37678 Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Notices

1See 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)

2The 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.

3The 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.

4The Canadian SROs also note that the North

American Securities Administrators Association

(‘‘NASAA’’) adopted an amendment to the Uniform

Securities Act that would enable Canadian brokerdealers 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).

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

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

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 brokerdealers 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

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 brokerdealers, that (1) the member brokerdealers 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

Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Notices 37679

5 5 See fn. 1, supra.

6Rules 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.’’

7The 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 brokerdealers may help all Participants to continuously

assess and evaluate the effectiveness of their

retirement accounts. However, a Canadian brokerdealer 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 brokerdealer 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’’).

8See Internet Release, fn. 56 and accompanying

text.

9However, 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.

10Such 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.

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 taxdeferred 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

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 preexisting 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 15a6(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 brokerdealer through that broker-dealer’s Web

site.9

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

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