IIROC releases 2013 exemption report

Of the 15 exemptions granted to firms from the dealer rules, 10 involved IIROC staff approving bulk transfers, and the other five were granted by the IIROC board. Two of these exemptions were to allow certain registered reps to act for an order execution-only service as well as other affiliated businesses, the report says. In these cases, IIROC says that the dealers “took steps to prevent client confusion relating to the business unit with which they are dealing.”

In one case, an introducing broker was given permission to self-clear certain proprietary products through an insurance company intermediary. And, the other two exemptions involved so-called trade “give-up” arrangements with institutional clients.

The 378 exemptions from IIROC proficiency requirements are each counted separately, so multiple exemptions may relate to a single rep. This included 252 requests for exemptions from rewriting a particular course; 97 requests to avoid taking a prescribed course; 20 requests to accept alternative work experience; 10 requests for an extension to complete a post-licensing requirement; and, one request for relief from the full-time employment requirement while completing the 90-day training program.

The course where an exemption was most often sought was the investment management techniques (IMT) course, which represented 29% of the exemption applications; this was followed by the portfolio management techniques (PMT) course at 23%; the Canadian securities course (CSC), 10%; partners, directors and senior officers (PDO) course and the conduct and practices handbook (CPH) course, which each accounted for 6% of exemption applications.

In these cases, the report notes, the onus is on the applicant to demonstrate that they have adequate alternative experience and/or education that is equivalent to the course from which they are seeking an exemption. Applications are examined on a case by case basis, it says.

In the vast majority of cases concerning IMT and PMT applications, the individuals had successfully completed the courses while approved as a registered rep, but this was outside the prescribed two-year period, it says. And, in most cases, it says the reps also held a valid Canadian Investment Manager (CIM) designation. They also had industry experience and the majority had assets under management ranging between $40 million and $200 million, it notes.

Most of the successful applications from having to write or rewrite the CSC, were based on either the rep completing courses that built upon the content of the CSC, such as the professional financial planning (PFP) course, or another higher level designation; they were able to demonstrate equivalent experience; or, while their CSC had expired for IIROC purposes they were otherwise registered with another non-IIROC firm, such as a portfolio manager, mutual fund dealer, or exempt market dealer.

Successful applications seeking an exemption from having to rewrite the PDO were granted either because the individual was de-registered as an officer due to changes introduced with registration reform but they remained employed in a senior role; or, they were able to demonstrate how their work experience kept their knowledge of the PDO course material current.

In terms of CPH exemptions, most involved individuals who had been previously approved with IIROC and continued to work in the securities industry in unregistered capacities such as compliance, management, or administration that kept them current with the topics and content covered in the CPH, and many had completed courses that expanded on the CPH content, the report notes. In a couple of cases, exemptions from rewriting the CPH were denied as equivalency was not demonstrated, it says. One application from writing the Wealth Management Essentials course was also refused.

“In most of these cases the individuals sought to rely on historical non-IIROC related registration or work history (such as registration as a dealing representative with a mutual fund dealer) that did not sufficiently address the core content of the required course,” the report says. “In other cases the applicant failed to provide any meaningful and substantive submissions in support of the exemption sought.”

Of the 94 exemptions from the trading rules, 76 involved a request for permission to complete a trade off-marketplace for one reason or another; and the other 18 were so-called “basis order” exemptions that allowed trades in an exempt exchange-traded fund as a basis order at a price derived from the execution of the underlying securities of the ETF (IIROC is currently seeking to revise its rules to deal with these situations.

“The publication of our annual exemption report underscores our ongoing commitment to transparency to our stakeholders,” said Paul Riccardi, senior vice president, member regulation, at IIROC.