Introduction Arrangements. Louis P. Piergeti VP, IIROC March 29, 2011. NI 31-103 Requirements. NI 31-103 Requirements. NI31-103 requirements (cont’d). NI31-103 requirements (cont’d).
Louis P. Piergeti
March 29, 2011
Type 3 and 4 introduction arrangements should include a clause in the supplementary schedules to the prescribed agreement requiring the introducer to promptly notify the carrying broker of material changes in the financial status of the firm such as early warning and capital deficiency occurrences.
IIROC will notify all type 1 and 2 carrying brokers of early warning and capital deficiency occurrences and provide details of sanctions and business restrictions imposed on the introducer.
IIROC will promptly notify all carrying brokers of membership suspensions and appointment of trustee for insolvency.
The termination of all introduction agreements is subject to IIROC approval. All carrying brokers must co-operate with suspension or court orders that require continued service to introduced customer accounts. This may include instructions to close inventory and customer open contract positions, assign investment advisor to process customer orders to liquidate positions or cover short positions, carrying out customer instructions to transfer out.
Customer protection priority for IIROC and CIPF is to work towards a successful bulk transfer of all customer accounts to another dealer as expeditiously as possible in the event of an insolvency or permanent suspension of an introducer.Considerations in the event of a EW, CD or insolvency event of an introducer
Failure to reclassify comfort deposit as non-allowable asset for amounts unsecured customer debit balances.
Failure to provide inventory margin on securities processed through average price inventory accounts assigned by carrying broker for “all or none” customer trade orders.
Inadequate credit risk management policies and procedures and/or failure to apply policies of the carrying broker to its customers.
Failure to perform independent price verification on inventory holdings.
Lack of procedures in place to monitor performance of certain outsourced functions such as monitoring of segregation of customer fully paid and excess margin securities.
Failure to margin, report and/or reconcile trades jitnied with other brokers.
Failure to report customer complaints on Comset.Common deficiencies - Introducers
Inadequate policies and procedures to monitor and/or restrict introducer (type 1-3) customer and inventory funding requirements.
Inadequate credit risk policies and procedures applied to type 1 and introducing customers.
Failure to promptly notify introducer - in writing - of lien on comfort deposit taken to offset introducer customer margin requirements (including unsecured balances).
Failure to provide appropriate customer margin for guaranteed fill customer trade orders processed though inventory accounts assigned to introducer for average price accumulation and client trade ticketing.
Failure to provide annual section 5970 report to introducer and its auditors.
Failure by auditors of carrying broker to include type 1 and 2 customer accounts in year-end confirmation process.Common deficiencies - Carriers