BRANCH MANAGER

SUPERVISION MANUAL

INTRODUCTION 1 SECTION I 2 Opening An Account 2

Approval of KYC's 2 Delegation of KYC Approvals 2 Approval of Manager's/Assistant Manager's KYC's 2 Tips For Approval Process 3 Out -of-Province Approvals 4 U.S. Resident Clients 4 Option Accounts 4 Commodity Accounts 4 Insiders 5 Control Blocks 5 Oustanding Documentation 6 Filing KYCs and Documents 6 PRO Accounts 6 PR0 Accounts at Other Firms 7 Employees of Other Investment Dealers 7 Temporary Discretionary Accounts 7 Blind Trust Accounts

SECTION II 8 SUPERVISORY REVIEWS 8

Daily Supervision 8 Potential Problem Indicators 8 Dealing with Unusual Trading Activity 10 PRO Trading 10 Option Trading 10 Commodity Accounts 11 Evidence of Review 11 Monthly Review 11 Client Statements 12 Top Fifty Report 13 Commission Exception Report 13 Option Account Review 13 Evidence of Review 13 Trainee Supervision 13 Review of Branch Manager's Accounts 13 Open Order Review 14

SECTION lll 15 CLIENT COMPLAINTS 15

Complaints Relating to IA Conduct 15 Regulatory Complaints 15 Litigation 16 Small Claims Court 16

Arbitration AdministrativeIService Complaints

SECTION IV

COMPLIANCE POLICIES Incoming Correspondence Outgoing Correspondence Option Marketing Letters Advertising Proxy Solicitation Voice MaiVE-maiVFax Client Orders Preliminary Prospectus Private Placements Policy Statement on Securities Transactions Sale of Control Stock Normal Course Issuer Bids IAs Acting as Power of Attorney/Tru'stee/Executors 0uts'ide Directorships Hold Mail Tax Advice Unlicensed Sales Assistants Updating Registration Information CIPF Symbol -

SECTION V

NEW ACCOUNTS AND DOCUMENTATION Control of KYCs and Supporting Documentation Control of the Available Account Numbers and KYC/Documentation Control Log Log Procedures Follow-Up Major Changes Client Address Changes Report of Overdue Documentation Manager's Responsibility

SECTION VI

OPENING NEW FUTUmSDUTURES OPTION ACCOUNTS Licensing Suitability Opening Process Documentation FuturedFutures Option Policy Interest Credit Limits Delivery Policy Futures/Futures Options Account Supervision Trading Review

Introduction

All Branch Managers and Assistant Branch Managers are required to familiarize themselves with the contents of this manual in addition to other comprehensive material contained in the Conduct and Practices Handbook.

Branch Manager’s must be cognizant at all times that the rules and policies

contained in this manual are set out to protect the client, the IA and the firm. The ongoing integrity of the Private Client Division is dependent on compliance. Further, noncompliance may result in censure by regulators and/or the firm.

Questions with respect to the information contained herein should be directed to

the Compliance Department.

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Section I

OPENING AN ACCOUNT

Approval of KYC’s

The single most important document that we collect is the “Know Your Client” (KYC) document. Specifically, this document sets out the personal client information that the IA needs in order to make informed recommendations regarding the client’s investments. It is the Manager’s responsibility to ensure that the KYC is fully completed and approved prior to the first trade or the next trading day, at the latest. In giving such approval, the Manager should be comfortable that the initial proposed transaction is consistent with the KYC information provided.

Refer to Section VI for Futures and Commodity Accounts.

Delegation of KYC Approvals

The Manager may delegate the approval of KYC’s to an Assistant Manager who has completed “The Branch Managers Course” and become licensed as such. The approval process cannot be delegated to other staff members, though certainly staff members can be helpful in ensuring timeliness and completeness.

Approval of Manager’s/Assistant Manager’s KYC’s

Any accounts opened for clients of the Assistant Branch Manager must be approved by the Manager. The Assistant Manager cannot be the IA and give the approval. If the Manager is absent from the office for more than two days, approval must be given by the Regional Manager or, as a last resort, a Divisional Manager.

Accounts opened for clients of the Manager must be approved by the Regional

Manager. In the Regional Manager’s absence, the approval process is moved upwards to Divisional Manager. Keep in mind, all such approvals must be same day or the next business day.

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Tips For Approval Process

1) Ensure that the client name and address and telephone number are clear so that in an urgent situation the client can be easily located (ie - use of postal box numbers and c/o may not be used).

2) Pay more attention to the KYC information if the client is identified as a phone-in

or walk-in. Unsavory clients often use this method to ingratiate themselves with a firm or an Investment Advisor. They often ask for the IA of the day or a rookie, anticipating that a less experienced individual may be easier to deceive.

3) If a “Trading Authorization” or “Power of Attorney” is listed as “obtaining”,

ensure no trades are entered by the trading agents until these documents are in hand.

Similar caution should be used for a corporate account as you want to be sure which officers of the company are permitted to trade on the corporation’s behalf.

4) Pay close attention to the information provided for net worth income, age,

objectives, risk parameters and investment knowledge. These are key to assessing the suitability of investments.

Watch for IAs who consistently list the same objectives and risk factors; this may be a result of the IA not asking the client the appropriate questions.

5) Ensure that money laundering rules are complied with. This is federal legislation

and random audits are performed by the RCMP to verify compliance. In particular ensure full name of Bank contact person is recorded. If using the passport/drivers license method ensure number is recorded on KYC.

6) Ensure the approvals are timely and that the date of the approval is clear. 7) When a client is requesting margin, ensure the KYC information is in line with

that of a client requesting a loan. If there are extenuating circumstances which are not evident to the reader, clarify the situation in the IA comments section. Particular attention is warranted with risk adverse clients, especially in the case of seniors and novice, as risk doubles with margin use.

8) If it is indicated that the client is a part of a control position or is an insider, the

Manager should update his/her files accordingly.

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Out-of-Province Approvals

Provincial legislation is clear with regard to the registration of Ias in that they must be registered in those provinces where their clients are resident. We recommend the IAs later seek the appropriate licensing or refer the client to an IA in his/her province of residence. It should be noted that out-of province licensing for the Province of Quebec is only available to those IA’s within very close proximity to their border (ie - Ottawa).

U.S. Resident Clients

An IA may only deal with a U.S. resident client if he/she has completed the U.S. requisite courses and is in a U. S. cleared branch of D. S. Corp.

Option Accounts

Managers should use extra caution when approving accounts for options given the complexity and additional risks of some strategies. (No naked option positions are permitted for any index options). Managers give final approval to accounts indicating they wish to:

- Buy puts or calls - Write covered calls - Enter spreads/combinations

Accounts wishing to write naked puts and/or naked calls must get a second level

of approval from a Head Office D.R.O.P (Designated Registered Option Principal) or A.R.O.P (Alternate Registered Option Principal). Both the D.R.O.P. and A.R.O.P. are located in the Montreal and Toronto Compliance Departments.

From a Manager’s perspective you should consider that naked put writing employed as an income strategy can very quickly become a high risk strategy in sharp market corrections. Furthermore, the unlimited risk of naked call writing is appropriate For very few sophisticated investors. Use caution when giving your initial approval.

Rookie IAs are not permitted to open option accounts for two years after their initial licensing.

Commodity Accounts

See Section VI

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Insiders

The Manager is responsible for keeping a central record documenting all clients of the branch who are insiders along with the security of which they are an insider. The Manager should poll the IAs on an annual basis to ensure the list is up-to-date. When reviewing trades for their clients, the Manager must ensure that IAs and other employees in the branch are not trading in the same security on or about the same time as the insider. For further information on who would be considered an insider, refer to page 95 of the CPH Manual.

In the event employees have accounts outside the firm (Action Direct, etc.), the

Manager should ask the employee to have him/her set up as an Interested Party for review purposes as well as the Compliance Department.

Control Blocks

Similar to insiders, the Manager must, at all times, be aware of all clients in the branch who hold control block positions. An annual poll of IAs, to ensure the list is up-to-date, is required.

In all provinces except Manitoba, New Brunswick and Quebec 20% is deemed to

represent control. In Quebec 10%. (See pages 40,66,70 and 95 of CPH Manual).

Outstanding Documentation

The Manager is responsible to ensure that the branch has appropriate procedures to track which documents are missing for both new accounts and major changes (eg: change of IA code) and to have a program in place to ensure timely receipt of missing documents. Such procedures should be clear to all IAs and Assistants in the branch.

In the event of a regulatory or litigation matter, our case is substantially weakened

if we cannot produce the appropriate documents. IAs would be well served to keep this in mind when they find themselves with a client who does not return the completed documents, despite numerous requests.

See Section V for further information.

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Filing KYCs and Documents

We recommend that the branch maintain client files for KYCs and client documents. The Manager can refer to this file for KYC information as well as signature verification.

PRO Accounts

The following accounts are considered PRO accounts:

1) Any account held by a director, officer or employee of the firm and their spouse.

2) Accounts for family members where the investment decisions and/or funds are

provided by the employee. 3) Accounts controlled by the employee. 4) Accounts in which the employee has a 10% or greater beneficial interest.

PRO Accounts at Other Firms

IAs, Branch Managers, and their spouses are not permitted to control or carry an account, either in his or her own name or any other name, at another investment dealer, including Action Direct.

Other branch and head office employees are permitted to operate accounts at other investment dealers with their Manager’s consent and written consent of the Compliance Department. Once consent is given, the Compliance Department will prepare a letter for the Director of Compliance of the other member firm. Copies of statements will be requested and monthly reviews are performed, however, the Branch Manager’s must ensure adequate surveillance over these outside accounts (ie: frontrunning).

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Employees of Other Investment Dealers

Any employee of another IDA regulated firm must have written permission from their Director of Compliance before opening an account with us. Once the written permission is in place with the Compliance Department, the account(s) can be opened but must be in the PRO range. Copies of all trade confirmations and monthly statements are automatically sent to the employee’s firm. Such accounts must abide by all of our firm PRO policies, including those set out for credit and margin purposes.

Temporary Discretionary Accounts

IAs are permitted to accept unsolicited temporary discretionary authority in isolated situations and only for short periods of time (less than one year). Prior approval must be given by the Compliance Department before entering into a temporary discretion situation. Such authority is generally discouraged by the firm as it is felt that in most cases a relative, friend, lawyer, etc. could take on the role of temporary trading authorization. We do, however, recognize that from time-to-time a client may require a temporary discretionary account. Separate documentation is required and information regarding this is available upon request from the Compliance Department. All documents must be in place and written approvals given by the Divisional Directors prior to orders being entered. No option or speculative trading will be permitted and, .if the account trades on margin, the loan cannot be increased during the discretionary period.

Branch Managers should be aware of such situations although the supervision for these situations rests with the Divisional Managers.

Blind Trust Accounts

We do not act as trustee for blind trust situations. Our only involvement with such situations will be as normal Investment Advisor to the trustee who is acting.

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Section II

SUPERVISORY REVIEWS

The IDA requirements for Branch Manager Account Supervision are quite specific. These standards describe what Managers must do as a minimum to achieve effective account and IA supervision. There is little monetary proof that can be provided to evidence the benefit of early detection of problems. However, there are virtually millions of dollars in proof within the industry to evidence the lack of supervision.

Daily Supervision

The Branch Manager or Assistant Manager must promptly review the previous day’s trading for unusual trading activity using any convenient means. The purpose of the review is to attempt to detect the following:

- Lack of suitability - Undue concentration of securities - Excessive trade activity - Inappropriate/high risk trading strategies - Quality downgrading of client holdings - Excessive commission charges - Inappropriate mutual fund transactions

(moving from one fund to another triggering a commission charge when a switch within the same family of funds would achieve the same result)

- Trading in delinquent accounts - Excessive trade transfers, trade cancellations etc. which may indicate possible

unauthorized trading - Outstanding margin calls, cash account violations - Late payments - Account number changes - Excessive/improper crosses of securities between clients - Conflict of interest between IA and client trading activity - Front running - Undisclosed short sales - Trading under margin

Potential Problem Indicators

Non-RBCDS Recommendations

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- Has the IA done due diligence research? - What are the expectations of performance? - How sophisticated is the purchaser? - Have clients been warned of risks? - Have you ensured that the IA does not represent that a stock “will be listed” to

enhance purchases? NOTE: If trades are solicited, the Branch Manager should be aware of the sales pitch being used by the IAs in order to avoid insider information allegations or allegations of being very close to the company. The Manager should also ensure the IA does not discuss their personal ownership of a security in an effort to over represent to the client confidence in that security.

Concentration

- Numerous client’s purchasing speculative securities (RBCDS or non-RBCDS recommendations).

- Clients purchasing proportionately large blocks.

Suitability

- Based on KYC information provided: a. does it appear that the client would understand the risks; and, b. can they afford the risks both psychologically and financially?

Deferred Sales Charges - Are clients selling and incurring large DSC’s? - Are elderly clients buying with DSC? - Excessive switches that incur a DSC. Downgrading of Quality - Are client’s selling quality securities to purchase “flavor of the month”

securities? Cancel and Corrects - Are cancel and corrects between unrelated clients? - Are cancel and corrects after settlement date? - Is there a particular IA who has a proportionately large number of cancel and

corrects? - Is there a particular client who has a large number of cancel and corrects?

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Dealing with Unusual Trading Activity

Below, are listed a few suggestions you may want to consider when something out of the ordinary comes to your attention during the daily review.

- Verbally ask the IA (face-to-face where possible) for comments and document responses.

- Request written comments from the IA and, if warranted, review further - Ask the IA for a copy of any research conducted for a non-RBCDS

recommendation. - Discuss with the Compliance Department. - Call the client involved to confirm what the IA previously told you. - Should one of your IA’s be subject to strict supervision by the regulators,

ensure that the items in the checklist are adhered to and filed in a timely manner.

PRO Trading

The Branch Manager or Assistant Manager must pay particular attention to all Pro trades within the branch.

This review is undertaken to detect, among other things:

- Conflict of interest between IA and client trading - Excessive concentration of securities - Front running/piggybacking - crosses between IAs and clients - trading above apparent means - improper employee trading

Option Trading

The Branch Manager or Assistant Manager must review daily trading in option accounts for, among other things:

- Suitability - Position/exercise limits - Undue concentration (consider concentration in context of assigned naked put

positions also) - Exposure for naked positions - Commission activity - Large losses

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Note: Officers and directors of the Bank as well as RBC DS may not trade in puts and calls of Royal Bank stock

Commodity Accounts

See Section VI

Evidence of Review

The IDA By-laws require that Managers keep a record of reviews. They also indicate that the record should contain sufficient evidence to leave no doubt that a review was conducted. A few suggestions for recording reviews are as follows:

1) Maintenance of a daily worksheet where notes are made and initialed and dated by the Manager.

2) A workbook listing each day and the activity reviewed. 3) E-mail storage of queries to IAs and their responses. 4) Physical retention of the Commission Sheets and/or KYC copies where notes

have been made with respect to queries. Given the sheer volume, we do not recommend retention of the entire report, rather, only the pages where notes have been made.

All evidence must be kept for a minimum of 2 years.

Monthly Review

Branches are provided with a number of tools in order to review all accounts where $1,000.00 or more in commission has been generated in a one month period. A monthly statement provides a more macro look at the client’s account; potential problem indicators become more apparent when reviewing monthly activity as opposed to the micro daily review. All monthly reviews must be completed within 21 days of the period covered by the statement. This review is undertaken in an attempt to detect, although not limited to, the following:

- Lack of suitability - Undue concentration - Accumulation of speculative securities - Excessive trade activity

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- Inappropriate/high risk strategies - Downgrading of quality - Radical change in holdings - Excessive commission charges - Inappropriate mutual fund transactions

(moving from one fund to another causing a commission charge when a switch within the same family of funds would achieve the same result)

- Trading in delinquent accounts - Late payments - Kiting - Engaging in a pyramid scheme - Excessive trade transfers, trade cancellations indicating possible unauthorized

trading - Improper crosses of securities between clients and IAs - Conflict of interest between IA and client trading - Front-running - Improper employee trading - Trading beyond apparent means - Piggybacking

Client Statements

Each branch is sent a separate compliance review package which includes: a. monthly statements generating over $1,000 gross commission the previous

month; b. accounts with debits in excess of $100,000; and, c. all PRO accounts.

For medium to large branches we would recommend a two-tiered review process.

We would recommend that the Branch Manager and/or the Assistant Branch Manager do a quick review of ALL accounts in the package (per IDA Standards). In addition to the quick review you should develop and implement a system whereby one-quarter of the IAs in the branch receive an in-depth review, in accordance with the IDA criteria. It is our opinion that such a process is in keeping with the review requirements and, at the same time, ensures that a thorough review of accounts is done at least four times per year.

Evidence of your monthly review must be retained for a two year period and should include hard copy of any accounts questioned and the response or resolution. (If the Manager is using a quarterly in-depth review process, it is recommended that a spreadsheet be used to identify the quarterly rotation and indication when the review was done.)

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Top Fifty Report

This report lists the 50 most active accounts in each branch and should be used in conjunction with the client statement review. Particular attention should be paid to review their client’s statements against the KYC.

Commission Exception Report

This report lists the number of trades per month along with the gross commission dollars and total equity. This report can also be helpful when used in conjunction with the most recent monthly statement review and may at times hi-lite churning.

We would recommend that this be retained in your monthly evidence file as a list of which accounts were reviewed.

Option Account Review

The Branch Manager must also review all option activity based on the same criteria as for regular equity trading activity.

Evidence of Review

Branch Managers must keep evidence of the monthly reviews, similar to that set out under Daily Review. Regardless of the manner in which a Manager chooses to evidence his reviews, thy must be easily retrievable and must also be kept for a minimum of two years.

Trainee Supervision

The Branch Manager must closely supervise a trainee’s trading as well as other activities on a regular basis. The IDA requires a monthly report be completed for six months attesting to the fact that the additional supervision took place. The original supervision document should be sent monthly to the Head Office Training Department and a copy maintained in the IAs branch file.

Review of Branch Manager’s Accounts

All accounts of a Branch Manager will be reviewed by the Regional Manager. Accounts of a Regional Manager will be reviewed by the Divisional Manager. The same

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criteria will apply to these reviews as that of IAs. Divisional Managers will not hold any client accounts.

Open Order Review

The IDA recommends that Managers perform a regular review of all open orders. This can be done daily by reviewing the Daily Trade Blotter. Alternatively, a separate review on the Berton system can be done on a weekly basis.

Managers should ensure that all open orders are reviewed and cancelled if an IA leaves the firm.

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Section III

CLIENT COMPLAINTS

Client complaints arrive in our offices from a number of sources. Some are written by the client directly to us, some are written to our regulators who then begin an investigation, and others are directed to us via the client's counsel. If any complaint, regardless of its source, alleges misconduct by any licensed employee, it must be forwarded immediately to the Regional Compliance Manager. All such complaints are logged and tracked to ensure timely response.

Complaints Relating to IA Conduct

If a complaint relates in any way to the conduct of an IA, it should be immediately forwarded to Compliance. Upon receipt, the Compliance Manager will send a letter of acknowledgment to the client. The next step entails Compliance investigating the allegations. It is recognized that there are two sides to every story and accordingly, Compliance will ask the IA for a written response to the allegations in the letter. It is of the utmost importance that the IA respond promptly to the request. In addition, if the complaint alleges suitability issues, concentration or general losses, they will routinely check the account documentation and perform an account trading analysis. Once all of the facts are weighed, a response to the client will be prepared. If a settlement of any kind is recommended, it will be discussed with the IA and Manager prior to being offered to the client. Similarly, in most cases no response will be sent to a client without the benefit of the IA (as long as he/she is still in our employ) and Manager having the opportunity to review and comment.

It should be recognized that occasionally Compliance will recommend a small

settlement (nuisance value), even though we do not feel the IA has erred in any way. Such an offer would be made for economic reasons recognizing the nature of the complaint, or the complainant, and the various other time consuming routes that may be taken if the matter remains unresolved.

Regulatory Complaints

The majority of our regulatory complaints come from the Investment Dealers Association although, on occasion, a provincial securities regulator will lodge an investigation into an IA's activities, The various stock exchanges may also follow-up on client complaints but usually they will refer the situation to the IDA.

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When the IDA receives a complaint, the Compliance department will be notified, though they may not begin an investigation until they have more details. Once they have sufficient evidence to suggest misconduct by a registrant of lack of supervision un the part of the Manager or firm, they will notify us that a full investigation is under way.

Generally, the IDA will make requests for documentation, client's statements and

other correspondence directly to the Compliance Department. In the event they approach a branch directly, our policy is that the request be politely redirected to Compliance.

An IDA investigator will eventually approach the IA and/or the Manager to schedule a convenient time for an interview. Depending on the severity of the allegations against the IA, we will ensure he/she is either represented by counsel or by a senior member of the Compliance Department. Wherever possible, Compliance will attend the interviews in person, both for moral support and also to ensure the questions asked by the investigator are appropriate.

Any Manager being interviewed for supervisory issues must be represented by

counsel. Occasionally, a senior member of the Compliance staff will also be present during the interview.

Litigation

On rare occasions, clients will file a Statement of Claim alleging misconduct. Usually, both the IA and the firm will be named as Defendants. Once the claim has been served, the Compliance Department will immediately retain counsel in order to file a Statement of Defense within the specified period.

Most of the preparatory work required to defend these claims is done by the

Compliance Department and forwarded to our counsel. The next step will be the “Discovery” whereby our employees are represented by counsel.

The final step will be either settlement or trial. In either case, the IA (if still in our

employ) and the Manager will be an integral part of the settlement or trial decision.

Small Claims Court

On occasion, an IA or branch personnel will be served with a suit to be heard at Small Claims Court. Generally, these claims are handled by the branch. It is suggested that the branch hire local counsel to assist with the response (a law student or junior lawyer is normally sufficient). Once the response is filed and if the matter remains unresolved the branch is responsible to ensure proper representation at Small Claims Court. Usually it is the IA who appears on his own behalf. If no one appears on the stipulated date, the plaintiff will win by default.

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Arbitration

A number of the provinces are moving towards the arbitration process as an alternative method of dispute resolution. The amounts that can be arbitrated are usually set with a floor about the same as the Small Claims Court maximum and a ceiling of 100,000. In Quebec the ceiling is $50,000.

We, as a firm, will ensure our employees are represented by responsible counsel

in this process.

Administrative/Service Complaints

Our client statements encourage clients to write to our Internal Audit Department if they have unresolved administrative complaints. The Internal Audit Department ensures that the appropriate person within the Operations/Administrative area responds to the client.

On occasion, clients will complain about issues relating to service by the IA or

branch. In these cases, it is the responsibility of the Management Team and/or Private Client Division to respond.

All complaints received into the Internal Audit Department are logged and

tracked to ensure a timely response.

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I.A. LETTERS TO CLIENTS

1. All customer requests to release information to a third party must be received in

writing and currently dated, not exceeding 30 days. The Branch must maintain these instructions for a minimum of two years.

2. Do not respond to a telephone inquiry unless you are certain you are dealing

with the client. A return call should be done as a follow up procedure for verification.

3. A letter received by fax is acceptable only if the IA/IAA verifies the request

verbally with the client. The client should be contacted by telephone using the phone number on record. The completion of this process should be evidenced by noting “verified with client” on the letter of request.

4. The purpose of the request must be disclosed in the letter. Where applicable, an

appropriate disclaimer should be incorporated in the response letter, (e.g., The documents are provided to you for information purposes only and we do not assume responsibility or liability for the contents contained herein).

5. The client's month end account statement should be used for the confirmation of

balances and security holdings. Should the client request an accompanying letter, the content should be limited to the reason for the request without specifically validating the accuracy of the data being provided.

6. Be aware of any unusual requests such as frequent or multiple requests for

transfers between related corporate and/or client accounts. Keep in mind the letter(s) must state the reason for the request.

7. If the client requests only a portion of their accounts to be confirmed, (e.g.,

Excluding any guarantees in foreign currency balances that could change the value on a consolidated basis) the third party confirmation should not be issued.

8. All requests to issue a letter drafted by or on behalf of the client must be

approved by Branch Manager and a copy filed in the Branch Manager's correspondence file.

Section IV

COMPLIANCE POLICIES

The Branch Manager must ensure that all incoming mail is opened and reviewed by a responsible non-sales employee before being distributed. The purpose of this review is to ensure all complaints are forwarded to the Manager and all cheques and securities are immediately forwarded to the cage.

The incoming mail policy extends to all Canada Post mail, Purolator or other special

deliveries, incoming fax correspondence and e-mail correspondence. It includes any type of correspondence marked Private, Confidential and/or Personal but does not include RBCDS internal mail. It is the view of the firm that all mail sent to our various addresses has as its purpose company business. If an employee has personal business and does not wish mail to be opened, should be sent to their home address.

With respect to incoming e-mail,the Manager should implement a branch policy whereby

correspondence is forwarded to a responsible employee for review purposes.

Outgoing Correspondence

The Branch Manager or Assistant Manager must approve any personally prepared letters by an IA which make a recommendation to buy or sell securities. In addition all letters confirming cash and security positions and/or giving guarantees must be approved by the branch manager prior to mailing. Given that Managers are required to retain a hard copy file of such approved correspondence, it is recommended that IAs give the Manager two copies of their proposed mailout in addition to a list of clients who are to receive it. The first copy, which may contain any corrections/suggestions,will be returned to the IA; and, the second copy will be kept, along with the list, in the Manager’s outgoing correspondence file. The retention period established by our regulators is seven years. The IA should also ensure that the Manager receives a copy of the final letter to be sent to clients.

Any correspondence sent by e-mail has the same regulatory requirement as regular mail or fax correspondence. An IA can prepare an e-mail for distribution and send it in draft form to the manager for approval. Once approval is received the e-mail may be sent. Copies of such correspondence must also be kept for a period of seven years either online or hard copy.

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Option Marketing Letters

All advertising and marketing letters to more than 10 clients, relating to options, must be proved by the D. R. O. P.

Advertising

All advertising, outside that prepared by the Marketing Department, must be approved by Marketing as well as the Divisional Directors prior to use. Industry guidelines for advertising, particularly Mutual Funds, are stringent and must be adhered to rigidly.

Proxy Solicitation

Branch Managers must ensure that no IA solicits proxies for shares held by clients at RBC Dominion Securities Inc. Such solicitation may trigger the need for a formal proxy circular and, where a circular has not been prepared, the firm and the employee may be subject to enforcement action by the relevant Securities Commission.

Voice Mail/E-mail/Fax Client Orders

Branch Managers should counsel IAs to ensure that clients do not leave order instructions on e-mail or voice mail. Current technology is such that e-mail and voice mail are not necessarily accessed immediately and markets could move away from the order quickly. Similarly clients should be counseled that fax orders are not acceptable. IAs must still clear all aspects of an order with clients, including the timing.

Preliminary Prospectus

Each branch must have procedures in place to record the name of each client receiving the numbered preliminary prospectus and further ensure those clients receive any amendments. These files should be kept for a period of 2 years.

Private Placements

From time-to-time IAs will become interested in a “one off” deal that does not have an IDA member firm’s due diligence. Under no circumstance may an IA commit to participating in any deal without prior approval.

Page update 10/20/99

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If an IA wishes to participate in an underwriting, it is mandatory that a memo be written covering all aspects of the deal (Are the principals known to the IA?; Does the IA have any interest in the deal other than the commission to be generated?; How did the IA become involved?; etc.). This memo, plus the contemplated purchase amounts for each client (purchasers must reside in the provinces where the IA is licensed) and any other documentation, should be sent to the Regional Manager. The Regional Manager will then review the request with the Head of Equity Capital Markets, the Director of Compliance and the Director of Private Client Division or their designates.

Only after Head Office approval has been given, may the IA proceed to participate in the deal. Finally, Branch Managers should keep in mind their responsibilities with respect to suitability. If a deal is to be done, you must ensure that it meets the investment objectives of the purchaser.

Policy Statement on Securities Transactions

The responsibilities to clients undertaken by an IA are not intended to prevent the IA from making personal investments. However, it must be recognized that in certain circumstances a conflict may develop, or there may be the appearance of a conflict developing, between the interests of the client and the personal interests of the IA. The policies set out here are intended to assist both the IA and the firm in ensuring that such. conflicts do not exist in fact or in perception.

1) An IA may not be party to any transaction, whether for a personal account or for a client:

(a) in a listed security unless the transaction takes place through the

facilities of the firm in accordance with the regulations of the stock exchange concerned or, if the firm is not a member of that exchange, then in accordance with normal firm practice for processing such transactions;

(b) in an unlisted security unless the transaction takes place through

the facilities of the firm in accordance with normal firm practice for processing such transactions,

(c) in the sale to clients of securities on a private placement basis

unless the firm is participating in that distribution.

In the event that an IA wishes to purchase a security directly from the issuer on a private placement basis so that the transaction does not take place through the facilities of the firm, prior approval as set out above must be given.

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2) An IA shall not undertake any promotional or unusual sales activity in connection with transactions in any securities, whether outstanding

securities or securities being sold on a public offering or private placement basis.

N.B. The term IA for the purpose of this policy includes Branch Manager’s, Sales Assistants and employees in the National Sales Department.

3) An IA shall not maintain a “box” for a publicly traded security or allow him or herself to be placed in that position by a client.

4) No arrangements may be made for payment of commission except in accordance with normal firm practice and no arrangements may be made for the payment of any advisory fee, finder’s fee or other such remuneration.

5) Any exception to this Policy Statement will require the prior written approval of: a Director in the Private Client Division,

Sale of Control Stock

If a client holds a control position, for reporting purposes, there are obligations on the part of BOTH THE CLIENT AND THE DEALER. In addition to written Exchange approval for the sale, the client will also be required to file insider trading reports with the appropriate Securities Commission.

The CLIENT is required by policies of the various Canadian exchanges Part III of

the TSE Policies to file Form 23 with the Market Policy Division (similar for other exchanges) at least seven days prior to the first sale from the control block.

The CLIENT must select only one member firm to act on his/her behalf and the

selection may not be changed without prior notice to the appropriate Exchange.

The CLIENT must supply a copy of the approved Form 23 to the DEALER named as selling broker.

The DEALER must give written notice of the appointment to the Exchange’s

Market Policy Division of the appointment and the notice must be accepted by the Exchange before any sales commence. The TSE will then issue a bulletin to its members outlining the proposed sale.

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There is a monthly reporting requirement by the DEALER to the Exchange,

summarizing all sale transactions each month until the sale is completed or the time period allowed by the Form 23 is expired. Typically, the Head of Trading at the Dealer is the main contact.

Normal Course Issuer Bids

From time-to-time, the firm will be notified by an Exchange of a client’s approval for a normal course issuer bid. The Head of Trading ensures that orders are placed within the rules as set out by the exchange’s. See Pages 91 & 94 of the CPH Manual.

IAs Acting as Power of Attorney/Trustee/Executors

IAs may not act in such a capacity on behalf of a client under any circumstances. It is our view that a conflict of interest exists, or at the very least, a perceived conflict of interest. Exceptions are made for family member situations.

Outside Directorships

Generally speaking, outside directorships in publicly-traded companies are not permitted, particularly for IAs. The perceived or actual conflict of interest which may exist can potentially leave the IA and the firm open to censure.

If an IA is approached for such a position and the Branch Manager feels strongly

the appointment should be pursued, a memo should be prepared outlining all of the details including time commitment, responsibilities, compensation, etc.. The memo should be forwarded to the Director of Private Client Division and the Director of Compliance for consideration prior to presentation to the Operating Committee for approval.

Should approval be granted by the Operating Committee, the IDA must be

immediately notified of the appointment.

Hold Mail

The IDA requires that we ensure each client is sent both a confirmation of transaction and a monthly statement. We cannot satisfy this requirement if we agree to hold the client’s mail. Accordingly, we do not offer this service.

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On occasion, an error will occur in a client’s account and an IA will not want the client to receive the statement containing the error. Unfortunately, provincial securities regulation is clear that the statement must be sent as is. In extreme cases we can have the statement routed to Compliance for insertion of a letter of explanation,

If a client requests that we temporarily hold mail for vacation purposes, they

should be referred to Canada Post which offers such a service.

Tax Advice

The Branch Manager should instruct and occasionally remind IAs not to give specific tax advice as this is not our area of expertise. This applies to all IAs notwithstanding any accounting or legal degree or any other professional designation they may have received in the past.

Under no circumstances can IAs prepare or assist in the preparation of Income

Tax returns for clients.

Unlicensed Sales Assistants

Unlicensed Assistants may not, under any circumstances, take orders directly from clients. It is not sufficient under regulatory requirements or firm policy to allow the unlicensed assistant to take an order and simply relay the information to another licensed individual. It is, however, permissible for an IA to take an order from the client and relay the information to the unlicensed person for input.

Updating Registration Information

It is recognized that each registered person has a personal responsibility to notify the Corporate Secretarial Department of any changes in their IU-85. Branch Managers who become aware of these changes should ensure that IAs or Assistants file such information within 5 days. Changes may include:

1) Name change 2) Address change 3) Criminal charges, guilty pleas or convictions such as impaired driving, assault 4) Bankruptcy 5) Civil proceeding relating to fraud, theft, deceit, misrepresentation or similar

conduct 6) Engaging in business activities outside the firm for gain

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CIPF Symbol

The CIPF symbol must be prominently displayed in the main entrance of every branch and sub-branch. Supplies can be obtained from the Corporate Secretarial Department.

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Section V

NEW ACCOUNTS AND DOCUMENTATION

Control of KYCs and Supporting Documentation

Branches are required to have procedures in place for follow-up of KYCs and Supporting Documentation.

Each branch has an “Available Account Numbers and KYC/Documentation Control Log” to assist the branch in the control of KYCs and Supporting Documentation.

IDA By-Laws require that complete documentation be maintained for each account and the Log should be used as a management tool to control the document flow within the branch.

One person within the branch should be designated as the Documentation Co-

Ordinator to assign account numbers for control purposes. Manager’s are required by IDA By-Laws to approve new accounts promptly. A Documentation Co-Ordinator for the assignment of account numbers will assist you in these duties.

Control of the Available Account Numbers and KYC/Documentation Control Log

The Branch Manager is responsible for the approval of accounts and must ensure each account is correctly documented.

The Branch Documentation Co-Ordinator will assist the Manager in this responsibility. It is important that the Log be strictly controlled and that the Documentation Co-Ordinator be knowledgeable, conscientious and have the authority to reject KYCs and Documents that are deficient.

It is imperative that KYCs and Documentation be checked thoroughly in the Ch to ensure completeness/correctness prior to sending these in to the Documentation Department.

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Log Procedures

Each branch was given a copy of the procedures for the maintenance of the Log, along with a copy of Documentation Department Guidelines showing the forms required to open (maintain) an account. These are to be filed at the front of the Log, for referral. All applicable personnel must be aware of the Guidelines (Form 140-53) which may be ordered from the Supplies Department.

Follow-Up

If an account is approved on the basis that supporting documentation is being obtained, the branch copy of the KYC must be kept in a pending file for regular follow-up by the Manager and the staff member assigned. This should be done on at least a weekly basis.

Where “being obtained” documentation remains outstanding, the Manager must take appropriate action to ensure compliance.

Major Changes

A Change Request Form (Form 140-04 (M)) should be completed, signed by the IA, and approved by the Branch Manager, prior to Major Changes (and Minor Changes) being requested. (An exception to this requirement would be where an IA leaves the firm and all accounts must be re-assigned - these changes can be done by a list).

Where a Major Change is permitted to be done before the Updated KYC/Document is provided (e.g. IA Code Changes), the Head Office copy of the Change Request Form must be kept in a pending file for regular follow-up.

Where Updated KYCs/Documents remain outstanding, the Manager must take appropriate action to ensure compliance.

Client Address Changes

Change Request Form - (Form 140-04-M) must be completed, signed by the IA and approved by the manager or his/her designate prior to the address change being requested. Pages document NACHNG must then be completed and sent to your Regional New Accounts Department from a designated terminal. Report of Overdue Documentation

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When Overdue Documentation Reports are received in the branch, these should be separated into IA order and distributed to the IA/Assistant IAs. The Branch Documentation Co-Ordinator should subsequently follow-up to ensure that these reports are being reviewed, and that documentation is being obtained and sent in to the Documentation Department.

The Branch Documentation Co-Ordinator should bring to the Branch Manager’s attention any IAs who have a substantial number of accounts on their reports

Manager’s Responsibility

Head Office will continue to publish the Report of Overdue Documentation on a periodic basis, as an overview, but the monitoring of outstanding KYCs and Supporting Documents is the responsibility of each Manager, and must be done on a regular basis through the use of this Log.

If the reports indicate that documentation is not being followed-up, this will be addressed by the Royal Bank Auditor during their branch visits.

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Section VI

OPENING NEW FUTURES/FUTURES OPTION ACCOUNTS

It is the responsibility of the IA to use due diligence to learn and remain informed of the essential facts relative to every customer (including the customer identity, creditworthiness and reputation). It is the further responsibility of an IA to ensure that prior to the acceptance of an account, it is within the bounds of good business practice and in keeping with the clients best interest relating to financial suitability.

Due to the high risks relating to futures trading, the firm has established policies fining minimum financial requirements.

Prior to signing any futures account applications, the IA and the Manager must ensure the intent of the minimum requirements are being met.

Licensing

In order to trade Commodity Futures, an IA must successfully complete the Canadian Futures Examination, and have received regulatory approval. A prerequisite for the Canadian Futures Exam is the Derivatives Fundamentals Course.

Until an IA is licensed to deal in these products, he/she may not:

- open a Commodity Futures or Options on Commodity Futures account - discuss Futures or Futures Options trading with any client - accept or enter any Futures or Futures Options orders

Suitability

In addition to the documentation outlined below, all new and existing client’s must meet the following suitability criteria:

1) Minimum annual income from all sources of $75,000.00. 2) Net Liquid assets of $50,000.00 for speculative accounts. 3) An existing margin account with a minimum net free equity of $10,000.00

Cdn or, an initial deposit of that amount. 4) Must, by virtue of age, marital status, financial status, investment experience,

etc., be deemed to be suitable for Commodity Futures/Commodity Futures

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Options trading, and have the willingness and financial ability to risk a minimum of $25,000.00

5) Commodity Futures Options accounts will have two levels of approval:

1st level: Buying only (opening buys/closing sales) requires cash or margin prior to any purchase.

2nd level: Writing, or spreading accounts must meet the financial

criteria in a) through d), and be approved for a commodity Futures account.

6) Bank Guaranteed Hedge Accounts: A Tri-Party Hedge Agreement must be

signed by the client, the bank and RBC DS and will be exempt from conditions A through E. .

Opening Process

All documents must be forwarded to the Futures Credit & Compliance Department in the Toronto office for approval by the D.R.F.P./D.R.O.F.P or the respective alternate. Please allow at least 24 hours for approval.

Orders for Commodity Futures and Commodity Futures Options cannot be entered until the client has been formally approved for trading.

For Hedge accounts, the client must indicate the names of the commodities to be hedged, and the maximum quantities involved. This information should be verified by the IA, and as well, the IA should confirm the client’s financial resources to meet potential margin calls by asking for audited financial statements for corporate accounts, or bank confirmed credit lines for farming operations. In view of the nature of bona fide hedge accounts, the request for the stated risk amount, would then be considered “not applicable”, and the IA should relay this to the client.

An existing margin account must be opened on ADP prior to the approval of the Commodity Futures/Commodity Futures Options account. The KYC and Margin Agreement should be forwarded with the Commodity Futures documentation.

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Documentation

Commodity Futures

1) A Commodity Futures Account/Commodity Futures Options Account Application which must be complete in all respects.

2) Combined Commodity Futures and Commodity Futures Options Trading Agreement, signed by the client.

3) Hedging Agreement (if applicable) 4) Bank Guarantee Tri-Party Hedge Agreement (if applicable)

Commodity Futures Options

1) A Commodity Futures Account/Commodity Futures Options Account

Application complete in all respects. 2) Combined Commodity Futures and Options on Commodity Futures Trading

Agreement, signed by the client.

The appropriate request for approval should be checked off. Commodity Futures and/or Commodity Futures Options, as well as anticipated. types of transactions.

Speculator

- Forms as in I & 2 above Hedger

- Forms as in 1 & 2 above and a Hedging Agreement, or in the case of an

Acceptable Institution or Acceptable Counterparty, a letter confirming their status as a bona fide hedger in a particular commodity.

Bank Guaranteed Hedge Account

- Forms as in 1,2 & 3 above, plus the Tri-Party Agreement.

Authorized Person

- Names as having trading authorization over the account specifying Commodity

Futures or Commodity Futures Options. Joint Account (2 people)

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- All forms must be signed by the both parties Joint Account Agreement (specifying Commodity Futures or Options on Commodity Futures ).

Partnership

- Above forms must be signed by partners. - Partnership Account Agreement (specifying Commodity Futures or Options on

Commodity Futures Trading).

Corporation Limited Company

- All forms must be sealed - if they have a seal. - Security Trading Resolution (sealed). - Personal Guarantee (unsealed). - Trading Authorization naming authorized individuals.

Acceptable - Commodity Futures Account and Commodity Futures Options Account. Institution Application (for Institutions) which includes Corporate (Al) Resolutions for Signing and Trading.

- Commodity Futures Trading Agreement Short Form ** All Documents Sealed.

Acceptable - Commodity Futures Account and Commodity Futures Options Account. Counterparty Application (for Institutions) which includes Corporate (AC) Resolutions for Signing and Trading.

- Commodity Futures Trading Agreement Short Form - Information and Risk Disclosure Statements. - Current Financial Statement.

** All Documents Sealed.

Futures/Futures Option Policy

Commissions All commissions charged on Commodity Futures are in the same funds as the contract traded.

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Commodity Futures are charged commission on liquidation (round-turn). Trades in Commodity Futures Options are charged on the opening transaction.

Discounting is permitted according to the “speculator” and “hedger” schedules. Please contact the Commodity Administration Department in Toronto for clarification.

Margins

A deposit or excess margin equal to the Initial Commodity Futures margin, Options Premium, or short Option margin requirement, must be on deposit, prior to all Commodity Futures or Commodity Futures Options trades. In other words, a margin call should never be the result of new trades - only from adverse price fluctuation (variation or maintenance).

Day-trades activity will be monitored. A client may day-trade only if there is sufficient funds on deposit to cover the intra-day margin on the open position(s).

The margin rates are set by the Exchanges and the Futures Credit/Compliance

Department in Head Office, and must be maintained in the funds required by the Exchange on which the order was executed.

Treasury Bills ($50,000 minimum) may be used for Initial margin but all Variation margin, (mark to market) must be in the form of cash in the currency of the call.

Interest

Funds on deposit for initial or maintenance margin will not earn interest. Unrealized profits greater than $25,000 will be eligible for interest if transferred to the margin account.

Credit Limits

All new Commodity Futures accounts, with the exception of bona fide Hedge accounts, will be required to state their risk limit. If this stated limit is below our minimum equity level, trading and position restrictions may be imposed.

If the annual risk limit is exceeded, trading will be restricted to liquidation orders only. Full trading will only be restored if the updated risk limits are approved by the D.R.F.P.

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Delivery

Deliveries are permitted for pre-approved products. Please contact Commodities Administration in Head Office for Delivery information.

Margin will increase by 50% or more seven days prior to the First Notice Day, or the first day of the Cash Month, whichever comes first. Full contract value will be required on the seventh Last Trading Day. All positions must be closed out by the fourth Last Trading Day unless intending to make or take delivery. For these positions, exchange deliverable documents or exchange approved delivery instructions, must be in our possession on the fourth Last Trading Day, or the position must be liquidated.

Policy

1) Orders entered and executed for accounts which have not been approved will be closed out through the Error account, and any loss charged to the IA.

2) Margin calls must be met the day the call is issued, unless an extension has been

granted by the Futures Credit/Compliance Department in Toronto.

3) No Naked Short Index Options positions are allowed.

4) The responsibility and final decision relating to trading, risk or suitability rests with the Futures Credit & Compliance Department in the Toronto office, under the direction of the D.R.F.P. or his/her alternate.

Futures/Futures Options Account Supervision

The D.R.F.P. and the alternate R.F.P. have the overall responsibility for the opening of new futures accounts and the supervision of account activity.

Trading Review

Daily

- Excessive day trading beyond margin or credit limits. - Trading while under margin (ie: putting on new trades prior to meeting a margin

requirement). - Trading futures/futures options without prior approval.

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- Inappropriate trading strategies (ie: short position in index options are not allowed at RBC DS).

- Monitor trading activity during delivery month.

Monthly Review

- Speculative trading in a designated “Hedge Account” is not allowed. - Cumulative net trading losses that have exceeded the client’s stated annual risk

amount. - Speculative concentration (ie: large positions in one contract on one side of the

market). - Excessive commission in relation to annual risk amount and net worth.

Branch Manager’s

It will be the Branch Manager’s responsibility to confirm the new client’s suitability prior to signing the new account application. It will also be the Branch Manager’s responsibility to work with the Futures Credit & Compliance staff to enforce all regulatory and house credit policies.

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