CSA intend to prohibit EMDs from conducting brokerage activities

Ken Ottenbreit and Terence Doherty -

The Investment Industry Regulatory Organization of Canada today announced that it has decided not to proceed with its proposed new "Restricted Dealer Member" class of IIROC member.  IIROC initially proposed the new dealer category in July 2012 in response to policy concerns regarding exempt market dealers, typically based in the U.S., that are conducting brokerage activities in Canada. IIROC specifically cited the resistance from those commenting on the initial proposal as the reason behind its decision to withdraw from its plan to establish the new category of dealer. Summaries of the comments IIROC received are included in the notice released today.

Concerns regarding the scope of brokerage activities conducted by some firms through the EMD registration category, however, remain among regulators. In light of IIROC's decision, the Canadian Securities Administrators released a notice stating that they intend to publish proposed amendments to NI 31-103 later this year that would prohibit EMDs from conducting brokerage activities. The CSA outlined its concerns on the subject in September 2011. Thus, despite the fact that IIROC has decided not to move forward with a new category, EMDs that are currently conducting brokerage activities in accordance with the terms and conditions of their registration  will likely be subject to restrictions in the near future. In the interim, EMDs (and Restricted Dealers) will have their registration and any related exemptive relief extended to the date the NI 31-103 amendments are effective.

For more information, see IIROC Notice 13-0042 and CSA Staff Notice 31-333.

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