The Investment Dealers Association hosted a breakfast meeting this morning to look at the issue of cross-border retail trading.

Last year, the U.S. Securities and Exchange Commission adopted a rule allowing Canadian dealers to serve their snowbird clients’ RRSP accounts. But advisors still must comply with a complex mix of state securities laws. The IDA held a seminar, presented by Grant Vingoe and Charles Potuznik of U.S. law firm Dorsey & Whitney LLP, to help demystify dealers’ obligations under these rules.

More than half of U.S. states have provided some form of relief to Canadian dealers. It is the IDA’s goal to promote the exemption models, especially the self-executing exemption, to promote reliance on the Canadian regulatory regime, and to promote uniformity between the states.

The self-executing exemption model has been adopted by Connecticut, Kansas, Delaware, New Mexico, Pennsylvania, Rhode Island, Vermont and Wyoming, with South Dakota to adopt it soon. This is the IDA’s favoured model.

It provides self-executing exemptions for Canadian broker-dealers, its salesmen and the securities they sell to snowbirds and RRSPs provided that the Canadian dealer is a Canadian resident, has no office or other physical presence in this state, and only trades for a person from Canada who is temporarily present in this state and had a bona fide business-client relationship before the person entered the state, or whose transactions are in a self-directed tax-advantaged retirement plan in Canada.

A second model — practiced in Hawaii, Maine, Utah and other states — provides exemptions for dealers that comply with the requirements of the self-executing exemption, while disclosing to its customers that it is not subject to the full regulatory requirements of the state. The dealer must make a one-time notice filing to claim the exemption.

A third model involves special registration, a method that was pioneered a few years ago by the North American Securities Administrators Association. The IDA doesn’t favour this model because it is the most onerous and most costly form of relief. But it is the model of choice for Florida, the preferred destination of many snowbirds.

Vingoe and Potuznik note that there have been good faith attempts to promote uniformity between states but that great diversity exists among the states as to their laws, rules, interpretations and enforcement. The NASAA has also attempted to promote uniformity through model rules and policy statements, but it has not been entirely successful.

Vigoe and Potuznik wrapped up the session with an overview of the most important snowbird states. In California the adoption of an IDA endorsed self-executing exemption is awaiting final approval. Arizona is pursuing an IDA endorsed exemption by notice filing procedure, it is awaiting final approval.

Hawaii has an exemption in effect. Texas has proposed an exemption by notice filing procedure for RRSPs, and the IDA has recommended the exemption be extended to snowbirds. The IDA is also in discussions with Florida to adopt an exemption model.