1. Background

One of the initial CIRO priorities is to consolidate the IDPC Rules and MFD Rules into one set of rules, the CIRO Dealer and Consolidated (DC) Rules, applicable to both investment dealers and mutual fund dealers.

The primary objectives of this consolidation work are:

• to achieve greater rule harmonization to:
  • ensure like dealer activities will be regulated in a like manner,
  • minimize regulatory arbitrage between investment dealers and mutual fund dealers,
• where practical and appropriate, adopt less prescriptive, more principles-based rule requirements to facilitate rules that are scalable and proportionate to the different types and sizes of dealer and their respective business models, and
• improve access to and clarity of the rules applicable to all CIRO Dealer Members.

Taking these objectives into consideration, the following decisions have been made relating to the structure and content of the DC Rules:

The third phase of the Rule Consolidation Project focuses on:

• membership and member business activity approval matters (DC Rules 2100, 2200, 2300),
• clearing and settlement of trades and trade delivery standards (DC Rules 4700, 4800 and 4900), and
• examination, investigation and enforcement rules (DC Rule Series 8000 and DC Rules 9100 and 9500):

2. Phase 3 Proposed DC Rules

To provide details of the Phase 3 Proposed DC Rules, the following documents have been included as appendices to this Bulletin:

• a clean copy of the Phase 3 Proposed DC Rules is included as Appendix 1
• a blackline comparison of the Phase 3 Proposed DC Rules to the equivalent IDPC Rules is included as Appendix 26
• a table of concordance comparing the Phase 3 Proposed DC Rules to any existing equivalent requirements in the IDPC Rules, MFD Rules and National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (where applicable) is included as Appendix 3.

In the next sections of this Bulletin, we summarize the key elements of the Phase 3 Proposed DC Rules, which in most cases are the adoption of existing rule provisions from the IDPC Rules, the MFD Rules or both sets of existing rules.

2.1 Membership and member business activity approval matters

In this section of the Bulletin, we discuss the proposed amendments to rule requirements relating to:

• ownership of a Dealer Member’s securities
• a Dealer Member organizing and managing its business activities
• a Dealer Member engaging an agent to conduct business activities on its behalf

that would represent a significant change to either the IDPC Rules or the MFD Rules. We also discuss how all proposed provisions differ from their corresponding IDPC Rule or MFD Rule provision in the Table of concordance found in Appendix 3.

2.1.1 Ownership of a Dealer Member’s securities (DC Rule 2100)

(a) Changes of ownership below 10%

IDPC Rule section 2106 requires an investment dealer to notify CIRO and file a specific form at least 20 days before issuing or transferring non-publicly traded securities that will result in an acquirer owning less than 10% of the investment dealer’s securities.

The MFD Rules do not require a similar notification and filing for mutual fund dealers.

Given this requirement is unique to the IDPC Rules, not required under securities laws, and would be overly burdensome for both mutual fund dealers to comply with and CIRO staff to administer, we propose to not include this requirement in the DC Rules.

(b) Ownership of a significant equity interest

We propose to adopt the IDPC Rule definition of “significant equity interest” which establishes at 10% or more the threshold for a Dealer Member to obtain Corporation approval before allowing a person to own such interest in the Dealer Member. (DC Rule subsection 2102(1))

The MFD Rules currently set the significant equity interest threshold at 20% whereas the threshold under National Instrument 31-103 is set at 10%. Adopting the IDPC Rule definition of significant equity interest will harmonize CIRO’s requirement for both categories of Dealer Members with the corresponding requirement under securities laws.

The investor application form required to be filed by a Dealer Member under DC Rule section 2107 is included in Appendix 6.

2.1.2 Dealer Member organization (DC Rule 2200)

(a) Related companies

The IDPC Rules require that an investment dealer, or an employee, Approved Person, or investor of an investment dealer must obtain Corporation approval before setting up or acquiring any interest in a related company7 or associate.

The IDPC Rules also require that an investment dealer must obtain approval before creating a wholly owned subsidiary whose principal business is a securities or derivatives broker, dealer or adviser.

CIRO requires this approval to ensure an investment dealer and its related company are responsible for and guarantee each other’s obligations to the investment dealer’s client. In the event of an insolvency of the investment dealer or its related company, the surviving entity will be responsible to indemnify the Canadian Investor Protection Fund for client loss claims.

The MFD Rules do not have an equivalent approval requirement. However, under securities laws mutual fund dealers must give notice to the CSA at least 30 days before the proposed acquisition of 10 % or more of another registrant.

The cross-guarantee requirement found in the MFD Rules is similar to that in the IDPC Rules.

We adopted a modified version of the IDPC Rule provision as we believe mutual fund dealers should be subject to an equivalent approval requirement and where Dealer Members require an exemption from the cross-guarantee requirement, CIRO staff should have the ability to provide relief. (DC rule section 2206)

We have included a question later in this Bulletin asking for your views on whether we should also require commonly owned investment dealers and mutual fund dealers to cross-guarantee each other.

The guarantee form required to be filed by a Dealer Member under DC Rule section 2206 is included in Appendix 7.

(b) Business other than securities or derivatives

The IDPC Rules generally require an investment dealer to obtain CIRO approval before carrying on any business other than securities or derivatives activities. However, CIRO approval is not required if:

• the investment dealer owns an interest in a corporation and is not responsible for that corporation’s liabilities, and
• notifies CIRO before acquiring an interest in the non-securities or non-derivatives corporation.

The MFD Rules require a mutual fund dealer to notify CIRO before it engages in any business, other than the sale of investment products.

We adopted a modified version of the IDPC Rule provision that would require Dealer Members to obtain CIRO approval before carrying on any business other than securities or derivatives activities except where the Dealer Member owns an interest in a corporation and is not responsible for that corporation’s liabilities. (DC Rule section 2215)

As a result, notification would no longer be required for where the Dealer Member proposes to own an interest in a corporation carrying on any business other than securities or derivatives activities and is not responsible for that corporation’s liabilities.

(c) Shared office premises

The IDPC Rules have specific requirements for investment dealers sharing office premises with other regulated Canadian financial service entities that are involved in financial activities.

The MFD Rules do not have equivalent requirements and it is far more common for mutual fund dealers affiliated with banks or insurance companies to use the branch network/office premises of their affiliate bank/insurance company to meet with clients.

Given the importance of the shared office premises requirements to limit client confusion and ensure privacy and confidentiality of records are maintained, we generally adopted a modified version of the IDPC Rule provisions that would be applicable to all Dealer Members (DC Rule subsection 1201(2)”shared office premises” and section 2216, subsection 2217(3) and sections 2218 and 2219).

The one exception is the requirement to disclose the full legal name of each institution sharing offices (DC rule subsections 2217(1) and 2217(2)), which we have retained as only being applicable to investment dealers sharing office premises with other regulated Canadian financial service entities. We are not proposing that this requirement apply to mutual fund dealers sharing office premises with other regulated Canadian financial service entities as we believe:

• the burden associated with requiring this disclosure at each branch/office location where there are only one or a small number of mutual fund dealer advisors present would be significant, and
• prominently disclosing the mutual fund dealer name in a branch/office with predominantly bank/insurance company employees would likely do little to address potential client confusion as to which company they are dealing with and may in fact increase confusion.

(d) Membership disclosure policy

On July 13, 2023, CIRO published an update on membership disclosure requirements for both investment dealers and mutual fund dealers.8 The purpose of the update was to provide information to Dealer Members regarding the transition of the membership disclosure from their predecessor self-regulatory organizations to the CIRO name and logo by December 31, 2024.

The update further highlighted that Dealer Members should continue to comply with the specific membership disclosure requirements that are applicable to their registration category as there are differences in requirements for investment dealers and mutual fund dealers.

We have included a question later in this Bulletin asking for your views on the key differences between the current membership disclosure requirements for each category of Dealer Members and the approach we should adopt to harmonize these requirements.

A proposed membership disclosure policy required to be followed by a Dealer Member under DC Rule section 2285 is included in Appendix 5.

2.1.3 Principal and agent relationships (DC Rule 2300)

In this section we incorporated the existing investment dealer and mutual fund dealer rule requirements relating to principal and agent relationships. No changes have been proposed to these requirements at this time as a separate policy project9 is underway to determine how to expand the permissible use of personal corporations to conduct non-registerable and registerable activities on a sponsoring Dealer Member’s behalf.

2.2 Operations – Business continuity, trading and delivery standards, account transfers, account movements and derivatives risk management

In this section of the Bulletin we discuss the proposed amendments to rule requirements relating to:

• the establishment and maintenance of a business continuity plan,
• trading and delivery standards, including standards applicable to all transactions and standards applicable to non-centrally cleared transactions,
• account transfers and account movements, and
• derivatives risk management.

None of these proposed rule amendments are expected to introduce a significant change to the existing IDPC Rule or MFD Rule requirements.

We also discuss the rationale in regards to provisions that have been retained or are dependent on decisions made in subsequent phases of the Rule Consolidation project or other existing projects. Also included in the proposed rules are amendments associated with the Derivatives Rule Modernization and T+1 Settlement projects which will become effective prior to the implementation of Phase 3 of the Rule Consolidation Project.10

2.2.1 Business continuity plan (DC Rule 4700)

We propose to adopt the IDPC rule provisions regarding business continuity plans. Under MFDR 2.9 Internal Controls, mutual fund dealers must establish and maintain adequate internal controls. This requirement extends to developing and implementing a business continuity plan. The MFDA has previously provided guidance to dealers on implementing an appropriate business continuity plan which is consistent with the IDPC rules, including the requirement to perform periodic testing and review of the policy. Adopting the IDPC provisions would formalize the requirements for mutual fund dealers and is expected to be of minimal impact.

The requirement to have the business continuity plan approved by an appropriate Executive, a registration category that is exclusive to investment dealers, has not been modified at this time. Decisions regarding differences in registration categories are to be addressed in a later phase of the rule consolidation project.

In this section we have also adopted amendments associated with the Derivatives Rule Modernization project and added the French translation of defined terms.

2.2.2 Trading and delivery standards applicable to centrally cleared transactions (DC Rule 4700)

We propose to adopt the IDPC rule provisions for trading and delivery standards applicable to centrally cleared transactions with minor amendments. We have also renamed the section to specify that the rules in this section apply only to centrally cleared transactions.

We do not anticipate material impact to mutual fund dealers as they generally engage an investment dealer to trade and clear securities on their behalf. However, if a mutual fund dealer were to become a participant of The Canadian Depository for Securities Limited (CDS) and engage in the trading of securities that settle through CDS, they would be subject to these requirements such as broker-to-broker trade matching.

We have also modified the defined terms in this section by removing terms (participant, settlement service) which are redundant and moving others to the relevant section of the rules.

Finally, in this section we have also adopted amendments associated with the T+1 Settlement project and added the French translation of defined terms.

2.2.3 Trading and delivery standards applicable to specific transactions (DC Rule 4700)

We propose to introduce a new Part C to DC Rule 4700, trading and delivery standards applicable to specific transactions, to clarify that this set of rules applies to certain specific transactions.

We have also made additional amendments to specify between requirements that apply to certain specific centrally cleared transactions, which would apply to Dealer Members that are participants of CDS, and requirements that would apply to other specific transactions that may be either centrally or non-centrally cleared.

In this section we have also added relevant definitions that were originally located in 4700 Part B (CDS depository eligible transactions).

2.2.4 Trading and delivery standards for non-centrally cleared transactions (DC Rule 4800)

We propose to adopt the IDPC rules for trading and delivery standards for non-centrally cleared transactions. Throughout this section amendments have been added to reflect the amendments related to the T+1 settlement project.

Mutual fund dealers that trade non-centrally cleared securities would be subject to these requirements.

In this section we have also added relevant definitions that were originally located in 4700 Part B (good delivery securities, qualified Canadian trust company).

2.2.5 Account transfers and bulk account movements (DC Rule 4800)

We propose to adopt the IDPC rules for accounts transfers and bulk account movements with minor amendments as follows:

• add the phrase “under the Corporation requirements” where a receiving Dealer assumes responsibility of margining transferred accounts, to clarify that the margining approach is based on CIRO’s requirements. (DC Rule Section 4863)
• remove the word “published” when referring to the Dealers’ fee schedule as the fee schedule may be provided directly to a client and not necessarily be published. (DC Rule Section 4864)

We propose to retain the IDPC definitions where there is overlap between the IDPC and MFD rules, to maintain consistency in the rule drafting style.

We do not anticipate material impact to mutual fund dealers as transfers of mutual funds are primarily completed via transfer form or through FundSERV, for which the standards are addressed via DC Rule section 4860, Non-certificated mutual funds.

Mutual fund dealers that are participants of CDS ATON are already required to meet the standards set forth in DC Rule sections 4852-4859 as a condition of using the transfer facilities of CDS. Mutual fund dealers that are not a participant of CDS ATON can continue to complete securities transfers via transfer form.

Adopting the IDPC provisions for bulk account movements is expected to provide additional flexibility to mutual fund dealers with regards to movement of accounts due to a change in the parties responsible for the account. Currently, bulk account movements for mutual fund dealers are limited to transactions where the delivering dealer member ceases to carry on business.

As there is a separate project to modernize transfer practices between investment dealers and mutual fund dealers, amendments related to that project will be made separately from the rule consolidation project.

2.2.6 Derivatives risk management (DC Rule 4900)

We propose to adopt the IDPC rules provisions for derivatives risk management. Mutual fund dealers will be subject to these requirements if trading in derivatives.

Throughout this series there are requirements which must be overseen by an appropriate Executive, a registration category that is exclusive to investment dealers. No modification to these requirements has been made at this time. Decisions regarding differences in registration categories are to be addressed in a later phase of the rule consolidation project.

Within this rule series we have also included amendments associated with the Derivatives Rule Modernization project.

2.3 Examination, Investigation and Enforcement Rules

In this section of the Bulletin, we discuss proposed amendments to the examination, investigation and enforcement rules that would represent a significant change to either the IDPC Rules or the MFD Rules. We discuss how all proposed provisions differ from their corresponding IDPC Rule or MFD Rule provision in the Table of concordance found in Appendix 3.

2.3.1 Hearing Office

We propose to adopt the new defined term “Hearing Office” to refer to CIRO staff who are authorized to administer enforcement and other proceedings. This term reflects CIRO’s current structure where there are multiple individuals who fulfill this function. Under the IDPC Rules, these staff are referred to as the “National Hearing Officer” and under the MFD Rules, this function is carried out by the “Secretary”. (DC Rule subsection 1201(2))

2.3.2 Examination and Investigation Rules (DC Rules 8100 and 9100)

We adopted existing IDPC Rule provisions which have two distinct sets of rules to govern CIRO’s:

• enforcement investigations (DC Rule 8100), and
• compliance examinations (DC Rule 9100).

This approach differs from the MFD Rules, which have a single rule to govern both examinations and investigations (MFD Rule 6).

Where enforcement investigations and compliance examinations are addressed in a single rule, the distinction between an enforcement investigation and a compliance examination can be blurred. In contrast, by adopting two sets of rules, we make clear that compliance examinations are aimed at regulatory compliance, rather than disciplinary matters.

While proposed DC Rules 8100 and 9100 parallel each other in many ways, they have the following differences:

• DC Rule 8100 authorizes enforcement staff to compel attendance of individuals whereas DC Rule 9100 merely authorizes compliance staff to require their questions be answered,
• DC Rule 9100 expressly authorizes compliance staff to refer information obtained in the course of an examination to CIRO enforcement staff or other CIRO staff and to take any other appropriate action, and
• DC Rule 8100 specifies that individuals have the right to counsel when compelled to answer questions and enables CIRO to make confidentiality orders in relation to an investigation.

2.3.3. Limitation period (DC Rules 8100 and 8200)

We adopted the IDPC Rules’ limitation period that provides that Regulated Persons11 remain subject to our examination, investigation and enforcement rules for six years following the date they cease to be a Regulated Person. Under the MFD Rules, this period is five years. We are maintaining the IDPC Rules’ limitation period to allow CIRO staff to pursue wrongdoing over a longer period.

Also consistent with our IDPC Rules, we propose limiting CIRO’s ability to commence a proceeding to those events that occurred within the last six years as opposed to the current MFD Rule limitation period which is five years from the date upon which a Regulated Person ceased to be a Dealer Member or held the relevant position with the Dealer Member. This approach would be consistent with securities laws and provides Regulated Persons with certainty on when an enforcement action can be commenced for specific events.

2.3.4. Admissibility of witness testimony and other evidence (DC Rule 8200)

We adopted the existing IDPC Rule provision that allows hearing panels to admit into evidence any oral testimony or other evidence whether or not it is given or proven under oath or affirmation. (DC Rule subsection 8203(3))

While the MFD Rules require witnesses testify under oath or affirmation, in practice there is little difference between the two requirements. For the most part, witnesses do testify under oath or affirmation in investment dealer enforcement proceedings. On the mutual fund dealer side, hearing panels can always waive this requirement where warranted.

In deciding which approach to maintain, we chose the IDPC Rules one as it allowed for the fairest and most expeditious conduct of enforcement proceedings.

2.3.5. Settlement hearings (DC Rule 8200)

We adopted the existing IDPC Rule provision that provides that all settlement hearings are closed to the public. (DC Rule subsection 8203(3))

The MFD Rules allow the hearing panel to determine whether a settlement hearing should be public. By keeping these hearings private, we would maintain the confidentiality of the settlement negotiation process. Settlement hearing information would be made public after the settlement offer is accepted.

We also adopted the existing IDPC Rule provision that requires hearing panels provide written reasons for rejecting a settlement agreement, and that those reasons are available to subsequent hearing panels who consider a settlement based on the same or related allegations and charges, but not made public or referred to in a subsequent disciplinary hearing. (DC Rule subsection 8215(8))

The MFD Rules allow the hearing panel to determine whether to issue reasons for rejecting a settlement agreement. We propose adopting the IDPC Rules approach so that all hearing panel rejections can be treated in the same manner.

2.3.6. Sanctions (DC Rule 8200)

(a) Maximum fines

We propose increasing the maximum fine a CIRO hearing panel can impose to $10 million per offence, from $5 million under both the existing IDPC Rules and the MFD Rules. (DC Rule subsections 8209(1)(iii) and 8210(1)(iii))

CIRO hearing panels have previously approved settlement agreements where respondents agree to payments of more than $5 million, including upwards of $10 million.

Our proposal would not only allow our hearing panels to order sanctions consistent with those payments but would also have an increased deterrent effect.

(b) Specific sanctions

We adopted the existing IDPC Rule provisions that provide the types of sanctions that a hearing panel can impose, including disgorgement. (DC Rule subsections 8209(1)(ii) and 8210(1)(ii))

While the existing IDPC Rules specifically provide for disgorgement, and the MFD Rules do not, disgorgement orders can be included in the global fine under the MFD Rules. This change would add clarity for mutual fund dealers and their Approved Persons.

In a separate project, we will propose a process for returning disgorged funds to investors.

(c) Hearing panel powers

Under the IDPC Rules, hearing panels can suspend, prohibit, revoke or bar an individual Regulated Person’s approval with CIRO. This power is consistent with CIRO’s ability to approve individuals at investment dealers as “Approved Persons”. In contrast, under the MFD Rules, hearing panels can suspend, prohibit, revoke or bar an individual Regulated Person’s authority to conduct securities-related business. This difference is because CIRO does not directly approve individuals at mutual fund dealers.

To address this difference, we adopted a modified version of existing IDPC Rule provisions that allow hearing panels to prohibit, revoke or bar an individual Regulated Person’s approval or authority to conduct securities-related business. (DC Rule clauses 8210(1)(iv), (vi), (vii) and (viii))

As such, hearing panels will have the necessary powers to sanction individuals.

(d) Appointing Monitors

We adopted a modified version of an existing MFD Rule provision that lists considerations for a hearing panel when exercising its discretion to appoint a Monitor.12 (DC Rule subsection 8209(4))

While both the IDPC Rules and the MFD Rules allow hearing panels to appoint Monitors when sanctioning Dealer Members, the MFD Rules include a list of considerations for the hearing panel. We maintained that list for transparency and fairness.

(e) Sanctioned individuals

We propose barring Regulated Persons from hiring or engaging in any capacity and remunerating any individuals who are subject to a bar or suspension during the period of the bar or suspension. Under this prohibition, Regulated Persons would still be able to pay remuneration to a sanctioned individual that is:

• consistent with the scope of activities permitted under the sanction, or
• pursuant to an insurance or medical plan, an indemnity agreement relating to legal fees or as required by arbitration awards or court judgment.

Under the IDPC Rules, Regulated Persons are prohibited from engaging an individual who is permanently barred from employment with an investment dealer. Under the MFD Rules, there is no specific prohibition, however, in practice Regulated Persons cannot engage any individuals to perform securities-related business where they have been barred or suspended from doing so.

We are proposing to expand this prohibition for both investment dealers and mutual fund dealers to address certain practices of concern. The United States of America’s Financial Industry Regulatory Authority (FINRA) also has a similar prohibition. Of note, this proposed prohibition would only apply to Regulated Persons and would not apply to their affiliates or other third parties who employ the suspended individuals. (DC Rule subsections 8210(5) through (8))

2.3.7. Temporary Orders, Protective Orders and Applications in Exceptional Circumstances (DC Rule 8200)

(a) General approach

Under the IDPC Rules, CIRO’s Enforcement Staff can apply to a hearing panel for:

• a temporary order, which is granted for 15 days without notice to the respondent in circumstances where the time required for a hearing could be prejudicial to the public interest, or
• a protective order, which is granted with notice to the respondent and imposes regulatory requirements, including terms and conditions, when a Regulated Person cannot carry on business without protective measures to prevent investor harm.

Under the MFD Rules, CIRO’s Enforcement Staff can make an application to sanction a Regulated Person without notice in certain exceptional circumstances where deemed to be in the public interest.

We adopted the IDPC Rules’ temporary orders and protective orders provisions because they provide hearing panels and CIRO’s Enforcement Staff with more options. (DC Rule sections 8211 and 8212)

(b) Changes to interim orders

We propose allowing hearing panels the ability to issue protective orders when Dealer Members have not complied with their terms and conditions, similar to their current ability under both IDPC Rules and MFD Rules to issue orders where the Dealer Member has not complied with the conditions of a sanction. (DC Rule sub-clause 8212(2)(ix)(c))

We also propose removing the existing ability of hearing panels to issue interim orders against a mutual fund dealer where they have failed to meet these CIRO requirements:

• maintain the minimum required capital,
• file with CIRO a copy of their financial report at the end of each fiscal month,
• file with CIRO copies of their annual financial statements,
• maintain a Financial Institution Bond or mail insurance,
• rectify the circumstances causing them to be designated in early warning by CIRO, or comply with terms and conditions imposed on them after they were designated in early warning by CIRO, or
• carry out any written agreement with CIRO to take action to comply with any CIRO requirement.

Instead, we adopted CIRO’s current ability to issue terms and conditions against Investment Dealer Members and extended it to also include Mutual Fund Dealer Members. (DC Rule section 9208)

As such, CIRO will be able to address these matters through terms and conditions, as opposed to through an enforcement proceeding. This change will expedite these processes. We discuss terms and conditions further in section 2.3.13 below.

We also propose allowing a hearing panel to issue a protective order when a Regulated Person has been charged with contravening a law related to theft, fraud, misappropriation of funds or securities, forgery, money laundering, market manipulation, insider trading, misrepresentation or unauthorized trading where the hearing panel determines that such charge likely brings the capital markets into disrepute. While hearing panels have a similar power currently under the MFD Rules, this would be a change to the IDPC Rules. (DC Rule clauses 8212(2)(vii) and 8212(3)(v))

2.3.8. Review of Hearing Panel Decisions (DC Rule 8200)

We adopted the IDPC Rule provisions that provide that parties to a disciplinary hearing can apply to the local securities regulatory authority for a review of a final hearing panel decision. Under the MFD Rules, parties can apply to CIRO’s Board for a review. However, CIRO’s Board’s mandate does not include reviewing hearing panel decisions. (DC Rule section 8217)

2.3.9. Hearing Committee Composition (DC Rule 8300)

Currently, hearing committee members must reside in the district to be a part of that district’s hearing committee. While it is important for industry members to reside in the district, as they have an understanding of the unique considerations for that district, it is not as necessary for public committee members to reside in that district. Also, more hearings are being conducted virtually, reducing the importance of having hearing panel members reside in the same district as the hearing. As such, we propose only industry committee members be required to reside in the district. Public committee members could reside in other districts. (DC Rule subsection 8303(2))

2.3.10. Form of Hearings (DC Rule 8400)

An increasing number of our hearings take place virtually. In many instances, virtual hearings allow CIRO’s enforcement proceedings to be more expeditious and cost-efficient for parties. As such, we propose eliminating the distinction between oral in person hearings and electronic hearings. Under this approach, an oral hearing could be conducted either virtually or in person. Respondents and Enforcement Staff would be able to apply for the hearing to be held virtually or in person, or in both forms simultaneously. Parties could object to the form of hearing, and the hearing panel would be able to order the hearing proceed in a specific form (virtually, in person or a mix of the two). (DC Rule section 8409)

2.3.11. Electronic Delivery (DC Rule 8400)

For consistency with current business practices, we propose allowing electronic delivery for all documents required to be served under our Rules of Procedure.

2.3.12. Other changes to the Rules of Procedure (DC Rule 8400)

(a) Specific procedures

The IDPC Rules contain rules for certain procedures whereas the MFD Rules are silent on these matters. These include rules for:

• deemed undertakings, (DC Rule section 8420)
• orders to attend and issue of summons, and (DC Rule section 8421)
• adjournments. (DC Rule section 8422)

In these instances, we adopted the IDPC Rules’ procedures as they allow for greater procedural transparency and efficiency.

(b) Specific requirements, options or steps

In other instances, the IDPC Rules or the MFD Rules have requirements, options or steps for proceedings that the other rulebook does not have. Generally, we adopted whichever process allowed for greater transparency and efficiency.

For example, the MFD Rules require that the notice of hearing advise the respondent they may be self-represented or represented by counsel or agent. The IDPC Rules do not have this requirement. We adopted the MFD Rules’ requirement as its clearer for respondents. (DC Rule clauses 8414(2)(ix) and (x))

(c) Timelines

While the MFD Rules and the IDPC Rules have similar steps in their proceedings, the timelines may be different. Generally, we adopted whichever timeline would result in a more expeditious proceeding. For example, under the IDPC Rules, respondents must be given 7 days’ notice of a settlement hearing, and under the MFD Rules, they must be given 10 days' notice. In this case, we adopted the 7 days' notice as it is more expeditious.

2.3.13. Terms and Conditions (DC Rule 9200)

Under the IDPC Rules, CIRO can impose terms and conditions on a Dealer Member’s membership but must allow the Dealer Member an opportunity to be heard. This authority is intended to address scenarios where there are outstanding compliance issues that require CIRO to act, but do not justify disciplinary proceedings. We adopted this process and expanded it to mutual fund dealers. (DC Rule section 9208)

If a dealer’s circumstances warrant suspension or revocation of its membership, and thus its registration, it will be treated as a disciplinary proceeding subject to CIRO’s enforcement rules in Series 8000.

As part of Phase 4 of the Rule Consolidation Project, we will propose the process for a Dealer Member’s opportunity to be heard following a terms and conditions decision.

2.3.14. Arbitration (DC Rule 9500)

Under the IDPC Rules, Investment Dealer Members are required to participate in CIRO’s arbitration program. As such, their clients can request their disputes with their dealer be resolved through arbitration. The MFD Rules do not have an equivalent program or requirement. We propose requiring all Dealer Members participate in our arbitration program. This will provide clients with more options to resolve disputes with their dealer.

In a separate project, we will propose changes to our current arbitration program.

2.3.15. Information sharing with the OBSI (DC Rule 9500)

The IDPC Rules prohibit the OBSI from sharing information with CIRO relating to their investigation and review of complaints against Investment Dealer Members whereas the MFD Rules do not contain an equivalent prohibition. Given this prohibition is inconsistent with the OBSI’s Terms of Reference we adopted the MFD Rules approach. (DC Rule section 9504)

3. Impacts of the Proposed DC Rules

3.1 Impact assessment approach

As the Rule Consolidation Project is being pursued in five phases, and the combined impact of the project can only be assessed once development of all five phases has been completed, it would be misleading for us to assess the impact of each phase in isolation from the other phases or to make an assessment of the combined impact of the five project phases until all phases have been developed.

To provide you with some impact information in the interim, we will identify the impacts specific to each project phase, as each project phase is published for public comment and provide an overall Rule Consolidation Project impact assessment once all 5 phases have been developed.

3.2 Specific impacts of Phase 3 Proposed DC Rules

We have assessed the impact the material changes being introduced as part of the Phase 3 Proposed DC Rules as having an overall positive impact on investors and CIRO Staff, neutral for investment dealers and minor negative for mutual fund dealers. While there could be some negative impacts to mutual fund dealers, we concluded these impacts were outweighed by the positive impacts the Phase 3 Proposed DC Rules would have. A complete impact analysis of the Phase 3 Proposed DC Rules is attached as Appendix 4.

3.3 Regional and specific stakeholder group impacts

We have identified no regional impacts associated with the Phase 3 Proposed DC Rules.

4. Alternatives to rule consolidation considered

We did not consider any alternatives to rule consolidation, such as maintaining separate rules for investment dealers and mutual fund dealers as, based on the feedback provided in response to CSA Position Paper 25-404, New Self Regulatory Organization Framework, we determined that there is general cross-stakeholder support for rule consolidation.

5. Questions

While comment is requested on all aspects of the Phase 3 Proposed DC Rules, comment is also specifically requested on the following questions:

6. Policy Development Process

6.1 Regulatory Purpose

We took the public interest into consideration when developing the Proposed DC Rules and we believe the proposals achieve their intended objective of ensuring that like dealer activities will be regulated in a like manner while minimizing regulatory arbitrage between investment dealers and mutual fund dealers.

We also believe the Proposed DC Rules will foster public confidence in capital markets by ensuring all CIRO Dealer Members will be held to standards of conduct that foster fair, equitable and ethical business standards and practices.

6.2 Regulatory Process

The Board of Directors of CIRO (Board) has determined the Proposed DC Rules to be in the public interest and on March 20, 2024, approved them for public comment.

We consulted with the following CIRO advisory committees on this matter:

• Investor Advisory Panel
• Conduct, Compliance and Legal Advisory Section (CCLS)
• Financial and Operations Advisory Section (FOAS)

After considering the comments received in response to this Request for Comments together with any comments of the CSA, CIRO staff may recommend revisions to the Phase 3 Proposed DC Rules. If the revisions and comments received are not material in nature, the Board has authorized the President to approve the revisions on CIRO’s behalf and the revised Proposed DC Rules will be subject to approval by the CSA. If the revisions or comments are material, CIRO staff will submit the Proposed DC Rules, including any revisions, to the Board for approval for republication or implementation, as applicable.

6.3 CIRO advisory committee feedback

We’ve received overall positive feedback regarding the Phase 3 Proposed DC Rules from our advisory committees except for our proposals:

• to extend the mutual fund dealer requirement to include both the CIRO logo and a link to the CIRO website on account statements to all Dealer Members – this proposal received mixed reviews as certain advisory committees thought the change might increase traffic to the CIRO website but would not improve investor awareness of CIRO, whereas one advisory committee indicated that this change would increase investor awareness of CIRO and the resources that CIRO has to assist investors;
• to increase the maximum fine a CIRO hearing panel can impose to $10 million per offence, from $5 million – this proposal received mixed reviews as certain advisory committees indicated that this increase was unnecessary as in their view the current maximum fine continues to be a significant misconduct deterrent, whereas one advisory committee indicated that this increase was necessary to maintain a significant misconduct deterrent; and
• to prohibit Regulated Persons from hiring or engaging in any capacity and remunerating any individuals who are subject to a bar or suspension during the period of the bar or suspension - this proposal received mixed reviews as certain advisory committees indicated that this expansion of the hiring prohibition was unnecessary, while one advisory committee indicated that this expansion was necessary to ensure that the effectiveness of the regulatory sanction against the individual was not undermined.

7. Appendices

Appendix 1 – Phase 3 Proposed DC Rules (clean)

Appendix 2 – Phase 3 Proposed DC Rules (blackline)

Appendix 3 – Table of Concordance

Appendix 4 – Impact Analysis of the Phase 3 Proposed DC Rule

Appendix 5 – Corporation Membership Disclosure Policy (as required under DC Rule section 2285)

Appendix 6 – Investor Application Form (as required under DC Rule section 2107)

Appendix 7 – Cross-Guarantee Agreement Form (as required under DC Rule section 2206)

Appendix 4 – Impact Analysis of the Phase 3 Proposed DC Rules

Impact Assessment Table

In the impact assessment table below, we list:

• the major policy elements of the Phase 3 Proposed DC Rules,
• a description of the intended policy benefits of each element, and
• an assessment of its impact on clients, investment dealers, mutual fund dealers, and CIRO itself.

Conclusions

We concluded that, if approved, the Phase 3 Proposed DC Rules would result in reduced potential for regulatory arbitrage by harmonizing:

• the membership and member business activity approval requirements,
• the clearing, settlement of trades and trade delivery standards requirements, and
• the examination, investigation, and enforcement rules.

We have assessed the impact of the changes being introduced as part of the Phase 3 Proposed DC Rules as having an overall positive impact on clients, Dealer Members and CIRO staff. While there could be some negative impacts to investment dealers and mutual fund dealers, we concluded these impacts were outweighed by the overall positive impacts the Phase 3 Proposed DC Rules would have.

Cost Estimate 

We do not know the dollar magnitude of the collective impacts of the Phase 3 Proposed DC Rules, and we cannot determine it without detailed stakeholder feedback. For example, the harmonization of the current membership disclosure policies may require Dealer Members to change their existing practices to implement the new proposed membership disclosure policy. However, the Phase 3 Proposed DC Rules are not expected to have any significant incremental costs to Dealer Members and clients.

Appendix 5 – Corporation Membership Disclosure Policy (as required under DC Rule section 2285)

CIRO Membership Disclosure Policy

1. Introduction 

This policy establishes minimum requirements for disclosure of CIRO Membership pursuant to subsection 2285(1) of the Dealer and Consolidated Rules. The purpose of this Policy is to promote client awareness of the regulatory oversight exercised by CIRO in respect of Dealer Members and their Approved Persons.

2. Definitions 

For the purpose of the disclosure requirements described in this policy, the term:

“CIRO Advisor Report” refers to CIRO’s searchable database that allows investors to research the background, qualifications, and disciplinary history on advisors and other Approved Persons sponsored by CIRO-regulated Dealer Members by generating an electronic report.

“CIRO Disclosures” refers to the CIRO Logo and CIRO Official Brochure, collectively.

“CIRO Logo” means the logo prescribed by CIRO, from time to time, for use by Dealer Members.

“CIRO Official Brochure” means any publication prescribed by CIRO, from time to time, which explains how CIRO protects investors, and which CIRO authorizes for public distribution.

“CIRO Website” refers to www.ciro.ca (for English) or ocri.ca (for French)

3. Advisor Report

1. Each Dealer Member that provides products or services to retail clients must include a hyperlink and clearly visible reference to the Advisor Report on the homepage of the Dealer Member’s website and on any other Dealer Member webpage that includes a profile of a CIRO regulated investment advisor.
2. Each CIRO regulated investment advisor that provides products or services to retail clients must include a hyperlink and clearly visible reference to the Advisor Report on the homepage of their own website, where applicable.

CIRO Logo

Dealer Members must use the CIRO Logo to satisfy all CIRO membership disclosure requirements set out in this policy. Specifically, a Dealer Member must include the CIRO Logo and a link to the CIRO Website on the Dealer Member’s homepage. Where the Dealer Member website or internet presence is part of a combined financial institution group website, the CIRO Logo must be included on Dealer Member’s main webpage.

Unless prohibited under section 6 of this policy, use of the CIRO Logo is optional in all other circumstances and available for general use by Dealer Members.

4.1 CIRO Logo specifications

The CIRO Logo must be clearly visible and reproduced directly from the format provided below or as made available on CIRO’s website.

Black and White (English and French)

Colour (English and French)

Additional requirements:

The minimum size for reproduction is 6.35 millimeters (0.25 inches) in height.

A separate black and white version must be used when the document/material is not being reproduced in colour.

4.2 Client Account Statements 

Each Dealer Member must include the CIRO Logo and a link to the CIRO Website on the front of each account statement that is sent to clients.

5. CIRO Official Brochure

The CIRO Official Brochure is entitled “How CIRO protects investors”. Dealer Members must provide an electronic or hard copy of the current version of the CIRO Official Brochure to:

• new retail clients at the time of account opening, and
• existing retail clients upon request.

A PDF version of the CIRO Official Brochure is available in English and French and is located on the CIRO Website. Dealer Members are responsible for the cost of providing a hard copy of the CIRO Official Brochure to retail clients.

If required, a hard copy of the CIRO Official Brochure is available in French and English and can only be ordered directly from CIRO.

6. Prohibitions

CIRO may direct a Dealer Member to cease using the CIRO Disclosures in the following circumstances:

1. if CIRO decides that its use is detrimental to the public’s interests or the interests of CIRO or its Dealer Members; and
2. upon suspension of its membership.

A Dealer Member is prohibited from using the CIRO Disclosures in any of the following circumstances:

1. where use of the CIRO Disclosures approves, endorses or guarantees a Dealer Member service or an investment product,
2. where use of the CIRO Disclosures is false or could reasonably be expected to deceive or mislead any person;
3. upon the termination of its membership, and
4. in connection with a subject matter or activity that is not regulated by CIRO.

Upon request by CIRO, a Dealer Member must provide samples of any materials that use or make reference to the CIRO Disclosures.

7. CIRO Contact

If you have any questions regarding the use of CIRO Disclosures, please contact Corporate communications and Public Affairs at [email protected] or Member Regulation Policy at [email protected].

• 6A blackline comparison of the Phase 3 Proposed DC Rules to the equivalent MFD Rules has not been included as it was determined, due to the decision to use the existing IDPC Rule approaches to rule organization, numbering and drafting language (i.e., plain language) that including the comparison would not assist in reviewing the proposed amendments.
• 7A “related company” is defined under Phase 1 Proposed DC Rule 1200 to be a Dealer Member that is related to another Dealer Member through at least 20% common ownership of both Dealer Members (directly or indirectly).
• 8Rules Bulletin 23-0102.
• 9Rules Bulletin 24-0029
• 10The T+1 settlement amendments and Stage 1 of Derivatives Rule Modernization amendments will become effective on May 27, 2024 and September 28, 2024, respectively.
• 11As set out in General By-law No. 1, section 1.1:
  
  “Regulated Persons” means persons who are or were formerly (i) Dealer Members, including for greater certainty, members of the Corporation’s predecessors, (ii) members, users or subscribers of or to, or other entities that are allowed to trade directly on, Marketplaces for which the Corporation is the regulation services provider, (iii) the respective Approved Persons and other representatives of those persons set out in subsection (i) and (ii) , and (iv) other persons subject to the jurisdiction of the Corporation.
• 12A Monitor is defined in DC Rule subsection 1201(2) as “A person appointed under section 8209 or 8212 to monitor a Regulated Person’s business and affairs and to exercise powers granted by a hearing panel.”