The Mutual Fund Dealers Association of Canada has clarified the proper use of new limited trading authorization forms, which were initially published in April.

The guidelines to the April 2005 version of the form specify the new form is intended for use with individual and joint accounts held in client name and may not be used for intermediary, nominee name accounts, corporate held accounts, “in trust for” accounts or any other type of accounts.

In a notice released today, the MFDA aims to explain why the form does not apply to nominee name and intermediary accounts.

It notes that the purpose of a LTA is to facilitate a trade where the assets are held at the mutual fund company in the name of the client. Normally, the client would have to sign all trade instructions before a mutual fund company would be able to complete the transaction. By signing the LTA, the client is authorizing the dealer to execute a trade without the need to provide his or her signed written instructions to the fund company.

A client signature is not required on accounts where the assets are registered in the name of a nominee, such as the dealer or an intermediary. A client signature is not required because the assets are not registered in the client’s name on the books and records of the mutual fund company, the notice explains.

MFDA members that use other members as intermediaries (or carrying dealers) are required to provide disclosure to the client on account opening of their relationship with the carrying dealer and of the relationship between the carrying dealer and the client. This disclosure should set out how trade instructions are relayed from the client to the introducing dealer and carrying dealer, the notice adds.

Where MFDA members have entered into relationships with intermediaries that are not members of the MFDA, they must determine how the assets are registered at the fund company and whether a client signature is required. Members must also ensure proper disclosure is made to the client of the relationship between the member and the intermediary and the intermediary and the client on account opening. This disclosure should set out how trade instructions are relayed from the client to the member and intermediary.

The MFDA has not prescribed a form of LTA for corporate or in-trust accounts. In the absence of a prescribed form for these types of accounts, dealers and reps who wish to accept a LTA from a client should obtain professional advice as to the nature and content of any such form of LTA, the notice concludes.