Canadian Regulatory Framework Chapter 3: Dealer and Advisor Registration

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What type of activities would require registration for dealers and advisors?

Trading, underwriting, or advising in securities

What factors do regulators consider when determining if a person or a firm should be registered?

The type of activity, whether it's carried out for a business purpose, and compensation

According to NI 31-103, what is included in the broad definition of a 'security'?

An interest in the capital, property or profits of a person or company; evidence of an option to purchase a security; an interest in a trust, estate or association

What does the general definition of a 'dealer' involve for registration purposes?

Being in the business of trading in securities in the capacity of a principal or agent

What type of registration is required for managing investment funds?

Portfolio Manager

Which category of dealer engages in trading securities as an agent or principal and has the authority to act as an underwriter?

Investment Dealer

What type of registration is required for acting as an advisor in respect of a security, according to the terms, conditions, restrictions, or requirements applied to its registration?

Restricted Portfolio Manager

Which type of dealer is restricted to dealing in the exempt market, such as private placements?

Exempt Market Dealer

What services may a carrying broker provide to other dealer members?

All of the above

Under Type 1 carrying broker and introducing broker arrangement, who is responsible for 'Know Your Client' compliance?

Type 1 Carrying Broker AND Introducing Broker

Which entities are exempted from dealer registration?

Private investment clubs with fewer than 50 members

According to IIROC rule 18.14, what must a registered representative (RR) do before engaging in any outside activities?

Obtain pre-approval of the dealer member

In which provinces can registrants transact in securities business?

Only in the provinces where they are registered as Registered Reps (RR)

What is the primary function of introducing brokers?

Back office services to clients

What is the consequence if a registrant has not completed the required courses at the end of the CE cycle?

Penalties will be invoked

Which of the following attributes is considered essential for a successful Investment Advisor (IA)?

Ethical decision making

What does IIROC evaluate to determine if an individual is 'fit and proper' for approval/registration?

Integrity, honesty, and good faith

What is the requirement for Continuing Education (CE) for a RR (IA) within a 2-year cycle?

10 hours of compliance training and 20 hours of professional development training

What is the basic rule for an investment advisor (IA) dealing with a U.S. client?

The IA must be registered in the state where the U.S. client resides.

What form is used for single registration across multiple provinces in Canada?

Form 33-109F4

Under which rule is the handling of advisory accounts specified?

Rule 3270: Discretionary Accounts and Managed Accounts

What is the primary reason for considering financial solvency relevant in the registration process?

To assess the risk of engaging in self-interested activities at the expense of clients

What is the role of Investment Representatives (IRs) in relation to client orders?

Take/submit client orders for execution without providing investment advice

What distinguishes the proficiency requirements for Investment Representatives (IRs) from those for Investment Advisors (IAs)?

The length of the training period and continuing education requirements

Before registration as an Investment Representative (IR) with IIROC, what are individuals in training programs not permitted to do?

Have contact with customers or prospective customers in obtaining orders

What is the 30-Month Requirement for Registered Representatives dealing with retail customers?

Completion of the Wealth Management Essentials (WME) course within 30 months after approval

What is the purpose of the 90-Day Period of Restricted Client Contact for individuals in the training period?

To prevent unregistered individuals from soliciting orders for securities

In a principal-agent relationship, what is the role of the agent?

Acting on behalf of the principal without a conflict of interest

What is required for Registration as a new Registered Representative/Investment Advisor?

Successful completion of the CSC and the CPH Course

What is the purpose of the 90-Day Period of Restricted Client Contact for individuals in the training period?

To ensure that individuals in training do not provide unauthorized investment advice

What is the significance of the 30-Month Requirement for Registered Representatives dealing with retail customers?

It mandates that registered representatives gain expertise in wealth management within a specified time frame

Which factor influences the determination of whether a person or a firm should be registered as per regulatory considerations?

Professional experience and financial solvency

What is the role of the agent in a principal-agent relationship according to IIROC Rule 39?

To prevent any form of conflict of interest while acting on behalf of the principal

What is the primary reason for considering financial solvency relevant in the registration process?

To assess the risk of the individual engaging in self-interested activities at the expense of clients

What distinguishes the proficiency requirements for Investment Representatives (IRs) from those for Investment Advisors (IAs)?

The length of the training period and continuing education requirements

What is the purpose of the 30-Month Requirement for individuals seeking registration as Investment Representatives (IRs)?

To demonstrate a commitment to ongoing education and professional development

What is the primary distinction between a portfolio manager and a restricted portfolio manager?

Portfolio managers have discretionary authority granted by the clients, while restricted portfolio managers act as advisors in accordance with specific terms and conditions.

What is the defining characteristic of an investment dealer as per the text?

Engages in trading securities as an agent or principal and has the authority to act as an underwriter.

Which type of dealer is restricted to trading exclusively in shares or units of mutual funds?

Mutual Fund Dealer

What is the specific focus of registration for an Exempt Market Dealer?

Trading in the exempt market, such as private placements.

What services may a carrying broker provide to other dealer members?

Clearing and settlement of trades, custody of customer funds and securities, and maintenance of books and records of client transactions

Under which rule does IIROC specify the conditions for an individual to engage in a business activity outside of the dealer member?

IIROC rule 18.14

Which entities are exempted from dealer registration?

Private investment clubs with fewer than 50 members

What type of registration is required for individuals who wish to trade in securities for the public or advise in the purchase or sale of securities?

Restricted Dealer registration

Who must disclose all outside activities and obtain pre-approval from the dealer member before engaging in any outside activities?

Registered representatives

Which type of carrying broker arrangement makes the carrying broker responsible for 'Know Your Client' and non-financial compliance rules and regulations?

Type 1

Study Notes

Registration Requirements

  • Dealers and advisors require registration if they engage in activities involving trading securities, providing investment advice, or managing investment funds.
  • Regulators consider factors such as fitness, proficiency, and financial solvency when determining if a person or firm should be registered.

Security Definition

  • According to NI 31-103, a 'security' includes a broad range of investment products, including stocks, bonds, and mutual funds.

Dealer Registration

  • A dealer engages in trading securities as an agent or principal and may act as an underwriter.
  • Managing investment funds requires a specific type of registration.
  • Restricted dealers are limited to dealing in the exempt market, such as private placements.

Advisor Registration

  • Acting as an advisor in respect of a security requires registration, subject to terms, conditions, restrictions, or requirements applied to its registration.

Carrying Brokers

  • Carrying brokers provide services to other dealer members, such as handling trades and client accounts.
  • In a Type 1 carrying broker and introducing broker arrangement, the carrying broker is responsible for 'Know Your Client' compliance.

Exemptions

  • Certain entities, such as exempt market dealers, are exempt from dealer registration.

Continuing Education

  • Registered representatives (RRs) must complete continuing education (CE) courses within a 2-year cycle to maintain their registration.

Fit and Proper

  • IIROC evaluates an individual's fitness and propriety for registration by assessing their integrity, competence, and financial solvency.

Investment Advisors

  • Investment advisors (IAs) must meet specific proficiency requirements and follow rules, such as handling advisory accounts under IIROC Rule 18.14.
  • IAs dealing with U.S. clients must comply with specific regulations.

Registration Process

  • The primary reason for considering financial solvency is to ensure registrants can meet their obligations to clients.
  • Individuals seeking registration as Investment Representatives (IRs) must meet proficiency requirements and complete training programs.

Training Period

  • During the training period, individuals are not permitted to engage in certain activities, such as dealing with clients.
  • The 30-Month Requirement ensures that Registered Representatives dealing with retail customers meet specific experience and proficiency standards.

Principal-Agent Relationship

  • In a principal-agent relationship, the agent acts on behalf of the principal, with specific responsibilities and obligations.

Registration Requirements

  • Registration as a new Registered Representative/Investment Advisor requires meeting proficiency requirements and completing training programs.
  • The 90-Day Period of Restricted Client Contact allows individuals in training programs to gain experience under close supervision.

Test your knowledge about the different registration categories for dealers and advisors in the Canadian regulatory framework. Understand the factors that determine whether registration is required for trading, underwriting, or advising in securities.

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