industrial alliance securities inc. credit and risk manual

IAS Credit - Policy & Procedures Manual - 1 INTERNAL USE ONLY

Industrial Alliance Securities Inc.

Credit and Risk Manual

REVISED

May 7, 2020

iA Securities is a business name and trademark of Industrial Alliance Securities Inc.


INTRODUCTION This manual contains Industrial Alliance Securities Inc. (‘IAS’) Credit and Risk Management Policies. It is intended to provide certain guidelines with respect to credit and risk management operations. These policies are subject to change at any time. IAS will attempt to notify the Investment Advisors (‘IA’) or Portfolio Managers (‘PM’) when policies change prior to any action taken by the Credit Department. However, please be aware Credit and Risk Management may act at any time to protect the firm. Please note that our Policies & Procedures manual (“P&P”) are consistent with IIROC Policies & Procedures for Credit and Risk Management.


Table of Contents

Section Page

Fundamental Credit Rule 4

Delinquent Account Policy 5

Sell Outs 7

Un-cleared Funds 8

Internal Account Operation 10

Stale Pricing on Private Securities 11

Physical Private Securities 11

Counterparty Risk 13

Restrictions on Accounts 13

Basic Margin Calculations 15

Margin Requirements / House Rates and Concentration Limits 18

Margin Requirements – Options 23

Concentration Guidelines 24

Short Selling 31

Third Party Deposits and Withdrawals 37

Deposits 37

Withdrawals 38

Transfer Procedures Between Related Accounts 39

Wire Transfers 42

Account Guarantees 44

Employee Stock Option Plans (ESOP) 46


Fundamental Credit Rules

1. The Cash on Settlement Rule – requires that a Cash account must pay for trades by settlement date. Orders are accepted based on the IA/PM’s evaluation of the client’s ability to pay, or on the approval of the credit department in questionable cases. Cash accounts with debit balances greater than 6 business days will be restricted to liquidating transactions.

2. Available Margin Rule – stipulates that a Margin account must have sufficient firm

excess to cover the margin requirement of the trade ON TRADE DATE. You should also be aware of the risks of heavily margined accounts concentrated in one security. A reduction in loan value may be warranted. Any trades that increase a client’s margin call may be cancelled to the error account and any losses charged back to the IA/PM. Sellouts may be issued 5 business days after the client goes into a margin call.

3. Registered Accounts – Must have sufficient cash available in the account to cover Buy

orders and securities in the account to cover Sell orders.

4. Any client account that goes into ‘negative equity’ (i.e. Debit limit of $0) are immediately reviewed by the Credit department. All unsecured balances are the responsibility of the IA.

5. Securities Deposited for Sell Orders – Sell orders may not be accepted unless securities

are appearing in the client’s account and have cleared transfer. An IA can verify that the certificate has cleared by either contacting Operations or the Credit department.

6. Trades are only accepted within properly coded and documented accounts. For

example, margin or option positions are only permitted in properly coded accounts. In addition, shorts are only valid within short accounts and must not be ticketed to cash, margin or registered accounts.

7. If a cash account is in a short position as a result of a sell, though unintentional, the

account will be restricted to liquidating transactions until the position is delivered in.

8. Any account where ‘free riding’ (when a purchase of shares has been made and a subsequent sale of those shares is made prior to providing the required payment to cover the margin incurred from the purchase) occurs will be restricted to cash up front prior to further trading.

9. Counterparty Risk is monitored daily for both Retail and Institutional clients to ensure that failures

do not occur. See counterparty risk section for full details.


Delinquent Account Policy

It is the responsibility of the IA or Institutional Sales person to contact their client to make arrangements to cover delinquent balances in margin, cash or COD accounts. For PM’s, they are not permitted to trade client accounts that are offside and must be brought onside immediately.

When an account becomes delinquent or under margin the following actions are taken by the IAS credit department. (Accounts are dealt with from a high to low risk basis.)

1. Credit will contact the IA/PM and enquire on what actions are being taken to bring the account onside for debit positions over $500 and twice a month for debit positions under $500.

2. The IA/PM is required to contact their client to advise them of the margin call and to

have the deficiency covered as soon as possible.

3. If the client does not cover the margin call, they may lose margin privileges.

4. Margin calls which have resulted from Options trading must be covered within 24 hours, if the IA/PM believes that the option strategy is not being margined correctly, the IA/PM should contact the credit department immediately to verify IIROC rules on margin requirements for option trading. Pro accounts are not allowed to be offside. If the pro account is not brought onside the following business day, the credit department will sell out the account at their discretion.

5. Registered Plan accounts are not permitted to be offside at any time as per IIROC and CRA guidelines.

6. If for any reason following credit approval an account is delinquent for 20 business

days, the account will be restricted from trading as per IIROC rules for up to 6 months. The account will be restricted for both buys and sells. If the IA wishes to buy or sell in the account, approval from the credit or compliance department will be required. Once the account has been brought back into good order by the IA and/or the client, the restriction on the account will remain for a period of time determined by the credit department in order for the client to rebuild their credit history with IAS.


If the result of a sellout creates an unsecured debit balance over $250 in the client account, the IA/PM is required to collect funds from the client to bring the account onside. If the IA/PM is unable to collect the funds, IAS will cover the debit by charging the advisors NET commission.

Please Note: Credit & Risk Management may act at any time to protect the firm. Any action taken can be subject to acceleration at the discretion of Credit department depending on the risk exposure to the firm.


Sell Outs

Deficiencies following a new purchase

1. Margin Calls – Generally, margin calls notifications are sent out via email by the Credit

Department T+ 1 for Margin Accounts and T+2 for Registered and Cash Accounts. However, margin calls can be given inter-day depending on the size of the call. For client accounts that are not covered in a timely manner (over 5 business days), a notice will be sent to the IA/PM advising them they must bring their accounts onside immediately or the client will be sold out to cover the margin call. In addition, the client may lose margin privileges.

2. Liquidation – Client accounts are generally sold out (at market price) after 10 calendar

days at Credit’s discretion (from trade date on margin accounts, from settlement date on Cash accounts). All exceptions must be documented with the credit department

3. Sellout Notices – sellouts occur within 48 hours of a sellout notice being issued unless

there is a valid documented reason.

4. The rule for a new purchase sell out is based on a LIFO (Last in first out) basis, if at any time the sellout of the last purchased security is not enough to cover the margin call, the Credit department will complete an account and market analysis and decide which additional security will be sold out. The IA/PM will not be paid commission for the sellout and the trailer for the sellout will read "Credit Sellout". The account will remain restricted for an undetermined period of time, subject to credit evaluation.

5. If for some reason the security purchased cannot be sold at market, the credit

department will decide based on a portfolio evaluation which security will be sold out.

6. If the margin call is a result of a market event, market drop, or depreciation of loan value in the account, and the IA/PM is unable to cover the margin call within the specified amount of time the Credit department will decide which security will be sold to cover the margin call.


Un-cleared Funds

Un-cleared Funds Policy

Deposits – Clearing of Personal Cheques in US dollar currency

U.S dollar cheques drawn on a US Financial Institution are considered “Un-cleared funds” (Monies that have not completed the clearing cycle) for a period of 30 days. IA Securities will permit the IA or PM to purchase money market until such time as the cheque clears.

In addition, the IAS Credit Department will not release funds from a cheque deposit in US dollars drawn on a US Financial Institution until it has completed the required clearing cycle of 30 consecutive business days.

Deposits – Clearing of Personal Cheques in Canadian dollar currency

The un-cleared Funds policy includes the deposit of personal cheques that have not yet completed the clearing cycle. Personal cheque deposits are not considered cleared by IAS until the following conditions are met:

10 consecutive business days from Canadian financial institutions.

30 consecutive business days from US financial institutions.

The IA and the client should also keep in mind that the 10 and 30 day rule is the industry standard; a cheque can be returned at any time even after the above noted timelines.

Where a trade must be placed before the above indicated parameters, the IA/PM must contact the credit department to obtain approval.

If a client has two or more cheques returned for reasons including but not limited to NSF, irregular signature or stop payment the client will no longer be able to deposit personal cheques into their IAS accounts. They will be required to EFT, wire, deposit bank drafts or certified cheque unless approval has been granted from the credit department to complete otherwise. Bank Drafts will only be accepted provided that the client provides proof the funds were withdrawn from their bank account.

Credit & Risk Management assumes that Canadian dollar cheques are drawn on Canadian institutions and US cheques are drawn on US institutions. As this assumption is not always correct, the Credit department may be willing to reduce the 30- day wait period when an US dollar cheque is drawn on a Canadian Chartered bank, and will be reviewed on a case-by-case basis.

Once the funds have cleared, the Trading with un-cleared Funds policy does not apply.


Addressing Fraudulent Activity Anti-Money Laundering (‘AML’) activity is also monitored and reviewed daily to ensure they are in compliance with IAS AML Policies and Procedures (‘P&P’). Any questionable activity should be brought to the attention of the Compliance department and/or the AML officer.

IAS Credit - Policy & Procedures Manual - 10

INTERNAL USE ONLY

Internal Account Operation

Error Accounts

All positions contracted to an error account are required to be flattened promptly and security positions should not be carried overnight. Any losses will be charged back to the IA/PM and the gains will remain with the firm. The Credit department may issue and execute a sell-out/buy-in if the security position remains and all cash debits will be swept clear by the carrying broker at the end of every month.

Retail Average Pricing

Retail Average Price Account positions must be cleared on the trade date unless otherwise approved in advance. Credit may issue and execute a sellout/buy-in if the security position remains in the account overnight. Please note that this is less of an issue now as the trade desk is able to contract at an average price thus reducing your clients ticketing costs.

Institutional Accumulation Accounts

Institutional accumulation accounts are to be cleared before month end unless approved by a senior officer of the firm and documented by the Head of the trading desk.

Fee Based Accounts

All debits must be covered in full by month end. Fee based accounts are consistent with cash, margin and option credit policies.

Managed Accounts

Managed accounts are not allowed to be offside at any time. If an issue is noted, the PM must take immediate action to correct the issue.


INTERNAL USE ONLY

Stale Pricing on Private Securities

The IA’s are required to contact the respective companies and request/provide the following documents to the Credit department to avoid the security price being changed to zero:

Audited financial statements (done within the last year) signed by the CEO or CFO of the company (must include unit price for private companies)

An independent 3rd party letter from a recognized accounting firm is required stating the Fair Market Value per share. This letter must be dated within 3-6 months.

Once credit has approved the documents, they will then be sent to the codes department at our carrying broker to update the price.

This price will remain as is for 1 year from the date of execution. The NDPI rule comes into effect when a security’s price is updated and the client’s account value does not move for 90 days. If this happens, then the security will be priced at zero once again, however the code will be effective for 1 year following the date of execution.

Codes department at NBIN can only accept approval from the Senior Credit Manager and/or SVP of Operations to update prices on private securities.

No margin is granted to private securities or private debentures.


INTERNAL USE ONLY

Physical Private Securities

From time to time clients will transfer-in from another financial institution and including in the asset list will be CCPC’s (Private Companies IAS will only accept these if the certificate can be re-registered in the name of NATIONAL BANK IN TRUST FOR the client. If not, we will reject the transfer-in of these assets. The above procedure will then take effect in regards to pricing.

From time to time we receive request from clients to contribute or book in private securities to existing accounts. The only time we would accept to do this is when the private company is an actual operating company, example: Pharmaprix whereby the client is an owner of their franchise

In rare instances that we would accept the shares, they would need to be registered in the name of NATIONAL BANK IN TRUST FOR the client and they could only be deposited into a cash account or an RRSP. Please note, any private securities deposited into an RRSP as a contribution is subject to review by senior management for approval.

Pricing on Bonds, Derivatives and all Securities Trading on Public Markets for Client Accounts and Inventories.

IAS relies on their carry broker NBIN to prices all securities daily that trade on public markets including bonds that trade OTC.

NBIN utilizes recognized pricing vendors to execute this task. The detailed process is outlined in their Security Master Pricing Process.


INTERNAL USE ONLY

Counterparty Risk

Counterparty risk can take several forms. For Retail, that could include NSF cheques or EFT’s, invalid stock certificates and or COD Failures. On the Institutional (‘INST’) side, we are monitoring for the ability to settle trades as we only deal with INST clients on a Cash on Delivery (“COD”) basis.

Counterparty Risk is monitored by reviewing the following list of reports and monitoring to ensure the settlement of trades and clearing of funds/certificates.

1. Failed Trades Report 2. Aged Inventory Report 3. Inventory Reports 4. Position Watch 5. Credit Reports 6. Back office notices on NSF cheques 7. Back office notices on short positions in non-short accounts

Restrictions on Accounts

There may be occasions when an account is subject to restrictions. The following are some of the more common restrictions and & documentation requirements.

Account Restrictions

Foreign Accounts ‘Off-Shore’

If the account holder is a non-resident of Canada, the account should only be a cash account. Trades placed in foreign “Off-shore” accounts must be “Cash Up Front”. The account may be changed to margin only if it is “guaranteed” by an account holder who is a resident of Canada and complete Guarantee documentation. IAS is not allowed to hold non registered accounts for U.S. residents, either corporate or personal.

Corporate Accounts

A corporate account can only be a cash account unless guaranteed by a senior officer of the corporation, preferably the President, CEO or CFO and a resident of Canada and are required to complete “Guarantee documentation”.


INTERNAL USE ONLY

* Formal Trust

A formal trust can only be a cash account unless the trust agreement specifies otherwise.

Trading Restrictions

* “Free Riding” occurs when a client buys and sells a security without having sufficient free credit in both cash and registered accounts, and sufficient excess margin in margin accounts. If an account has been “Free Riding” Credit & Risk Management has the right to restrict the account to “Cash Up Front” or “Excess Up Front”. The IA will be advised via email that the account has been restricted & the account will be documented to reflect the same. IAS reserves the right to cancel trades out of a client’s account that are deemed “Free Riding” and either charge the losses to the IA or keep the profit.

* When a client trades in an unacceptable manner, Credit & Risk Management may be

forced to take action on the account and bring it back onside. Should a client continue to be a credit risk to the firm, IAS Credit & Risk Management reserves the right to close the account.


INTERNAL USE ONLY

Who can open a Margin Account? The firm may provide credit privileges to clients who sign a margin account agreement so that they may increase their return through leveraging. A client will have this privilege for as long as they maintain IIROC margin requirements and IAS Policies regarding margin and concentration. IAS margin policy is more firm than IIROC’s margin policy in order to preserve the firm’s capital and maintain client confidence.

A Margin Account is a privilege and not a right The IA/PM acts like a credit officer of a bank when opening a margin account as they feel that the client is credit-worthy and has the ability to cover all margin calls.

Basic Margin Calculations There are four basic margin calculations;

1. Calculate the margin requirement of a trade – multiply the number of shares by the price then by the percentage margin requirement.

* $MR = number of shares X price X %MR

2. Margin should cover the trade – check the client’s total margin excess for all

accounts combined. The client’s total available margin must exceed that margin requirement of the trade.

* Margin excess for all accounts is greater than $MR of the trade.


INTERNAL USE ONLY

3. Calculate the maximum allowable trade – to calculate the maximum allowable

trade given the client’s available house excess, divide the margin available by the % margin requirement for the trade. Then, divide by the price of the shares to determine the number of shares. Then, reduce to the nearest board lot.

a. House excess / %MR = maximum $ to trade b. Maximum $ to trade / price per share = number of shares (reduce to board lots)

4. Calculate how margin changes on sells – to calculate how a client’s margin will change once a security has been sold, subtract the current loan value for the position as shown in Account Inquiry from the proceeds of the sale. The margin will increase by this amount.

* Proceeds – current loan value = change in margin

NOTE: At any time where the IA/PM is unsure on the calculation, he or she may contact the credit department for assistance.

Defining Margin

Client margin will change immediately after a trade is executed and will be reflected in the account the next day; this is the Trade Date margin. All trades appearing in the account are reflected in the client’s available margin.

MGN = LV (Loan Value) plus or minus Cash in all connected accounts Less: the MR of short stock Less: the MR of short option positions

Defining Loan Value

Loan value is the amount IAS is willing to loan on a specific security. To view the loan value for each security, please consult the IIROC charts on margin rules, or contact the credit department. IIROC provides guidelines on the maximum loan value allowed per security, IAS has the right to decrease the loan value of a security in order to mitigate risk and preserve the capital of IAS.


INTERNAL USE ONLY

Margin

ISM reflects the loan values for each position and the margin requirements for holding short position. You can also check the coding on option positions which indicate how margin is being calculated – C for covered, U for uncovered, and numbered pairings are shown for spreads and combinations. If the IA/PM is unsure of how much margin is required to implement an option spread strategy, please contact the credit department for assistance.


INTERNAL USE ONLY

Margin Requirements / House Rates & Concentration Limits

Canadian and US Securities

Category of Security Margin

Requirement

Concentration Limits

IIROC Approved List of

Securities Eligible for

Reduced Margin/ for US

securities the security

must be option eligible

30%

$500,000 Loan Value

$2.00 or more

50%

$500,000 Loan Value

Under $2.00

100%

Not Applicable

Canadian Dealer’s Network

and Over-the-counter

Securities

100%

Not Applicable

Warrants (regardless of underlying security

eligibility as long as the Warrant

trades on an exchange)

50%

$500,000 Loan Value

Concentration Limits

The margin rate allowed for a client account with only one security (equity or exchange traded product) will not exceed 2 5 % regardless if the security (equity or exchange traded product) is option eligible or not.

Concentration limits on bonds, mutual funds, money markets and other investment products will be reviewed on a case-by-case basis. If the Credit Department is concerned with a concentrated position of over 50% on other securities (ex. corporate bonds, UTF’s etc.), they will escalate to management and or compliance for review.

Starting July 2019, a monthly summary of the concentration report is provided to the UDP and CFO for review.


INTERNAL USE ONLY

Loan Limits

Loans up to $500,000 to be approved by the Senior Manager of Credit. Loans between $500,001 and up to $5,000,000 Canadian to be approved by ONE of the following: CFO, President, COO, CEO, SVP of Operations.

Loans between $5,000,001 and $10,000,000 to be approved by TWO of the following senior officers: CFO, President, COO, CEO or SVP of Operations. Loans above $10,000,000 to be approved by the Board of Directors. At the discretion of any TWO of: CFO, President, COO, CEO or SVP of Operations, the limits mentioned above can be increased by 10% prior to having to obtain approval from the Board of Directors.

For clients reflecting debit balances great than 10 million, a detailed report will be submitted to the board of directors quarterly for their review and sign-off.

These limits are in addition to the relevant regulatory requirements on concentration of securities. Depending on these requirements, the firm may not lend more than two thirds of its capital on the securities of a given issuer. IAS must respect concentration limits as per risk adjusted capital calculation: IAS monitors this in our MFR calculation (see weekly capital projection).

Volatile Securities

Please be advised that IAS reserves the right to reduce loan value on Volatile Securities as required. If this is done, IAS will advise the affected IA/PM’s.

IAS will use the List of Securities Eligible for Reduced Margin (“LSERM”) provided from IIROC to analyze risk and loan value


INTERNAL USE ONLY

Option Eligible/IIROC Approved Securities


Securities Eligible for Reduced

Margin

● When the price drops below

$2.00 CDN margin

requirement increases to

60%. The client is

responsible to cover the

deceased loan value.

● When the price is between

$1.85 to $2.00 for less than

2 consecutive weeks, it is at

the Account Officer’s

discretion to give the client

more time to cover, but if it

is over 2 consecutive weeks,

the margin call must be

covered immediately.

The reason for the discretion

is that often when the stock

trades very closely to $2.00,

there is a possibility that the

stock could move above

$2.00.

US Option Eligible Securities ● When the price drops below

$2.00 US margin

requirement increases to

60%. The client is

responsible to cover the

decreased loan value. ** Please note: House rates are applied to securities (CAD / USD) that trade below $2.00 | No margin is provided


INTERNAL USE ONLY

Foreign Securities


Requirement

Concentration

Limits

Paris, London & Tokyo

Stock Exchanges (Penny Stock Rate Applies)

TBD

TBD

Other Stock Exchanges TBD TBD

Prospectus Mutual Funds


Requirement

Concentration

Limits

Under $2.00 100% $500,000 Loan Value

$2.00 + 50% $500,000 Loan Value Alternative Strategies (ex. Hedge Funds)

Alternative Investments are primarily offered by “offering memorandum” thus do not qualify for margin loans. IIROC rules require that a fund be offered by prospectus in order for a loan value to be given.

IAS also requires supplementary disclosure forms to be completed and signed for many of these investment products. Please refer to the compliance department if there are any questions on the required disclosures.

Trust Units As per our Credit and Risk Management policies, the amount of margin allowed for Trust units will be determined by the following parameters

1. 60% Loan Value - If one of the following is applicable;

a.

And

a. Designated with a S&P rating of 1 or 2 OR; b. Designated with a DBRS rating of 1 or 2 OR; c. Listed on S&P/TSX Canadian Income Trust Index.

a. Is found on the most recent quarterly Listing of Securities Eligible for Reduced Margin (LSERM)

b. The trading volume is equal to or greater than 75,000 shares per day.


INTERNAL USE ONLY

2. 40% Loan Value: If one of the following is applicable; a. Designated with a S&P rating of 1, 2, or 3 OR; b. Designated with a DBRS rating of 1, 2, or 3 OR; c. Found on the most recent quarterly LSERM OR; d. Listed on the S&P/TSX Canadian Income Trust Index

AND

a. Trading volume is equal to or greater than 20,000 shares per day.

3. 0% Loan Value: If the Trust Units do not meet criteria 1 or 2.

Government Bonds

Margin – Government Bonds and Strips by maturity date

Maturity date

0-1

year

1-3

years

3-7

years

7-11

years

11-20

years

20+

years

Canada Savings Bonds,

Debentures and T-Bills 1.0%

1.0%

2.0%

4.0%

4.0%

4.0%

Canada Strips 1.5% 1.5% 3.0% 6.0% 6.0% 12.0%

US Savings Bonds,


1.0%

2.0%

4.0%

4.0%

4.0%

Provincial Savings Bonds,


3.0%

4.0%

5.0%

5.0%

5.0%

Provincial Strips 3.0% 4.5% 6.0% 7.5% 7.5% 15.0%

Municipal Savings Bonds,

Debentures and Notes 3.0%

5.0%

5.0%

5.0%

5.0%

5.0%

Municipal Strips 4.5% 7.5% 7.5% 7.5% 7.5% 15.0%

Category of

Security

Maturity Margin

Requirement

Concentration

Limits

Government of

Canada and USA

See Above

See Above

$500,000 Loan Value

Provincial See Above See Above $500,000 Loan Value

Municipal See Above See Above $500,000 Loan Value

U.S. Treasury

Bonds

See Above

See Above

$500,000 Loan Value


INTERNAL USE ONLY

Convertible Bonds – Rates

Margin - Commercial and Corporate Bonds by maturity date

Maturity date

0-1

year

1-3

years

3-7

years

7-11

years

11-20

years

20+

years

Commercial and

Corporate Bonds

3.0%

6.0%

7.0%

10.0%

10.0%

10.0%

Commercial and

Corporate Strips

4.5%

9.0%

10.5%

15.0%

15.0%

30.0%

Category of Security Maturity Margin

Requirement

Concentration

Limits

If Trading AT or

BELOW the rates

above

Bonds with rating

greater than B

See Above

See Above $500,000 Loan

Value

Bonds with rating B or

below or selling at 50%

of the par value or less

All

50% of

market value

$500,000 Loan

Value

Foreign Issued Bonds

See Above

100%

Not applicable

Strips

Maturity less than 20

years

TBD

TBD

TBD

Maturity of 20 years

and greater

TBD

TBD

TBD

* The margin allowed on Convertible Bonds is subject to the underlying security trading

above $3 to reflect our current policies. The applicable rate is the margin rate of the Bond type (i.e. Government Bond, Corporate).

* The applicable rate is the margin rate of the Bond type (i.e. Government Bond,

Corporate).

* Under no circumstances will margin be granted on private debentures.


INTERNAL USE ONLY

Other Bonds and Instruments

Margin - GIC and Bankers Acceptance by maturity date

Maturity date

0-1

year

1-3

years

3-7

years

7-11

years

11-20

years

20+

years

GIC 2.0% 6.0% 7.0% 10.0% 10.0% 10.0%

Banker’s Acceptance 2.0% 6.0% 7.0% 10.0% 10.0% 10.0%

Category of Security Maturity Margin

Requirement

Concentration

Limits

GIC’s See Above See Above $500,000 Loan Value

Banker’s Acceptance See Above See Above $500,000 Loan Value Please Note: For the above noted products, IAS must be consistent with IIROC Rule 100 for allowable margin limits on these instruments. The maturity date will also affect the margin requirements. Due to space limitations, we are not able to provide a full list, please contact the Credit Department or refer to IIROC Rule 100 for full rate details.

Subscription Receipts

Subscription Receipts are generally margined the same way as the underlying security if all the conditions are met. The IA will need to check with the Credit department and provide them with the term sheet to confirm the correct margin requirement for the subscription receipt.

Money Markets

Money Markets usually require only 5% margin deposit if they meet National Instrument (81-102) regardless of the price of the money market. However, due to our back office system providers, not all money markets will be margin eligible, IA’s will need to confirm with the credit department on the margin requirement prior to entering in an order

Margin Requirements – Options Please note that all accounts that trade options must have a completed supplementary form and approved by the DROP or AROP. The clients account must also be properly coded in ISM prior to any option trades being placed.


INTERNAL USE ONLY

1. Long puts or calls

100% of the Debit, Long options (which have equal and or more than 9 months until expiry) is eligible for 50% value of the time value of the option.

Please note that this rule is under review by IIROC. Due to back office system limitations, IA/PM’s should check with the Credit department regarding eligibility of selected options.

2. Uncovered Calls

100% of the premium

PLUS X% of the market value of the underlying interest

Minus any out of the money amount associated with the option

Subject to the minimum % requirement

3. The 5% Rules

For call options, the 5% applies to the market value of the stock.

For short puts, it is the aggregate exercise price of the option.

The X% underlying

required is:

Minimum X% required

is:

Equity 30% 5%

4. Credit Spreads

The ongoing requirement is the lesser of the uncovered margin of the short side or 100% of the difference between the strikes. The premium received offsets the margin requirement when the trade is taken.

5. Debit Spreads The debit is required initially when the trade is taken. There is no margin requirement as an ongoing requirement.

6. Short Straddles and Combinations

The ongoing margin requirement is the greater of the margin required on each uncovered option pus the “in-the-money” amount of the other option. The premium received offsets the margin requirement when the trade is taken.


INTERNAL USE ONLY

Rule: For short combination option strategies which yield a greater premium than the margin required the following formula for the required margin must be used: premium of the SHORT Call + premium of the SHORT PUT + 5% of the underlying interest. Weekly Options review

On a weekly basis Credit receives a report that captures all short Calls and Puts that are greater than 10 contracts. The report will indentify all account types with short option positions. These can be spreads, covered writing or any naked positions. As the report captures all shorts, the credit team will review the account holding these short contracts and determine what the potential exposure, if any can be.

Concentration Guidelines – Canadian and US Securities Definition:

Based on the concentration guidelines, if a client borrows more than IAS is willing to loan, then the client is considered to be ‘concentrated’.

The applicable loan value for each position is located on IAS back office systems (ex. ISM). These systems calculate the loan value and margin availability based on IIROC guidelines and concentration levels are manually calculated according to IAS internal Policies & Procedures Guidelines.

The systems reflect the Regulatory (IIROC) approved loan value for each over-concentrated position in a client’s account. The maximum loan values determined by IIROC guidelines are correctly reflected on the Account Inquiry screen on ISM (it may also reflect on other IA/PM back office systems that reflect a client’s margin position) and is calculated into the client’s margin position. Please note that IAS Internal Policies & Procedures

Guidelines are more conservative than the IIROC guidelines. In order to reduce the risk to IAS, when a client is over-concentrated in their portfolios. The Credit Department has established a Concentration Guideline for all types of securities. Please see below:


INTERNAL USE ONLY

Concentration Limit Guidelines – Long Positions

TYPE OF SECURITY CONCENTRATION LIMIT

GUIDELINE

Equities

Option Eligible Securities $500,000

Marginable Securities $500,000

Mutual Funds $500,000

CDNX Securities $500,000

Volatile Securities/ Credit Watch

Volatile Securities - Short

$100,000

$100,000 Market Value

Short Securities (share price over $3.00)

Short Securities (share price under $3.00)



Fixed Income

Government of Canada $500,000

Provincial Bonds $500,000

Corporate Bonds $500,000

Bonds Less Than $50.00 $500,000

Strips – maturing under 20 years

Strips – maturing over 20 years

$500,000

$500,000

T-Bills $500,000

GIC’s $500,000

Commercial Paper $500,000

Banker’s Acceptance $500,000

Long Positions Scenario #1: Concentration Long Position

Account holds $1,000,000 market value of ABC Corporation. The client has a debit of $500,100.

This account is over concentrated by $250,100.

Market Value of Shares $1,000,000

Loan Value (Reflected on ISM) $250,000

Debit $500,100

Over Concentration $250,100


INTERNAL USE ONLY

Concentration Limit Guidelines – Short Positions

The concentration limits below do not apply for stock options exercise warrants exercises, new issues, reorg events, and subscription receipts. Please see guidelines below;

Category of Security Concentration Limits Federal Bonds $1,000,000 Market Value

Provincial Bonds $750,000 Market Value

Municipal Bonds $500,000 Market Value- If a

borrow can be found Corporate Bonds Case by case evaluation

Listed equities at $2.00 and over (If the security is on the List of Securities Eligible for Reduced Margin for Canadian or option eligible for US stock than 130%)


Listed equities between $1.50 to $1.99 $300,000 Market Value

Listed equities between $1.00 to $1.49 $100,000 Market Value

Listed equities under $1.00 Cannot be shorted

Listed Warrants

Case by case evaluation, no shorting on warrants under $1,

those that are close to expiry, or those with no intrinsic value


INTERNAL USE ONLY

Scenario #2: Concentrated Short Position

Account holds $1,000,000 market value of ABC Corporation. The client has a debit of $500,100.

This account is over concentrated by $250,100

Market Value of Shares $1,000,000

Loan Value (Reflected on ISM) $250,000

Debit $500,100

Over Concentration $250,100

Short position concentration is based on the securities market value. In this example the client is concentrated in all four positions, as each is valued higher than the market value concentration guideline of $500,000. The client will not be able to short these positions any further and a discussion will be initiated with the client to determine their intentions. I.e. how long does the client wish to be over concentrated? And, what steps will the client take to bring the account within the guidelines.

LIQUID AND ILLIQUID ASSETS

Liquid Assets: Securities that can be sold with little effect on the price within 2 business days.

Illiquid Assets: Securities that cannot be sold within 2 business days without an immediate effect on price.

The credit department performs simulations calculation to determine whether securities are liquid.

The liquidation period needed to hedge the amount required to margin of the short position assigned to the securities, based on IAS’ proposed required to margin (A). The period is calculated based on the average daily volume for the past six months (B), a price equal to 90% of the market value (C), and the assumption that the credit department can liquidate, on a daily basis, the equivalent of 25% of the average daily volume for the past six months.

Period = A

B × 25% × C


INTERNAL USE ONLY

Example

Short 100 of ABC @ $40.00 = $4000.00 (the client will need to deposit $2,000.00) there is equity of over $2,000.00

To identify the risk, I will complete a 3X price test

Short 100 of ABC $120.00 = $12,000 so client would be $10,000 under equity (this is an estimated loss)

Risk is then calculated as follows; Average volume is 300 shares per day 300 X 25% X $36.00 = 2,700 Since my ratio is 3 days 2,700 X 3 = 8,100

The risk is $10,000 (under equity due to my simulation) – 8,100 = 1,900 would be the risk to the firm. Scenario #3: Linked Accounts

When a client has linked a number of accounts together, the total of the accounts is used to determine if the client is within the concentration guidelines. Though the client may be within the concentration guideline for each account, that same individual is ultimately responsible for all of the accounts. Therefore, concentration guidelines are calculated on the total of each position and the total margin against all of the accounts.

The client memo screen will note other related accounts all of which must be considered for concentration purposes. For example, a nominal (i.e. numbered/incorporated) account and a personal account may be considered as one position, as one individual will still ultimately be responsible for both accounts.


INTERNAL USE ONLY

Approving an Over Concentrated Position

If a request is received that exceeds the guidelines, the account must be reviewed and recommendations made by the Branch Manager are given to the Credit Department to obtain approval for the over concentration prior to the trade being placed. In order for the Credit Department to consider the request, the following information must be provided;

How long does the client wish to borrow over the guidelines?

How much would the client like to borrow over the guidelines?

What steps will the client take to lower the debit to within the guidelines once the agreed upon length of time has expired?

The Credit Department will then respond by either approving or declining the request.

When an IA/PM inadvertently places an order that puts the client in a concentrated position, the concentrated position must be approved after the fact. The same review process for over-concentration requests made prior to the order being placed must be used. If Credit and Risk Management declines the request, the IA/PM will be advised and given the opportunity to advise the client and bring the position on side within a specified time period. Note: IAS cannot exceed the IIROC/SEC guidelines for concentration.

Margin Calls

Margin calls may result from regulatory margin requirements or from IAS concentration guidelines limits. If the client is in a margin call as per the concentration limit guidelines, the client may choose to request approval to exceed the guidelines for a certain length of time. Please collect the necessary information (as noted above) required to assess the request and contact Credit and Risk Management immediately.

ShortSelling Definition

Short selling is defined as the practice of selling an asset that is not owned. This occurs when a client sells securities (common shares, bonds, etc.) that are not currently held in their account. This is normally done to take advantage of falling prices, or anticipated falling prices of a particular security. The client borrows the shares from IAS and then sells them to the market.

In an ideal scenario, the price drops and the client buys the shares back from the market at a lower price, thereby closing out their obligation to IAS. Profit or loss is calculated as the difference between the sale price and the buyback price.


INTERNAL USE ONLY

Short Accounts

According to securities regulations, short sales must be disclosed. At IAS, short selling is restricted to special short account types:

G for Canadian short

H for U.S. short

A corresponding margin account is also required.

The following securities cannot be shorted:

• NASDAQ Bulletin Board Securities listed on “L”, “0”, “2”.

• CDNX securities which are Tier 3. The trading symbol will always

begin with the letter Y for all Tier 3 CDNX securities.

• Tier securities may also be identified on the Security Master

under “Spec Info”.

• Any security that cannot be borrowed.

Special Conditions and Restrictions

Interest is not paid on cash balances in short (G & H) accounts.

Short positions are “marked to market”. Cash is transferred between the client’s margin and short accounts as required (every Thursday). Short sellers should be aware of the specialized risk of a buy-in of their position.

Clients cannot request to move funds out of the short accounts.

Short sellers are responsible for dividend charge-backs and all other distributions while they are short.

Please Note: Short selling before Canadian market opens is only permitted with limit pricing. The limit order must be at or above the last sale price of that security as indicated in a consolidated market display or at the previous day’s closing price.

Clients cannot short a security when they are long the security in the margin account. This is known as “short against the box”.


INTERNAL USE ONLY

Please note that designated Volatile Securities have a margin requirement of 150%

It is recommended that the IA/PM contact the Loan Post before placing a short sale to

see if there is coverage on a security.

NASDAQ short rules apply.

Restrictions such as ‘All or None’ are not permitted. Loan Post

IA/PM’s must call the Loan Post at (416) 869-8015 before executing a short sale. When a short sale request is made, the Loan Post representative will advise if the position can be covered.

If YES: the client will be protected – the Loan Post has the shares to protect the position.

If NO: the client will not be protected if they sell short. The client will be liable for buy-ins costs at settlement day, if the firm cannot make delivery to the purchaser of the shares sold short.


INTERNAL USE ONLY

This DOES NOT mean the client CANNOT sell short, only that the Loan Post cannot protect the position at that specific time. The ability to provide protection can change from minute-to-minute based on the availability of the stock and the ability to locate a source willing to lend.

A reasonable expectation for a short position to be protected is from 1 day to 3 months. There are times when the Loan Post can only give protection for a specific number of days due to uncertainty or the unlikelihood that they will be able to cover thereafter. If a client is short a volatile stock or has been holding a short position for some time, advise the client to call in and reaffirm with the Loan Post their protected position and the probability that the protection will continue.

Credit is ONLY RESPONSIBLE for enforcing the margin requirements of securities held in the account and does not determine whether or not a security may be short sold.

Buy-in of the Short Position

A client can be bought back-in as follows:

1. When the Loan Post is recalled on the position they borrowed to protect the client’s

position.

2. When the Loan Post is unable to borrow shares to protect the position and the Clearing

Department will violate contract rules if they do not deliver the position (SEG Violation).

In both cases, the client may be subject to a buy-in at any time without prior notice to cover the outstanding short position. If the client repurchases the short position they may remain liable to a Loan Post buy-in until the settlement date.


INTERNAL USE ONLY

Sale Client

Government Guaranteed

Bonds

110% 100% 5% $500,000 MV

Listed Option Eligible

Equities (US)

130% 100% 30% $500,000 MV

CDN & US Securities


Securities Eligible for

Reduced margin ($2.00+)

130% 100% 30% $500,000 MV

Listed non-option eligible

equities ($2.00+)

150% 100% 50% $500,000 MV

Stocks on the Credit Watch

List (or volatile securities)

150% 100% 50% $100,000 MV

CDNX equities 200% 100% 75% $25,000 MV

Non-Marginable Equities

(No Short Sales Allowed)

100% 0% 100% None

Margin Requirements and Concentration Limits for Short Positions

Note that 100% of the margin requirement is generated at the time of sale (sale proceeds) to offset the margin requirement to take the trade. Therefore, the initial margin requirement is the same as the amount required to go long on the security. The Margin requirement on short options:

At $2 or over- 150% of the market value of the stock (if the security is on the LSERM list for Canadian or option eligible for US stock than 130%

Between $1.50-$1.99- Margin requirement is $3 per share

Between $0.25- $1.49- Margin required is 200% of the stock market value

Under $0.25- Margin required is 100% of the market value+ $0.25 cents per share ($0.50 for US Securities).

For margin purposes, short positions can be covered via long warrants, rights, or subscription receipts, IA/PM’s will need to notify the Credit department to complete manual calculations/adjustments as this would not be captured by our system provider. Although long instruments mentioned above can be used for margin coverage, clients are still facing buy-in when carrying short positons.

Security Total

Margin

Required

Proceeds

From

Short

Margin

Required

From

Concentration

Limit Market

Value (MV)


INTERNAL USE ONLY

Market-to-Market

When a short position is first created (i.e. security sold short), the short account will have a cash balance from the proceeds of the sale, and the market value of the short position will appear as negative, representing the client’s obligation to IAS. The cash balance equals the negative market value of the short position. When the price falls or rises, the market value changes accordingly, but the cash balance still reflects the original proceeds. As needed, a “mark-to-market” is done to balance out these gains or losses and equalize the cash balance with the market value.

If the price of the security falls, the market value of the short position will be lower than the cash balance (which still reflects the original proceeds). This lower market value represents the amount the client would have to pay to close out the position. The difference between the cash balance and market value is referred to as paper profit. This paper profit is “mark-to-market” or moved from the short account to the margin account so it can earn interest for the client (since cash in a short account does not earn interest).

If the price of the security rises, the market value of the short position is higher than the cash balance (which still reflects the original proceeds). This higher market value represents the amount the client would have to pay to close out the position. The difference between the cash and market value is referred to as a paper loss. The paper loss must be covered by moving the amount of the deficit from the margin account to the cash balance of the short account.

Examples of Margin required to Sell Short

1. The Short Sale

Assume that a client wishes to sell short 100 shares of ABC Company Ltd when it sells for $25 (not eligible for reduced margin).

Minimum margin required $25 * 100 *

150%

$3,750

Less: Proceeds from short sale $25 *

100

$2,500

Equals: Minimum margin required $1,250


INTERNAL USE ONLY

2. Price Decline Generating a Profit

Assume the price of ABC’s shares decline to $15 at which point the client decides to close out the position and take his or her profit.

Total credit in the short account $3,750

Less: Cost to buy back shares $15 *

100

$1,500

Less: Client’s original margin deposit $1,250

Equals: The client’s profit on the short

sale

$1,000

The client may decide not to close out the position and take the profits, waiting for prices to go even lower. In this case, the account would be assessed daily and the $1000 calculated paper profit would be “mark-to-market”, or moved from the short account to the margin account on Thursday by our back office where it would earn interest.

3. Price Increases Generating a Loss

Assume that the price of ABC’s shares advances to $30 instead of declining.

Minimum margin required $30 * 100 *

150%

$4,500

Less: Proceeds of original short sale $2,500

Less: Amount already deposited $1,250

Equals: Margin Deficiency $750

In this case, the account would be assessed daily and the amount of the margin deficiency ($750) would be automatically “mark-to- market”, or moved from the margin account to the short account, on Thursday by our back office.

Third Party Deposits and Withdrawals IAS will not accept third party incoming or outgoing payments to and from client accounts.

Third party payments can only be reviewed and/or approved by Senior Management.

*Note: Monetary instruments include stocks, bonds, bank drafts, travelers’ cheques and money orders. IAS does not accept cash.


INTERNAL USE ONLY

Deposits Cheque/EFT Deposits

Cheques must be made payable to Industrial Alliance Securities (“IAS”) or IA Securities or Hollis Wealth.

Bank Drafts Bank Drafts will only be accepted if accompanied with proof that the funds were withdrawn from the clients bank account.

Exceptions for third party payors:

1. Deposit of Government of Canada cheque 2. Deposit of a Minister of Finance cheque (Quebec) 3. Deposit of Provincial cheques 4. Cheque deposit from employers for registered plan contributions as long as the

employer is noted on the clients KYC form, and there are appropriate documents with the cheque.

5. Deposits from other Financial Institutions as long as there is appropriate documentation showing the funds were in the client’s name at the other institution.

6. RESP contributions from relatives not named on the account (ex. divorced parent or grandparents) can be done if the relative has been documented with IA Securities (LOA or comment on NCAF from account holder).

7. Deposits or withdrawals to an account holder made by a Corporation provided the beneficial ownership is the same. Proof of ownership must be provided and documented to the account holders file.

8. Cheques being issued from a Trust account to the beneficiary as long as there is a signed LOA by the trustee(s) and the Trust documents have been checked to ensure that the trust can pay out to the beneficiary (ex. age of beneficiary).


INTERNAL USE ONLY

Withdrawals

Cheque/EFT Deposits

Cheques, wires or EFT’s are to be issued in the name/s of our clients only.

Third party transactions are not permitted unless approved by the Senior Management.

Exceptions:

1. Issuing a cheque payable to one of the following with a signed LOA from the client:

a. Government of Canada b. Revenue Canada c. Receiver General d. Minister of Finance (other Provinces) e. Minister of Finance (Quebec)

2. Issuing a cheque or withdrawal from a Corporate account to another account provided

the beneficial owner is the same. 3. Issuing a payment from a Trust account to the beneficiary/s, provided that IAS receives

a signed LOA signed by the trustee s) and the Trust documents have been reviewed to ensure

4. Issuing a payment to the beneficiary or funeral home of an Estate based on LOA signed by Executor/s.


INTERNAL USE ONLY

Transfer Procedures Between Related Accounts

Requirements transferring funds or securities between related parties (nominee only)


INTERNAL USE ONLY

Requirements transferring funds or securities between related parties (nominee only) continued


INTERNAL USE ONLY

Electronic Funds Transfer

Electronic Funds Transfer (EFT) allows for the direct transfer of CDN$ from accounts in the account holders name to any Canadian financial institution. This service is appropriate for IAS clients requiring a direct deposit service to their banking institution within one (1) to three (3) business days of their request. A non-IAS account EFT Request CANNOT be accommodated.

A Transfer Request of US$ can only be made from an IAS US$ account to an IAS client US$ account ONLY at a valid Canadian financial institution.

Large EFT requests and special EFT requests such as early settlement and from concentrated accounts are subject to Credit approval, if the IA/PM is unsure regarding an EFT request, he or she should contact the Credit department for verification purposes.

The Credit Department will notify the IA/PM if and EFT request has been rejected.

Requirements for EFT Set-Up:

Submit a void CDN $ cheque for each account to which the EFT will be connected. The void cheque ensures that the correct banking information will be properly setup. If correct information is not provided, the request will be rejected.

An EFT can only be linked to bank accounts in the name of the IAS account holder.

Rejected Requests

Processed requests may be rejected (e.g. bank account closed, name differs etc.) The IA/PM will be notified as soon as IAS receives notification (usually the next business day) from our back office.


INTERNAL USE ONLY

Stock Registrations

All stock registration requests are entered in our back office system and issued in the name of the client account only.

Please note the following; when entering a transfer memo request on the system for a

Certificate there must be sufficient funds to cover the fee (all are in CDN dollars). If an account other than the client account is to be debited this account must be noted on instruction line 2.

Rush Certificates Requests are subject to a higher fee. Common reasons why a Cheque or Stock/Registration Request would not be processed

Cheque request is submitted in an incorrect format. I.E.: the request could not be interpreted and therefore could not be processed.

The applicable account is delinquent (due to: short stock, carrying a debit cash balance, margin call, recent deposits, insufficient funds to cover registration fee etc.).

Incomplete information.

Third party requests.

IAS does not permit third party deposits of stock certificates

IAS does not permit the deposit of physical OTC bulletin board stock

Cancellation of EFT Instructions:

Once an EFT transaction has been authorized and is appearing on list details it CANNOT be cancelled, if the IA/PM realizes that an EFT request needs to be cancelled, he or she must contact operations immediately to see if and EFT can be recalled. Cheques

Cheques can only be issued in the name of the client account unless the client provides a Letter of Authority (‘LOA’) and the reason for the request is properly documented within the LOA. The LOA must be signed by the account holder. The request must also be consistent with IAS AML Policies & Procedures and receive the appropriate approval from Credit Department in advance.


INTERNAL USE ONLY

Unauthorized Requests

*Helpful Hints*

Deposits: Funds are held for 10 business days for CDN deposits and 30 business

days for US deposits. Credit may be willing to reduce the 30 US wait

period if the client can prove that the US funds deposit is drawn on a

Canadian bank.

Joint Accounts: Funds may be requested by either of the account holders if the account is

setup and/or. Cheques may be issued in one name or both names with

supporting LOA’s if setup as AND only.

IAS EFT Processing Times:

Request Received Third Party Financial

Institution

Funds Credited to

Third party

Institutional Account

Before 4:30 p.m. ET

Major Financial Institutions Up to 48 hours

Small Trusts Co. and Credit

Unions

Up to 48 hours

After 4:30 p.m. ET

(Same processing times

apply)

Major Financial Institutions Up to 48 hours

Small Trusts Co. and Credit

Unions

Up to 48 hours

An EFT request made prior to 4:30 p.m. ET from an IAS account will be credited the next day and the funds should be available by close of business the next day at the receiving institution. If a client requests a cheque dated the same day that the EFT transaction was completed, the cheque will not be issued until the EFT funds are returned and posted to the account.


INTERNAL USE ONLY

Wire Transfers

Outgoing

Instructions must be submitted by 12 p.m. for same day processing.

The fee is charged based on the currency of the account.

Wire payment fees as of June, 2019:

Wire Payment Charge*

CDN US

All Amounts $25 (plus tax) $25 (plus tax) (Delivering institution may charge fee).

Requirements:

o Address of Bank (Transferring to)

o Client’s Address

o Name and Address of Beneficiary

o Account number at Receiving Bank o Routing Number of Receiving Bank – sometimes

referred to as an ABA number, SWIFT Code, SORT

Code, or CHIPS 1.13

o For Third Party Transfers: the customer must

provide a written letter of authorization.


INTERNAL USE ONLY

Incoming

In order to ensure that all incoming wires are applied to the clients account when received, it is imperative that the client information is included on the wire request submitted to the delivering Institution.

This information includes the Client Name, Client account number, and if necessary information relating to the activity. For example, if the wire relates to a closing deal, the name of the closing deal would also be beneficial when reviewing the payment. If the payment is coming in for a specific department, that information would also be helpful.

It is important to ensure that these procedures are followed. If the payment comes in without the necessary information, IAS still needs written verification that the payment belongs to the client indicated on the incoming wire form.

For any incoming wires – the Beneficiary is always ‘Industrial Alliance Securities Inc.’ – not the Client/s Name. Payments coming in with a Beneficiary name/s other than IAS registered account holder could potentially be rejected as the Beneficiary name and the Beneficiary Bank Account Number do not match.

All incoming wires that do not have the information necessary to apply the funds to the correct client will be held by our Cash Management Department for 48 hours, at which time it will be returned to the sender.

If you have any questions, please contact the IAS Operations department.


INTERNAL USE ONLY

Account Guarantees Proper documentation must be filled out and approved by IAS Credit and Risk Management to establish the guarantee.

Note: Two sets of guarantee forms are required to cross-guarantee. If unsure, contact Credit & Risk Management.

Personal & Corporate Guarantees

Guarantee/Guarantor relationships are to be used for the purpose of guaranteeing accounts for margin relief.

Unsecured accounts are not permitted in a Guarantee/Guarantor relationship unless the accounts are owned by the same individual.

Forms

IAS Guarantee (except Alberta)(see extranet or Wealthlink for current version)

IAS Guarantee – Alberta (same as above except with notary seal within the province in compliance with the ASC on a separate document)

The IAS guarantee form is required and IAS should be included in the appropriate space at the top of the form.

How to Complete the Guarantee

All guarantees are unlimited.

Forms can be found on extranet and Wealthlink.

Fill in Industrial Alliance Securities Inc. at the top of the form.

Fill in client’s name, address and all required information on the form

Guarantor and Witness to initial the above.

Day, Month and Year are required.

Witness: One witness signature, printed name (legible), and addresses are required unless the witness is an employee of IAS. In this case, the employee’s signature and printed name is sufficient.

Never put the account numbers on the forms


INTERNAL USE ONLY

Documentation Requirements

Personal Guarantee (or cross guarantee)

The signature and printed name (legible) of the guarantor is required on an IAS Guarantee form. See above procedures.

Corporate Margin Guarantee

The signature(s), printed name(s), and title (legible) of the appropriate signing officer(s) of the firm are required on an IAS Guarantee form for the officer(s) that is (are) personally guaranteeing the account.

Formal trust

An IAS Guarantee form signed by the Trustees of the Trust and a Solicitor Legal opinion of the trust agreement is required in order for this account to act as a guarantor. See below for sample solicitor’s letter.


INTERNAL USE ONLY

Employee Stock Option Plan (‘ESOP’) Clients have the ability to exercise employee stock options through their trading accounts at IAS.

1. An account must be opened for the client.

2. You should confirm with the company that the shares are available to the client for exercise (Vesting schedule) and how the securities are to be delivered: Physical or Electronically (DRS). Also, verify if there are any Corporate Actions pending for the shares.

3. Two letters are required in order to proceed with the transaction:

a. Letter of Authority (‘LOA’) Client (Sample Letter A): A letter from the client, to IAS

indicating the terms and conditions of the transaction. b. Letter of Undertaking (Sample Letter B) from Issuer: A letter from the issuer (on their

letterhead), to IAS spelling out the terms, conditions and timeframe of the transaction as well as delivery instructions of the certificate(s). Certificate must be registered NBINInc.ITFClient name and account number.

4. A cheque is requested and made payable to the company. IAS will deliver via courier or send a wire to the issuer only on settlement date of the short sale.

5. This information must be forwarded to the Credit Department for approval of the

third-party cheque.

6. Shares are sold in a short sale account.


INTERNAL USE ONLY

Sample Letter A – Letter of Authority to exercise (Client)

Letter to be on client letterhead if available.

Date

Industrial Alliance Securities

26 Wellington Street East, Suite 900

Toronto, ON M5E 1S2

Dear Sir/Madam:

With respect to stock options granted to me by (Name of Issuer) (the

‘Corporation’) authorizing the purchase of the Corporation’s (# shares)

(common or preferred) stock at a strike price of $(strike price) per share, this is to advise

you of my desire to exercise options to purchase shares for a total

price of $ .

In consideration for a cheque issued by Industrial Alliance Securities (on my behalf) in the

amount of $ payable to the Corporation for my benefit, I hereby

authorize and instruct the Corporation to issue (# shares) shares of

Corporation’s (common or preferred) stock in the name of NBCN Inc.

ITF Client Name and Account Number and to deliver said certificate to the above referenced

address.

I further represent to Industrial Alliance Securities that said shares to be issued to ‘NBCN

Inc. In Trust For (client name) for my benefit shall be fully paid, free of any and all liens or

encumbrances, restrictive legends, and shall be in all manner non-assessable.

Client Signature

Print Client Name Date


INTERNAL USE ONLY

Sample Letter B – Letter of Undertaking (Issuer)

(Letter must be on the Issuers Letterhead and signed by a signing officer of the Issuer)

Date

Industrial Alliance Securities

26 Wellington Street East, Suite 900

Toronto, ON M5E 1S2

Attention: Credit

Dear Sir/Madam:

RE: Name of Client, Account Number

This letter will verify that (Name of Client) has options to purchase (Number &

Type of Shares) of (Name of Corporation) at the strike price of $

per share. Total exercise price is (Total dollar Value of Transaction) .

(Name of Client) is exercising these options and has authorized (Name of Corporation) to

have the share certificate issued in the name of NBCN Inc. ITF Client Name and Account

Number. We will instruct our Transfer Agent, (Name of Transfer Agent) to have the

certificate delivered via courier to the above noted address and contact person.

Upon receipt of this duly completed letter, it is our understanding that Industrial Alliance

Securities on behalf of (Name of Client), will issue the cheque mentioned above payable to

(Name of Corporation).

Yours truly,

Signature of Authorized Officer of Issuer (Please Print Name)


INTERNAL USE ONLY

industrial alliance securities inc. credit and risk manual

Documents