MFDA RULESJuly 7, 2022 Show
RULE NO. 1 – BUSINESS STRUCTURES AND QUALIFICATIONS1.1 BUSINESS STRUCTURES1.1.1 MembersNo 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:
1.1.2 Compliance by Members and Approved Persons
1.1.3 Service ArrangementsA Member or Approved Person may engage the services of any person including another Member or Approved Person, to provide services to the Member or Approved Person, as the case may be, provided that:
1.1.4 EmployeesA Member may conduct its business by Approved Persons employed as employees by it provided that:
1.1.5 AgentsA Member may conduct its business by Approved Persons retained or contracted by it as agents provided that:
1.1.6 Introducing and Carrying Arrangement
1.1.7 Business Names, Styles, Etc.
1.2 INDIVIDUAL QUALIFICATIONS(1) DefinitionsFor the purposes of this Rule and Policy No. 9,
(2) The MFDA CE Program referred to in subsection (1)(a) above, consists of the following components: (i) business conduct; (ii) professional development; and (iii) MFDA compliance. 1.2.1 Compliance with MFDA RequirementsEach Member shall ensure that any Approved Person executes and delivers to the Member an agreement in a form as prescribed from time to time by the Corporation agreeing, among other things, to be subject to, comply with and be bound by the By-laws and Rules. 1.2.2 RegistrationAn Approved Person must have satisfied any applicable proficiency and other registration requirements set out in securities legislation and established by the securities regulatory authority having jurisdiction. 1.2.3 Education, Training and ExperienceAn Approved Person must not perform an activity that requires registration under securities legislation unless the Approved Person has the education, training and experience that a reasonable person would consider necessary to perform the activity competently. 1.2.4 Training and Supervision
1.2.5 Misleading Communications
1.2.6 Continuing Education (CE)
1.3 OUTSIDE ACTIVITY1.3.1 DefinitionFor the purpose of the By-laws, Rules and Policies, “outside activity” means any activity conducted by an Approved Person outside of the Member:
1.3.2 Requirements for Outside ActivityAn Approved Person may have, and continue in, an outside activity provided that:
1.4 REPORTING REQUIREMENTS
RULE NO. 2 – BUSINESS CONDUCT2.1 GENERAL2.1.1 Standard of ConductEach Member and each Approved Person of a Member shall:
2.1.2 Member ResponsibleEach Member shall be responsible for the acts and omissions of each of its Approved Persons and other employees and agents relating to its business for all purposes under the By-laws and Rules. 2.1.3 Confidential Information
2.1.4 (1) Identifying, addressing and disclosing material conflicts of interest – Member
2.1.4 (2) Identifying, reporting and addressing material conflicts of interest – Approved Person
2.1.5 Borrowing From ClientsNo Approved Person shall borrow money, securities or other assets or accept a guarantee in relation to borrowed money, securities or any other assets, from a client unless:
2.2 CLIENT ACCOUNTSDefinitions.For the purposes of the By-laws and Rules:
2.2.1 “Know-Your-Client”2.2.1(1) Each Member and Approved Person shall take reasonable steps to learn the essential facts relative to each client and to each order or account accepted, and to;
2.2.1(2) For the purpose of establishing the identity of a client that is a corporation, partnership, or trust, the Member or Approved Person must establish the following:
2.2.2 New Accounts
2.2.3 New Account ApprovalEach Member shall designate a trading partner, director or officer or, in the case of a branch office, a branch manager reporting directly to the designated partner, director or officer, who shall be responsible for approval of the opening of new accounts and the supervision of account activity. The designated person shall, no later than one business day after the initial transaction date, approve the opening of such account and a record of such approval shall be maintained in accordance with Rule 5. 2.2.4 Updating Client Information
2.2.5 Know Your Product
2.2.6 Suitability Determination
2.2.7 Relationship DisclosureDefinitions. For the purpose of requirements under Rule 2.2.7, “proprietary product” means a security of an issuer if one or more of the following apply:
2.2.7(1) For each new account opened, the Member shall provide written disclosure to the client:
2.2.7(2) If there is a significant change in respect of the information delivered to the client under this Rule, the Member must take reasonable steps to notify the client of the change in a timely manner, and, if possible, before the Member next
2.2.8 Conditions for Temporary Hold
2.3 CONTROL OR AUTHORITY2.3.1 (a) Control or AuthorityNo Member or Approved Person shall have full or partial control or authority over the financial affairs of a client, including:
2.3.1 (b) Discretionary TradingNo Member or Approved Person shall engage in any discretionary trading. 2.3.1 (c) ExceptionNotwithstanding the provisions of paragraph (a), an Approved Person may have full or partial control or authority over the financial affairs of a client provided that:
2.4 REMUNERATION, COMMISSIONS AND FEES2.4.1. (a) Payable by Member OnlyAny remuneration in respect of business conducted by an Approved Person on behalf of a Member must be paid by the Member (or its affiliates or its related Members which have received it from the Member) directly to and in the name of the Approved Person. No Approved Person in respect of a Member shall accept or permit any associate to accept directly or indirectly, any remuneration, gratuity, benefit or any other consideration from any person other than the Member or its affiliates or its related Members, in respect of the business carried out by such Approved Person on behalf of the Member or its affiliates or its related Members. 2.4.1. (b) Payment of Commissions to Unregistered CorporationFor the purpose of this Rule, “unregistered corporation” shall be understood to mean a corporation that is, itself, not registered under securities legislation. Notwithstanding paragraph (a), where an Approved Person acts as an agent of the Member in compliance with MFDA Rule 1.1.5, any remuneration, gratuity, benefit or other consideration in respect of business conducted by the Approved Person on behalf of a Member may be paid by the Member to an unregistered corporation provided that:
2.4.1. (c) Arrangements ProhibitedParagraph (b) does not apply in respect of any such remuneration, gratuity, benefit or other consideration derived from a client in Alberta. 2.4.2 Referral Arrangements
2.4.3 Operating Charges
2.4.4 Transaction Fees or ChargesPrior to the acceptance of any order in respect of a transaction in a client account, the Member shall disclose to the client any transaction charges and:
2.5 MINIMUM STANDARDS OF SUPERVISION2.5.1 Member ResponsibilitiesEach Member is responsible for establishing, implementing and maintaining policies and procedures to ensure the handling of its business is in accordance with the By-laws, Rules and Policies and with applicable securities legislation. 2.5.2 Ultimate Designated Person
2.5.3 Chief Compliance Officer
2.5.4 Access to BoardThe Member must permit its ultimate designated person and its chief compliance officer to directly access the board of directors or partners of the Member at such times as the ultimate designated person or the chief compliance officer may consider necessary or advisable in view of his or her responsibilities. 2.5.5 Branch Manager
2.5.6 Currency of ExaminationFor the purposes of the Rules, an individual is deemed to have not passed an examination or successfully completed a program unless the individual has done so within 36 months before the date the individual applied for registration or such longer period as may be specified by and subject to relevant requirements as the Corporation may determine if it is satisfied based on the individual’s experience that his or her knowledge and proficiency remains relevant and current. 2.5.7 Maintenance of Supervisory Review DocumentationThe Member must maintain records of all compliance and supervisory activities undertaken by it and its partners, directors, officers, compliance officers and branch managers pursuant to the By-laws and Rules. 2.5.8 No DelegationNo Member or director, officer, partner, compliance officer, branch manager or alternate branch manager shall be permitted to delegate any supervision or compliance responsibility under the By-laws or Rules in respect of any business of the Member, except as expressly permitted pursuant to the By-laws and Rules. 2.6 BORROWING FOR SECURITIES PURCHASESEach Member shall provide to each client a risk disclosure document containing the information prescribed by the Corporation when
provided that a Member is not required to comply with paragraph (b) if such a risk disclosure document has been provided to the client by the Member within the six month period prior to such recommendation or becoming so aware. 2.7 ADVERTISING AND SALES COMMUNICATIONS2.7.1 DefinitionsFor the purposes of the By-laws and Rules:
2.7.2 General RestrictionsNo Member shall issue to the public, participate in or knowingly allow its name to be used in respect of any advertisement or sales communication in connection with its business which:
2.7.3 Review RequirementsNo advertisement or sales communication shall be issued unless first approved by a partner, director, officer, compliance officer or branch manager who has been designated by the Member as being responsible for advertisements and sales communications. 2.8 CLIENT COMMUNICATIONS2.8.1 DefinitionFor the purposes of the By-laws and Rules “client communication” means any written communication by a Member or an Approved Person to a client of the Member, including trade confirmations and account statements, other than an advertisement or sales communication. 2.8.2 General RestrictionsNo client communication shall:
2.8.3 Rates of Return
2.9 INTERNAL CONTROLSEvery Member shall establish and maintain adequate internal controls as prescribed by the Corporation from time to time. 2.10 POLICIES AND PROCEDURES MANUALEvery Member shall establish and maintain written policies and procedures (that have been approved by senior management of the Member) for dealing with clients and ensuring compliance with the Rules, By-laws and Policies of the Corporation and applicable securities legislation. 2.11 COMPLAINTSEvery Member shall establish written policies and procedures for dealing with complaints which ensure that such complaints are dealt with promptly and fairly, and in accordance with the minimum standards prescribed by the Corporation from time to time. 2.12 TRANSFERS OF ACCOUNT2.12.1 DefinitionsFor the purposes of the By-laws and Rules:
2.12.2 TransfersNo account transfer shall be affected by a Member without the written authorization of the client holding the account. If an account transfer is authorized by a client, a delivering Member and a receiving Member shall act diligently and promptly in order to facilitate the transfer of the account in an orderly and timely manner. 2.13 DISCLOSURE OF MFDA MEMBERSHIP2.13.1 DefinitionFor the purposes of complying with the MFDA membership disclosure requirements under this Rule, “MFDA Logo” means the logo prescribed by the Corporation, from time to time, for use by Members. 2.13.2 Account StatementMembers must include the MFDA Logo on the front of each account statement followed by the web address of the official website of the MFDA. 2.13.3 Member WebsiteMembers must include the MFDA Logo on the Member’s homepage followed by a link to the official website of the MFDA. RULE NO. 3 – FINANCIAL AND OPERATIONS REQUIREMENTS3.1 CAPITAL3.1.1 Minimum Levels
3.1.2 NoticeIf at any time the risk adjusted capital of a Member is, to the knowledge of the Member, less than zero, the Member shall immediately notify the Corporation. 3.2 CAPITAL AND MARGIN3.2.1 Client Lending and MarginNo Member or Approved Person shall permit the purchase of securities by a client on margin. In addition, no Member or Approved Person shall lend money or extend credit to a client, or provide a guarantee in relation to a loan of money, securities or any other assets to a client, unless any of the following apply:
3.2.2 Member Capital
3.2.3 Advancing Mutual Fund Redemption ProceedsNo Member shall advance funds or extend credit to or on behalf of a client, directly or indirectly, in connection with the receipt of funds on the redemption of mutual fund securities unless:
3.2.4 Related Member Guarantees
3.2.5 Notice Regarding Accelerated Payment of Long Term DebtEach Member shall immediately notify the Corporation of any request or demand by a creditor for accelerated payments or any other payments in addition to those specified under the agreed regular repayment schedule with respect to contingent and long term liabilities owed by the Member. 3.3 SEGREGATION OF CLIENT PROPERTY3.3.1 GeneralEach Member that holds cash, securities or other property of its clients shall hold such cash, securities or property separate and apart from its own property and in trust for its clients in accordance with this Rule 3.3. 3.3.2 Cash
3.3.3 Securities
3.4 EARLY WARNING3.4.1 DefinitionsThe terms and definitions used in this Rule 3.4 shall have the same meanings as used in Form 1, unless otherwise defined in the By-laws or Rules or the context requires. 3.4.2 (a) DesignationA Member shall be designated in early warning according to its capital, profitability and liquidity position from time to time and frequency of designation or at the discretion of the Corporation as provided in this Rule 3.4 if at any time:
3.4.2 (b) RequirementsIf a Member is designated in early warning then, notwithstanding the provisions of any By-law or Rule, the following provisions shall apply:
3.4.2 (c) Prohibited TransactionsNo Member shall enter into any transaction or take any action, as described in Rule 3.4.2(b)(iv), which, when completed, would have or would reasonably be expected to have the effect on the Member as described in Rule 3.4.2(a), without first notifying the Corporation in writing of its intention to do so and receiving the written approval of the Corporation prior to implementing such transaction or action. 3.4.3 RestrictionsThe Corporation may in its discretion, without affording the Member a hearing, prohibit a Member which is designated as being in early warning from opening any new branch offices, hiring any new Approved Persons, opening any new client accounts or changing in any material respect the investment positions of the Member. Any such prohibitions which have been imposed shall continue to apply until the Member is no longer designated as being in early warning, as demonstrated by the latest filed monthly financial report of the Member. 3.4.4 DurationA Member shall remain designated as being in early warning and subject to the provisions in this Rule 3.4 as are applicable, until the latest filed monthly financial reports of the Member, or such other evidence or assurances as may be appropriate in the circumstances demonstrate, in the opinion of the Corporation that the Member no longer is required to be designated as being in early warning and the Member has otherwise complied with this Rule 3.4. 3.5 FILING REQUIREMENTS3.5.1 Monthly and AnnualEach Member shall:
3.5.2 Combined Financial StatementsIn calculating the risk adjusted capital of a Member, the financial position of the Member may, with the prior approval of the Corporation, be combined (in a manner as set out below) with that of any related Member provided that:
3.5.3 Members’ Auditors
3.5.4 Assessments
3.6 AUDIT REQUIREMENTS3.6.1 StandardsThe audit under Rule 3.5 shall be conducted in accordance with Canadian generally accepted auditing standards and shall include a review of the accounting system, the internal accounting control and procedures for safeguarding assets. It shall include all audit procedures necessary under the circumstances to support the opinions which must be expressed in the Member’s auditor’s reports of Parts I and II of Form 1. Because of the nature of the industry, the substantive audit procedures relating to the financial position must be carried out as of the audit date and not as of an earlier date, notwithstanding that the audit is otherwise conducted in accordance with Canadian generally accepted auditing standards. 3.6.2 Scope
3.6.3 Additional ReportingIn addition, the Member’s auditor shall:
3.6.4 Systems ReviewThe Member’s auditors’ review of the accounting system, the internal accounting control and procedures for safeguarding securities prescribed in the above Audit Requirements should encompass any in-house or service bureau EDP operations. As a result of such review and evaluation the Member’s auditor may be able to reduce the extent of detailed checking of clients and other account statements to trial balances and security position records. 3.6.5 RetentionCopies of Form 1 and all audit working papers shall be retained by the Member’s auditor for seven years. The two most recent years shall be kept in a readily accessible location. All working papers shall be made available for review by the Corporation and the MFDA Investor Protection Corporation and the Member shall direct its auditor to provide such access on request. 3.6.6 Report to CorporationIf the Member’s auditor observes during the regular conduct of his or her audit any material breach of the By-laws or Rules pertaining to the calculation of the Member’s financial position, handling and custody of securities and maintenance of adequate records he or she shall make a report to the Corporation. 3.6.7 RelianceThe reports and audit opinions required in respect of a Member under this Rule 3.6 shall be addressed to the Corporation and the MFDA Investor Protection Corporation in conjunction with the Member who shall be entitled to rely on them for all purposes. 3.6.8 QualificationThe reports and audit opinions referred to in this Rule 3.6 shall be signed by an engagement partner on behalf of the Member’s auditor who shall (i) be authorized to do so in accordance with applicable legislation in the jurisdiction in which the principal office of the Member is located, (ii) be acceptable to the Corporation in accordance with By-law 11.2.1, and (iii) have acknowledged in writing to the Corporation and the Member that it is familiar with the then current By-laws, Rules, Policies and Forms as they relate to the matters required to be reported on therein. RULE NO. 4 – INSURANCE4.1 FINANCIAL INSTITUTION BONDEvery Member shall, by means of a Financial Institution Bond or Bonds (with Discovery Rider attached or Discovery Provisions incorporated in the Bond) and/or mail insurance, effect and keep in force insurance against losses arising as follows: Clause (A) – Fidelity – Any loss through any dishonest or fraudulent act of any of its employees or agents, committed anywhere and whether committed alone or in collusion with others, including loss of property through any such act of any of the employees; Clause (B) – On Premises – Any loss of cash and securities or other property through robbery, burglary, theft, hold-up or other fraudulent means, mysterious disappearance, damage or destruction while within any of the insured’s offices, the offices of any banking institution or clearing house or within any recognized place of safe-deposit, as more fully defined in the Standard Form of Financial Institution Bond (herein referred to as the “Standard Form”); Clause (C) – In Transit and Mail – Any loss of cash and securities or other property through robbery, burglary, theft, hold-up, misplacement, mysterious disappearance, damage or destruction, while in transit or in the mail; Clause (D) – Forgery or Alterations – Any loss through forgery or alteration of any cheques, drafts, promissory notes or other written orders or directions to pay sums in cash, excluding securities, as more fully defined in the Standard Form; Clause (E) – Securities – Any loss through having purchased or acquired, sold or delivered, or acted upon securities or other written instruments which prove to have been forged, counterfeited, raised or altered, or lost or stolen, or through having guaranteed in writing or witnessed any signatures upon any transfers, assignments or other documents or written instruments, as more fully defined in the Standard Form. A Member is not required to effect and keep in force mail insurance where the Member does not use mail for outgoing shipments of cash, securities or other property, negotiable or non-negotiable. 4.2 NOTICE OF TERMINATIONEach Financial Institution Bond maintained by a Member shall contain a rider containing provisions to the following effect:
4.3 TERMINATION OR CANCELLATIONIn the event of the take-over of a Member by another institution or entity as described in Rule 4.2(D) the Member shall ensure that there is bond coverage which provides a period of twelve months from the date of such take-over within which to discover the losses, if any, sustained by the Member prior to the effective date of such take-over and the Member shall pay, or cause to be paid, any applicable additional premium. 4.4 AMOUNTS REQUIRED4.4.1 MinimumThe minimum amount of insurance to be maintained for each Clause under Rule 4.1 shall be the greater of:
provided that for each Clause such minimum amount need not exceed $25,000,000. 4.4.2 Base AmountFor the purposes of this Rule 4.4, the term “base amount” shall mean the greater of:
4.5 PROVISOSRules 4.1, 4.2 and 4.4 shall be subject to the following:
4.6 QUALIFIED CARRIERSInsurance required to be effected and kept in force by a Member pursuant to this Rule 4 may be underwritten directly by either (i) an insurer registered or licensed under the laws of Canada or any province of Canada or (ii) any foreign insurer approved by the Corporation. No foreign insurer shall be approved by the Corporation unless the insurer has the minimum net worth required of $75 million on the last audited balance sheet, provided acceptable financial information with respect to such corporation is available for inspection and the Corporation is satisfied that the insurer is subject to supervision by regulatory authorities in the jurisdiction of incorporation of the insurer which is substantially similar to the supervision of insurance companies in Canada. 4.7 GLOBAL FINANCIAL INSTITUTION BONDSWhere the insurance maintained by a Member in respect of any of the requirements under this Rule 4 names as the insured or benefits the Member, together with any other person or group of persons, whether within Canada or elsewhere, the following must apply:
RULE NO. 5 – BOOKS, RECORDS & REPORTING5.1 REQUIREMENT FOR RECORDSEvery Member shall keep such books, records and other documents as are necessary for the proper recording of its business transactions and financial affairs and the transactions that it executes on behalf of others and shall keep such other books, records and documents as may be otherwise required by the Corporation. Such books and records shall contain as a minimum the following:
5.2 STORAGE MEDIUMAll records and documents required to be maintained by a Member in writing or otherwise may be kept by means of mechanical, electrical, electronic or other devices provided:
5.3 CLIENT REPORTING(1) DefinitionsFor the purpose of client reporting requirements under Rule 5.3
5.3.1 Delivery of Account StatementEach Member shall, in a timely manner, send an account statement to each client at least once every three months. 5.3.2 Content of Account StatementEach account statement must contain the following information:
5.3.3 Report on Charges and Other Compensation.
5.3.4 Performance ReportA Member must deliver a performance report, in respect of all investments required to be reported under Rule 5.3.2, to a client every 12 months, except that the first report delivered after a Member first makes a trade or transfer for a client may be sent within 24 months after that trade or transfer. The performance report must include:
must otherwise meet the requirements set out under Policy No. 7 (Performance Reporting). 5.3.5 Delivery of Report on Charges and Other Compensation and Performance Report
5.3.6 Exempt Market Dealers and Scholarship Plan Dealers – Client ReportingWhere a Member is also registered as:
the Member must comply with any additional client reporting requirements applicable to exempt market dealers and scholarship plan dealers, as set out under securities legislation. 5.4 TRADE CONFIRMATIONS5.4.1 Delivery of ConfirmationsEvery Member who has acted as principal or agent in connection with any trade in a security shall promptly send by prepaid mail or deliver to the client a written confirmation of the transaction containing the information required under Rule 5.4.3. The Member need not send to its client a written confirmation of a trade in a security of a mutual fund where the manager of the mutual fund sends the client a written confirmation containing the information required to be sent under Rule 5.4.3. 5.4.2 Automatic PlansWhere a transaction relates to a client’s participation in an automatic plan that provides for systematic trading in the securities of a mutual fund on a monthly or more frequent basis, and the Member registers the mutual funds pursuant to the plan, the Member is required to send a trade confirmation for the initial transaction only. 5.4.3 ContentEvery confirmation of trade sent to a client must set forth the following information:
5.5 ACCESS TO BOOKS AND RECORDSAll books, records, documentation and other information required to be kept and maintained by a Member or Approved Person shall be available for review by the Corporation and the Corporation shall be entitled to make copies thereof and retain them for the purposes of carrying out its objects and responsibilities under the applicable securities legislation, the By-laws or the Rules. 5.6 RECORD RETENTIONEach Member shall retain copies of the records and documentation referred to in this Rule 5 for seven years from the date the record is created or such other time as may be prescribed by the Corporation. What is the U4?GENERAL INSTRUCTIONS. The Form U4 is the Uniform Application for Securities Industry Registration or Transfer. Representatives of broker-dealers, investment advisers, or issuers of securities must use this form to become registered in the appropriate jurisdictions and/or SROs.
Which of the following must be kept for the life of the firm?The following records must be maintained for the life of the firm: Articles of incorporation. Corporate stock certificate books. Minute books from meetings of the board of directors.
Which of the following is not a responsibility of SIPC?SIPC does not protect against market or interest-rate risk. Also, SIPC does not protect against losses due to fraud or theft by broker-dealer employees. To cover the losses resulting from fraud or theft, broker-dealers are required to maintain insurance which is referred to as a fidelity bond.
When opening an account for a person who is age 65 or older Which of the following is true?When opening an account for a person who is age 65 or older, which of the following is TRUE? AThe account owner must provide information on a qualified guardian.
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