.
  10. Mr. Ahmed will act in the best interests of clients of the Applicant and deal fairly, honestly and in good faith.
  11. If the requested relief is granted, the MFDA will be given access to the books and records of SIML for the purpose of ensuring, on an ongoing basis, that activities between the Applicant and SIML are being kept separate and that requirements under MFDA Rules and Policies and any terms and conditions upon which exemptive relief is based are otherwise being met.

Position of MFDA Staff

Staff has advised the Regulatory Issues Committee that it supports the grant of exemptive relief sought by the Applicant, and has further advised the Committee that:

  1. The Applicant has filed an application with staff of the British Columbia Securities Commission (“BCSC”) and the Ontario Securities Commission (“OSC”) seeking exemptive relief from the parallel requirement to that under MFDA Rule 1.1.1(a) set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, section 4.1(1)(b), which prohibits an individual from acting as a dealing, advising or associate advising representative of another firm that is registered in any jurisdiction in Canada.
  2. BCSC and OSC staff have indicated that they are supportive of the relief being granted to the Applicant from the requirements of MFDA Rule 1.1.1(a) and of granting the parallel relief sought by the Applicant from the requirements under NI 31-103, section 4.1(1)(b).

Decision

The Regulatory Issues Committee of the MFDA Board of Directors concluded at its meeting held on September 15, 2015 that providing the Applicant with an exemption from the requirements of Rule 1.1.1(a) to permit Mr. Ahmed to be registered as both a dealing representative of the Applicant and an advising representative of SIML would not be prejudicial to the interests of the Members, their clients or the public.

This application may be distinguished from other applications for relief from requirements under MFDA Rules to enable Approved Persons to become dually registered for the purpose of acting in a dealing or advising capacity for two different registrants. Generally, permitting dual registration in such circumstances would give rise to a number of regulatory concerns, including increased potential for client confusion, conflicts of interest and inadequate Member supervision of Approved Persons. In this case, SIML, as noted, manages investment funds but does not, otherwise, have any clients and Mr. Ahmed, in his role at SIML, does not make any trades on behalf of the Steadyhand Funds. Accordingly, Mr. Ahmed would not be in a position where he could provide dealing or advisory services to clients of two different registrants. As a result, concerns would not arise in respect of increased potential for client confusion, conflicts of interest or inadequate Member supervision of Approved Persons. In addition, there would be no risk of client confusion respecting the scope of MFDA IPC coverage and no exposure to liability for potential loss and customer loss claims.

The MFDA Regulatory Issues Committee of the MFDA Board of Directors hereby grants exemptive relief to the Applicant from the requirements of Rule 1.1.1(a) to permit Mr. Ahmed to be registered as both a dealing representative of the Applicant and an advising representative of SIML, subject to the following terms and conditions:

  1. With the exception of his activities as an advisory representative of SIML, as described in the Applicant’s submissions, Mr. Ahmed shall not engage in any trading or advisory activities on behalf of any client of SIML. The Applicant shall notify MFDA staff immediately in the event of any change or proposed change to Mr. Ahmed’s activities as an advisory representative of SIML as described in the Applicant’s submissions.
  2. SIML shall, upon request and during business hours, provide MFDA staff with access to its books and records for the purpose of ensuring compliance with MFDA Rules and Policies and the terms and conditions of this exemptive relief.
  3. The relief granted by this exemption will become effective when exemptive relief from National Instrument 31-103, section 4.1(1)(b) is granted to the Applicant by the BCSC, as its Principal Regulator, and will terminate immediately upon the revocation, cancellation or expiry of the exemptive relief granted to the Applicant by the BCSC.

Signed on behalf of the Committee the 21st day of September, 2015.

“Christopher C. Nicholls”
Christopher C. Nicholls
Chair