Policy & Regulation
  RULE NO. 2 – BUSINESS CONDUCT

Table of Contents | Rule 1 | Rule 3 | Rule 4 | Rule 5

2.1 GENERAL
2.1.1

Standard of Conduct. Each Member and each Approved Person of a Member shall:
(a) deal fairly, honestly and in good faith with its clients;
(b) observe high standards of ethics and conduct in the transaction of business;
(c) not engage in any business conduct or practice which is unbecoming or detrimental to the public interest; and
(d) be of such character and business repute and have such experience and training as is consistent with the standards described in this Rule 2.1.1, or as may be prescribed by the Corporation.

Related Notices

MR-0047 – Personal Financial Dealings With Clients (issued October 3, 2005)

MR-0065 – Churning (issued October 4, 2007)

Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)
2.1.2

Member Responsible. Each 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
(a) All information received by a Member relating to a client or the business and affairs of a client shall be maintained in confidence by the Member and its Approved Persons and other employees and agents. No such information shall be disclosed to any other person or used for the advantage of the Member or its Approved Persons or other employees or agents without the prior written consent of the client or as required or authorized by legal process or statutory authority or where such information is reasonably necessary to provide a product or service that the client has requested.
(b) Each Member shall develop and maintain written policies and procedures relating to confidentiality and the protection of information held by it in respect of clients.

Related Notices

MR-0017 – Transfer of Client Accounts (issued March 28, 2003)

MR-0079 – Approved Person Transfers (issued March 4, 2011)
2.1.4 Conflicts of Interest
(a) Each Member and Approved Person shall be aware of the possibility of conflicts of interest arising between the interests of the Member or Approved Person and the interests of the client. Where an Approved Person becomes aware of any conflict or potential conflict of interest, the Approved Person shall immediately disclose such conflict or potential conflict of interest to the Member.
(b) In the event that such a conflict or potential conflict of interest arises, the Member and the Approved Person shall ensure that it is addressed by the exercise of responsible business judgment influenced only by the best interests of the client and in compliance with Rules 2.1.4(c) and (d).
(c) Any conflict or potential conflict of interest that arises as referred to in Rule 2.1.4(a) shall be immediately disclosed in writing to the client by the Member, or by the Approved Person as the Member directs, prior to the Member or Approved Person proceeding with the proposed transaction giving rise to the conflict or potential conflict of interest.
(d) Each Member shall develop and maintain written policies and procedures to ensure compliance with Rules 2.1.4(a), (b) and (c).

History

Bulletin #0186-P – Amendments to MFDA Rule 2.1.4 (Conflicts of Interest)
Related Policy MFDA Policy No. 2 – Minimum Standards for Account Supervision (issued February 23, 2001)

Related Notices

MR-0047 – Personal Financial Dealings with Clients (issued October 3, 2005)

MR-0054 – Conflicts of Interest – MFDA Rule 2.1.4 (issued June 22, 2006)

MR-0062 – Exempt Securities of Non-arm's Length Issuers (issued May 24, 2007)

MR-0064 – Maintaining Evidence of Disclosure (issued August 22, 2007)

MR-0065 – Churning (issued October 4, 2007)

Related Bulletins

#0149-P – Argyle funds SPC Inc. (issued July 7, 2005)
2.2 CLIENT ACCOUNTS
2.2.1 "Know-Your-Client". Each Member and Approved Person shall use due diligence:
(a) to learn the essential facts relative to each client and to each order or account accepted;
(b) to ensure that the acceptance of any order for any account is within the bounds of good business practice;
(c) to ensure that each order accepted or recommendation made for any account of a client is suitable for the client based on the essential facts relative to the client and any investments within the account;
(d) to ensure that, notwithstanding the provisions of paragraph (c), where a transaction proposed by a client is not suitable for the client based on the essential facts relative to the client and the investments in the account, the Member or Approved Person has so advised the client before execution thereof and the Member or Approved Person has maintained evidence of such advice;
(e) to ensure that the suitability of the investments within each client's account is assessed:
(i) whenever the client transfers assets into an account at the Member;
(ii) whenever the Member or Approved Person becomes aware of a material change in client information, as defined in Rule 2.2.4; or
(iii) by the Approved Person where there has been a change in the Approved Person responsible for the client's account at the Member; and
(f) to ensure that, where investments in a client's account are determined to be unsuitable, the Member or Approved Person so advises the client and makes recommendations to address any inconsistencies between investments in the account and the essential facts relative to the client and the Member or Approved Person maintains evidence of such advice and recommendations.

History

Bulletin #0050-M – Amendments to MFDA Rules and MFDA Policy No. 3 (Handling Client Complaints) (issued February 3, 2004)

Bulletin #0178-P – Housekeeping Amendments to MFDA Rule 2.2.1: Section 23 of MFDA By-Law No. 1: MFDA Financial Questionnaire and Report (Part 1 Auditor's Report) and MFDA Internal Control Policy Statements (issued December 13, 2005)
Related Policy MFDA Policy No. 2 - Minimum Standards for Account Supervision (issued February 23, 2001)

Related Notices

MR-0025 – Suitability Obligations for Unsolicited Orders (issued February 24, 2004)

MR-0041 – Automatic Conversion of Deferred Sales Charge to 0% Front End Load Untis Without Client Knowledge or Consent (issued June 8, 2005)

MR-0045 – Joint Representative Codes (issued September 19, 2005)

MR-0048 – Know-Your-Product (issued October 31, 2005)

MR-0049 – Charitable Donation Programs (issued December 5, 2005)

MR-0069 – Suitability Guidelines (issued April 14, 2008)

Related Bulletins

#0056-C – Common Deficiencies Noted during On-site Examinations of Members (issued February 9, 2004)

#0149-P – Argyle Funds SPC Inc. (issued July 7, 2005)

#0160-C – Misleading Communications Regarding Investment Loans by Loan Providers (August 18, 2005)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)

#0273-M – The Proceeds of Crime (Money Laundering) and terrorist Financing Act ("Act") and Regulations ("Regulations") – Changes to Obligations for Reporting Entities (Securities Dealers) (issued August 8, 2007)

#0355-C – Common Sales Compliance Deficiencies and Appropriate Corrective Action (issued January 28, 2009)

#0431-C - Leverage Guide, Leverage Review Worksheet & Approved Person Leveraging Analysis Template (issued April 27, 2010)

#0458-P - Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)

#0505-P - End of Transition Periods – December 3, 2011 (issued December 1, 2011)
2.2.2

New Accounts.
(a) Each new account for a client must be opened by the Member within a reasonable time of the client's instruction to do so. Account numbers must not be assigned unless they are accompanied by the proper name and address for the client.
(b) A New Account Application Form must be completed for each new account of a client. If the New Account Application Form does not include know-your-client information, this must be documented on a separate Know-Your-Client form. Such form or forms shall be duly completed to conform with the requirements of Rule 2.2.1 and shall be signed by the client and dated.

Related Policy

MFDA Policy No. 2 – Minimum Standards for Account Supervision (issued February 23, 2001)
Related Bulletins

#0029-M – Client Identification requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (issued August 20, 2003)

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0147-P – Revised FINTRAC Guideline 6E: Record Keeping and Client Identification for Securities Dealers (issued June 24, 2005)

#0182-P – FINTRAC Interpretation Notice No. 3: Opening an Account for a Person or Entity Engaged in the Business of Dealing in Securities Only Outside of Canada (issued January 20, 2006)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)

#0355-C – Common Sales Compliance Deficiencies and Appropriate Corrective Action (issued January 28, 2009)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.2.3 New Account Approval. Each 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 in writing and a record of such approval shall be maintained in accordance with Rule 5.

History

Bulletin #0050-M – Amendments to MFDA Rules and MFDA Policy No. 3 (Handling Client Complaints) (issued February 3, 2004)

Related Policy

MFDA Policy No. 2 – Minimum Standards for Account Supervision (issued March 16, 2001)

Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.2.4 Updating Client Information
(a) Definition. In this Rule, "material change in client information" means any information that results in changes to the stated risk tolerance, time horizon or investment objectives of the client or would have a significant impact on the net worth or income of the client.
(b) The form documenting know-your-client information must be updated to include any material change in client information whenever a Member or Approved Person becomes aware of such change including pursuant to Rule 2.2.4(e).
(c) Subject to paragraph (d), the Member must maintain evidence of client instructions regarding any material changes in client information and all such changes must be approved by the individual designated in accordance with Rule 2.2.3 as responsible for the approval of the opening of new accounts.
(d) A client signature or other internal controls sufficient to authenticate the client's identity and verify the client's authorization must be used to evidence any change in client name, client address or client banking information.
(e) Without reducing the responsibility of Members in Rule 2.2.1, all Members must at least annually, in writing, request each client to notify the Member if there has been any material change in client information previously provided to the Member or the client's circumstances have materially changed. The date of such request and the date upon which any such client information is received and recorded or amended must be retained.

Related Policy

MFDA Policy No. 2 – Minimum Standards for Account Supervision (issued March 16, 2001)

Related Bulletin

#0056-C – Common Deficiencies Noted During On-Site Examinations of Members (issued February 9, 2004)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)

#0505-P - End of Transition Periods – December 3, 2011 (issued December 1, 2011)
Related Notice MR-0069 – Suitability Guidelines (issued April 14, 2008)

New Rule 2.2.5 (Relationship Disclosure)

Rule 2.2.5 is subject to transition periods. With respect to new clients, Members must comply with the requirements under Rule 2.2.5 by September 28, 2011. With respect to existing clients, Members must comply with the requirements under Rule 2.2.5 by December 3, 2013.
2.2.5 Relationship Disclosure. For each new account opened, the Member shall provide written disclosure to the client:
(a) describing the nature of the advisory relationship;
(b) describing the products and services offered by the Member;
(c) describing the Member's procedures regarding the receipt and handling of client cash and cheques. In the case of a Level 2 dealer, the disclosure must include an explanation that all client cheques shall be payable to the issuer or carrying dealer, as applicable;
(d) describing the Member's obligation to ensure that each order accepted or recommendation made for any account of a client is suitable for the client in accordance with Rule 2.2.1 and advising when the Member will assess the suitability of the investments in the client's account;
(e) defining the various terms with respect to the know-your-client information collected by the Member and describing how this information will be used in assessing investments in the account;
(f) describing the content and frequency of reporting for the account; and
(g) describing the nature of the compensation that may be paid to the Member and referring the client to other sources for more specific information.
Related Bulletin

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)

#0492-P – End of Transition Periods – September 28, 2011 (issued September 28, 2011)
Related Notice MR-0075 - Relationship disclosure (issued December 3, 2010)
2.3 POWER OF ATTORNEY/LIMITED TRADING AUTHORIZATION/DISCRETIONARY TRADING

Related Bulletin

#0346-P – Housekeeping Amendments to MFDA Rules, Policies and Form 1 – Financial Questionnaire and Report and Other Amendments (issued December 11, 2008)
2.3.1 (a) Prohibition. No Member or Approved Person shall accept or act upon a general power of attorney or other similar authorization from a client in favour of the Member or Approved Person or engage in any discretionary trading.
(b) Exception. Notwithstanding the provisions of paragraph (a), an Approved Person may accept or act upon a general power of attorney or similar authorization from a client in favour of the Approved Person where such client is a spouse, parent or child of the Approved Person and provided that:
(i) the Approved Person notifies the Member of the acceptance of the general power of attorney or similar authorization;
(ii) an Approved Person other than the Approved Person holding the general power of attorney must be the Approved Person of record on the account; and
(iii) such other conditions as prescribed by the Corporation are met.
History #0050-M – Amendments to MFDA Rules and MFDA Policy No. 3 (Handling Client Complaints) (issued February 3, 2004
Related Notice MR-0031 – Powers of Attorney – Rule 2.3.1. – Exception for Family Members of Approved Persons (issued October 29, 2004)

Related Bulletin

#0346-P – Housekeeping Amendments to MFDA Rules, Policies and Form 1 – Financial Questionnaire and Report and Other Amendments (issued December 11, 2008)
2.3.2 Limited Trading Authorization. A Member or Approved Person may accept a limited trading authorization from a client for the express purpose of facilitating trade execution. In such circumstances a form of limited trading authorization as prescribed by the Corporation must be completed and approved by the compliance officer or branch manager, and retained in the client’s file.
Related Notices

MR-0038 – Revised Limited Trading Authorization Form and Guidelines for Individual and Joint Accounts (issued April 15, 2005)

MR-0039 – Implementation Date for Revised Limited Trading Authorization for New Accounts (Individual and Joint) (issued April 26, 2005)

MR-0042 – Limited Trading Authorizations and Intermediary Accounts (issued June 16, 2005)
2.3.3 Designation. Each trade made pursuant to a limited trading authorization and its corresponding account must be identified as such in the books and records of the Member and on any order documentation.
Related Notices

MR-0035 – Recording and Maintaining Evidence of Client Trade Instructions (issued December 10, 2004)

MR-0041 – Automatic Conversion of Deferred Sales Charge to 0% Front End Load Untis without Client Knowledge or Consent (issued June 8, 2005)

MR-0066 – Prohibition on Use of Pre-Signed Forms (issued October 31, 2007)
Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0346-P – Housekeeping Amendments to MFDA Rules, Policies and Form 1 – Financial Questionnaire and Report and Other Amendments (issued December 11, 2008)
2.4 REMUNERATION, COMMISSIONS AND FEES
2.4.1 (a)

Payable by Member Only. Any 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.
(b)

Payment of Commissions to Unregistered Corporation. For 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:
(i) such arrangements are not prohibited or otherwise limited by the relevant securities legislation or securities regulatory authorities;
(ii) the corporation is incorporated under the laws of Canada or a province or territory of Canada;
(iii) the Member, Approved Person and the unregistered corporation have entered into an Agreement in writing, in a form prescribed by the Corporation, in favour of the Corporation, the terms of which provide that:
(A) the Member and Approved Person shall comply with applicable MFDA By-laws and Rules and securities legislation and remain liable to third parties, including clients, irrespective of whether any remuneration, gratuity, benefit or any other consideration is paid to an unregistered corporation and no such payment shall, in and of itself, in any way limit or affect the duties, obligations or liability of the Member or Approved Person under MFDA Rules and applicable securities legislation;
(B) the Member shall engage in appropriate supervision with respect to the conduct of the Approved Person and the unregistered corporation to ensure such compliance as referred to in (A), above; and
(C) the Approved Person and the unregistered corporation shall provide the Member, the applicable securities commission and the MFDA with access to all books and records maintained by or on behalf of either of them for the purpose of determining compliance with MFDA Rules and applicable securities legislation.
(c)

Arrangements Prohibited. Paragraph (b) does not apply in respect of any such remuneration, gratuity, benefit or other consideration derived from a client in Alberta.
Related Notices

MR-0001 – Transition Periods (Replaced by MR-0026) (issued March 16, 2001)

MR-0026 – Transition Periods (issued February 27, 2004)

MR-0072 - Payment of Commissions to Unregistered Corporation (issued March 29, 2010)
Related Bulletins

#0030-M – Payment of commissions to Non-Registered Entities in British Columbia (issued August 20, 2003)

#0234-M – Rule 2.4.1 (Payment of commissions to Non-Registered Entities) – Extension of transition Period to December 31, 2008 (issued November 17, 2006)

#0280-P – Manitoba Securities Commission ("MSC") Staff Notice 2007-37 and Order No. 5494 – Registration Exemption for Salespersons' Corporations (issued October 10, 2007)

#0310-P – MFDA Rule 2.4.1 (Payment of Commissions to Non-Registered Entities) – Suspension in New Brunswick (issued June 2, 2008)

#0327-P – MFDA Rule 2.4.1 (Payment of Commissions to Non-Registered Entities) – Suspension in Manitoba (issued September 16, 2008)

#0350-P – Rule 2.4.1 (Payment of Commissions to Non-Registered Entities) - Extension of Suspension to March 31, 2010 (issued December 22, 2008)

#0429-P – Approval of Proposed Amendments to MFDA Rule 2.4.1 (Payment of Commissions to Unregistered Corporation) (issued March 29, 2010)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)

#0473-P – Rule 2.4.1 (Payment of Commissions to Unregistered Corporation) – Requirement to Execute Revised Agreement (issued March 25, 2011)
2.4.2 Referral Arrangements
(a) Definitions. For the purpose of this Rule 2.4.2
(i) a "referral arrangement" is an arrangement whereby a Member is paid or pays a fee, including fees based on commissions or sharing a commission, for the referral of a client to or from another person; and
(ii) a referral arrangement does not include any payment to a third party service provider where the service provider has no direct contact with clients and where the services do not constitute securities related business.
(b) Permitted Arrangements. Referral arrangements may only be entered into on the following basis:
(i) the referral arrangement is only between a Member and another Member or between a Member and an entity that is (A) licensed or registered in another category pursuant to applicable securities legislation, (B) a Canadian financial institution for the purposes of National Instrument 14-101, (C) insurance agents or brokers, or (D) subject to such other regulatory system as may be prescribed by the Corporation;
(ii) there is a written agreement governing the referral arrangement prior to implementation;
(iii) all fees or other form of compensation paid as part of the referral arrangement, to or by the Member, must be recorded on the books and records of the Member; and
(iv) written disclosure of referral arrangements must be made to clients prior to any transactions taking place. The disclosure document must include an explanation or an example of how the referral fee is calculated, the name of the parties receiving and paying the fee, and a statement that it is illegal for the party receiving the fee to trade or advise in respect of securities if it is not duly licensed or registered under applicable securities legislation to so trade or advise.
Related Notices

MR-0030 – Referral Arrangements (issued September 20, 2004)

MR-0043 – Referral Arrangements in Respect of Specific Securities (issued July 5, 2005)

MR-0055 – Undivided Interests in Land (issued July 6, 2006)

MR-0064 – Maintaining Evidence of Disclosure (issued August 22, 2007)

MR-0071 – Referral Arrangements with Other Securities Registrants (issued February 10, 2009)
Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0124-C – Temporary Orders – Portus Alternative Asset Management Inc. (issued February 3, 2005)

#0125-C – Portus Alternative Asset Management Inc. – Additional Temporary Orders (issued February 4, 2005)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)

#0228-M – Referral Arrangements with Lakeshore Asset Management Inc. and Meridian Global Investors Inc. (issued October 25, 2006)

#0431-C - Leverage Guide, Leverage Review Worksheet & Approved Person Leveraging Analysis Template
2.4.3 Service Fees or Charges. No Member shall impose on any client or deduct from the account of any client any service fee or service charge relating to services provided by the Member in connection with the client's account unless written notice shall have been given to the client on the opening of the account or not less than 60 days prior to the imposition or revision of the fee or charge. For the purposes of this Rule, service fees or charges shall not include any commissions charged for executing trades.
Related Notice

MR-0041 – Automatic Conversion of Deferred Sales Charge to 0% Front End Load Units Without Client Knowledge or Consent (issued June 8, 2005)
2.4.4 Transaction Fees or Charges. Prior to the acceptance of any order in respect of a transaction in a client account, the Member shall inform the client of any sales charge, service charge or any other fees or charges to be deducted in respect of the transaction.
Related Notice

MR-0078 – MFDA Rules 2.4.4 (Transaction fees or Charges) and 5.1(b)(iv) (Requirement for Records) (issued February 22, 2011)
Related Bulletin

#0466-P - New MFDA Rule 2.4.4 (Transaction Fees or Charges) and Amendments to MFDA Rule 5.1 (Requirement for Records) (issued February 22, 2011)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)
2.5 MINIMUM STANDARDS OF SUPERVISION
Related Policies

MFDA Policy No. 2 – Minimum Standards for Account Supervision (issued March 16, 2001)

MFDA Policy No. 5 – Branch Review Requirements (issued July 24, 2006)
Related Bulletin

#0210-P – MFDA Policy 5 – Branch Review Requirements (issued July 24, 2006)
2.5.1 Member Responsibilities. Each 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.
Related Notices

MR-0037 – Compliance Responsibilities (issued March 16, 2005)

MR-0057 – Joint Regulatory Notice on the Role of Compliance and Supervision (issued December 5, 2006)
2.5.2 Ultimate Designated Person
  (a) Designation. Each Member must designate an individual registered under applicable securities legislation as an “ultimate designated person” who must be:
    (i) the chief executive officer or sole proprietor of the Member;
    (ii) an officer in charge of a division of the Member, if dealing in mutual funds occurs only within that division; or
    (iii) an individual acting in a capacity similar to that of an officer described in (i) or (ii).
  (b) Responsibilities. The ultimate designated person must:
    (i) supervise the activities of the Member that are directed towards ensuring compliance with the By-laws, Rules and Policies and with applicable securities legislation by the Member and its Approved Persons; and
    (ii) promote compliance with the By-laws, Rules and Policies and with applicable securities legislation by the Member and its Approved Persons.
Related Bulletin

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)
2.5.3 Chief Compliance Officer
(a) Designation.Each Member must designate an individual registered under applicable securities legislation as a chief compliance officer” who must be:
    (i) an officer or partner of the Member; or
  (ii) the sole proprietor of the Member.
(b) Responsibilities. The chief compliance officer must:
  (i) establish and maintain policies and procedures for assessing compliance by the Member and its Approved Persons with the By-laws, Rules and Policies and with applicable securities legislation;
  (ii) monitor and assess compliance by the Member and its Approved Persons with the By-laws, Rules and Policies and with applicable securities legislation;
  (iii) report to the ultimate designated person of the Member as soon as possible if the chief compliance officer becomes aware of any circumstances indicating that the Member, or any of its Approved Persons may be in non-compliance with the By-laws, Rules and Policies and with applicable securities legislation and any of the following apply:
(A) the non-compliance reasonably creates a risk of harm to a client;
(B) the non-compliance reasonably creates a risk of harm to the capital markets;
(C) the non-compliance is part of a pattern of non-compliance; and
  (iv) submit a report to the board of directors or partners, as frequently as necessary and not less than annually, for the purpose of assessing compliance by the Member and its Approved Persons with the By-laws, Rules and Policies and with applicable securities legislation.
(c) Alternates. In the event that a chief compliance officer is temporarily absent or unable to perform his or her responsibilities, a Member shall designate one or more alternates who must be qualified as chief compliance officers pursuant to the applicable securities legislation and who shall carry out the responsibilities of the chief compliance officer.
Related Notice

MR-0037 – Compliance Responsiblities (issued March 16, 2005)

MR-0077 – Approved Person Proficiency Requirements (issued December 7, 2010)
Related Bulletin

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)

#0355-C – Common Sales Compliance Deficiencies and Appropriate Corrective Action (issued January 28, 2009)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.5.4 Access to Board. The 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.
Related Bulletin #0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)
2.5.5 Branch Manager
(a) Designation. Each Member must designate an individual qualified as a branch manager pursuant to paragraph (b) for each branch office (as defined in By-law 1.1) of the Member. The Member is not required to designate a branch manager for a sub-branch office who is normally present at the office, provided that a branch manager who is not normally present at such sub-branch office, or a trading partner, director or officer or a compliance officer designated as the branch manager for such sub-branch office, supervises its business at the sub-branch office in accordance with the By-laws and Rules.
(b) Proficiency Requirements. An individual may not be designated by the Member as a branch manager pursuant to paragraph (a) or an alternate branch manager pursuant to paragraph (e) unless the individual has:
(i) met the requirements for a salesperson as prescribed under applicable securities legislation and has passed any one of the following examinations:
(A)the Branch Managers Course Exam offered by the CSI Global Education Inc.;
(B) the Mutual Fund Branch Managers' Examination Course Exam offered by the IFSE Institute; or
(C)the Branch Compliance Officers Course Exam offered by the CSI Global Education Inc.
(c) Experience Requirements. In addition to the requirements set out in Rule 2.5.5(b), each branch manager, except alternate branch managers, in respect of a Member shall:
  (i) have acted as a salesperson, trading partner, director, officer or compliance officer registered under the applicable securities legislation for a minimum of two years; or
  (ii) have a minimum of two years of equivalent experience to that of an individual described in paragraph (i).
(d) Responsibilities. The branch manager must:
  (i) supervise the activities of the Member at a branch or sub-branch that are directed towards ensuring compliance with the By-laws, Rules and Policies and with applicable securities legislation by the Member and its Approved Persons; and
  (ii) supervise the opening of new accounts and trading activity at the branch office.
(e) Alternates. In the event that a branch manager is temporarily absent or unable to perform his or her responsibilities, a Member shall designate one or more alternate branch managers who must be qualified as branch managers pursuant to paragraph (b) and who shall carry out the responsibilities of the branch manager, but are not required to be normally present at the branch office.
Related Notice

MR-0014 – Supervision Requirements for Licensed Assistants at Branch Offices (issued October 2, 2002)

MR-0077 - Approved Person Proficiency Requirements (issued December 7, 2010)
Related Bulletins

#0355-C – Common Sales Compliance Deficiencies and Appropriate Corrective Action (issued January 28, 2009)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.5.6 Currency of Examination. For 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.
Related Notice MR-0077 - Approved Person Proficiency Requirements (issued December 7, 2010)
Related Bulletin #0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.5.7 Maintenance of Supervisory Review Documentation. The 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.
Related Bulletins

#0355-C – Common Sales Compliance Deficiencies and Appropriate Corrective Action (issued January 28, 2009)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.5.8 No Delegation. No 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.
Related Notice MR-0077 - Approved Person Proficiency Requirements (issued December 7, 2010)
Related Bulletin #0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report (issued December 3, 2010)
2.6 BORROWING FOR SECURITIES PURCHASES

Each Member shall provide to each client a risk disclosure document containing the information prescribed by the Corporation when
(a) a new account is opened for the client; and
(b) when an Approved Person makes a recommendation for purchasing securities by borrowing, or otherwise becomes aware of a client borrowing monies for the purpose of investment,
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.
Related Notices

MR-0064 – Maintaining Evidence of Disclosure (issued August 22, 2007)

MR-0070 – Misleading Communications Regarding Leverage (issued May 12, 2008)

MR-0074 - Leverage Risk Disclosure (issued April 6, 2010)
Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0160-C – Misleading Communications Regarding Investment Loans by Loan Providers (issued August 18, 2005)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)
2.7 ADVERTISING AND SALES COMMUNICATIONS
Related Notice

MR-0070 – Misleading Communications Regarding Leverage (issued May 12, 2008)
2.7.1 Definitions. For the purposes of the By-laws and Rules:
(a) "advertisement" includes television or radio commercials or commentaries, billboards, internet websites, newspapers and magazine advertisements or commentaries and any published material promoting the business of a Member and any other sales literature disseminated through the communications media; and
(b) "sales communication" includes records, video tapes and similar material, market letters, research reports, and all other published material, except preliminary prospectuses and prospectuses, designed for or use in presentation to a client or a prospective client whether such material is given or shown to them and which includes a recommendation in respect of a security.
Related Notices

MR-0033 – Websites of Approved Persons of MFDA Members (issued November 22, 2004)

MR-0060 – Penalty Guidelines (issued January 18, 2007)
2.7.2 General Restrictions. No 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:
(a) contains any untrue statement or omission of a material fact or is otherwise false or misleading, including the use of a visual image such as a photograph, sketch, drawing, logo or graph which conveys a misleading impression;
(b) contains an unjustified promise of specific results;
(c) uses unrepresentative statistics to suggest unwarranted or exaggerated conclusions, or fails to identify the material assumptions made in arriving at these conclusions;
(d) contains any opinion or forecast of future events which is not clearly labelled as such;
(e) fails to fairly present the potential risks to the client;
(f) is detrimental to the interests of the public, the Corporation or its Members; or
(g) does not comply with any applicable legislation or the guidelines, policies or directives of any regulatory authority having jurisdiction over the Member.
Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)
Related Notice MR-0033 – Websites of Approved Persons of MFDA Members (issued November 22, 2004)
2.7.3 Review Requirements. No 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.
Related Notice

MR-0033 – Websites of Approved Persons of MFDA Members (issued November 22, 2004)
Related Bulletins

#0056-C – Common Deficiencies Noted During On-site Examinations of Members (issued February 9, 2004)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)
2.8 CLIENT COMMUNICATIONS
Related Notices

MR-0024 – Portfolio Summaries (issued February 24, 2004)

MR-0070 – Misleading Communications Regarding Leverage (issued May 12, 2008)
2.8.1 Definition. For 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 Restrictions. No client communication shall:
(a) be untrue or misleading or use an image such as a photograph, sketch, logo or graph which conveys a misleading impression;
(b) make unwarranted or exaggerated claims or conclusions or fail to identify the material assumptions made in arriving at these conclusions;
(c) be detrimental to the interests of clients, the public, the Corporation or its Members;
(d) contravene any applicable legislation or any guideline, policy, rule or directive of any regulatory authority having jurisdiction over the Member; or
(e) be inconsistent or confusing with any information provided by the Member or Approved Person in any notice, statement, confirmation, report, disclosure or other information either required or permitted to be given to the client by a Member or Approved Person under the By-laws, Rules, Policies or Forms.
2.8.3 Rates of Return
(a) In addition to complying with the requirements in Rule 2.8.2, any client communication containing or referring to a rate of return regarding a specific account or group of accounts must be based on an annualized rate of return and explain the methodology used to calculate such rate of return in sufficient detail and clarity to reasonably permit the client to understand the basis for the rate of return.
(b) Notwithstanding the provisions of paragraph (a), where an account has been open for less than 12 months, the rate of return shown must be the total rate of return since account opening.

Amendments to Rule 2.8.3 (Rates of Return)

The following amendments to Rule 2.8.3 are subject to a transition period. As of June 3, 2012, Rule 2.8.3 will read as follows:
2.8.3 Rates of return
(a) In addition to complying with the requirements in Rule 2.8.2, any client communication containing or referring to a rate of return regarding a specific account or group of accounts must:
(i) disclose an annualized rate of return calculated in accordance with standard industry practices; and
(ii) explain the methodology used to calculate such rate of return in sufficient detail and clarity to reasonably permit the client to understand the basis for the rate of return.
(b) In addition to complying with the requirements in Rule 2.8.2 and Rule 2.8.3(a), any client communication containing or referring to a rate of return regarding a specific account or group of accounts that is provided by an Approved Person must be approved and supervised by the Member.
(c) Notwithstanding the provisions of paragraphs (a) and (b), where an account has been open for less than 12 months, the rate of return shown must be the total rate of return since account opening.
History

Bulletin #0050-M   Amendments to MFDA Rules and MFDA Policy No. 3 (Handling Client Complaints) (issued February 3, 2004)
Related Bulletin #0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)
Related Notice MR-0076 – Performance Reporting (issued December 3, 2010)
2.9 INTERNAL CONTROLS
Every Member shall establish and maintain adequate internal controls as prescribed by the Corporation from time to time.
Related Policy

MFDA Policy No. 4 – Internal Control Policy Statements (issued December 13, 2005)
Related Notices

MR-0022 – Out of Province Registration (issued October 29, 2003)

MR-0023 – Late Trading and Market Timing (issued December 19, 2003)

MR-0056 – Business Continuity Planning (issued October 23, 2006)
Related Bulletin #0183-C – Second Round of Compliance Examinations (issued January 27, 2006)
2.10 POLICIES AND PROCEDURES MANUAL

Every 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.
Related Notices

MR-0008 – Policies and Procedures Manual (issued March 16, 2001)

MR-0023 – Late Trading and Market Timing (issued December 19, 2003)
Related Bulletin #0395-C – Policies and Procedures Manual Reference Guide
2.11 COMPLAINTS

Every 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.

Related Policy

MFDA Policy No. 3   Handling Client Complaints (issued July 3, 2007)
Related Notices

MR-0073 – Complaint Handling - MFDA Policy No. 3 (issued April 6, 2010)
Related Bulletins

#0123-M – Reporting of Enforcement Related Issues (issued January 24, 2005)

#0183-C – Second Round of Compliance Examinations (issued January 27, 2006)

#0430-P - Guide to Creating a Summary of Member Compliant Handling Procedures (issued April 6, 2010)

#0458-P – Amendments to MFDA By-law No. 1, Rules and Form 1 - Financial Questionnaire and Report (issued December 3, 2010)
2.12 TRANSFERS OF ACCOUNT
History

Bulletin #0050-M – Amendments ot MFDA Rules and MFDA Policy No. 3 (Handling Client Complaints) (issued February 3, 2004)
Related Notices

MR-0001 – Transition Periods (Replaced by MR-0026) (issued March 16, 2001)

MR-0017 – Transfer of Client Accounts (issued March 28, 2003)

MR-0068 – Servicing of Client Accounts in Transition (issued March 20, 2008)

MR-0079 – Approved Person Transfers (issued March 12, 2011)
2.12.1 Definitions. For the purposes of the By-laws and Rules:
(a) "account transfer" means the transfer in whole or in part of an account of a client of a Member at the request or with the authority of the client;
(b) "delivering Member" means in respect of an account transfer the Member from which the account of the client is to be transferred; and
(c) "receiving Member" means in respect of an account transfer the Member to which the account of the client is to be transferred.
2.12.2 Transfers. No account transfer shall be effected 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.

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