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Table of Contents | Rule 1 | Rule 2 | Rule 3 | Rule 5
| Related Policy |
MFDA Policy No. 4 – Internal Control Policy Statements (issued December 13, 2005) |
| 4.1 |
FINANCIAL INSTITUTION BOND |
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Every 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 TERMINATION |
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Each Financial Institution Bond maintained by a Member shall contain a rider containing provisions to the following effect: |
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(i) |
The underwriter shall notify the Corporation at least 30 days prior to the termination or cancellation of the Bond, except in the event of termination of the Bond due to:
| (A) |
the expiration of the Bond period specified; |
| (B) |
cancellation of the Bond as a result of the receipt of written notice from the insured of its desire to cancel the Bond; |
| (C) |
the taking over of the insured by a receiver or other liquidator, or by provincial, federal or state officials; or |
| (D) |
taking over of the insured by another institution or entity. |
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(ii) |
In the event of termination of the Bond as an entirety in accordance with clauses (i)(B), (i)(C) or (i)(D), the underwriter shall, upon becoming aware of such termination, give immediate written notice of the termination to the Corporation. Such notice shall not impair or delay the effectiveness of the termination. |
Related Bulletin |
#0346-P – Housekeeping Amendments to MFDA Rules, Policies and Form 1 – Financial Questionnaire and Report and Other Amendments (issued December 11, 2008) |
| 4.3 |
TERMINATION OR CANCELLATION |
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In the event of the take-over of a Member by another institution or entity as described in Rule 4.2(i)(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. |
Related Bulletin |
#0346-P – Housekeeping Amendments to MFDA Rules, Policies and Form 1 – Financial Questionnaire and Report and Other Amendments (issued December 11, 2008) |
| 4.4 |
AMOUNTS REQUIRED |
| 4.4.1 |
Minimum. The minimum amount of insurance to be maintained for each Clause under Rule 4.1 shall be the greater of: |
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(a) |
in the case of a Member designated as a Level 1, 2 or 3 Dealer, $50,000 for each Approved Person up to a maximum of $200,000; and for a Level 4 Dealer, $500,000; and |
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(b) |
1% of the base amount (as defined herein); |
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provided that for each Clause such minimum amount need not exceed $25,000,000. |
| 4.4.2 |
Base Amount. For the purposes of this Rule 4.4, the term "base amount" shall mean the greater of: |
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(a) |
the net value of cash and securities held by the Member on behalf of clients; and |
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(b) |
the total allowable assets of the Member determined in accordance with Statement A of Form 1 |
| 4.5 |
PROVISOS |
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Rules 4.1, 4.2 and 4.4 shall be subject to the following: |
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(a) |
the amount of insurance required to be maintained by a Member shall as a minimum be by way of a Financial Institution Bond with a double aggregate limit or a provision for full reinstatement; |
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(b) |
should there be insufficient coverage, a Member shall be deemed to be complying with this Rule 4 provided that any such deficiency does not exceed 10 percent of the insurance requirement and that evidence is furnished within two months of the dates of completion of the monthly operations questionnaires and the annual audit that the deficiency has been corrected. If the deficiency is 10% or more of the insurance requirement, action must be taken by the Member to correct the deficiency within 10 days of its determination and the Member shall immediately notify the Corporation; |
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(c) |
a Financial Institution Bond maintained pursuant to Rule 4.1 may contain a clause or rider stating that all claims made under the bond are subject to a deductible. |
| 4.6 |
QUALIFIED CARRIERS |
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Insurance 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 BONDS |
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Where 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: |
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(a) |
the Member shall have the right to claim directly against the insurer in respect of losses, and any payment or satisfaction of such losses shall be made directly to the Member; and |
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(b) |
the individual or aggregate limits under the policy may only be affected by claims made by or on behalf of |
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(i) |
the Member, or |
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(ii) |
any of the Member's subsidiaries whose financial results are consolidated with those of the Member, or |
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(iii) |
a holding company of the Member provided that the holding company does not carry on any business or own any investments other than its interest in the Member, |
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without regard to the claims, experience or any other factor referable to any other person. |
Related Bulletin |
#0346-P – Housekeeping Amendments to MFDA Rules, Policies and Form 1 – Financial Questionnaire and Report and Other Amendments (issued December 11, 2008) |
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