OSC Staff Notice of Commission Approval: Amendments to IIROC Form 1

Market Regulation Document Type
IIROC rule review

OSC STAFF NOTICE OF COMMISSION APPROVAL

INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA

PROPOSED AMENDMENTS TO IIROC FORM 1
TO ADOPT IFRS FOR REGULATORY FINANCIAL REPORTING PURPOSES



 

The Ontario Securities Commission has approved the IIROC proposed amendments to its Form 1 with the current definition of market value. In addition, the British Columbia Securities Commission did not object to, and the Alberta Securities Commission, the Autorité des marchés financiers, the New Brunswick Securities Commission, the Nova Scotia Securities Commission, the Financial Services Regulation Division of the Department of Government Services for Newfoundland and Labrador and the Saskatchewan Financial Services Commission have approved the above-noted amendments to Form 1 with the current definition of market value.

Summary of Material Rule

The amendments are intended to align financial reporting required under Form 1 with International Financial Reporting Standards. Please see Appendix A for a clean copy of Form 1.

Summary of Public Comments

The IIROC's proposed amendments and its explanatory notice were published for a 60 day comment period on August 27, 2010. IIROC received four comment letters on the proposed amendments. IIROC summarized the comments it received and provided a response which are summarized in Appendix B.

Revisions to the Proposed Rule

We attach at Appendix C a copy of the blacklined version of Form 1 showing the changes to the version published in August 2010. Revisions were generally related to adding clarifications and more specific information to Form 1 regarding changes in accounting treatments and regulatory financial reporting formats as a result of the changeover to IFRS.

 

APPENDIX A

FORM 1 -- TABLE OF CONTENTS

_________________________

(Dealer Member Name)

____________________

(Date)

 
 
Updated
GENERAL NOTES AND DEFINITIONS
Feb-2011
CERTIFICATE OF UDP AND CFO
Feb-2011
SEPARATE CERTIFICATE OF UDP AND CFO ON STATEMENT G OF PART I
Feb-2011
INDEPENDENT AUDITOR'S REPORT FOR STATEMENTS A, E AND F [at audit date only]
Feb-2011
INDEPENDENT AUDITOR'S REPORT FOR STATEMENTS B, C AND D [at audit date only]
Feb-2011
PART I
STATEMENT
A
Statement of financial position
Feb-2011
B
Statement of net allowable assets and risk adjusted capital
Feb-2011
C
Statement of early warning excess and early warning reserve
Feb-2011
D
Statement of free credit segregation amount
Feb-2011
E
Statement of income and comprehensive income
Feb-2011
F
Statement of changes in capital and retained earnings (corporations) or undivided profits (partnerships)
Feb-2011
G
Opening IFRS statement of financial position and reconciliation of equity
Feb-2011
 
Notes to the Form 1 financial statements
Feb-2011
PART II{•}
REPORT ON COMPLIANCE FOR INSURANCE, SEGREGATION OF SECURITIES, AND GUARANTEE/GUARANTOR RELATIONSHIP RELIED UPON TO REDUCE MARGIN REQUIREMENTS DURING THE YEAR
Feb-2011
SCHEDULE
1
Analysis of loans receivable, securities borrowed and resale agreements
Feb-2011
2
Analysis of securities owned and sold short at market value
Feb-2011
2A
Margin for concentration in underwriting commitments
Feb-2011
2B
Underwriting issues margined at less than the normal margin rates
Feb-2011
4
Analysis of clients' trading accounts long and short
Feb-2011
4A
List of ten largest value date trading balances with acceptable institutions and acceptable counterparties
Feb-2011
5
Analysis of brokers' and dealers' trading balances
Feb-2011
6
Income taxes
Feb-2011
6A
Tax recoveries
Feb-2011
7
Analysis of overdrafts, loans, securities loaned and repurchase agreements
Feb-2011
7A
Acceptable counterparties financing activities concentration charge
Feb-2011
9
Concentration of securities
Feb-2011
10
Insurance
Feb-2011
11
Unhedged foreign currencies calculation
Feb-2011
11A
Details of unhedged foreign currencies calculation for individual currencies with margin required greater than or equal to $5,000
Feb-2011
12
Margin on futures concentrations and deposits
Feb-2011
13
Early warning tests -- Level 1
Feb-2011
13A
Early warning tests -- Level 2
Feb-2011
14
Provider of capital concentration charge
Feb-2011
15
Supplementary information
Feb-2011

FORM 1 -- GENERAL NOTES AND DEFINITIONS

GENERAL NOTES:

1. Each Dealer Member must comply with the requirements in Form 1 as approved and amended from time to time by the board of directors of the Investment Industry Regulatory Organization of Canada (the Corporation).

Form 1 is a special purpose report that includes financial statements and schedules, and is to be prepared in accordance with International Financial Reporting Standards (IFRS), except as prescribed by the Corporation.

Each Dealer Member must complete and file all of these statements and schedules.

The pre-IFRS changeover Joint Regulatory Financial Questionnaire and Report must be used by Dealer Members who have elected to defer the adoption of IFRS and have received written approval of the deferral from the Corporation.

2. The following are Form 1 IFRS departures as prescribed by the Corporation:

 
Prescribed IFRS departure
 
Client and broker trading balances
For client and broker trading balances, the Corporation allows the netting of receivables from and payables to the same counterparty. A Dealer Member may choose to report client and broker trading balances in accordance with IFRS.
 
Preferred shares
Preferred shares issued by the Dealer Member and approved by the Corporation are classified as shareholders' capital.
 
Presentation
Statements A and E contain terms and classifications (such as allowable and non-allowable assets) that are not defined under IFRS. For Statement E, the profit (loss) for the year on discontinued operations is presented on a pre-tax basis (as opposed to after-tax).
 
 
In addition, specific balances may be classified or presented on Statements A, E and F in a manner that differs from IFRS requirements. The General Notes and Definitions, and the applicable Notes and Instructions to the Statements of Form 1, should be followed in those instances where departures from IFRS presentation exist.
 
 
Statements B, C, and D are supplementary financial information, which are not statements contemplated under IFRS.
 
 
As a one-time transitional relief for the first Form 1 prepared under the basis of IFRS with prescribed departures and prescribed accounting treatments, the Corporation does not require comparative financial data. As such, the preparation of the opening balance sheet is as at the conversion date (the first day of the first fiscal year under IFRS). A Dealer Member will file the opening balance sheet as Statement G and as stipulated by the Corporation, which is prior to the filing of the first monthly financial report (MFR) prepared under IFRS with prescribed departures and prescribed accounting treatments.
 
Separate financial statements on a non-consolidated basis
Consolidation of subsidiaries is not permitted for regulatory reporting purposes, except for related companies that meet the definition of a "related company" in Dealer Member Rule 1 and the Corporation has approved the consolidation.
 
 
Because Statement E only reflects the operational results of the Dealer Member, a Dealer Member must not include the income (loss) of an investment accounted for by the equity method.
 
Statement of cash flow
A statement of cash flow is not required as part of Form 1.
 
Valuation
The "market value of securities" definition remains unchanged from the pre-IFRS changeover Joint Regulatory Financial Questionnaire and Report.

3. The following are Form 1 prescribed accounting treatments based on available IFRS alternatives:

 
Prescribed accounting treatment
 
Hedge accounting
Hedge accounting is not permitted for regulatory reporting purposes. All security and derivative positions of a Dealer Member must be marked-to-market at the reporting date. Gains or losses of the hedge positions must not be deferred to a future point in time.
 
Securities owned and sold short as held-for-trading
A Dealer Member must categorize all inventory positions as held-for-trading financial instruments. These security positions must be marked-to-market.
 
 
Because the Corporation does not permit the use of the available for sale and held-to-maturity categories, a Dealer Member must not include other comprehensive income (OCI) and will not have a corresponding reserve account relating to marking-to-market available for sale security positions.
 
Valuation of a subsidiary
A Dealer Member must value subsidiaries at cost.

4. These statements and schedules are prepared in accordance with the Dealer Member rules.

5. For purposes of these statements and schedules, the accounts of related companies that meet the definition of a "related company" in Dealer Member Rule 1 may be consolidated.

6. For the purposes of the statements and schedules, the capital calculations must be on a trade date reporting basis unless specified otherwise in the Notes and Instructions to Form 1.

7. Dealer Members may determine margin deficiencies for clients, brokers and dealers on either a settlement date basis or trade date basis. Dealer Members may also determine margin deficiencies for acceptable institutions, acceptable counterparties, regulated entities and investment counselors' accounts as a block on either a settlement date basis or trade date basis and the remaining clients, brokers and dealer accounts on the other basis. In each case, Dealer Members must do so for all such accounts and consistently from period to period.

8. Comparative figures on all statements are only required at the audit date. As a transition exemption for the changeover to International Financial Reporting Standards (IFRS) from Canadian Generally Accepted Accounting Principles (CGAAP), Dealer Members are not required to file comparative information for the preceding financial year as part of the first audited Form 1, which is based on IFRS except for prescribed departures and prescribed accounting treatments stipulated in the general notes and definitions of Form 1.

9. All statements and schedules must be expressed in Canadian dollars and must be rounded to the nearest thousand.

10. Supporting details should be provided -- as required -- showing breakdown of any significant amounts that have not been clearly described on the statements and schedules.

11. Mandatory security counts. All securities except those held in segregation or safekeeping shall be counted once a month, or monthly on a cyclical basis. Those held in segregation and safekeeping must be counted once in the year in addition to the count as at the year-end audit date.

DEFINITIONS:

(a) "acceptable clearing corporation" means any clearing agency operating a central system for clearing of securities or derivatives transactions that is subject to legislation and oversight by a central or regional government authority in the country of operation. The legislation or oversight regime must provide for or recognize the clearing agency's powers of compliance and enforcement over its members or participants. The Corporation will maintain and regularly update a list of acceptable clearing corporations.

(b) "acceptable counterparties" means those entities with whom a Dealer Member may deal on a value for value basis, with mark to market imposed on outstanding transactions. The entities are as follows:

1. Canadian banks, Quebec savings banks, trust companies and loan companies licensed to do business in Canada or a province thereof. Each of the aforementioned entities must have paid up capital and surplus on the last audited balance sheet (plus such other forms of capital recognized as such in their regulatory regime as well as in this capital formula, e.g. subordinated debt) in excess of $10 million and less than or equal to $100 million to qualify, provided acceptable financial information with respect to such entities is available for inspection.

2. Credit and central credit unions and regional caisses populaires with paid up capital and surplus or net worth (excluding appraisal credits but including general reserves) on the last audited balance sheet in excess of $10 million and less than or equal to $100 million, provided acceptable financial information with respect to such entities is available for inspection.

3. Insurance companies licensed to do business in Canada or a province thereof with paid up capital and surplus or net worth on the last audited balance sheet in excess of $10 million and less than or equal to $100 million, provided acceptable financial information with respect to such companies is available for inspection.

4. Canadian provincial capital cities and all other Canadian cities and municipalities, or their equivalents, with populations of 50,000 and over.

5. Mutual funds subject to a satisfactory regulatory regime with total net assets in the fund in excess of $10 million.

6. Corporations (other than regulated entities) with a minimum net worth of $75 million on the last audited balance sheet, provided acceptable financial information with respect to such corporation is available for inspection.

7. Trusts and limited partnerships with minimum total net assets on the last audited balance sheet in excess of $100 million, provided acceptable financial information with respect to such trust or limited partnership is available for inspection.

8. Canadian pension funds which are regulated either by the Office of Superintendent of Financial Institutions or a provincial pension commission, with total net assets on the last audited balance sheet in excess of $10 million, provided that in determining net assets the liability of the fund for future pension payments shall not be deducted.

9. Foreign banks and trust companies subject to a satisfactory regulatory regime with paid up capital and surplus on the last audited balance sheet in excess of $15 million and less than or equal to $150 million, provided acceptable financial information with respect to such entities is available for inspection.

10. Foreign insurance companies subject to a satisfactory regulatory regime with paid up capital and surplus or net worth on the last audited balance sheet in excess of $15 million, provided acceptable financial information with respect to such companies is available for inspection.

11. Foreign pension funds subject to a satisfactory regulatory regime with total net assets on the last audited balance sheet in excess of $15 million, provided that in determining net assets the liability of the fund for future pension payments shall not be deducted.

12. Federal governments of foreign countries which do not qualify as a Basel Accord country.

For the purposes of this definition, a satisfactory regulatory regime will be one within Basel Accord countries.

Subsidiaries (excluding regulated entities) whose business falls in the category of any of the above enterprises and whose parent or affiliate qualifies as an acceptable counterparty may also be considered as an acceptable counterparty if the parent or affiliate provides a written unconditional irrevocable guarantee, subject to approval by the Corporation.

(c) "acceptable institutions" means those entities with which a Dealer Member is permitted to deal on an unsecured basis without capital penalty. The entities are as follows:

1. Government of Canada, the Bank of Canada and provincial governments.

2. All crown corporations, instrumentalities and agencies of the Canadian federal or provincial governments which are government guaranteed as evidenced by a written unconditional irrevocable guarantee or have a call on the consolidated revenue fund of the federal or provincial governments.

3. Canadian banks, Quebec savings banks, trust companies and loan companies licensed to do business in Canada or a province thereof. Each of the aforementioned entities must have paid up capital and surplus on the last audited balance sheet (plus such other forms of capital recognized as such in their regulatory regime as well as in this capital formula, e.g. subordinated debt) in excess of $100 million, provided acceptable financial information with respect to such entities is available for inspection.

4. Credit and central credit unions and regional caisses populaires with paid up capital and surplus (excluding appraisal credits but including general reserves) on the last audited balance sheet in excess of $100 million, provided acceptable financial information with respect to such entities is available for inspection.

5. Federal governments of Basel Accord countries.

6. Foreign banks and trust companies subject to a satisfactory regulatory regime with paid up capital and surplus on the last audited balance sheet in excess of $150 million, provided acceptable financial information with respect to such entities is available for inspection.

7. Insurance companies licensed to do business in Canada or a province thereof with paid up capital and surplus or net worth on the last audited balance sheet in excess of $100 million, provided acceptable financial information with respect to such companies is available for inspection.

8. Canadian pension funds which are regulated either by the Office of Superintendent of Financial Institutions or a provincial pension commission, and with total net assets on the last audited balance sheet in excess of $200 million, provided that in determining net assets the liability of the fund for future pension payments shall not be deducted.

9. Foreign pension funds subject to a satisfactory regulatory regime with total net assets on the last audited balance sheet in excess of $300 million, provided that in determining net assets the liability of the fund for future pension payments shall not be deducted.

For the purposes of this definition, a satisfactory regulatory regime will be one within Basel Accord countries.

Subsidiaries (other than regulated entities) whose business falls in the category of any of the above enterprises and whose parent or affiliate qualifies as an acceptable institution may also be considered as an acceptable institution if the parent or affiliate provides a written unconditional irrevocable guarantee, subject to approval by the Corporation.

(d) "acceptable securities locations" means those entities considered suitable to hold securities on behalf of a Dealer Member, for both inventory and client positions, without capital penalty, given that the locations meet the requirements outlined in the segregation rules of the Corporation including, but not limited to, the requirement for a written custody agreement outlining the terms upon which such securities are deposited and including provisions that no use or disposition of the securities shall be made without the prior written consent of the Dealer Member and the securities can be delivered to the Dealer Member promptly on demand. The entities are as follows:

1. Depositories and Clearing Agencies

Any securities depository or clearing agency operating a central system for handling securities or equivalent book-based entries or for clearing of securities or derivatives transactions that is subject to legislation and oversight by a central or regional government authority in the country of operation. The legislation or oversight regime must provide for or recognize the securities depository's or clearing agency's powers of compliance and enforcement over its members or participants. The Corporation will maintain and regularly update a list of those depositories and clearing agencies that comply with these criteria.

2. Acceptable institutions and subsidiaries of acceptable institutions that satisfy the following criteria:

(a) Acceptable institutions which in their normal course of business offer custodial security services; or

(b) Subsidiaries of acceptable institutions provided that each such subsidiary, together with the acceptable institution, has entered into a custodial agreement with the Dealer Member containing a legally enforceable indemnity by the acceptable institution in favour of the Dealer Member covering all losses, claims, damages, costs and liabilities in respect of securities and other property held for the Dealer Member and its clients at the subsidiary's location.

3. Acceptable counterparties -- with respect to security positions maintained as a book entry of securities issued by the acceptable counterparty and for which the acceptable counterparty is unconditionally responsible.

4. Banks and trust companies otherwise classified as acceptable counterparties -- with respect to securities for which they act as transfer agent and for which custody services are not being provided (in such case, a written custody agreement is not required).

5. Mutual Funds or their Agents -- with respect to security positions maintained as a book entry of securities issued by the mutual fund and for which the mutual fund is unconditionally responsible.

6. Regulated entities.

7. Foreign institutions and securities dealers that satisfy the following criteria:

(a) the paid-up capital and surplus according to its most recent audited balance sheet is in excess of Canadian $150 million as evidenced by the audited financial statements of such entity;

(b) in respect of which a foreign custodian certificate has been completed and signed in the prescribed form by the Dealer Member's board of directors or authorized committee thereof;

provided that:

(c) a formal application in respect of each such foreign location is made by the Dealer Member to the Corporation in the form of a letter enclosing the financial statements and certificate described above; and

(d) the Dealer Member reviews each such foreign location annually and files a foreign custodian certificate with the Corporation annually.

8. For London Bullion Market Association (LBMA) gold and silver good delivery bars, means those entities considered suitable to hold these bars on behalf of a Dealer Member, for both inventory and client positions, without capital penalty. These entities must:

• be a market making member, ordinary member or associate member of the LBMA;

• be on the Corporation's list of entities considered suitable to hold LBMA gold and silver good delivery bars; and

• have executed a written precious metals storage agreement with the Dealer Member, outlining the terms upon which such LBMA good delivery bars are deposited. The terms must include provisions that no use or disposition of these bars shall be made without the written prior consent of the Dealer Member, and these bars can be delivered to the Dealer Member promptly on demand. The precious metals storage agreement must provide equivalent rights and protection to the Dealer Member as the standard securities custodial agreement.

and such other locations which have been approved as acceptable securities locations by the Corporation.

(e) "Basel Accord countries" means those countries that are members of the Basel Accord and those countries that have adopted the banking and supervisory rules set out in the Basel Accord. [The Basel Accord, which includes the regulating authorities of major industrial countries acting under the auspices of the Bank for International Settlements (B.I.S.), has developed definitions and guidelines that have become accepted standards for capital adequacy.] A list of current Basel Accord countries is included in the most recent list of foreign acceptable institutions and foreign acceptable counterparties.

(f) "broad based index" means an equity index whose underlying basket of securities is comprised of:

1. thirty or more securities;

2. the single largest security position by weighting comprises no more than 20% of the overall market value of the basket of equity securities;

3. the average market capitalization for each security position in the basket of equity securities underlying the index is at least $50 million;

4. the securities shall be from a broad range of industries and market sectors as determined by the Corporation to represent index diversification; and

5. in the case of foreign equity indices, the index is both listed and traded on an exchange that meets the criteria for being considered a recognized exchange, as set out in the definition of "regulated entities" in the General Notes and Definitions.

(g) "market value of securities" means:

1. for listed securities, the last bid price of a long security and, correspondingly, the last ask price of a short security, as shown on the exchange quotation sheets as of the close of business on the relevant date or last trading date prior to the relevant date, as the case may be, subject to an appropriate adjustment where an unusually large or unusually small quantity of securities is being valued. If not available, the last sale price of a board lot may be used. Where not readily marketable, no market value shall be assigned.

2. for unlisted and debt securities, and precious metals bullion, a value determined as reasonable from published market reports or inter-dealer quotation sheets on the relevant date or last trading day prior to the relevant date, or based on a reasonable yield rate. Where not readily marketable, no market value shall be assigned.

3. for commodity futures contracts, the settlement price on the relevant date or last trading day prior to the relevant date.

4. for money market fixed date repurchases (no borrower call feature), the market price is the price determined by applying the current yield for the security to the term of maturity from the repurchase date. This will permit calculation of any profit or loss based on the market conditions at the reporting date. Exposure due to future changes in market conditions is covered by the margin rate.

5. for money market open repurchases (no borrower call feature), prices are to be determined as of the reporting date or the date the commitment first becomes open, whichever is the later. Market price is to be determined as in 4. and commitment price is to be determined in the same manner using the yield stated in the repurchase commitment.

6. for money market repurchases with borrower call features, the market price is the borrower call price.

(h) "regulated entities" means those entities with whom a Dealer Member may deal on a value for value basis, with mark to market imposed on outstanding transactions. The entities are participating institutions in the Canadian Investor Protection Fund or members of recognized exchanges and associations. For the purposes of this definition recognized exchanges and associations mean those entities that meet the following criteria:

1. the exchange or association maintains or is a member of an investor protection regime equivalent to the Canadian Investor Protection Fund;

2. the exchange or association requires the segregation by its members of customers' fully paid for securities;

3. the exchange or association rules set out specific methodologies for the segregation of, or reserve for, customer credit balances;

4. the exchange or association has established rules regarding Dealer Member and customer account margining;

5. the exchange or association is subject to the regulatory oversight of a government agency or a self-regulatory organization under a government agency which conducts regular examinations of its members and monitors member's regulatory capital on an ongoing basis; and

6. the exchange or association requires regular regulatory financial reporting by its members.

A list of current recognized exchanges and associations is included in the most recent list of foreign acceptable institutions and foreign acceptable counterparties.

(i) "settlement date -- extended" means a transaction (other than a mutual fund security redemption) in respect of which the arranged settlement date is a date after regular settlement date.

(j) "settlement date -- regular" means the settlement date generally accepted according to industry practice for the relevant security in the market in which the transaction occurs, including foreign jurisdictions. For margin purposes, if such settlement date exceeds 15 business days past trade date, settlement date will be deemed to be 15 business days past trade date. In the case of new issue trades, regular settlement date means the contracted settlement date as specified for that issue.

 

FORM 1 -- CERTIFICATE OF UDP AND CFO

_________________________

(Dealer Member Name)

We have examined the attached statements and schedules and certify that, to the best of our knowledge, they present fairly the financial position and capital of the Dealer Member at __________ and the results of operations for the period then ended, and are in agreement with the books of the Dealer Member.

We certify that the following information is true and correct to the best of our knowledge for the period from the last audit to the date of the attached statements which have been prepared in accordance with the current requirements of the Corporation:

 

 

ANSWER

1.

Does the Dealer Member have adequate internal controls in accordance with the rules?

__________

 

2.

Does the Dealer Member maintain adequate books and records in accordance with the rules?

__________

 

3.

Does the Dealer Member monitor on a regular basis its adherence to early warning requirements in accordance with the rules?

__________

 

4.

Does the Dealer Member carry insurance of the type and in the amount required by the rules?

__________

 

5.

Does the Dealer Member determine on a regular basis its free credit segregation amount and act promptly to segregate assets as appropriate in accordance with the rules?

__________

 

6.

Does the Dealer Member promptly segregate clients' securities in accordance with the rules?

__________

 

7.

Does the Dealer Member follow the minimum required policies and procedures relating to security counts?

__________

 

8.

Have all "concentrations of securities" been identified on Schedule 9?

__________

 

Do the attached statements fully disclose all assets and liabilities including the following:

 

 

9.

Participation in any underwriting or other agreement subject to future demands?

__________

 

10.

Outstanding puts, calls or other options?

__________

 

11.

All future purchase and sales commitments?

__________

 

12.

Writs issued against the Dealer Member or partners or any other litigation pending?

__________

 

13.

Income tax arrears?

__________

 

14.

Other contingent liabilities, guarantees, accommodation endorsements or commitments affecting the financial position of the Dealer Member?

__________

 

_________________________

_________________________

(Ultimate Designated Person)

(date)

 

_________________________

_________________________

(Chief Financial Officer)

(date)

 

_________________________

_________________________

(other Executive, if applicable)

(date)

[See notes and instructions]

 

FORM 1 -- CERTIFICATE OF UDP AND CFO

NOTES AND INSTRUCTIONS

1. Details must be given for any "no" answers.

2. To be signed by:

(a) Ultimate Designated Person (UDP);

(b) Chief financial officer (CFO); and

(c) at least one other executive if the CFO is not an executive or if the UDP and CFO are one.

3. A copy of the certificate with original signatures must be provided to both the Corporation and CIPF.

 

FORM 1 -- SEPARATE CERTIFICATE OF UDP AND CFO ON STATEMENT G OF PART I --

OPENING IFRS STATEMENT OF FINANCIAL POSITION AND RECONCILIATION OF EQUITY

_________________________

(Dealer Member Name)

We have examined the attached Statement G and certify that, to the best of our knowledge, it has been prepared in accordance with its accompanying notes and instructions and represents the opening IFRS financial position and reconciliation of equity between Canadian Generally Accepted Accounting Principles (CGAAP) and International Financial Reporting Standards (IFRS), except for prescribed departures and prescribed accounting treatments as stipulated in the general notes and definitions of Form 1, of

 
____________________at__________________________________________.
 
        (Dealer Member)
(IFRS conversion date)

We acknowledge that as management we are responsible for the preparation and fair presentation of the opening IFRS financial position in accordance with our regulatory financial reporting obligations. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements. On this basis, certify the following statements are true and complete:

1. We updated the written accounting policies and procedures to reflect the adoption of IFRS, except for prescribed regulatory accounting departures and prescribed accounting treatments, where alternatives exist as stipulated in the general notes and instructions of Form 1.

2. Based on our knowledge and having exercised reasonable diligence, we performed an analysis and financial statement impact assessment of the changeover from CGAAP to IFRS to determine whether we have identified all accounting and reporting changes appropriate for our business and material adverse capital implications.

3. We selected and adopted the appropriate IFRS 1 optional exemptions and mandatory exceptions for a Dealer Member, including the prescribed departures and prescribed accounting treatments as set out in the general notes and instructions of Form 1.

4. Based on our knowledge and having exercised reasonable diligence, we identified and disclosed all of the IFRS adjustments that impact retained earnings. For material adjustments, we provided an explanation of the effect and implications of the transition to IFRS, including any accompanying material impact on risk adjusted capital (RAC), by way of a note disclosure.

5. Based on our knowledge and having exercised reasonable diligence, we identified and disclosed all of the IFRS adjustments that are presentation differences with no impact on total equity. For material presentation adjustments to non-allowable assets, we considered any accompanying adverse capital implication. For material presentation adjustments, we provided an explanation by way of a note disclosure.

_________________________

_________________________

(Ultimate Designated Person)

(date)

 

_________________________

_________________________

(Chief Financial Officer)

(date)

 

_________________________

_________________________

(other Executive, if applicable)

(date)

 

FORM 1 -- INDEPENDENT AUDITOR'S REPORT FOR STATEMENTS A, E AND F

To: Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund

We have audited the accompanying Statements of ____________________ (Dealer Member), which comprise the statement of financial position (Statement A) as at ____________________ (date) and the statement of income and comprehensive Income (Statement E) and statement of changes in capital and retained earnings (Statement F) for the year then ended ____________________ (date) and a summary of significant accounting policies and other explanatory information. These Statements have been prepared by management based on the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Investment Industry Regulatory Organization of Canada.

Management's responsibility for the Statements

Management is responsible for the preparation and fair presentation of these Statements in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Investment Industry Regulatory Organization of Canada and for such internal control as management determines is necessary to enable the preparation of Statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these Statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Dealer Member's preparation and fair presentation of the Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Dealer Member's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the Statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the Statements present fairly, in all material respects, the financial position of ____________________ (Dealer Member) as at ____________________ (date) and the results of its operations for the year then ended in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Investment Industry Regulatory Organization of Canada.

Going Concern

[Note: SIRFF to allow for auditor to include emphasis of matter paragraph for Going concern -- this is an option for auditors but not part of the standard report]

Without modifying our opinion, we draw attention to Note __________ (note) in the Statements which indicates that ____________________ (Dealer Member) incurred a net loss of ____________________ ($ amount) during the year ended ____________________ (date) and, as of that date, ____________________ (Dealer Member's) current liabilities exceeded its total assets by ____________________ ($ amount). These conditions, along with other matters as set forth in Note ____________________ (note), indicate the existence of a material uncertainty that may cast significant doubt about ____________________ (Dealer Member's) ability to continue as a going concern.

Basis of Accounting and Restriction on Use

Without modifying our opinion, we draw attention to Note __________ (note) to the Statements which describes the basis of accounting. The Statements are prepared to assist ____________________ (Dealer Member) to meet the requirements of the Investment Industry Regulatory Organization of Canada. As a result, the Statements may not be suitable for another purpose. Our report is intended solely for ____________________ (Dealer Member), the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund and should not be used by parties other than ____________________ (Dealer Member), the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

[Note: SIRFF to allow for auditor to include other potential Emphasis of Matter and Other Matter paragraphs should one be required under the CASs or determined appropriate by the auditor to be included in the auditor's report. Such wording would be agreed upon with the Corporation prior to the filing of Form 1.]

Unaudited Information

We have not audited the information in Schedules 13 and 15 of Part II of Form 1 and accordingly do not express an opinion on these schedules.

____________________

 

(Audit Firm)

 

 

____________________

 

(signature)

 

 

____________________

 

(date)

 

 

____________________

 

(address)

 

[See notes and instructions]

 

FORM 1 -- INDEPENDENT AUDITOR'S REPORT FOR STATEMENTS B, C AND D

To: Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund

We have audited the accompanying Statements of Form 1(the "Statements") of ____________________ (Dealer Member) as at ____________________ (date):

Statement B -- Statement of Net Allowable Assets and Risk Adjusted Capital

Statement C -- Statement of Early Warning Excess and Early Warning Reserve

Statement D -- Statement of Free Credit Segregation Amount

These Statements have been prepared by management based on the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Investment Industry Regulatory Organization of Canada.

Management's Responsibility for the Statements

Management is responsible for the preparation of the Statements of Form 1 in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Investment Industry Regulatory Organization of Canada, and for such internal control as management determines is necessary to enable the preparation of Statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on the Statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Dealer Member's preparation of the Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Dealer Member's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the Statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our audit opinion.

Opinion

In our opinion, the financial information in Statements B, C and D of Form 1 as at _____(year end)_____ is prepared, in all material respects, in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Investment Industry Regulatory Organization of Canada.

Basis of Accounting and Restriction on Use

Without modifying our opinion, we draw attention to Note _____ (note) to the Statements which describes the basis of accounting. The Statements are prepared to assist ____________________ (Dealer Member) to meet the requirements of the Investment Industry Regulatory Organization of Canada. As a result, the Statements may not be suitable for another purpose. Our report is intended solely for ____________________ (Dealer Member), the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund and should not be used by parties other than ____________________ (Dealer Member), the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

_________________________

 

(Audit Firm)

 

 

_________________________

 

(signature)

 

 

_________________________

 

(date)

 

 

_________________________

 

(address)

 

[See notes and instructions]

 

FORM 1 -- INDEPENDENT AUDITOR'S REPORTS

NOTES AND INSTRUCTIONS

A measure of uniformity in the form of the auditor's reports is desirable in order to facilitate identification of circumstances where the underlying conditions are different. Therefore, when auditors are able to express an unqualified opinion, their reports should take the form of the auditor's reports shown above.

Alternate forms of Auditor's Reports are available online from within the web-based Securities Industry Regulatory Financial Filings system (SIRFF).

Any limitations in the scope of the audit must be discussed in advance with the Corporation. Discretionary scope limitations will not be accepted. Any other potential emphasis of matter and other matter paragraphs in the auditor's reports must be discussed in advance with the Corporation.

One copy of the auditor's reports with original signatures must be provided to the Corporation and another copy with original signatures must be provided to CIPF.

 

FORM 1, PART I -- STATEMENT A

_________________________

(Dealer Member Name)

STATEMENT OF FINANCIAL POSITION

at ____________________

REFERENCE

NOTES

(CURRENT YEAR)

(PREVIOUS YEAR)

LIQUID ASSETS:

 

C$'000

C$'000

 

1.

 

Cash on deposit with acceptable institutions

_____

__________

__________

 

2.

 

Funds deposited in trust for RRSP and other similar accounts

_____

__________

__________

 

3.

Stmt. D

Cash, held in trust with acceptable institutions, due to free credit ratio calculation

_____

__________

__________

 

4.

 

Variable base deposits and margin deposits with acceptable clearing corporations [cash balances only]

_____

__________

__________

 

5.

 

Margin deposits with regulated entities [cash balances only]

_____

__________

__________

 

6.

Sch. 1

Loans receivable, securities borrowed and resold

_____

__________

__________

 

7.

Sch. 2

Securities owned -- at market value

_____

__________

__________

 

8.

Sch. 2

Securities owned and segregated due to free credit ratio calculation

_____

__________

__________

 

9.

Sch. 4

Client accounts

_____

__________

__________

 

10.

Sch. 5

Brokers and dealers trading balances

_____

__________

__________

 

11.

 

Receivable from carrying broker or mutual fund

_____

__________

__________

 

12.

 

TOTAL LIQUID ASSETS

_____

__________

__________

 

OTHER ALLOWABLE ASSETS (RECEIVABLES FROM ACCEPTABLE INSTITUTIONS):

 

 

 

 

13.

Sch. 6

Current income tax assets

_____

__________

__________

 

14.

 

Recoverable and overpaid taxes

_____

__________

__________

 

15.

 

Commissions and fees receivable

_____

__________

__________

 

16.

 

Interest and dividends receivable

_____

__________

__________

 

17.

 

Other receivables [provide details]

_____

__________

__________

 

18.

 

TOTAL OTHER ALLOWABLE ASSETS

_____

__________

__________

 

NON ALLOWABLE ASSETS:

 

 

 

 

19.

 

Other deposits with acceptable clearing corporations

 

 

 

 

 

 

[cash or market value of securities lodged]

_____

__________

__________

 

20.

 

Deposits and other balances with non-acceptable clearing corporations [cash or market value of securities lodged]

_____

__________

__________

 

21.

 

Commissions and fees receivable

_____

__________

__________

 

22.

 

Interest and dividends receivable

_____

__________

__________

 

23.

 

Deferred tax assets

_____

__________

__________

 

24.

 

Intangible assets

_____

__________

__________

 

25.

 

Property, plant and equipment

_____

__________

__________

 

26.

 

Investments in subsidiaries and affiliates

_____

__________

__________

 

27.

 

Advances to subsidiaries and affiliates

_____

__________

__________

 

28.

 

Other assets [provide details]

_____

__________

__________

 

29.

 

TOTAL NON-ALLOWABLE ASSETS

_____

__________

__________

 

30.

 

Finance lease assets

_____

__________

__________

 

31.

 

TOTAL ASSETS

_____

__________

__________

 

CURRENT LIABILITIES:

 

 

 

 

51.

Sch. 7

Overdrafts, loans, securities loaned and repurchases

_____

__________

__________

 

52.

Sch. 2

Securities sold short -- at market value

_____

__________

__________

 

53.

Sch. 4

Client accounts

_____

__________

__________

 

54.

Sch. 5

Brokers and dealers

_____

__________

__________

 

55.

 

Provisions

_____

__________

__________

 

56.

Sch. 6

Current income tax liabilities

_____

__________

__________

 

57.

 

Bonuses payable

_____

__________

__________

 

58.

 

Accounts payable and accrued expenses

_____

__________

__________

 

59.

 

Finance leases and lease-related liabilities

_____

__________

__________

 

60.

 

Other current liabilities [provide details]

_____

__________

__________

 

61.

 

TOTAL CURRENT LIABILITIES

_____

__________

__________

 

NON-CURRENT LIABILITIES:

_____

__________

__________

 

62.

 

Provisions

_____

__________

__________

 

63.

 

Deferred tax liabilities

_____

__________

__________

 

64.

 

Finance leases and lease-related liabilities

_____

__________

__________

 

65.

 

Finance leases -- leasehold inducements

_____

__________

__________

 

66.

 

Other non-current liabilities [provide details]

_____

__________

__________

 

67.

 

Subordinated loans

_____

__________

__________

 

68.

 

TOTAL NON-CURRENT LIABILITIES

_____

__________

__________

 

69.

 

TOTAL LIABILITIES [Line 61 plus Line 68]

_____

__________

__________

 

CAPITAL AND RESERVES:

 

 

 

 

70.

Stmt. F

Issued capital

_____

__________

__________

 

71.

Stmt. F

Reserves

_____

__________

__________

 

72.

Stmt. F

Retained earnings or undivided profits

_____

__________

__________

 

73.

 

TOTAL CAPITAL

_____

__________

__________

 

74.

 

TOTAL LIABILITIES AND CAPITAL

_____

__________

__________

[See notes and instructions]

 

FORM 1, PART I -- STATEMENT A

NOTES AND INSTRUCTIONS

Accrual basis of accounting

Dealer Members are required to use the accrual basis of accounting.

Line 2 -- The trustee for RRSP or other similar accounts must qualify as an acceptable institution. Such accounts must be insured by the Canada Deposit Insurance Corporation (CDIC) or Autorité des marchés financiers (AMF) to the full extent insurance is available. If not, then the Dealer Member must report 100% of the balance held in trust as non-allowable assets on Line 28 (Non-allowable assets -- other assets).

RRSP and other similar balances held at such trustee, but for which CDIC or the AMF insurance is not available, such as foreign currency accounts, can be classified as allowable assets.

The name of the RRSP trustee used by the Dealer Member must also be provided on Schedule 4.

Line 4 -- For definition of "acceptable clearing corporations", see General Notes and Definitions.

Securities on deposit (and related margin) should be included in balances reported on Inventory Schedule 2 and disclosed separately on the supplementary information Line 11 of Schedule 2.

Line 5 -- For definition of "regulated entities", see General Notes and Definitions.

Securities on deposit (and related margin) should be included in balances reported on Inventory Schedule 2 and disclosed separately on the supplementary information Line 11 of Schedule 2.

Line 11 -- For an introducing broker (pursuant to an approved introducing/carrying broker agreement), unsecured balances receivable from its carrying broker, such as gross commissions and deposits in the form of cash, should be reported on this line.

Unsecured balances should only be included to the extent they are not being used by the carrying broker to reduce client margin requirements.

Securities on deposit (and related margin) should be included in balances reported on Inventory Schedule 2 and disclosed separately on the supplementary information Line 11 of Schedule 2.

In the case of the salesperson's portion of gross commissions and fees receivable, as recorded on Line 21 (Commissions and fees receivable), to the extent that there is written documentation that the broker does not have a liability to pay the salesperson's commission until it is received, the salesperson's portion of the gross commission receivable is an allowable asset.

Line 13 -- Include only overpayment of prior years' income taxes or current year installments. Taxes recoverable due to current year losses may be included to the extent that they can be carried back and applied against taxes previously paid.

Line 14 -- Include the recoverable portion of capital tax, Part VI tax, property taxes and any federal or provincial sales taxes.

Include only to extent receivable from acceptable institutions (for definition, see General Notes and Definitions).

Line 18 -- Allowable assets are those assets which due to their nature, location or source are either readily convertible into cash or from such creditworthy entities as to be allowed for capital purposes.

Include only to extent receivable from acceptable institutions (for definition see General Notes and Definitions).

Line 19 -- Report the cash and market value of securities lodged with acceptable clearing corporations that represent fixed base deposits.

Line 20 -- To the extent receivable from other than acceptable clearing corporations, include all deposits whether margin deposits or variable and fixed base deposits.

Line 21 -- To the extent receivable from parties other than acceptable institutions.

Line 22 -- To the extent receivable from parties other than acceptable institutions.

Line 24 -- Start-up and organizational costs cannot be capitalized. Examples of intangible assets include goodwill and client lists.

Line 26 -- Investments in subsidiaries and affiliates must be valued at cost.

Line 27 -- A Dealer Member must report non-trading inter-company receivables on a gross basis unless the criteria for netting are met.

Line 28 -- Including but not limited to such items as:

prepaid expenses
other receivables from other than acceptable institutions
cash surrender value of life insurance
cash on deposit with non acceptable institutions
advances to employees (gross)
 
 

Line 29 -- Non-allowable assets mean those assets that do not qualify as allowable assets.

Line 30 -- Assets arising from a finance lease (also known as a capitalized lease).

Line 55 -- Recognize a liability to cover specific expenditures relating to legal and constructive obligations.

A Dealer Member cannot hold provisions as a general reserve to be applied against some other unrelated expenditure.

Line 57 -- Include discretionary bonuses payable and bonuses payable to shareholders in accordance with share ownership.

Line 59 -- Include current portion of deferred lease inducements.

Line 60 -- Include unclaimed dividends and interest.

Line 65 -- In those cases where it can be demonstrated that the leasehold inducement presents no additional liability to the Dealer Member (i.e. if the Dealer Member does not "owe" the unamortized portion of the inducement back to the landlord, thereby qualifying the landlord as a creditor of the Dealer Member), the non-current portion can be reported as an adjustment to risk adjusted capital (RAC) on Statement B.

Line 67 -- Subordinated loans mean approved loans, pursuant to an agreement in writing in a form satisfactory to the Corporation, obtained from a chartered bank or any other lending institution, industry investor approved as such by the Corporation, or non-industry investor subject to the Corporation's approval, the payment of which is deferred in favor of other creditors and is subject to regulatory approval.

A Dealer Member must not pay a debt owed to any of its creditors contrary to any subordination or other agreement to which it and the Corporation are parties.

Line 71 -- Reserve is an amount set aside for future use, expense, loss or claim -- in accordance with statute or regulation. It includes an amount appropriated from retained earnings - in accordance with statute or regulation. It also includes accumulated other comprehensive income (OCI).

Line 72 -- Retained earnings represent the accumulated balance of income less losses arising from the operation of the business, after taking into account dividends and other direct charges or credits.

 

FORM 1, PART I -- STATEMENT B

_________________________

(Dealer Member Name)

STATEMENT OF NET ALLOWABLE ASSETS AND RISK ADJUSTED CAPITAL

at ____________________

REFERENCE

NOTES

(CURRENT YEAR)

(PREVIOUS YEAR)

 

 

 

 

C$'000

C$'000

 

1.

A-73

Total Capital

_____

__________

__________

 

2.

A-65

Add: Finance leases -- leasehold inducements

_____

__________

__________

 

3.

A-67

Add: Subordinated loans

_____

__________

__________

 

4.

 

REGULATORY FINANCIAL STATEMENT CAPITAL

_____

__________

__________

 

5.

A-29

Deduct: Total Non allowable assets

_____

__________

__________

 

6.

 

NET ALLOWABLE ASSETS

_____

__________

__________

 

7.

 

Deduct: Minimum capital

_____

__________

__________

 

8.

 

SUBTOTAL

_____

__________

__________

 

Deduct -- Margin required:

 

 

 

 

9.

Sch. 1

Loans receivable, securities borrowed and resold

_____

__________

__________

 

10.

Sch. 2

Securities owned and sold short

_____

__________

__________

 

11.

Sch. 2A

Underwriting concentration

_____

__________

__________

 

12.

Sch. 4

Client accounts

_____

__________

__________

 

13.

Sch. 5

Brokers and dealers

_____

__________

__________

 

14.

Sch. 7

Loans and repurchases

_____

__________

__________

 

15.

 

Contingent liabilities [provide details]

_____

__________

__________

 

16.

Sch. 10

Financial institution bond deductible [greatest under any clause]

_____

__________

__________

 

17.

Sch. 11

Unhedged foreign currencies

_____

__________

__________

 

18.

Sch. 12

Futures contracts

_____

__________

__________

 

19.

Sch. 14

Provider of capital concentration charge

_____

__________

__________

 

20.

 

Securities held at non-acceptable securities locations

_____

__________

__________

 

21.

Sch. 7A

Acceptable counterparties financing activities concentration charge

_____

__________

__________

 

22.

 

Unresolved differences [provide details]

_____

__________

__________

 

23.

 

Other [provide details]

_____

__________

__________

 

24.

 

TOTAL MARGIN REQUIRED [Lines 9 to 23]

_____

__________

__________

 

25.

 

SUBTOTAL [Line 8 less Line 24]

_____

__________

__________

 

26.

Sch. 6A

Add: Applicable tax recoveries

_____

__________

__________

 

27.

 

Risk Adjusted Capital before securities concentration charge [Line 25 plus Line 26]

_____

__________

__________

 

28.

Sch. 9

Deduct: Securities concentration charge of __________

 

 

 

 

 

Sch. 6A

less tax recoveries of __________

_____

__________

__________

 

29.

 

RISK ADJUSTED CAPITAL [Line 27 less Line 28]

_____

__________

__________

[See notes and instructions]

 

FORM 1, PART I -- STATEMENT B SUPPLEMENTAL

DATE: _______________

_________________________

(Dealer Member Name)

Statement B -- Line 22: Details of Unresolved Differences

_________________________

 

 

Reconciled as at Report Date (Yes/No)

Number of items

Debit/Short value (Potential Losses)

Number of items

Credit/Long value (Potential Gains)

Required to margin

 

(a)

Clearing

__________

__________

__________

__________

__________

__________

 

(b)

Brokers and dealers

__________

__________

__________

__________

__________

__________

 

(c)

Bank accounts

__________

__________

__________

__________

__________

__________

 

(d)

Intercompany accounts

__________

__________

__________

__________

__________

__________

 

(e)

Mutual Funds

__________

__________

__________

__________

__________

__________

 

(f)

Security Counts

__________

__________

__________

__________

__________

__________

 

(g)

Other unreconciled differences

__________

__________

__________

__________

__________

__________

 

TOTAL

 

 

 

 

 

__________

 

 

 

 

 

 

 

Statement B, Line 22

[See notes and instructions]

 

FORM 1, PART I -- STATEMENT B

NOTES AND INSTRUCTIONS

Capital adequacy

A DEALER MEMBER MUST HAVE AND MAINTAIN AT ALL TIMES RISK ADJUSTED CAPITAL IN AN AMOUNT NOT LESS THAN ZERO.

Netting for margin calculation

When applying Corporation margin rules, a Dealer Member can net allowable assets and liabilities as well as security positions. Except where there is a prescribed IFRS departure, netting is for regulatory margin purposes only (and not for presentation purposes).

Line 2 -- Non- current liability -- finance leases -- lease hold inducements

In those cases where it can be demonstrated that the leasehold inducement presents no additional liability to the Dealer Member (i.e. the Dealer Member does not "owe" the unamortized portion of the inducement back to the landlord, thereby qualifying the landlord as a creditor of the Dealer Member), the non-current portion of the finance lease liability for leasehold inducements can be reported as an adjustment to risk adjusted capital.

Line 7 -- Minimum Capital

"Minimum capital" is $250,000 except for a Type 1 introducing broker. For a Type 1 introducing broker, the minimum capital is $75,000.

Line 15 -- Contingent liabilities

No Dealer Member may give, directly or indirectly, by means of a loan, guarantee, the provision of security or of a covenant or otherwise, any financial assistance to an individual and/or corporation unless the amount of the loan, guarantee, provision of security or of the covenant or any other assistance is limited to a fixed or determinable amount and the amount is provided for in computing Risk Adjusted Capital.

The margin required shall be the amount of the loan, guarantee, etc. less the loan value of any accessible collateral, calculated in accordance with Corporation rules.

A guarantee of payment is not acceptable collateral to reduce margin required.

The Dealer Member should maintain and retain the details of the margin calculations for contingencies, such as guarantees or returned cheques, for Corporation review.

Line 20 -- Securities held at non-acceptable securities locations

Capital Requirements

In general, the capital requirements for securities held in custody at another entity are as follows:

(i) Where the entity qualifies as an acceptable securities location, there shall be no capital requirement, provided there are no unresolved differences between the amounts reported on the books of the entity acting as custodian and the amounts reported on the books of the Dealer Member. The capital requirements for unresolved differences are discussed separately in the notes and instructions for the completion of Statement B, Line 22 below.

(ii) Where the entity does not qualify as an acceptable securities location, the entity shall be considered a non-acceptable securities location and the Dealer Member shall be required to deduct 100% of the market value of the securities held in custody with the entity in the calculation of its Risk Adjusted Capital.

However, there is one exception to the above general requirements. Where the entity would otherwise qualify as an acceptable securities location except for the fact that the Dealer Member has not entered into a written custodial agreement with the entity, as required by Corporation rules, the capital requirement shall be determined as follows:

(a) Where setoff risk with the entity is present, the Dealer Member shall be required to deduct the lesser of:

(I) 100% of the setoff risk exposure to the entity; and

(II) 100% of the market value of the securities held in custody with the entity;

in the calculation of its Risk Adjusted Capital;

and;

(b) The Dealer Member shall be required to deduct 10% of the market value of the securities held in custody with the entity in the calculation of its Early Warning Reserve.

The sum of the requirements calculated in paragraphs (a) and (b) above shall be no greater than 100% of the market value of the securities held in custody with the entity. Where the sum amounts initially calculated in paragraphs (a) and (b) above are greater than 100%, the capital required under paragraph (b) and the amount reported as a deduction in the calculation of the Early Warning Reserve shall be reduced accordingly.

For the purposes of determining the capital requirement detailed in paragraph (a) above, the term "setoff risk" shall mean the risk exposure that results from the situation where the Dealer Member has other transactions, balances or positions with the entity, where the resultant obligations of the Dealer Member might be setoff against the value of the securities held in custody with the entity.

Client Waiver

Where the laws and circumstances prevailing in a foreign jurisdiction may restrict the transfer of securities from the jurisdiction and the Dealer Member is unable to arrange for the holding of client securities in the jurisdiction at an acceptable securities location, the Dealer Member may hold such securities at a location in that jurisdiction if (a) the Dealer Member has entered into a written custodial agreement with the location as required hereunder and (b) the client has consented to the arrangement, acknowledged the risks and waived any claims it may have against the Dealer Member, in a form approved by the Corporation. Such a consent and waiver must be obtained on a transaction by transaction basis.

Line 22 -- Unresolved Differences

Items are considered unresolved unless:

(i) a written acknowledgement from the counterparty of a valid claim has been received

(ii) a journal entry to resolve the difference has been processed as of the Due Date of Form 1.

This does not include journal entries writing off the difference to profit or loss in the period subsequent to the date of Form 1.

Provision should be made for the market value and margin requirements at the Form 1 date on out-of-balance short securities and other adverse unresolved differences (such as, with banks, trust companies, brokers, clearing corporations) still unresolved as at a date one month subsequent to the Form 1 date or other applicable Due Date of Form 1.

The margin rate to be used is the one that is appropriate for inventory positions. For instance, if the calculation is for securities eligible for reduced margin, the margin rate is 25%, rather than 30%.

A separate schedule, in a form approved by the Corporation, must be prepared detailing all unresolved differences as at the report date.

The following guidelines should be followed when calculating the required to margin amount on unresolved items:

Type of Unresolved Difference
Amount Required to Margin
 
Money balance -- credit (potential gains)
None
 
Money balance -- debit (potential losses)
Money balance
 
Unresolved Long with Money on the Dealer Member's Book
[(Money Balance on the trade minus market value of the security){•} plus the applicable inventory margin]
 
Unresolved Long without Money on the Dealer Member's Books
None
 
Unresolved Short with Money on the Dealer Member's Books
[(Market value of the security minus money balance on the trade){•} plus the applicable inventory margin]
 
Unresolved Long/Short on the Other Broker's Books
None
 
Short Security Break (e.g. Mutual Funds, Stock Dividends) or Unresolved Short without Money on the Dealer Member's Books
[Market value of the security plus the applicable inventory margin]

{•} also referred to as the Mark-to-Market Adjustment.

Where mutual fund positions are not reconciled on a monthly basis, margin shall be provided equal to a percentage of the market value of such mutual funds held on behalf of clients. Where no transactions in the mutual fund, other than redemptions and transfers, have occurred for at least six months and no loan value has been associated with the mutual fund, the percentage shall be 10%. In all other cases, the percentage shall be 100%.

Unresolved Differences in Accounts:

Report all differences determined on or before the report date that have not been resolved as of the due date.

Month End

Month End + 20 Business Days

  _________________________ _________________________ _________________________ _________________________ ________

  |

  |

(Report date)

(Due date)

Include differences determined on or before the report date that have not been resolved as of the due date.

_________________________

Do not include differences as of the report date that have been resolved on or before the due date.

_________________________

For each account listed, set out the number of unresolved differences and the money value of both the debit and credit differences. The Debit/Short value column includes money differences and market value of security differences, which represent a potential loss. The Credit/Long value column includes money differences and market value of security differences, which represent a potential gain. In determining the potential gain or loss, the money balance and the security position market value of the same transaction should be netted. Debit/short and credit/long balances of different transactions cannot be netted.

All reconciliation must be properly documented and made available for review by Corporation examination staff and Dealer Member's Auditor.

Unresolved differences in Security Counts:

Report all security count differences determined on or before the report date that have not been resolved as of due date. The amount required to margin is the market value of short security differences plus the applicable inventory margin.

Line 23 -- Other

This item should include all margin requirements not mentioned above as outlined in Corporation rules.

 

FORM 1, PART I -- STATEMENT C

DATE: _______________

_________________________

(Dealer Member Name)

STATEMENT OF EARLY WARNING EXCESS AND EARLY WARNING RESERVE

at ____________________

REFERENCE

NOTES

(CURRENT YEAR)

 

 

 

 

C$'000

 

1.

B-29

RISK ADJUSTED CAPITAL

_____

__________

 

LIQUIDITY ITEMS --

 

 

 

 

DEDUCT:

 

 

 

2.

A-18

Other allowable assets

_____

__________

 

3.

Sch. 6A

Tax recoveries

_____

__________

 

4.

 

Securities held at non-acceptable securities locations

_____

__________

 

 

 

ADD:

 

 

 

5.

A-68

Non-current liabilities

_____

__________

 

6.

A-67

Less: Subordinated loans

_____

__________

 

7.

A-65

Less: Finance leases -- leasehold inducements

_____

__________

 

8.

 

Adjusted non-current liabilities for Early Warning purposes

_____

__________

 

9.

Sch. 6A

Tax recoveries -- income accruals

_____

__________

 

10.

 

EARLY WARNING EXCESS

_____

__________

 

 

 

DEDUCT: CAPITAL CUSHION -

_____

__________

 

11.

B-24

Total margin required $__________ multiplied by 5%

_____

__________

 

12.

 

EARLY WARNING RESERVE [Line 10 less Line 11]

_____

__________

 

 

 

_____

__________

[See notes and instructions]

 

FORM 1, PART I -- STATEMENT C

NOTES AND INSTRUCTIONS

The Early Warning system is designed to provide advance warning of a Dealer Member encountering financial difficulties. It will anticipate capital shortages and/or liquidity problems and encourage Dealer Members to build a capital cushion.

Line 1 -- If Risk Adjusted Capital of the Dealer Member is less than:

(a) 5% of total margin required (Line 11 above), then the Dealer Member is designated as being in Early Warning category Level 1, or

(b) 2% of total margin required (Line 11 above), then the Dealer Member is designated as being in Early Warning category Level 2,

and the applicable sanctions outlined in the Corporation rules will apply.

Lines 2 and 3 -- These items are deducted from RAC because they are illiquid or the receipt is either out of the Dealer Member's control or contingent.

Line 4 -- Pursuant to the Notes and Instructions for the completion of Statement B, Line 20, where the entity would otherwise qualify as an acceptable securities location except for the fact that the Dealer Member has not entered into a written custodial agreement with the entity, as required by Corporation rules, the Dealer Member will be required to deduct an amount up to 10% of the market value of the securities held in custody with the entity, in the calculation of its Early Warning Reserve. Please refer to the detailed calculation formula set out to the Notes and Instructions for the completion of Statement B, Line 20 to determine the capital requirement to be reported on Statement C, Line 4.

Line 5 -- Non-current liabilities (other than subordinated loans and non-current portion of finance lease liabilities -- leasehold inducements) are added back to RAC as they are not current obligations of the Dealer Member and can be used as financing.

Line 9 -- This add-back ensures that the Dealer Member is not penalized at the Early Warning level for accruing income.

Line 10 -- If Early Warning Excess is negative, the Dealer Member is designated as being in Early Warning category Level 2 and the sanctions outlined in the Corporation rules will apply.

Line 12 -- If the Early Warning Reserve is negative, the Dealer Member is designated as being in Early Warning category Level 1 and the sanctions outlined in the Corporation rules will apply.

 

FORM 1, PART I -- STATEMENT D

_________________________

(Dealer Member Name)

STATEMENT OF FREE CREDIT SEGREGATION AMOUNT

at ____________________

REFERENCE

NOTES

(CURRENT YEAR)

AMOUNT REQUIRED TO SEGREGATE:

 

C$'000

 

1.

B-6

Net allowable assets of $__________ multiplied by 8

_____

__________

 

2.

C-12

Early warning reserve of $__________ multiplied by 4

_____

__________

 

3.

 

FREE CREDIT LIMIT [Lines 1 plus 2]

_____

__________

 

 

 

Less client free credit balances:

_____

__________

 

4.

Sch. 4

Dealer Member's own [see note]

_____

__________

 

5.

 

Carried For Type 3 Introducers

_____

__________

 

6.

 

AMOUNT REQUIRED TO SEGREGATE [NIL if Line 3 exceeds Line 4 plus Line 5, see note]

_____

__________

 

 

 

AMOUNT IN SEGREGATION:

_____

__________

 

7.

A-3

Client funds held in trust in an account with an acceptable institution [see note]

_____

__________

 

8.

Sch. 2

Market value of securities owned and in segregation [see note]

_____

__________

 

9.

 

TOTAL IN SEGREGATION [Lines 7 plus 8]

_____

__________

 

10.

 

NET SEGREGATION EXCESS (DEFICIENCY) [Line 6 less Line 9, see note]

_____

__________

[See notes and instructions]

NOTES:

Line 3 -- If negative, then Line 6 equals Line 4 plus Line 5, i.e. Dealer Member is required to segregate 100% of client free credits.

Lines 4 and 5 -- Free credit balances in RRSP and other similar accounts should not be included. Refer to Schedule 4 -- Notes and Instructions for discussion of trade versus settlement date reporting of free credit balances. For purposes of this statement, a free credit is:

(a) For cash and margin accounts -- the credit balance less an amount equal to the aggregate of the market value of short positions and regulatory margin on those shorts.

(b) For futures accounts -- any credit balance less an amount equal to the aggregate of margin required to carry open futures contracts and/or futures contracts option positions less equity in those contracts plus deficits in those contracts, provided that such aggregate amount may not exceed the dollar amount of the credit balance.

Line 6 -- If Nil, no further calculation on this Statement need be done.

Line 7 -- The trust must be an obligation binding the Dealer Member (the trustee) to deal with the free credits over which it has control (the trust property), for the benefit of the client (the beneficiary). The trust property must be clearly identified as such even if residing with an acceptable institution.

FUNDS HELD IN TRUST FOR RRSP AND OTHER SIMILAR ACCOUNTS ARE NOT TO BE INCLUDED IN THIS CALCULATION.

Line 8 -- The securities to be included are bonds, debentures, treasury bills and other securities with a term of 1 year or less, of or guaranteed by the Government of Canada or a Province of Canada, the United Kingdom, the United States of America and any other national foreign government (provided such other foreign government is a party to the Basel Accord) which are segregated and held separate and apart as the Dealer Member's property.

Line 10 -- If negative, then a segregation deficiency exists, and the Dealer Member must expeditiously take the most appropriate action required to settle the segregation deficiency. The Dealer Member must provide an explanation of how the deficiency was corrected as well as the date of correction.

FORM 1, PART I -- STATEMENT E

_________________________

(Dealer Member Name)

STATEMENT OF INCOME AND COMPREHENSIVE INCOME

for the period ended ____________________

REFERENCE

NOTES

(CURRENT YEAR / MONTH)

(PREVIOUS YEAR / MONTH)

 

 

 

 

C$'000

C$'000

 

COMMISSION REVENUE

 

 

 

 

1.

 

Listed Canadian securities

_____

__________

__________

 

2.

 

Other securities

_____

__________

__________

 

3.

 

Mutual funds

_____

__________

__________

 

4.

 

Listed Canadian options

_____

__________

__________

 

5.

 

Other listed options

_____

__________

__________

 

6.

 

Listed Canadian futures

_____

__________

__________

 

7.

 

Other futures

_____

__________

__________

 

8.

 

OTC derivatives

_____

__________

__________

 

PRINCIPAL REVENUE

 

 

 

 

9.

 

Listed Canadian options and related underlying securities

_____

__________

__________

 

10.

 

Other Equities and options

_____

__________

__________

 

11.

 

Debt

_____

__________

__________

 

12.

 

Money market

_____

__________

__________

 

13.

 

Futures

_____

__________

__________

 

14.

 

OTC derivatives

_____

__________

__________

 

CORPORATE FINANCE REVENUE

 

 

 

 

15.

 

New issues -- equity

_____

__________

__________

 

16.

 

New issues -- debt

_____

__________

__________

 

17.

 

Corporate advisory fees

_____

__________

__________

 

OTHER REVENUE

 

 

 

 

18.

 

Interest

_____

__________

__________

 

19.

 

Fees

_____

__________

__________

 

20.

 

Other [provide details]

_____

__________

__________

 

21.

 

TOTAL REVENUE

_____

__________

__________

 

EXPENSES

 

 

 

 

22.

 

Variable compensation

_____

__________

__________

 

23.

 

Commissions and fees paid to third parties

_____

__________

__________

 

24.

 

Bad debt expense

_____

__________

__________

 

25.

 

Interest expense on subordinated debt

_____

__________

__________

 

26.

 

Financing cost

_____

__________

__________

 

27.

 

Corporate finance cost

_____

__________

__________

 

28.

 

Unusual items [provide details]

_____

__________

__________

 

29.

 

Pre-tax profit (loss) for the year from discontinued operations

_____

__________

__________

 

30.

 

Operating expenses

_____

__________

__________

 

31.

 

Profit [loss] for Early Warning test

_____

__________

__________

 

32.

 

Income -- Asset revaluation

_____

__________

__________

 

33.

 

Expense -- Asset revaluation

_____

__________

__________

 

34.

 

Interest expense on internal subordinated debt

_____

__________

__________

 

35.

 

Bonuses

_____

__________

__________

 

 

36.

 

Net income/(loss) before income tax

 

__________

__________

 

37.

S-6(5)

Income tax expense (recovery), including taxes on profit (loss) from discontinued operations

_____

__________

__________

 

38.

 

PROFIT [LOSS] FOR PERIOD

_____

__________

__________

 

 

 

 

F-11

 

 

Other comprehensive income

 

 

 

 

39.

 

Gain (loss) arising on revaluation of properties

_____

__________

__________

 

 

 

 

F-5a

 

 

40.

 

Actuarial gain (loss) on defined benefit pension plans

_____

__________

__________

 

 

 

 

F-5b

 

 

41

 

Other comprehensive income for the year, net of tax [Lines 39 plus 40]

_____

__________

__________

 

 

 

 

For MFR reporting E-41 is the net change to A-71 Reserves

 

 

42.

 

Total comprehensive income for the year [Lines 38 plus 41]

_____

__________

__________

 

Note: The following lines must also be completed when filing the MFR:

_____

__________

__________

 

43.

 

Payment of dividends or partners drawings

_____

__________

__________

 

44.

 

Other [provide details]

_____

__________

__________

 

45.

 

NET CHANGE TO RETAINED EARNINGS [Lines 38, 43 and 44]

_____

__________

__________

[See notes and instructions]

 

FORM 1, PART I -- STATEMENT E

NOTES AND INSTRUCTIONS

Comprehensive income

Comprehensive income represents all changes in equity during a period resulting from transactions and other events, other than changes resulting from transactions with owners in their capacity as owners. Comprehensive income includes profit and loss for the period and other comprehensive income (OCI). OCI captures certain gains and losses outside of net income. For regulatory financial reporting, two acceptable sources of other comprehensive income (OCI) are:

• the use of the revaluation model for plant, property and equipment (PPE) and intangible assets, and

• the actuarial gain (loss) on defined benefit pension plans.

Lines

1. Include all gross commissions earned on listed Canadian securities.

Commissions earned on soft dollar deals with respect to the revenue source should also be included in the appropriate Lines 1 to 8.

Commission paid to registered representatives must be reported on Line 22 (Expenses: variable compensation). Payouts to other brokers must be reported on Line 23 (Expenses: commissions and fees paid to third parties).

2. Include gross commissions earned on OTC transactions [equity or debt, foreign or Canadian], rights and offers, and other foreign securities.

Commission paid to registered representatives must be reported on Line 22 (Expenses: variable compensation). Payouts to other brokers must be reported on Line 23 (Expenses: commissions and fees paid to third parties).

3. Include all gross commissions and trailer fees earned on mutual fund transactions.

Commissions paid to registered representatives must be reported on Line 22 (Expenses: variable compensation). Payouts to the mutual funds must be reported on Line 23 (Expenses: commissions and fees paid to third parties).

4. Include all gross commissions earned on listed option contracts cleared through the Canadian Derivatives Clearing Corporation (CDCC).

Commission paid to registered representatives must be reported on Line 22 (Expenses: variable compensation).

5. Include gross commissions on foreign listed option transactions.

Commission paid to registered representatives must be reported on Line 22 (Expenses: variable compensation). Payouts to other brokers must be reported on Line 23 (Expenses: commissions and fees paid to third parties).

6. Include all gross commissions earned on listed futures contracts cleared through the CDCC.

Commissions paid to registered representatives must be reported on Line 22 (Expenses: variable compensation).

7. Include all gross commissions earned on foreign listed futures contracts.

Commission paid to registered representatives must be reported on Line 22 (Expenses: variable compensation).

8. Include gross commissions earned on OTC options, forwards, contracts-for-difference, FX spot, and swaps.

Commission paid to registered representatives must be reported on Line 22 (Expenses: variable compensation).

9. Include all principal revenue [trading profits/losses, including dividends] from listed options cleared through CDCC and related underlying security transactions in market makers' and Dealer Member's inventory accounts.

Include adjustment of inventories to market value.

The financing cost must be reported separately on Line 26 (Expenses: financing cost).

10. Include all principal revenue [trading profits/losses, including dividends] from all other options and equities except those indicated on Line 9 (Principal revenue: listed Canadian options and related underlying securities).

Include adjustment of inventories to market value.

The financing cost must be reported separately on Line 26 (Expenses: financing cost).

11. Include revenue [trading profits/losses] on all debt instruments, other than money market instruments.

Include adjustment of inventories to market value.

The financing cost must be reported separately on Line 26 (Expenses: financing cost).

12. Include revenue on all money market activities. Money market commissions should also be shown here.

Include any adjustment of inventories to market value.

The cost of carry must be reported separately on Line 26 (Expenses: financing cost).

13. Include all principal revenue [trading profits/losses] on futures contracts.

14. Include revenues from OTC derivatives, such as forward contracts and swaps.

Include adjustment of inventories to market value.

15. Include revenue relating to equity new issue business -- underwriting and/or management fees, banking group profits, private placement fees, trading profits on new issue inventories [trading on an "if, as and when basis"], selling group spreads and/or commissions, and convertible debts.

Syndicate expenses must be reported separately on Line 27 (Expenses: corporate finance cost).

16. Include revenue relating to debt new issue business -- Corporate and government issues, and Canada Savings Bond (CSB) commissions.

Amounts paid to CSB sub-agent fees and for syndicate expenses must be reported separately on Line 27 (Expenses: corporate finance cost).

17. Include revenue relating to corporate advisory fees, such as corporate restructuring, privatization, M&A fees.

The related expenses must be reported separately on Line 27 (Expenses: corporate finance cost).

18. Include all interest revenue, which is not otherwise related to a specific liability trading activity [i.e. other than debt, money market, and derivatives].

All interest revenue from carrying retail and institutional client account balances should be reported on this line. For example, interest revenue earned from client debit balances.

The related interest cost for carrying retail and institutional client accounts should be reported separately on Line 26 (Expenses: financing cost).

19. Include proxy fees, portfolio service fees, segregation and safekeeping fees, RRSP fees, and any charges to clients that are not related to commission or interest.

20. Include foreign exchange profits/losses and all other revenue not reported above.

22. Include commissions, bonuses and other variable compensation of a contractual nature.

Examples would encompass commission payouts to registered representatives (RRs) and payments to institutional and professional trading personnel.

All contractual bonuses should be accrued monthly.

Discretionary bonuses should be reported separately on Line 35 (Expenses: bonuses).

23. Include payouts to other brokers and mutual funds.

25. Include all interest on external subordinated debt, as well as non-discretionary contractual interest on internal subordinated debt.

26. Include the financing cost for all inventory trading (related to Lines 9, 10, 11 and 12) and the cost of carrying client balances (related to Line 18).

27. Include syndicate expenses and any related corporate finance expenses, as well as CSB fees.

28. Unusual items result from transactions or events that are not expected to occur frequently over several years, or do not typify normal business activities.

Discontinued operations, such as a branch closure, should be reported separately on Line 29 (Expenses: profit (loss) for the year from discontinued operations).

29. A discontinued operation is a business component that has either been disposed or is classified as held for sale and represents (or is part of a plan to dispose) a separate significant line of business or geographical area of operations. For example, branch closure. The profit (loss) on discontinued operations for the year is on a pre-tax basis. The tax component is to be included as part of the income tax expense (recovery) on Line 37.

30. Include all operating expenses (including those related to soft dollar deals).

Over-certification cost relating to debt instruments should be reported on this line.

Transaction cost for inventory trading (specifically for inventory that are categorized as held-for-trading) should be included on this line.

The expense related to share-based payments (such as stock option or share reward) to employees and non-employees should be included on this line.

31. This is the profit (loss) number used for the Early Warning profitability tests.

32. When a Dealer Member uses the revaluation model for its PPE and intangible assets, changes to the fair value may result in recognizing income after considering accumulated depreciation (or amortization) and OCI surplus.

33. When a Dealer Member uses the revaluation model for its PPE and intangible assets, changes to the fair value may result in recognizing expense after considering accumulated depreciation (or amortization) and OCI surplus.

34. Include interest expense on subordinated debt with related parties for which the interest charges can be waived if required.

35. This category should include discretionary bonuses and all bonuses to shareholders in accordance with share ownership. These bonuses are in contrast to those reported on Line 22 (Expenses: variable compensation).

37. Include only income taxes and the tax component relating to the profit (loss) on discontinued operations for the year.

Realty and capital taxes should be included on Line 30 (Expenses: operating expenses).

39. When a Dealer Member uses the revaluation model to re-measure its PPE and intangible assets, changes to fair value may result in a change to shareholders' equity after considering accumulated depreciation (amortization) and income or expense from asset revaluation.

40. When a Dealer Member has a defined benefit pension plan and initially adopts a policy of recognizing actuarial gains and losses in full in OCI, the subsequent adjustments must be recognized in OCI.

43. To be used for MFR filing only.

44. To be used for MFR filing only: Include direct charges or credits to retained earnings.

Any adjustment required to reconcile the MFR's retained earnings to the audited Form 1 retained earnings must be posted to the individual Statement E line items on the first MFR that is filed after the adjustment is known.

 

FORM 1, PART I -- STATEMENT F

_________________________ (Dealer Member Name)

STATEMENT OF CHANGES IN CAPITAL AND RETAINED EARNINGS (CORPORATIONS) OR

UNDIVIDED PROFITS (PARTNERSHIPS)

for the year ended ____________________

A. CHANGES IN ISSUED CAPITAL

 

 

 

SHARE CAPITAL

 

 

 

 

 

 

OR

 

 

 

 

 

 

PARTNERSHIP CAPITAL

SHARE PREMIUM

ISSUED CAPITAL

 

 

 

NOTES

[a]

[b]

[c] = [a] + [b]

 

 

 

C$'000

C$'000

C$'000

 

1.

Beginning balance

_____

__________

__________

__________

 

2.

Increases (decreases) during the period [provide details]

_____

__________

__________

__________

 

(a)

_____

__________

__________

__________

 

(b)

_____

__________

__________

__________

 

(c)

_____

__________

__________

__________

 

3.

Ending balance

_____

__________

__________

__________

 

 

 

 

 

A-70

B. CHANGES IN RESERVES

 

 

 

 

GENERAL

PROPERTIES REVALUATION

EMPLOYEE BENEFITS

EMPLOYEE DEFINED BENEFIT PENSION

TOTAL RESERVES

 

 

 

NOTES

[a]

[b]

[c]

[d]

[e] = [a] + [b] + [c] + [d]

 

 

 

 

C$'000

C$'000

C$'000

C$'000

C$'000

 

4.

Beginning balance

_____

__________

__________

__________

__________

__________

 

5.

Changes during the period

_____

__________

__________

__________

__________

__________

 

(a)

Other comprehensive income for the year -- properties revaluation

_____

__________

__________

__________

__________

__________

 

 

 

 

 

E-39

 

 

 

 

 

(b)

Other comprehensive income for the year -- actuarial gain (loss) on defined benefit pension plans

_____

__________

__________

__________

__________

__________

 

 

 

 

 

 

 

E-40

 

 

 

(c)

Recognition of share-based payments

_____

__________

__________

__________

__________

__________

 

 

 

 

 

 

E-30

 

 

 

 

(d)

Transfer from/to retained earnings

_____

__________

__________

__________

__________

__________

 

 

 

 

F-12

 

 

 

 

 

 

(e)

Other [provide details]

_____

__________

__________

__________

__________

__________

 

6.

Ending balance

_____

__________

__________

__________

__________

__________

 

 

 

 

 

 

 

 

A-71

C. CHANGES IN RETAINED EARNINGS

 

 

NOTES

RETAINED EARNINGS (CURRENT YEAR)

RETAINED EARNINGS (PREVIOUS YEAR)

 

 

 

C$'000

C$'000$

 

7.

Beginning balance

_____

__________

__________

 

8.

Effect of change in accounting policy [provide details]

_____

__________

__________

 

 

(a)

_____

N/A

__________

 

(b)

_____

N/A

__________

 

9.

As restated

_____

N/A

__________

 

10.

Payment of dividends or partners drawings

_____

__________

__________

 

11.

Profit or loss for the year

_____

__________

__________

 

 

 

E-38

 

 

12.

Other direct charges or credits to retained earnings [provide details]

 

 

 

 

 

(a)

_____

__________

__________

 

(b)

_____

__________

__________

 

(c)

_____

__________

__________

 

13.

Ending balance

_____

__________

__________

 

 

 

A-72

 

[See notes and instructions]

 

FORM 1, PART 1 -- STATEMENT F

NOTES AND INSTRUCTIONS

A. Changes in Issued Capital

Change in share or partnership capital

Depending on the circumstances, a Dealer Member must either formally notify or obtain prior approval from the Corporation for any change in any class of common and preferred share or partnership capital.

Share premium

When the Dealer Member sells its shares (initial issuance or from treasury), share premium is the excess amount received by the Dealer Member over the par value (or nominal value) of its shares. Share premium cannot be used to pay out dividends.

B. Changes in Reserves

General reserve

General reserve is an amount set aside for future use, expense, loss or claim -- in accordance with statute or regulation. It includes an amount appropriated from retained earnings -- in accordance with statute or regulation. Appropriation directly from the income statement is not permitted for general reserves.

Reserve -- Employee benefits

When a Dealer Member has a defined benefit pension plan and initially adopts a policy of recognizing actuarial gains and losses in full in other comprehensive income (OCI), all subsequent adjustments must be recognized as other comprehensive income and will be accumulated in a reserve account.

When a Dealer Member has stock option or share award granted to its employees by issuing new shares, the Dealer Member recognizes the fair value of the option or new shares granted as an expense with a corresponding increase in a reserve account.

Reserve -- properties revaluation

When using the revaluation model for certain non-allowable assets (PPE and intangibles), a Dealer Member will account the initial increase in value as other comprehensive income (OCI) and will accumulate the increase (and subsequent changes) in a revaluation reserve account.

C. Changes in Retained Earnings

Change in accounting policy and retroactive adjustment of prior year's retained earnings

A change in accounting policy in the current year requires retroactive adjustment of the prior year's retained earnings. The beginning balance of the current year must be the ending balance of the prior year.

 

FORM 1, PART I -- STATEMENT G

_________________________

(Dealer Member Name)

OPENING IFRS STATEMENT OF FINANCIAL POSITION AND RECONCILIATION OF EQUITY

at ____________________

CGAAP Line #

IFRS Line #

REFERENCE

NOTES

CGAAP (date)

IFRS ADJUSTMENTS

IFRS (date)

 

 

 

 

C$'000

C$'000

C$'000

 

 

 

LIQUID ASSETS:

 

 

 

 

 

1.

1.

Cash on deposit with acceptable institutions

_________________________

 

2.

2.

Funds deposited in trust for RRSP and other similar accounts

_________________________

 

3.

3.

Cash, held in trust with acceptable institutions, due to free credit ratio calculation

_________________________

 

4.

4.

Variable base deposits and margin deposits with acceptable clearing corporations [cash balances only]

_________________________

 

5.

5.

Margin deposits with regulated entities [cash balances only]

_________________________

 

6.

6.

Loans receivable, securities borrowed and resold

_________________________

 

7.

7.

Securities owned -- at market value

_________________________

 

8.

8.

Securities owned and segregated due to free credit ratio calculation

_________________________

 

10.

9.

Client accounts

_________________________

 

11.

10.

Brokers and dealers trading balances

_________________________

 

12.

11.

Receivable from carrying broker or mutual fund

 

 

 

 

 

13.

12.

TOTAL LIQUID ASSETS

_________________________

 

 

 

OTHER ALLOWABLE ASSETS (RECEIVABLES FROM ACCEPTABLE INSTITUTIONS):

 

 

 

 

 

14.

13.

Current income tax assets

_________________________

 

15.

14.

Recoverable and overpaid taxes

_________________________

 

16.

15.

Commissions and fees receivable

_________________________

 

17.

16.

Interest and dividends receivable

_________________________

 

18.

17.

Other receivables [provide details]

_________________________

 

19.

18.

TOTAL OTHER ALLOWABLE ASSETS

_________________________

 

 

 

NON ALLOWABLE ASSETS:

 

 

 

 

 

20.

19.

Other deposits with acceptable clearing corporations [cash or market value of securities lodged]

_________________________

 

21.

20.

Deposits and other balances with non-acceptable clearing corporations [cash or market value of securities lodged]

_________________________

 

22.

21.

Commissions and fees receivable

_________________________

 

23.

22.

Interest and dividends receivable

_________________________

 

 

23.

Deferred tax assets

_________________________

 

 

24.

Intangible assets

_________________________

 

24.

25.

Property, plant and equipment

_________________________

 

 

 

NON ALLOWABLE ASSETS [Continued]:

 

 

 

 

 

27.

26.

Investments in subsidiaries and affiliates

_________________________

 

 

27.

Advances to subsidiaries and affiliates

_________________________

 

28.

28.

Other assets [provide details]

_________________________

 

29.

29.

TOTAL NON-ALLOWABLE ASSETS

_________________________

 

26.

30.

Finance lease asset

_________________________

 

30.

31.

TOTAL ASSETS

_________________________

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

51.

51.

Overdrafts, loans, securities loaned and repurchases

_________________________

 

52.

52.

Securities sold short -- at market value

_________________________

 

54.

53.

Client accounts

_________________________

 

55.

54.

Brokers and dealers

_________________________

 

 

55.

Provisions

_________________________

 

56.

56.

Current income tax liabilities

_________________________

 

58.

57.

Bonuses payable

_________________________

 

59.

58.

Accounts payable and accrued expenses

_________________________

 

60.

59.

Finance leases and lease-related liabilities

_________________________

 

61.

60.

Other current liabilities [provide details]

_________________________

 

62.

61.

TOTAL CURRENT LIABILITIES

_________________________

 

 

 

NON-CURRENT LIABILITIES:

_________________________

 

 

62.

Provisions

_________________________

 

63.

63.

Deferred tax liabilities

_________________________

 

64.

64.

Finance leases and lease-related liabilities

_________________________

 

68.

65.

Finance leases -- leasehold inducements

_________________________

 

65.

66.

Other non-current liabilities [provide details]

_________________________

 

69., 70.

67.

Subordinated loans

_________________________

 

66.

68.

TOTAL NON-CURRENT LIABILITIES

_________________________

 

67.

69.

TOTAL LIABILITIES

_________________________

 

 

 

CAPITAL AND RESERVES:

_________________________

 

71.

70.

Issued capital

_________________________

 

 

71.

Reserves

_________________________

 

72.

72.

Retained earnings or undivided profits

_________________________

 

73.

73.

TOTAL CAPITAL

_________________________

 

74.

74.

TOTAL LIABILITIES AND CAPITAL

_________________________

[See notes and instructions]

 

FORM 1, PART I -- STATEMENT G

NOTES TO THE RECONCILIATION

Note #
Adjustment explanation
 
__________
____________________
 
__________
____________________
 
__________
____________________
 
__________
____________________
 
__________
____________________
 
__________
____________________
 
__________
____________________
 
__________
____________________
 
 
__________
____________________
 
__________
____________________

 

FORM 1, PART I -- STATEMENT G

NOTES AND INSTRUCTIONS

Instructions

One-time transitional reporting requirement

The opening IFRS Statement A provides a starting point for regulatory accounting under IFRS.

For regulatory reporting, a Dealer Member prepares the opening IFRS Statement of financial position (also known as either the opening IFRS Statement A or the opening balance sheet) as at the conversion date. Example: For Dealer Members with a December 2010 year end, the conversion date is January 1, 2011. Therefore, the opening IFRS Statement A is as at January 1, 2011.

Together with the opening IFRS Statement A, Dealer Members are to provide a reconciliation of the equity between previous CGAAP and IFRS. Example: For Dealer Members with a December 2010 year-end, the previous CGAAP Statement A is as at December 31, 2010 and as filed on SIRFF as part of the audited Form 1.

Date of the opening IFRS Statement A

For regulatory reporting, the opening IFRS Statement A is dated as at the conversion date. For example, a Dealer Member with a December 2010 year-end will file an opening Statement A as at January 1, 2011.

Due date to file the opening IFRS Statement A

A Dealer Member will file an opening Statement A on or before filing its first MFR for the first fiscal year under IFRS. To accommodate this filing requirement, Dealer Members will be provided 10 weeks following their fiscal year-end to file the opening IFRS Statement A and the first MFR under IFRS. The filing requirement for the fiscal year-end audited Form 1under CGAAP remains at 7 weeks.

Example: For Dealer Members with a December 2010 year-end, the opening IFRS Statement A and reconciliation of equity must be filed on or before the filing of the January 2011 MFR. The audited Form 1 as at December 31, 2010 will be filed within the normal period of 7 weeks. The opening IFRS balance sheet as at January 1, 2011 and the January 2011 MFR under IFRS will be filed on or before March 15, 2011, which is approximately 10 weeks after the December 2010 year-end.

Management certification

Senior management of the Dealer Member will certify that they have planned and executed the changeover from CGAAP to IFRS in accordance with IFRS 1 and the prescribed regulatory accounting departures and treatments as described in the general notes and definitions of Form 1. The purpose of the management certification is to provide IIROC a basis for its reliance on the completeness and reasonability of adjustments in determining the opening retained earnings under IFRS and for subsequent MFR filings under IFRS.

The ultimate designated person (UDP) and the chief financial officer (CFO) must sign. If the CFO is not an executive or if the UDP and CFO are one, one other executive must sign.

The Dealer Member must submit a certificate with original signatures to IIROC.

Notes to the reconciliation

There will be two types of IFRS adjustments:

1. Presentation differences with no impact on total equity and

2. Adjustments that will impact retained earnings.

Adjustments made to restate the opening Statement A from previous CGAAP to IFRS are generally made to retained earnings (or if appropriate, another category of equity).

For material adjustments, Dealer Members will provide an explanation of the effect and implications of the transition to IFRS, including any accompanying material impact on risk adjusted capital (RAC). The explanations will be in the form of note disclosures.

material adjustment means an adjustment -- either individually or in the aggregate -- that result in equal to or greater than 10% change (increase or decrease):

• in the retained earnings as filed on SIRFF with the audited Form 1 prepared under CGAAP and/or

• in the risk adjusted capital (RAC) as filed on SIRFF with the audited Form 1 prepared under CGAAP.

Mapping of the line items on Statement A

Statement A has been reformatted to accommodate the required IFRS changes, including new terminology and the addition (as well as the deletion) of line items. To assist Dealer Members in completing the opening IFRS Statement A, a mapping of the line items under the old CGAAP format to the new IFRS format is provided.

 

FORM 1, PART I -- NOTES

_________________________

(Dealer Member Name)

NOTES TO THE FORM 1 FINANCIAL STATEMENTS

at ____________________

 

FORM 1, PART II

REPORT ON COMPLIANCE FOR INSURANCE, SEGREGATION OF SECURITIES,

AND GUARANTEE/GUARANTOR RELATIONSHIPS RELIED UPON TO

REDUCE MARGIN REQUIREMENTS DURING THE YEAR

To: The Investment Industry Regulatory Organization of Canada (the Corporation) and the Canadian Investor Protection Fund (CIPF).

We have performed the following procedures in connection with the regulatory requirements for <Dealer Member> to maintain minimum insurance, segregate client securities, and maintain guarantee relationships as outlined in the Rules of the Corporation. Compliance with the Corporation Rules with respect to maintaining minimum insurance, the segregation of client securities, and maintaining guarantee relationships is the responsibility of the management of the Dealer Member. Our responsibility is to perform the procedures requested by you.

1. We have read the Dealer Member's written internal control policies and procedures with respect to maintaining insurance coverage and segregation of client securities to determine whether such policies and procedures meet the minimum required under Corporation Rules in regards to establishing and maintaining adequate internal controls.

2.

a) We obtained representation from appropriate senior management of the Dealer Member that the Dealer Member's internal control policies and procedures with respect to insurance and segregation of client securities meet the minimum required under Corporation Rules in regards to establishing and maintaining adequate internal controls and that they have been implemented.

b) We obtained written representation from appropriate senior management of the Dealer Member that the Dealer Member's guarantor agreements comply with the minimum requirements of IIROC Dealer Member Rule 100.15(h).

3. We read the Financial Institution Bond Form #14 (the "FIB") insurance policy(s) to determine whether the FIB policy(s) includes the minimum required clauses and coverage limits as prescribed in the Rules of the Corporation.

4. We requested and obtained confirmation from the Dealer Member's Insurance Broker(s) as at <period end date> as to the FIB coverage maintained with the Insurance Underwriter(s) including:

a)
clauses
d)
name of insurer and insured
b)
aggregate and single loss limits
e)
claims made on the policy since last audit
c)
deductible amounts
f)
details of losses/claims outstanding

5. We selected account statements for 10 clients. For each, we calculated the Client Net Equity amount. We traced the Client Net Equity amount to the Total Client Net Equity Report as at the audit date produced by the Dealer Member to check that the compilation of Client Net Equity is in accordance with the Notes and Instructions to Schedule 10 of Form 1. We agreed Total Client Net Equity from the report to Schedule 10.

6. We obtained a listing of all segregation locations used by the Dealer Member and determined that each location met the definition of "acceptable securities locations" as defined in the General Notes and Definitions to Form 1.

7. We selected a sample of 10 client account statements. For each we re-calculated the segregation requirements and compared the result to the Dealer Member's Segregation Report.

8. We selected _____ positions{1} reported as being undersegregated at various dates throughout the year and determined the date on which the undersegregation was corrected. We obtained explanations from the Dealer Member and reviewed them for reasonableness. Undersegregated positions not corrected in accordance with Corporation Rules are reported below.

9. We obtained the lists of hypothecated securities at <period end date> and compared a sample of securities to the Segregation Report to determine if there were securities used to secure call loans which should have been in segregation.

10. We selected 10 securities positions from the Stock Record and Position Report ("SRP") to identify a customer holding a position. We compared the securities positions to the customers' statements to check whether the stock message properly reported whether the positions were held in segregation. We also selected a sample of segregated securities from customer accounts and traced those back to the SRP and to the Segregation Report.

11. We obtained a list of guarantee relationships used by the Dealer Member to reduce the margin required during the year for monthly financial reporting purposes. We performed no procedures to verify the accuracy or completeness of this list.

12. We selected a sample of 10 guarantee relationships used to reduce margin required during the year and performed the following procedures:

a) Obtained written confirmation from the guarantor of the account(s) guaranteed; and that the guarantee was in place during the year ended <year end>.

b) Compared the wording of the guarantee agreements to the minimum requirements of IIROC Dealer Member Rule 100.15(h).

As a result of applying the above procedures, there were no exceptions except as follows:

____________________

____________________

____________________

These procedures do not constitute an audit and therefore we express no opinion on the adequacy of the Dealer Member's insurance coverage, segregation of client securities, maintenance of guarantee relationships, or internal control policies and procedures. This report is for use solely by the Corporation and CIPF to assist in their assessment of the Dealer Member's compliance with the requirements regarding maintaining minimum insurance, segregating client securities, and maintaining guarantee relationships as outlined in the Rules of the Corporation and not for any other purpose.

_________________________

_________________________

(auditing firm)

(date)

 

_________________________

_________________________

(signature)

(place of issue)

{1} The sample selected must consist of the greater of: (i) 10 securities or, (ii) the total sample items selected by the auditor to support the audit opinion provided on the Statements of Form 1.

 

FORM 1, PART II -- SCHEDULE 1

DATE: _______________

____________________ (Dealer Member Name)

ANALYSIS OF LOANS RECEIVABLE, SECURITIES BORROWED AND RESALE AGREEMENTS

 

 

AMOUNT OF LOAN RECEIVABLE OR CASH DELIVERED AS COLLATERAL

MARKET VALUE OF SECURITIES DELIVERED AS COLLATERAL

MARKET VALUE OF SECURITIES RECEIVED AS COLLATERAL OR BORROWED

REQUIRED TO MARGIN

 

 

C$'000

C$'000

C$'000

C$'000

 

 

[see note 3]

[see note 4]

[see note 4]

 

 

 

LOANS RECEIVABLE:

 

 

 

 

 

1.

Acceptable institutions

__________

N/A

____________________

Nil

 

2.

Acceptable counterparties

__________

N/A

____________________

 

 

3.

Regulated entities

__________

N/A

____________________

 

4.

Others [see note 12]

__________

N/A

____________________

 

 

SECURITIES BORROWED:

 

 

 

 

 

5.

Acceptable institutions

____________________

Nil

 

6.

Acceptable counterparties

____________________

 

7.

Regulated entities

____________________

 

8.

Others [see note 12]

____________________

 

 

RESALE AGREEMENTS:

 

 

 

 

 

9.

Acceptable institutions

__________

N/A

____________________

Nil

 

10.

Acceptable counterparties

__________

N/A

____________________

 

11.

Regulated entities

__________

N/A

____________________

 

12.

Others [see note 12]

__________

N/A

____________________

 

13.

TOTAL [Lines 1 through 12]

__________

__________

____________________

__________

 

 

A-6

 

 

B-9

[See notes and instructions]

FORM 1, PART II -- SCHEDULE 1

NOTES AND INSTRUCTIONS

1. This schedule is to be completed for secured loan receivable transactions whereby the stated purpose of the transaction is to lend excess cash. All security borrowing transactions and resale (i.e. reverse repo) agreements, including financing transactions done via 2 trade tickets and those with related parties, should also be disclosed on this schedule.

2. For the purpose of this schedule, "excess collateral deficiency" is defined as the actual collateral provided to the counterparty less the collateral required to be received by the counterparty pursuant to regulatory or legislative requirements. A list of current collateralization rates for each category of acceptable counterparties is published on a regular basis.

3. Include accrued interest in amount of loan receivable.

4. Market value of securities delivered or received as collateral should include accrued interest.

5. In the case of either a cash loan and securities borrowing or a resale transaction, if a written agreement between the Dealer Member and the counterparty has been entered into containing the terms described below, the instructions in Notes 7, 8, 9, and 10 are applicable, as the case may be. Each such written agreement shall include terms which provide (i) for the rights of either party to retain or realize on securities held by it from the other party on default, (ii) for events of default, (iii) for the treatment of the value of securities held by a non-defaulting party in excess of amounts which may be owed by a defaulting party, (iv) either for set-off or, in the case of secured loans of securities, continuous segregation of collateral and the requirement for the lender to perfect a security interest in collateral giving the highest priority, and (v) if set-off rights or security interests are created in securities sold or loaned by one party to another, that the securities are endorsed for transfer and free of any trading restrictions. In addition, in the case of a resale transaction such written agreement shall contain an acknowledgement by the parties that either has the right, upon notice, to call for any shortfall in the difference between the collateral and the securities at any time. Such agreements are not mandatory and if not used are to be margined as provided below.

In the case of a cash loan and securities borrowing transaction, if no such written agreement has been entered into in respect of the transaction, then 100% of the market value must be provided as margin by the Dealer Member on the collateral given to the lender except in the case where the lender is an acceptable institution in which case no margin need be provided.

In the case of a resale transaction, if no such written agreement has been entered into in respect of the transaction, the position shall be margined as follows:

 

 

NO Written Repurchase/Reverse

 

 

 

Repurchase Agreement

 

Counterparty

Written Repurchase/Reverse Repurchase Agreement

Calendar days after regular settlement (Note 1)

 

 

 

30 days or less

Greater than 30 days

 

Acceptable institution

No margin

No margin (Note 2)

 

Acceptable counterparty

Excess collateral deficiency

Excess collateral deficiency (Note 2)

 

Regulated entity

Market deficiency

Market deficiency (Note 2)

Margin

 

Other

Margin

Margin

200% of margin (to a maxi-mum of the market value of the underlying securities)

 

Note 1: Regular settlement means the settlement dates or delivery date generally accepted according to industry practice for the relevant security in the market in which the transaction occurs. Margin is calculated from the date of regular settlement. Calendar days refers to the original term of the repurchase/reverse repurchase.

Note 2: Any transaction which has not been confirmed by an acceptable institutionacceptable counterparty or regulated entity within 15 business days of the trade shall be margined.

6. For any given counterparty a deficiency in one type of loan may be offset by an excess in another type of loan provided that there are written agreements for each type of loan which provide for the right of offset between each type of loan. In such case, the balances may also be offset for margin calculation purposes.

7. Lines 1, 5 and 9 - In a cash loan and securities borrow or resale transaction between a Dealer Member and an acceptable institution, no capital need be provided in the case where a deficiency exists between the market value of the cash loaned or securities borrowed or resold and the market value of the collateral or cash pledged.

In order for a pension fund to be treated as an acceptable institution for purposes of this Schedule, it must not only meet the acceptable institution criteria outlined in General Notes and Definitions, but the Dealer Member must also have received representation that the pension fund is legally able to enter into the obligations of the transaction. If such representation has not been received, the pension fund which otherwise meets the acceptable institution criteria must be treated as an acceptable counterparty.

WHERE AN AGREEMENT HAS BEEN EXECUTED, THEN:

8. Lines 2, 6 and 10 -- In a cash loan and securities borrow or resale transaction between a Dealer Member and an acceptable counterparty, where an excess collateral deficiency exists, action must be taken to correct the deficiency. If no action is taken the amount of excess collateral deficiency must be immediately provided out of the Dealer Member's capital. In any case, where the deficiency exists for more than one business day, it must be provided out of the Dealer Member's capital.

9. Lines 3, 7 and 11 -- In a cash loan and securities borrow or resale transaction between a Dealer Member and a regulated entity, where a deficiency exists between the market value of the cash loaned or securities borrowed or resold and the market value of the collateral or cash pledged, action must be taken to correct the deficiency. If no action is taken the amount of market value deficiency must be immediately provided out of the Dealer Member's capital. In any case, where the deficiency exists for more than one business day, it must be provided out of the Dealer Member's capital.

10. Lines 4, 8 and 12 -- In a cash loan and securities borrow or resale transaction between a Dealer Member and a party other than an acceptable institutionacceptable counterparty or regulated entity, where a deficiency exists between the loan value of the cash loaned or securities borrowed or resold and the loan value of the collateral or cash pledged, action must be taken to correct the deficiency. If no action is taken the amount of loan value deficiency must be immediately provided out of the Dealer Member's capital. The margin required may be reduced by any margin already provided on the collateral (e.g. in inventory). Where the collateral is either held by the Dealer Member on a fully segregated basis or held in escrow on its behalf by an Acceptable Depository or a bank or trust company qualifying as either an acceptable institution or acceptable counterparty, only the amount of market value deficiency need be provided out of the Dealer Member's capital. In any case, where the deficiency exists for more than one business day, it must be provided out of the Dealer Member's capital.

11. Lines 5, 6 and 7 -- In a securities borrowed transaction between a Dealer Member and an acceptable institutionacceptable counterparty, or regulated entity, where a letter of credit issued by a Schedule 1 Bank is used as collateral for the securities borrowed, there shall be no charge to the Dealer Member's capital for any excess of the value of the letter of credit pledged as collateral over the market value of the securities borrowed.

12. Lines 4, 8 and 12 -- Transactions whereby an acceptable institutionacceptable counterparty, or regulated entity are only acting as agents (on behalf of an "other" party) should be reported and margined as "Others".

 

FORM 1, PART II -- SCHEDULE 2

DATE: _______________

_________________________ (Dealer Member Name)

ANALYSIS OF SECURITIES OWNED AND SOLD SHORT AT MARKET VALUE

 

 

MARKET VALUE

MARGIN

 

CATEGORY

LONG

SHORT

REQUIRED

 

 

C$'000

C$'000

C$'000

 

1.

Money market

__________

__________

__________

 

 

Accrued interest

__________

__________

NIL

 

 

TOTAL MONEY MARKET

__________

__________

__________

 

2.

Debt

__________

__________

__________

 

 

Accrued interest

__________

__________

NIL

 

 

TOTAL DEBT

__________

__________

__________

 

3.

Equities

__________

__________

__________

 

 

Accrued interest on convertible debentures

__________

__________

NIL

 

 

TOTAL EQUITIES

__________

__________

__________

 

4.

Options

__________

__________

__________

 

5.

Futures

NIL

NIL

__________

 

6.

OTC derivatives

__________

__________

__________

 

7.

Registered traders, specialists and market makers

NIL

NIL

__________

 

8.

TOTAL

__________

__________

__________

 

 

 

A-52

B-10

 

9.

LESS: Securities, including accrued interest, segregated for client free credit ratio calculation

__________

__________

__________

 

 

A-8 and D-8

 

 

 

10.

Adjusted TOTAL

__________

__________

__________

 

 

A-7

 

 

SUPPLEMENTARY INFORMATION

 

11.

Market value of securities included above but held on deposit as variable base deposits or margin deposits with acceptable clearing corporations or regulated entities or as a comfort deposit with a carrying broker

__________

 

12.

Margin reduction from offsets against Trader reserves and PDO guarantees

__________

[See notes and instructions]

 

FORM 1, PART II -- SCHEDULE 2

NOTES AND INSTRUCTIONS

Valuation and margin rates

All securities are to be valued at market (see General Notes and Definitions) as of the reporting date. The margin rates to be used are those outlined in the Corporation rules.

All securities owned and sold short

Schedule 2 summarizes all securities owned and sold short by the categories indicated. Details that must be included for each category are total long market value, total short market value and total margin required as indicated.

Margining of option positions

Where the Dealer Member utilizes the computerized options margining program of a recognized Exchange operating in Canada, the margin requirement produced by such program may be used provided the positions in the Dealer Member's records agree with the positions in the Exchange computer. No details of such positions are to be reported if the programs are employed. Details of any adjustments made to the margin calculated by an Exchange computer-margining program must be provided. For the purposes of this paragraph, recognized Exchange means The Montreal Exchange.

Request for detailed information

The Examiners and/or Auditors of the Corporation may request additional details of securities owned or sold short as they, in their discretion, believe necessary.

Margin offsets

Where there are margin offsets between categories, the residual should be shown in the category with the larger initial margin required before offsets.

Line 1 -- Money market is to include Canadian & US Treasury Bills, Bankers Acceptances, Bank paper (Domestic & Foreign), Municipal and Commercial Paper or other similar instruments.

Supplementary instructions for reporting money market commitments:

"Market Price" for money market commitments [fixed-term repurchases, calls, etc.] shall be calculated as follows:

(i) Fixed date repurchases [no borrower call feature] -- the market price is the price determined by applying the current yield for the security to the term of maturity from the repurchase date. This will permit calculation of any profit or loss based on the market conditions at the reporting date. Exposure due to future changes in market conditions is covered by the margin rate.

(ii) Open repurchases [no borrower call feature] -- prices are to be determined as of the reporting date or the date the commitment first becomes open, whichever is the later. Market price is to be determined as in (i) and commitment price is to be determined in the same manner using the yield stated in the repurchase commitment.

(iii) Repurchase with borrower call features -- the market price is the borrower call price. No margin is required where the total consideration for which the holder can put the security back to the dealer is less than the total consideration for which the dealer may put the security back to the issuer. However, where a holder consideration exceeds dealer consideration [the dealer has a loss], the margin required is the lesser of:

(a) the prescribed rate appropriate to the term of the security, and

(b) the spread between holder consideration and dealer consideration [the loss] based on the call features subject to a minimum of 1/4 of 1% margin.

Line 7 -- Registered traders, specialists and market makers margin requirements are:

(i) The minimum margin requirement for each TSX registered trader is $50,000.

(ii) The minimum margin requirement for each MX registered specialist is the lesser of $50,000 or an amount sufficient to assume a position of twenty board lots of each security in which such specialist is registered, subject to a maximum of $25,000 per issuer.

(iii) The market maker minimum margin requirement is for the TSX $50,000 for each specialist appointed and for the MX $10,000 for each security and/or class of options appointed (not to exceed $25,000 for each market maker in each preceding case). No minimum margin is required where the market maker does not have an appointment.

The above-noted minimum margin for each registered trader, specialist, or market maker may be applied as an offset to reduce any margin on positions held long or short in the registered trading account of such registered trader, specialist or market maker. It cannot be used to offset margin required for any other registered trader, specialist or market maker or for any other security positions of the Dealer Member.

The market values related to positions in registered traders, specialists and market maker accounts should be included in the appropriate categories in the preceding lines of the Schedule. Related margin in excess of the minimum margin reported on this line should also be included in the preceding lines.

Line 9 -- The securities to be included are bonds, debentures, treasury bills and other securities with a term of 1 year or less, or guaranteed by the Government of Canada or a Province of Canada, the United Kingdom, the United States of America and any other national foreign government (provided such other foreign government is a party to the Basel Accord), which are segregated and held separate and apart as the Dealer Member's property.

Line 12 -- Include margin reductions from offsets against IA reserves only to the extent there is a written agreement between the Dealer Member and the trader permitting the Dealer Member to recover realized or unrealized losses from the IA reserve account. Include margin reductions arising from guarantees relating to inventory accounts by Partners, Directors, and Officers of the Dealer Member (PDO Guarantees).

 

FORM 1, PART II -- SCHEDULE 2A

DATE: ____________________

____________________ (Dealer Member Name)

MARGIN FOR CONCENTRATION IN UNDERWRITING COMMITMENTS

INDIVIDUAL CONCENTRATION:

Description

Market Value

Normal Margin

40% of Net Allowable Assets

Excess

Margin already provided

Concentration Margin

[see note 3]

C$'000

C$'000

C$'000

C$'000

C$'000

C$'000

 

 

 

 

 

 

[see note 2]

 

 

__________

__________

__________

__________

__________

__________

__________

 

__________

__________

__________

__________

__________

__________

__________

 

__________

__________

__________

__________

__________

__________

__________

1. SUBTOTAL

 

 

 

 

 

 

 

S

 

 

 

 

 

__________

OVERALL CONCENTRATION:

Description

Market Value

Normal Margin

100% of Net Allowable Assets

Excess

Margin already provided

Concentration Margin

[see note 5]

C$'000

C$'000

C$'000

C$'000

C$'000

C$'000

 

 

 

 

 

 

[see note 4]

 

 

__________

__________

__________

__________

__________

__________

__________

 

__________

__________

__________

__________

__________

__________

__________

 

__________

__________

__________

__________

__________

__________

__________

2. SUBTOTAL

 

 

 

 

 

 

 

S

 

 

 

 

 

__________

3. CONCENTRATION MARGIN [Lines 1 plus 2]

__________

 

 

 

 

 

 

B-11

NOTES:

1. This schedule need only be completed for underwriting commitments requiring concentration margin.

2. INDIVIDUAL COMMITMENT CONCENTRATION:

Where the normal margin required on any one commitment is reduced due to either:

(a) the use of a new issue letter; or

(b) qualifying expressions of interest received from exempt list customers that have been verbally confirmed but not yet contracted [the margin reduction is only permitted once the final allocation has been made to the exempt purchasers and the entire allotment to exempt purchasers has been verbally confirmed]

and the normal margin on the commitment exceeds 40% of the Dealer Member's net allowable assets, such excess shall be provided as margin. The amount to be added may be reduced by the amount of margin already provided on the individual underwriting position to which such excess relates.

3. Report details by individual commitments.

4. OVERALL COMMITMENT CONCENTRATION:

Where the normal margin required on some or all commitments is reduced due to either:

(a) the use of a new issue letter; or

(b) qualifying expressions of interest received from exempt list customers that have been verbally confirmed but not yet contracted [the margin reduction is only permitted once the final allocation has been made to the exempt purchasers and the entire allotment to exempt purchasers has been verbally confirmed]

and the aggregate normal margin on these commitments exceeds 100% of the Dealer Member's net allowable assets, such excess shall be provided as margin. The amount to be added may be reduced by the amount of margin already provided on such commitments and by the amount, if any, already provided for individual concentration.

5. It is not necessary to report details of individual commitments. Report the aggregate totals.

 

FORM 1, PART II -- SCHEDULE 2B

DATE: _______________

____________________

(Dealer Member Name)

UNDERWRITING ISSUES MARGINED AT LESS THAN THE NORMAL MARGIN RATES

 

 

Par value or number of shares

 

Market value

 

 

 

 

 

 

 

 

Long

Short

 

 

 

Description

Maturity date

Long

Short

Market price

 

 

Effective margin rate %

Margin required

Expiry date

 

 

C$'000

C$'000

 

C$'000

C$'000

 

C$'000

 

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

____________________

____________________

____________________

 

TOTALS

 

 

 

 

_____

_____

 

_____

 

NOTES:

1. The purpose of this schedule is to disclose all unsold portions of new and secondary issues held by underwriters that are margined at less than the normal margin rates applicable to those securities as permitted in the rules of the Corporation. Expiry date refers to the date of any out clause or the expiry date on a bank letter.

2. For positions in this schedule, the margin rate shall give effect to any bank letters or out clauses, and the margin required shall indicate the margin remaining after offsets and/or hedging strategies.

FORM 1, PART II -- SCHEDULE 4

DATE: _______________

____________________ (Dealer Member Name)

ANALYSIS OF CLIENTS' TRADING ACCOUNTS LONG AND SHORT

 

 

 

BALANCES

 

 

CATEGORY

DEBIT

CREDIT

AMOUNT REQUIRED TO FULLY MARGIN

 

 

 

C$'000

C$'000

C$'000

 

1.

Acceptable institutions

__________

__________

__________

 

2.

Acceptable counterparties

__________

__________

__________

 

3.

Other clients:

__________

__________

__________

 

(a)

Margin accounts

__________

__________

__________

 

(b)

Cash accounts

__________

__________

__________

 

(c)

Futures accounts

__________

__________

__________

 

(d)

Unsecured debits and shorts

__________

N/A

__________

 

4.

Margin on extended settlements

N/A

N/A

__________

 

5.

Free credits

N/A

__________

N/A

 

 

 

 

D-4

 

 

5.

(a)

Free credits, pending trades [if applicable]

N/A

__________

N/A

 

6.

RRSP and other similar accounts

__________

__________

__________

 

7.

Less -- allowance for bad debts

__________

__________

__________

 

 

8.

TOTAL

__________

__________

__________

 

 

 

A-9

A-53

B-12

 

9.

SUPPLEMENTARY DISCLOSURE:

 

 

 

(a)
 
NAME OF RRSP TRUSTEE(S)
 
 
 
1.
____________________
 
 
 
2.
____________________
 
 
 
3.
____________________
 
(b)
 
Total margin reductions from offsets against IA reserves and PDO guarantees
__________

[See notes and instructions]

 

FORM 1, PART II, SCHEDULE 4

NOTES AND INSTRUCTIONS

1. EACH DEALER MEMBER SHALL OBTAIN FROM CLIENTS, PARTNERS, SHAREHOLDERS, AND CLIENTS CARRIED FOR AN INTRODUCING BROKER, SUCH MINIMUM MARGIN IN SUCH AMOUNT AND IN ACCORDANCE WITH SUCH REQUIREMENTS AS PRESCRIBED BY THE CORPORATION.

2. "extended settlement date" transaction shall mean a transaction (other than a mutual fund security redemption) in respect of which the arranged settlement date is a date after regular settlement date.

"regular settlement date" means the settlement date generally accepted according to industry practice for the relevant security in the market in which the transaction occurs, including foreign jurisdictions. For margin purposes, if such settlement date exceeds 15 business days past trade date, settlement date will be deemed to be 15 business days past trade date. In the case of new issue trades, regular settlement date means the contracted settlement date as specified for that issue.

3. Lines 1 to 3 -- Balances including extended settlement date transactions should be reported on these lines. However, the margin related to such extended settlements should be calculated as described in Note 13 and reported on Line 4.

4. Line 1 -- No mark to market or margin is required on accounts with acceptable institutions in the case of either regular or extended settlement date transactions EXCEPT any transaction which has not been confirmed by an acceptable institution within 15 business days of the trade date shall be margined.

This line is to include all trading balances with acceptable institutions except free credit balances, which should be included on Line 5.

5. Line 2 -- In the case of a regular settlement date transaction in the account of an acceptable counterparty the amount of margin to be provided, commencing on regular settlement date, shall be the equity deficiency calculated by determining the difference between (a) the net market value of all settlement date security positions in the customer's account(s) and (b) the net money balance on a settlement date basis in the same account(s).

Any transaction, which has not been confirmed by an acceptable counterparty within 15 business days of the trade date, shall be margined.

This line is to include all trading balances with acceptable counterparties except free credit balances, which should be included on Line 5.

6. Line 3(a) -- "margin accounts" means accounts which operate according to the following rules:

1. Settlement of each transaction in a margin account of a customer shall be made on or before the settlement date by payment of the amount required to complete the transaction or by delivery of the required securities, as the case may be.

2. Payment by a customer in respect of any margin account transaction may be by:

a) cash or other immediately available funds;

b) applying the loan value of securities to be deposited;

c) applying the excess loan value in the account or in a guarantor's account.

3. Each margin account of a customer, which has become undermargined, shall within 20 business days of the account becoming undermargined be restricted only to trades, which reduce the margin deficiency in the account. Such restriction shall apply until the account is fully margined.

4. Advancing funds or delivering securities from the account of a customer shall not be permitted as long as the account is undermargined or if such advance or delivery would cause the account to become undermargined.

7. Line 3(a) -- In the case of a regular settlement date transaction in the margin account of a person other than a regulated entity, acceptable counterparty or acceptable institution, the amount of margin to be provided, commencing on regular settlement date, shall be the margin deficiency at not less than prescribed rates, if any, that exists.

TRADE DATE MARGINING

For Dealer Members determining margin deficiencies for clients on a trade date basis, (a) any amount of margin required to be provided under this subsection shall be determined using money balances and security positions as of trade date, and (b) the amount referred to in the previous paragraph shall be determined and provided commencing on trade date.

8. Line 3(b) -- "cash accounts" means accounts which operate according to the following rules:

1. CASH ACCOUNTS

Settlement of each transaction in a cash account (other than DAP or RAP transactions referred to below) of a customer should be made by payment or delivery on the settlement date. In the event the account does not settle as required, capital will be provided as prescribed in Note 9.

2. DELIVERY AGAINST PAYMENT (DAP)

Settlement of a purchase transaction in an account for which the customer has made arrangements with the Dealer Member on or before settlement date for delivery by the Dealer Member against payment in full by the customer shall be settled on the later of (i) settlement date or (ii) the date on which the Dealer Member gives notice to the customer that the securities purchased are available for delivery.

3. RECEIPT AGAINST PAYMENT (RAP)

Settlement of a sale transaction in an account for which the customer has made arrangements with the Dealer Member on or before settlement date for receipt of securities by the Dealer Member against payment to the customer shall be settled on the settlement date.

4. PAYMENT

Payment by a customer in respect of any cash account transaction may be by:

a) cash or other immediately available funds;

b) the application of the proceeds of the sale of the same or other securities held long in any cash account of the customer with the Dealer Member provided that the equity (trade date brokers include unsettled transactions) in such account exceeds the amount of the transaction;

c) the transfer of funds from a margin account of the customer with the Dealer Member provided adequate margin is maintained in such account immediately before and after the transfer.

5. ISOLATED TRANSACTIONS

A customer shall be permitted in an isolated instance to:

a) settle, when the equity (excluding all unsettled transactions) in such account does not exceed the amount of the transaction, a regular or DAP cash account transaction by the sale of the same security in any cash account of the customer with the Dealer Member;

b transfer a transaction in a cash account to a margin account prior to payment in full; or

c) transfer a transaction in a DAP account to a margin account within 10 business days after settlement date.

6. ACCOUNT RESTRICTIONS

a) Cash accounts

When any portion of the money balance for a cash account of a customer is outstanding 20 business days or more after settlement date the customer shall be restricted from entering into any other transactions (other than liquidating transactions) in any account of the customer with the Dealer Member, unless and until (i) payment of any such money balance outstanding for 20 business days or more shall have been made, (ii) all open and unsettled transactions in any cash account of the customer with the Dealer Member have been transferred in accordance with subsection 7, or (iii) the customer has executed a liquidating transaction in the account with the effect that no portion of the money balance in the account is outstanding 20 business days or more after settlement date.

b) DAP accounts

When any portion of the money balance for a DAP account transaction of a customer is outstanding 5 business days or more (or, in the case of transactions of customers situated other than in continental North America, 15 business days) from the date on which the transaction is required to be settled in accordance with subsection 2. the customer shall be restricted from entering into any other transaction (other than liquidating transactions) in any other account of the customer with the Dealer Member, unless and until (i) such transaction has been settled in full or (ii) all open and unsettled transactions in any cash account of the customer with the Dealer Member have been transferred in accordance with subsection 7.

7. TRANSFER TO MARGIN ACCOUNT

The account restrictions in subsection 6 (a) and (b) shall not apply to the accounts of a customer who (i) do not have a margin account with the Dealer Member, and (ii) on or after the accounts becoming so restricted, transfers all open and unsettled transactions in any cash account of the customer with the Dealer Member to one or more newly established margin accounts of the customer with the Dealer Member, provided such margin accounts have been properly established by the completion of all necessary documentation and action and adequate margin is maintained in such account(s) immediately after such transfer.

8. ACCEPTABLE INSTITUTIONS AND OTHERS

Subsection 6 does not apply to the accounts of acceptable institutions, acceptable counterparties, non-Dealer Member brokers, or regulated entities.

9. Line 3(b) -- Margin must be provided as follows:

CASH ACCOUNTS

a) When any portion of the money balance in a cash account of a person other than a regulated entityacceptable counterparty or acceptable institution is overdue for a period of less than 6 business days past regular settlement date, in the case of regular settlement transactions, the amount of margin to be provided, commencing on regular settlement date, shall be the equity deficiency, if any, calculated by determining the difference between (a) the net weighted market value of all settlement date security positions in the customer's cash account(s) and (b) the net money balance on a settlement date basis in the same account(s).

For the purposes of calculating weighted market value, the following weightings will apply:

• Securities that currently have a margin rate of 60% or less, are weighted at 1.000

• Listed securities with a margin rate greater than 60% are weighted as 0.333

• Nasdaq National Market® and Nasdaq SmallCap MarketSM securities with a margin rate of more than 60% are weighted as 0.333

• All other unlisted securities with a margin rate of more than 60% are weighted as 0.000

b) Commencing on 6 business days or more past regular settlement date, the amount of margin to be provided shall be the margin deficiency, if any, that would exist if all of the customer's cash accounts were margin accounts;

c) The amounts provided in (a) or (b) above may be reduced by the amount of excess margin in the customer's margin accounts and any equity surplus in the customer's DAP and RAP accounts, if any.

DAP AND RAP ACCOUNTS

a) When any portion of the money balance in a DAP account or RAP account of a person other than a regulated entityacceptable counterparty or acceptable institution is overdue for a period of less than 10 business days past regular settlement date, in the case of regular settlement transactions, the amount of margin to be provided, commencing on regular settlement date, shall be the equity deficiency, if any, of (a) the net market value of all settlement date security positions in the customer's DAP, or RAP account(s) and (b) the net money balance on a settlement date basis in the same account(s).

b) For each transaction in a DAP or RAP account which is unsettled, or any money portion in respect of such transaction is outstanding, in either case for a period of 10 business days or more past regular settlement date, the amount of margin to be provided shall be the margin deficiency calculated in respect of each such transaction as if such transaction was in a margin account.

c) For a customer whose accounts are restricted, the amount to be provided shall be the margin deficiency, if any, that would exist if all of the customer's DAP and RAP accounts were margin accounts;

d) The amount to be provided in (a), (b) or (c) above may also be reduced by the amount of excess margin in the customer's margin accounts and any equity surplus in the customer's cash accounts, if any.

CONFIRMATIONS AND COMMITMENT LETTERS

The margin requirements outlined in the previous paragraphs of Note 9 do not apply if a customer has provided the Dealer Member on or before settlement date with an irrevocable and unconditional confirmation from an acceptable clearing corporation or letter of commitment from an acceptable institution to the effect that such corporation or institution will accept delivery from the Dealer Member and pay for the securities to be delivered, and in such event settlement shall be considered provided for by the customer.

TRADE DATE MARGINING

For Dealer Members determining margin deficiencies for clients on a trade date basis, the amount of margin required between trade date and settlement date shall be the equity deficiency, if any, calculated by determining the difference between (a) the net market value of all trade date security positions in the customer's cash, DAP or RAP account(s) and (b) the trade date net money balance in the same account(s). Commencing on regular settlement date, the amount of margin to be provided shall be the margin requirement outlined in the previous paragraphs of Note 9.

10. Any transactions in open cash accounts at the report date which, subsequent to that date, become in violation of the cash account requirements and have resulted in either a material loss or a material deficit -- equity position, must either be fully margined or the total amount to margin such items must be reported as a footnote to Form 1.

11. Line 3(c) -- Client accounts shall be marked to market and margined daily using as a minimum the margin requirements of the Clearing House of the Futures Exchange on which the futures contract is traded or at the rate required by the Dealer Member's clearing broker, whichever is the greater.

12. Line 3(d) -- The amount required to fully margin should be the aggregate of unsecured debits plus the margin required on any short security positions in such accounts or in accounts with no money balance. Any account that is partly secured should be included on Line 3(a) -- Margin Accounts.

13. Line 4 -- Report only the margin related to extended settlements in cash, DAP, RAP or margin accounts on this line. In the case of an extended settlement transaction between a Dealer Member and either an acceptable counterparty or any other counterparty (other than an acceptable institution (see Note 4) or regulated entity (see Schedule 5)), the position shall be margined as follows, commencing on regular settlement date:

CALENDAR DAYS AFTER REGULAR SETTLEMENT (Note 1)

 

Counterparty

30 days or less

Greater than 30 days

 

Acceptable counterparty

Market deficiency (Note 2)

Margin

 

Other

Margin

200% of margin (to a maximum of the market value of the underlying securities)

 

Note 1:

Calendar days refers to the original term of the extended settlement transaction.

 

Note 2:

Any transaction which has not been confirmed by an acceptable counterparty within 15 business days of the trade shall be margined.

14. Line 5 -- Free credit balances in all accounts except RRSP and other similar accounts should be included. Dealer Members margining on a trade date basis will generally calculate free credit balances on a trade date basis and should report this trade date figure on Line 5. However, for those Dealer Members margining on a settlement date basis, their free credit balances will generally be calculated on a settlement date basis and this settlement date figure should be reported on Line 5. Note that a consistent basis of calculating free credit balances must be used from month to month.

For cash and margin accounts, a free credit is: "the credit balance less an amount equal to the aggregate of the market value of short positions and regulatory margin on those shorts".

For futures accounts, a free credit is: "any credit balance less an amount equal to the aggregate of margin required to carry open futures contracts and/or futures contracts option positions less equity in those contracts plus deficits in those contracts, provided that such aggregate amount may not exceed the dollar amount of the credit balance."

15. Line 5(a) -- For those Dealer Members reporting free credit balances on a settlement date basis on Line 5, report the free credit balances arising as a result of pending trades on this line.

16. Line 7 -- Deduct the allowance for bad debts recorded in the accounts in order that the totals in Line 8 are shown "net".

17. Line 9(b) -- Include margin reductions from offsets against IA reserves only to the extent there is a written agreement between the Dealer Member and the IA permitting the Dealer Member to recover the unsecured balances of the IA's client accounts from the IA reserve account. Include margin reductions arising from guarantees relating to customers' accounts by Partners, Directors, and Officers of the Dealer Member (PDO Guarantees). Include margin reductions arising from offsets against non-specific allowances of the Dealer Member.

 

FORM 1, PART II -- SCHEDULE 4A

DATE: _______________

____________________

(Firm Name)

LIST OF TEN LARGEST VALUE DATE TRADING BALANCES

WITH ACCEPTABLE INSTITUTIONS AND ACCEPTABLE COUNTERPARTIES

[excluding balances less than 20% of Risk Adjusted Capital or $250,000, whichever is the smaller]

 

On approved counterparty list

acceptable

institutions/acceptable

 

 

 

 

Name of Institution

Yes/No

Acceptable institution

Acceptable counterparty

Debits

Credits

Margin

 

 

 

 

C$'000

C$'000

C$'000

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

 

____________________

__________

____________________

TOTALS

 

 

____________________

NOTES:

1. This schedule is to report only ten balances with an indication whether each balance is with an acceptable institution or an acceptable counterparty.

2. For balances with acceptable institutions and acceptable counterparties not on the approved lists, as published by the Corporation, please provide their latest audited financial statements.

 

FORM 1, PART II -- SCHEDULE 5

DATE: _______________

_________________________

(Dealer Member Name)

ANALYSIS OF BROKERS' AND DEALERS' TRADING BALANCES

 

 

 

BALANCES

 

 

CATEGORY

DEBIT

CREDIT

AMOUNT REQUIRED TO FULLY MARGIN

 

 

 

C$'000

C$'000

C$'000

 

1.

Acceptable clearing corporations trading balances [see notes]

__________

__________

__________

 

2.

Regulated entities [see notes]

__________

__________

__________

 

3.

(a)

Dealer Member's own affiliated/related partnerships or corporations duly approved and audited under the capital requirements of the Corporation

__________

__________

__________

 

 

(b)

Dealer Member's own affiliated/related partnerships or corporations -- not approved [see note 6 -- give details]

__________

__________

__________

 

4.

(a)

Other brokers and dealers not qualifying as regulated entities but qualifying as acceptable counterparties [see note 7 -- give details]

__________

__________

__________

 

 

(b)

Other brokers and dealers not qualifying as regulated entities or acceptable counterparties [see note 8 -- give details]

__________

__________

__________

 

5.

Mutual Funds or their agents [see note 9]

__________

__________

__________

 

6.

TOTAL

__________

__________

__________

 

 

 

A-10

A-54

B-13

 

FORM 1, PART II -- SCHEDULE 5

NOTES AND INSTRUCTIONS

1. This schedule is only to include ordinary security trading transactions. All security borrowing or lending transactions should be disclosed on Schedules 1 or 7.

2. Lines 1, 2, 3 and 4 where applicable - Balances may be reported on a "net" basis (broker by broker) or on a "gross" basis. Balances with a broker or dealer must not be netted against those with its affiliated company.

3. Line 1 -- For definition, see General Notes and Definitions.

Margin on such balances should be provided as follows:

(i) Trades settling through a Net Settlement system should be treated as if the other party to the trade was an acceptable institution. For example, CNS balances with CDS, and CNS balances with National Securities Clearing Corporation.

(ii) All transactions done through CDS outside of the CNS system should be treated as if with a single counterparty to be classified as an acceptable counterparty (even if some or all of the other parties qualify as an acceptable institution).

(iii) Other trades settling on a transaction by transaction basis should be treated as if they were to be settled directly with the other party to the trade. For example, balances arising from trades settled through National Securities Clearing Corporation's Netted Balance Order or Trade-for-Trade Services, and balances arising from trades settled through Euroclear and Cedel.

4. Line 2 -- This line is not to include non-arms' length transactions which are to be reported on Line 3. For definition of "regulated entities", see General Notes and Definitions. Margin on balances with regulated entities must be provided as follows:

(i) In the case of a regular settlement date transaction in the account of a regulated entity the amount of margin to be provided, commencing on regular settlement date, shall be the equity deficiency of (a) the net market value of all settlement date security positions in the broker's accounts, and (b) the net money balance on a settlement date basis in the same accounts. In the case of an extended settlement date transaction between a Member and a regulated entity, commencing on regular settlement date the position shall be marked to market if the original term of the extended settlement transaction is 30 days or less, otherwise the position should be margined at applicable rates.

(ii) Any transaction which has not been confirmed by a regulated entity within 15 business days of the trade date shall be margined.

5. Line 3(a) -- Margin must be provided as outlined for regulated entities in note 4 above.

6. Line 3(b) -- If the affiliated/related company qualifies as a regulated entity, then margin must be provided as outlined for regulated entities in note 4 above.

If the affiliated/related company qualifies as an acceptable counterparty, then margin must be provided in the manner outlined in Schedule 4 Notes and Instructions for acceptable counterparties.

If neither of the above, then margin must be provided in the manner outlined in Schedule 4 Notes and Instructions for regular clients' accounts.

7. Line 4(a) -- All balances must be margined in the same way as accounts of acceptable counterparties (see Schedule 4 Notes and Instructions). Balances, or portions thereof, arising from trading transactions such as futures, options and short sale deposits should also be reported on this line. This line should also include balances with approved inter-dealer bond brokers.

Approved inter-dealer bond brokers are those inter-dealer bond dealers that are approved by the Corporation and the Bourse de Montréal Inc. The list of approved inter-dealer bond brokers will be published from time to time through the issuance of a regulatory notice.

8. Line 4(b) -- All balances must be margined in the same way as regular clients' accounts (see Schedule 4 Notes and Instructions). Balances, or portions thereof, arising from trading transactions such as futures, options and short sale deposits should also be reported on this line. This line should also include balances with inter-dealer bond brokers which are not on the list of approved inter-dealer bond brokers.

9. Line 5 -- This line is to include balances arising from mutual fund redemptions or purchase transactions. All balances must be margined in the same way as accounts of acceptable counterparties, or as regular client accounts.

 

FORM 1, PART II -- SCHEDULE 6

DATE: _______________

_________________________ (Dealer Member Name)

CURRENT INCOME TAXES

INCOME TAX LIABILITY (ASSET)

 

C$'000

 

1.

 

Balance payable (recoverable) at last year-end

__________

__________

 

2.

(a)

Payments (made) or received relating to above balance

__________

__________

 

 

(b)

Adjustments, including reassessments, relating to prior periods [give details if significant]

__________

__________

 

3.

 

Total adjustment to prior years' payable (recoverable) taxes during current year

__________

__________

 

 

4.

 

Subtotal [add or subtract Line 3 from Line 1]

__________

__________

 

5.

 

Income tax expense (recovery)

__________

__________

 

 

 

 

E-37

 

 

6.

 

less: Current installments

__________

__________

 

7.

 

Other adjustments [give details if significant]

__________

__________

 

8.

 

Total adjustment for current year's taxes

__________

__________

 

9.

TOTAL LIABILITY (ASSET) [add or subtract Line 8 from Line 4]

__________

__________

 

 

 

 

 

A-13, if asset

 

 

 

 

 

A-56, if liability

 

FORM 1, PART II -- SCHEDULE 6A

DATE: ____________________

_________________________ (Dealer Member Name)

TAX RECOVERIES

 

 

 

C$'000

 

A.

TAX RECOVERY FOR RISK ADJUSTED CAPITAL

 

 

1.

Sch. 6, Line 5

Income tax expense (recovery) [must be greater than 0, else N/A]

__________

 

 

2.

A-21

Commission and/or fees receivable (non allowable assets) of $__________ multiplied by an effective corporate tax rate of _____%

__________

 

3.

TAX RECOVERY -- ASSETS [100% of lesser of Lines 1 and 2]

__________

 

4.

 

Balance of current income tax expense available for margin and securities concentration charge tax recovery [Line 1 minus Line 3]

__________

 

5.

 

Recoverable taxes from preceding three years of $__________ net of current year tax recovery (if applicable) of

__________

 

6.

 

Total available for margin tax recovery [Line 4 plus Line 5]

__________

 

7.

B-24

Total margin required of $______ multiplied by an effective corporate tax rate of _____%

__________

 

8.

TAX RECOVERY -- MARGIN [75% of lesser of Lines 6 and 7]

__________

 

9.

TOTAL TAX RECOVERY BEFORE TAX RECOVERY ON SECURITIES CONCENTRATION CHARGE [Line 3 plus Line 8]

__________

 

 

 

B-26

 

10.

 

Balance of taxes available for securities concentration charge tax recovery [Line 6 minus Line 8, must be greater than 0, else N/A]

__________

 

11.

Sch. 9

Total securities concentration charge of $_______ multiplied by an effective corporate tax rate of ______%

__________

 

12.

TAX RECOVERY -- SECURITIES CONCENTRATION CHARGE [75% of lesser of Lines 10 and 11]

__________

 

 

 

B-28

 

13.

TOTAL TAX RECOVERY RAC [Line 3 plus Line 8 plus Line 12]

__________

 

 

 

C-3

 

B.

TAX RECOVERY FOR EARLY WARNING CALCULATION:

__________

 

1.

Sch. 6, Line 5

Income tax expense (recovery) [must be greater than 0, else N/A]

__________

 

2.

A-15

Commission and/or fees receivable (allowable assets)

__________

 

3.

A-21

Commission and/or fees receivable (non allowable assets)

__________

 

4.

SUBTOTAL [Line 2 plus Line 3]

__________

 

5.

 

Line 4 multiplied by an effective corporate tax rate of _____%

__________

 

6.

TAX RECOVERY -- INCOME ACCRUALS [100% of lesser of Lines 1 and 5]

__________

 

 

 

C-9

 

[See notes and instructions]

FORM 1, PART II -- SCHEDULE 6A

NOTES AND INSTRUCTIONS

SECTION A -- ASSETS: The purpose of this calculation is to tax effect identifiable revenue related receivables which have been classified as non allowable assets for capital purposes. In other words, the calculation gives recognition to the fact that in recording the receivable the Dealer Member generated revenue against which a tax provision has been set up.

SECTION A -- MARGIN: The purpose of this calculation is to reduce the provision for contingent market losses on client and inventory positions (i.e. margin) by the appropriate allowance for taxes recoverable in the event of realization of such a market loss.

Line A1 -- If the Dealer Member has no income tax expense due to being in a net tax recovery position, then no tax recovery on assets is allowed for RAC purposes.

Line A3 -- If the Dealer Member has no income tax expense, then insert N/A on this line.

Line A5 -- The balance reported as the recoverable taxes from preceding three years should be the total taxes paid in the three preceding years, hence available for recovery. If the Dealer Member has reported a balance on Line A1 above, then no balance should be reported as the current year tax recovery on this line.

Line B1 -- If the Dealer Member has no income tax expense due to being in a net tax recovery position, then no tax recovery on income accruals is allowed for Early Warning purposes.

 

FORM 1, PART II -- SCHEDULE 7

DATE: ____________________

________________________________________ (Dealer Member Name)

ANALYSIS OF OVERDRAFTS, LOANS, SECURITIES LOANED AND REPURCHASE AGREEMENTS

 

 

AMOUNT OF LOAN PAYABLE OR CASH RECEIVED AS COLLATERAL

MARKET VALUE OF SECURITIES RECEIVED AS COLLATERAL

MARKET VALUE OF SECURITIES DELIVERED AS COLLATERAL OR LOANED

REQUIRED TO MARGIN

 

 

C$'000

C$'000

C$'000

C$'000

 

 

[see note 3]

[see note 4]

[see note 4]

 

 

1.

Bank overdrafts

__________

N/A

N/A

Nil

 

 

LOANS PAYABLE:

 

 

 

 

 

2.

Acceptable institutions

__________

N/A

__________

Nil

 

3.

Acceptable counterparties

__________

N/A

____________________

 

4.

Regulated entities

__________

N/A

____________________

 

5.

Others

__________

N/A

____________________

 

 

SECURITIES LOANED:

 

 

 

 

 

6.

Acceptable institutions

____________________

Nil

 

7.

Acceptable counterparties

________________________________________

 

8.

Regulated entities

________________________________________

 

9.

Others

________________________________________

 

 

REPURCHASE AGREEMENTS:

 

 

 

 

 

10.

Acceptable institutions

__________

N/A

__________

Nil

 

11.

Acceptable counterparties

__________

N/A

____________________

 

12.

Regulated entities

__________

N/A

____________________

 

13.

Others

__________

N/A

____________________

 

14.

TOTAL [Lines 1 through 13]

__________

__________

__________

__________

 

 

A-51

 

 

B-14

 

FORM 1, PART II -- SCHEDULE 7

NOTES AND INSTRUCTIONS

1. This schedule is to be completed for loan payable transactions whereby the stated purpose of the transaction is to borrow cash. All security lending transactions and securities repurchases, including financing transactions done via 2 trade tickets and those with related parties, should also be disclosed on this schedule.

2. For the purpose of this schedule, "excess collateral deficiency" is defined as the actual collateral provided to the counterparty less the collateral required to be received by the counterparty pursuant to regulatory or legislative requirements. A list of current collateralization rates for each category of acceptable counterparties is published on a regular basis.

3. Include accrued interest in amount of loan payable.

4. Market value of securities received or delivered as collateral should include accrued interest.

5. In the case of either a cash borrow and securities loan or a repurchase transaction, if a written agreement between the Dealer Member and the counterparty has been entered into containing the terms described below, the instructions in Notes 7, 8, 9 and 10 are applicable, as the case may be. Each such written agreement shall include terms which provide (i) for the rights of either party to retain or realize on securities held by it from the other party on default, (ii) for events of default, (iii) for the treatment of the value of securities held by a non-defaulting party in excess of amounts which may be owed by a defaulting party, (iv) either for set-off or, in the case of secured loans of securities, continuous segregation of collateral and the requirement for the lender to perfect a security interest in collateral giving the highest priority, and (v) if set-off rights or security interests are created in securities sold or loaned by one party to another, that the securities are endorsed for transfer and free of any trading restrictions. In addition, in the case of a repurchase transaction such written agreement shall contain an acknowledgement by the parties that either has the right, upon notice, to call for any difference between the collateral and the securities at any time. Such agreements are not mandatory and if not used are to be margined as provided below.

In the case of a cash borrow and securities loan transaction, if no such written agreement has been entered into in respect of the transaction, then 100% of the market value must be provided as margin by the Dealer Member on the collateral given to the lender except in the case where the lender is an acceptable institution in which case no margin need be provided.

In the case of a repurchase transaction, if no such written agreement has been entered into in respect of the transaction, the position shall be margined as follows:

 

 

 

NO Written Repurchase/Reverse

 

 

 

 

Repurchase Agreement

 

Counterparty

Written Repurchase/Reverse Repurchase Agreement

Calendar days after regular settlement (Note 1)

 

 

 

30 days or less

Greater than 30 days

 

Acceptable institution

No margin

No margin (Note 2)

 

Acceptable counterparty

Excess collateral deficiency

Excess collateral deficiency (Note 2)

 

Regulated entity

Market deficiency

Market deficiency (Note 2)

Margin

 

Other

Margin

Margin

200% of margin (to a maxi-mum of the market value of the underlying securities)

 

Note 1:

Regular settlement means the settlement dates or delivery date generally accepted according to industry practice for the relevant security in the market in which the transaction occurs. Margin is calculated from the date of regular settlement. Calendar days refers to the original term of the repurchase/reverse repurchase.

 

Note 2:

Any transaction which has not been confirmed by an acceptable institutionacceptable counterparty or regulated entity within 15 business days of the trade shall be margined.

6. For any given counterparty a deficiency in one type of loan may be offset by an excess in another type of loan provided that there are written agreements for each type of loan which provide for the right of offset between each type of loan. In such case, the balances may also be offset for margin calculation purposes.

7. Lines 2, 6, and 10 -- In a cash borrowed and securities loan or repurchase transaction between a Dealer Member and an acceptable institution, no capital need be provided in the case where a deficiency exists between the market value of the cash borrowed or securities loaned or repurchased and the market value of the collateral or cash pledged.

In order for a pension fund to be treated as an acceptable institution for purposes of this Schedule, it must not only meet the acceptable institution criteria outlined in General Notes and Definitions, but the Dealer Member must also have received representation that the pension fund is legally able to enter into the obligations of the transaction. If such representation has not been received, the pension fund which otherwise meets the acceptable institution criteria must be treated as an acceptable counterparty.

WHERE AN AGREEMENT HAS BEEN EXECUTED, THEN:

8. Lines 3, 7, and 11 -- In a cash borrowed and securities loan or repurchase transaction between a Dealer Member and an acceptable counterparty, where an excess collateral deficiency exists, action must be taken to correct the deficiency. If no action is taken, the amount of excess collateral deficiency must be immediately provided out of the Dealer Member's capital. In any case, where the deficiency exists for more than one business day it must be provided out of the Dealer Member's capital.

9. Lines 4, 8, and 12 -- In a cash borrowed and securities loan or repurchase transaction between a Dealer Member and a regulated entity, where a deficiency exists between the market value of the cash borrowed or securities loaned or repurchased and the market value of the collateral or cash pledged, action must be taken to correct the deficiency. If no action is taken, the amount of market value deficiency must be immediately provided out of the Dealer Member's capital. In any case, where the deficiency exists for more than one business day it must be provided out of the Dealer Member's capital.

10. Lines 5, 9, and l3 -- In a cash borrowed and securities loan or repurchase transaction between a Dealer Member and a party other than an acceptable institutionacceptable counterparty or regulated entity, where a deficiency exists between the loan value of the cash borrowed or securities loaned or repurchased and the loan value of the collateral or cash pledged, action must be taken to correct the deficiency. If no action is taken, the amount of loan value deficiency must be immediately provided out of the Dealer Member's capital. The margin required may be reduced by any margin already provided on the collateral (e.g. in inventory). Where the collateral is either held by the Dealer Member on a fully segregated basis or held in escrow on its behalf by an Acceptable Depository or a bank or trust company qualifying as either an acceptable institution or acceptable counterparty, only the amount of market value deficiency need be provided out of the Dealer Member's capital. In any case, where the deficiency exists for more than one business day, it must be provided out of the Dealer Member's capital.

11. Lines 2, 3 and 4 -- In a cash borrowed transaction between a Dealer Member and an acceptable institutionacceptable counterparty, or regulated entity, where a letter of credit issued by a Schedule 1 Bank is used as collateral for the cash borrowed, there shall be no charge to the Dealer Member's capital for any excess of the value of the letter of credit pledged as collateral over the cash borrowed.

12. Lines 5, 9, and l3 -- Transactions whereby an acceptable institutionacceptable counterparty, or regulated entity are only acting as agents (on behalf of an "other" party) should be reported and margined as "Others".

 

FORM 1, PART II -- SCHEDULE 7A

DATE: ____________________

__________________________ (Dealer Member Name)

ACCEPTABLE COUNTERPARTIES FINANCING ACTIVITIES CONCENTRATION CHARGE

 

 

 

C$'000

 

1.

Sch. 1, Line 2

Market value deficiency amount relating to loans receivable from acceptable counterparties, net of legal offsets and margin already provided

__________

 

2.

Sch. 1, Line 6

Market value deficiency amount relating to securities borrowed from acceptable counterparties, net of legal offsets and margin already provided

__________

 

3.

Sch. 1, Line 10

Market value deficiency amount relating to resale agreements with acceptable counterparties, net of legal offsets and margin already provided

__________

 

4.

Sch. 7, Line 3

Market value deficiency amount relating to loans payable to acceptable counterparties, net of legal offsets and margin already provided

__________

 

5.

Sch. 7, Line 7

Market value deficiency amount relating to securities lent to acceptable counterparties, net of legal offsets and margin already provided

__________

 

6.

Sch. 7, Line 11

Market value deficiency amount relating to repurchase agreements with acceptable counterparties, net of legal offsets and margin already provided

__________

 

7.

TOTAL MARKET VALUE DEFICIENCY EXPOSURE WITH ACCEPTABLE COUNTERPARTIES, NET OF LEGAL OFFSETS AND MARGIN ALREADY PROVIDED [Sum of Lines 1 to 6]

__________

 

8.

CONCENTRATION THRESHOLD -- 100% OF NET ALLOWABLE ASSETS

__________

 

9.

FINANCING ACTIVITIES CONCENTRATION CHARGE [Excess of Line 7 over Line 8, otherwise NIL]

__________

 

 

 

B-21

 

FORM 1, PART II -- SCHEDULE 9

DATE: ____________________

_________________________ (Dealer Member Name)

CONCENTRATION OF SECURITIES

[excluding securities required to be in segregation or safekeeping & debt securities with a margin rate of 10% or less (see note 5)]

Description of Security

Client position long/(short) C$'000

Dealer Member's own long/(short) C$'000

Unit Price

Market value C$'000

Effective margin rate

Loan value of securities C$'000

Adjustments in arriving at amount loaned C$'000

"Amount loaned" C$'000

Amount cleared within five business days C$'000

Adjusted amount loaned C$'000

Concentration charge C$'000

 

[note 6]

[note 7]

[note 8]

 

 

 

[note 2]

 

[note 9]

 

 

[note 10]

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

 

 

 

 

 

 

 

 

 

 

 

B-28

[See notes and instructions]

 

FORM 1, PART II -- SCHEDULE 9

NOTES AND INSTRUCTIONS

General

1. The purpose of this schedule is to disclose the largest ten issuer positions and precious metal positions that are being relied upon for loan value whether or not a concentration charge applies. If there are more than ten issuer positions and precious metal positions where a concentration exposure exists, then all such positions must be listed on the schedule.

2. For the purpose of this schedule, an issuer position must include all classes of securities for an issuer (i.e. all long and short positions in equity, convertibles, debt or other securities of an issuer other than debt securities with a normal margin requirement of 10% or less), a precious metal position must include all certificates and bullion of the particular precious metal (gold, platinum or silver) where:

• loan value is being extended in a margin account, cash account, delivery against payment account, receipt against payment account; or

• an inventory position is being held.

3. Securities and precious metals that are required to be in segregation or safekeeping should not be included in the issuer position or precious metal position. Securities and precious metals that have been segregated, but are not required to be, can still be relied on by the Dealer Member for loan value, and must be included in the issuer position and precious metal position.

4. For the purpose of this schedule, an amount loaned exposure to broad based index positions may be treated as an amount loaned exposure to each of the individual securities comprising the index basket. These amount loaned exposures may be reported by breaking down the broad based index position into its constituent security positions and adding these constituent security positions to other amount loaned exposures for the same issuer to arrive at the combined amount loaned exposure.

To calculate the combined amount loaned exposure for each index constituent security position held, sum

a) the individual security positions held, and

b) the constituent security position held.

[For example, if ABC security has a 7.3% weighting in a broad based index, the number of securities that represents 7.3% of the value of the broad based index position shall be reported as the constituent security position.]

5. For the purpose of this schedule only, stripped coupons and residuals, [if they are held on a book based system, and are in respect of federal and provincial debt instruments], should be margined at the same rate as the underlying security.

6. For short positions, the loan value is the market value of the short position.

Client position

7.

(a) Client positions are to be reported on a settlement date basis for client accounts including positions in margin accounts, regular cash accounts [when any transaction in the account is outstanding after settlement date] and delivery against payment and receipt against payment accounts [when any transaction in the account is outstanding after settlement date]. Within each client account, security positions and precious metal positions that qualify for a margin offset may be eliminated.

(b) Positions in delivery against payment and receipt against payment accounts with acceptable institutionsacceptable counterparties, or regulated entities resulting from transactions that are outstanding less than ten business days past settlement date are not to be included in the positions reported. If the transaction has been outstanding ten business days or more past settlement and is not confirmed for clearing through an acceptable clearing corporation or not confirmed by the acceptable institutionacceptable counterparty or regulated entity, then the position must be included in the position reported.

Dealer Member's own position

8.

(a) Dealer Member's own inventory positions are to be reported on a trade date basis, including new issue positions carried in inventory twenty business days after new issue settlement date. All security positions that qualify for a margin offset may be eliminated.

(b) The amount reported must include uncovered stock positions in market-maker accounts.

Amount Loaned

9. The client and Dealer Member's own positions reported are to be determined based on the combined client/Dealer Member's own long or short position that results in the largest amount loaned exposure.

(a) To calculate the combined amount loaned on the long position exposure, combine:

• the loan value of the gross long client position (if any) contained within client margin accounts;

• the weighted market value (calculated pursuant to the weighted market value calculation set out in Schedule 4, Note 9, Cash Accounts Instruction (a)) and/or loan value (calculated pursuant to the loan value calculation set out in Schedule 4, Note 9, Cash Accounts Instruction (b)) of the gross long client position (if any) contained within client cash accounts;

• the market value (calculated pursuant to the market value calculation set out in Schedule 4, Note 9, DAP and RAP Accounts Instruction (a)) and/or loan value (calculated pursuant to the loan value calculation set out in Schedule 4, Note 9, DAP and RAP Accounts Instruction (b)) of the gross long client position (if any) contained within client delivery against payment accounts; and

• the loan value (calculated pursuant to the Notes and Instructions to Schedule 2) of the net long Dealer Member's own position (if any).

(b) To calculate the combined amount loaned on the short position exposure, combine

• the market value of the gross short client position (if any) contained within client margin, cash and receipt against payment accounts; and

• the market value of the net short Dealer Member's own position (if any).

(c) If the loan value of an issuer position or a precious metal position (net of issuer securities or precious metal position required to be in segregation/safekeeping) does not exceed one-half (one-third in the case of an issuer position or precious metal position which qualifies under either Note 10(a) or 10(b) below) of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7) as most recently calculated, the completion of the column titled "Adjustments in arriving at Amount Loaned" is optional. However, nil should be reflected for the concentration charge.

(d) In determining the amount loaned on either a long, or short position exposure, the following adjustments may be made:

(i) Security positions and precious metal positions that qualify for a margin offset may be excluded, as previously discussed in notes 7(a) and 8(a);

(ii) Security positions and precious metal positions that represent excess margin in the client's account may be excluded. (Note if the starting point of the calculations is securities or precious metal positions not required to be in segregation/safekeeping, this deduction has already been included in the loan value calculation of Column 6.);

(iii) In the case of margin accounts, 25% of the market value of long positions in any: (a) non-marginable securities or, (b) securities with a margin rate of 100%, in the account may be deducted from the amount loaned calculation, provided that such securities are carried in readily saleable quantities only;

(iv) In the case of cash accounts, 25% of the market value of long positions in any securities whose market value weighting is 0.000 (pursuant to Schedule 4, Note 9, Cash Accounts Instruction (a)) in the account may be deducted from the amount loaned calculation, provided that such securities are carried in readily saleable quantities only;

(v) The amount loaned values of trades made with financial institutions that are not acceptable institutionsacceptable counterparties or regulated entities, if the trades are outstanding less than 10 business days past settlement date, and the trades were confirmed on or before settlement date with a settlement agent that is an acceptable institution may be deducted from the amount loaned calculation; and

(vi) Any security positions or precious metal positions in the client's (the "Guarantor") account, which are used to reduce the margin required in another account pursuant to the terms of a guarantee agreement, shall be included in calculating the amount loaned on each security for the purposes of the Guarantor's account.

(e) Amount Loaned is the position exposure (either long or short) with the largest calculated amount loaned.

Concentration Charge

10.

(a) Where the Amount Loaned reported relates to securities issued by

(i) the Dealer Member, or

(ii) a company, where the accounts of a Dealer Member are included in the consolidated financial statements and where the assets and revenue of the Dealer Member constitute more than 50% of the consolidated assets and 50% of the consolidated revenue, respectively, of the company, based on the amounts shown in the audited consolidated financial statements of the company and the Dealer Member for the preceding fiscal year and the total Amount Loaned by a Dealer Member on such issuer securities exceeds one-third of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7), as most recently calculated, a concentration charge of an amount equal to 150% of the excess of the Amount Loaned over one-third of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7) is required unless the excess is cleared within five business days of the date it first occurs. For long positions, the concentration charge as calculated herein shall not exceed the loan value of the issuer security(ies) for which such charge is incurred.

(b) Where the Amount Loaned reported relates to non-marginable securities of an issuer held in a cash account(s), where loan value has been extended pursuant to the weighted market value calculation set out in Schedule 4, Note 9, and the total Amount Loaned by a Dealer Member on such issuer securities exceeds one-third of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7), as most recently calculated, a concentration charge of an amount equal to 150% of the excess of the Amount Loaned over one-third of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7) is required unless the excess is cleared within five business days of the date it first occurs. For long positions, the concentration charge as calculated herein shall not exceed the loan value of the issuer security(ies) for which such charge is incurred.

(c) Where the Amount Loaned reported relates to arm's length marginable securities of an issuer (i.e., securities other than those described in note 10(a), or 10(b)) or a precious metal position, and the total Amount Loaned by a Dealer Member on such issuer securities or precious metal position exceeds two-thirds of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7), as most recently calculated, a concentration charge of an amount equal to 150% of the excess of the Amount Loaned over two-thirds of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7) is required unless the excess is cleared within five business days of the date it first occurs. For long positions, the concentration charge as calculated herein shall not exceed the loan value of the issuer security(ies) or precious metal position for which such charge is incurred.

(d) Where:

(i) The Dealer Member has incurred a concentration charge for an issuer position under either note 10(a) or 10(b) or 10(c); or

(ii) The Amount Loaned by a Dealer Member on any one issuer (other than issuers whose securities may be subject to a concentration charge under either Note 10(a) or 10(b) above) or a precious metal position exceeds one-half of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7), as most recently calculated; and

(iii) The Amount Loaned on any other issuer or precious metal position exceeds one-half (one-third in the case of issuers whose securities may be subject to a concentration charge under either Note 10(a) or 10(b) above) of the sum of Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7); then

(iv) A concentration charge on such other issuer position or precious metal position of an amount equal to 150% of the excess of the Amount Loaned on the other issuer or precious metal position over one-half (one-third in the case of issuers whose securities may be subject to a concentration charge under either Note 10(a) or 10(b) above) of the sum of the Dealer Member's Risk Adjusted Capital before securities concentration charge and minimum capital (Stmt. B, Line 7) is required unless the excess is cleared within five business days of the date it first occurs. For long positions, the concentration charge as calculated herein shall not exceed the loan value of the security(ies) or precious metal position for which such charge is incurred.

(e) For the purpose of calculating the concentration charges as required by notes 10(a), 10(b), 10(c) and 10(d) above, such calculations shall be performed for the largest five issuer positions and precious metal positions by Amount Loaned in which there is a concentration exposure.

Other

11.

(a) Where there is an over exposure in a security or a precious metal position and the concentration charge as referred to above would produce either a capital deficiency or a violation of the Early Warning Rule, the Dealer Member must report the over exposure situation to the Corporation on the date the over exposure first occurs.

(b) A measure of discretion is left with the Corporation in dealing with the resolution of concentration situations, particularly as regards to time requirements for correcting any over exposure, as well as whether securities or precious metal positions are carried in "readily saleable quantities".

 

FORM 1, PART II -- SCHEDULE 10

DATE: ____________________

________________________________________ (Dealer Member Name)

INSURANCE

A. FINANCIAL INSTITUTION BOND (FIB) CLAUSES (A) TO (E)

 

 

 

 

C$'000

 

 

 

 

1.

Coverage required for FIB

__________

 

 

 

 

 

(a)

Client Net Equity:

__________

 

 

 

 

 

i)

Dealer Member's own

__________

 

 

 

 

 

ii)

Carrying brokers' introducing brokers

__________

 

 

 

 

 

Total

__________

X 1%*

__________

[Note 3]

 

(b)

Total Liquid Assets (A-12)

__________

 

 

 

 

 

Total Other Allowable Assets (A-18)

__________

 

 

 

 

 

Total

__________