Source: http://oscbulletin.carswell.com/bb/osc/bb/4247/on4247.htm
Timestamp: 2019-12-06 12:29:09
Document Index: 445440891

Matched Legal Cases: ['art 2', 'art 1', 'art 1', 'art 2', 'art 15', 'art 15', 'art 12']

OSCB 42/47
Issue 42/47 - November 21, 2019
Ont. Sec. Bull. Issue 42/47
• Franklin Templeton Investments Corp. et al.
• Vision Capital Corporation
• 1832 Asset Management L.P. and Dynamic Credit Absolute Return II Fund
• Guardian Capital LP
• Horizons ETFS Management (Canada) Inc. et al.
• Valener Inc.
• Holloway Lodging Corporation -- s. 1(6) of the OBCA
• Callidus Capital Corporation -- s.1(6) of the OBCA
• Investment Industry Regulatory Organization of Canada (IIROC) -- Notice of Proposed Derivatives Rule Modernization, Stage 1 -- Request for Comment
• Liquidnet Canada -- Notice of Proposed Changes
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from section 13.5(2)(b) of NI 31-103 to permit inter-fund trading between certain public funds, pooled funds and managed accounts managed by the same manager subject to conditions, including IRC approval and pricing requirements -- certain trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules -- relief also granted from conflict of interest trading prohibition in section 13.5(2)(b) to permit in-specie purchases and redemptions by managed accounts and pooled funds subject to conditions.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF VISION CAPITAL CORPORATION (Filer)
1. The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a decision (the Exemption Sought) pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) exempting the Filer from the prohibitions in paragraph 13.5(2)(b) of NI 31-103 (the Trading Prohibition) which prohibit a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, in order to permit,
(a) an NI 81-102 Fund (as defined below) to purchase securities from, or sell securities to, a Pooled Fund (as defined below);
(b) a Pooled Fund to purchase securities from, or sell securities to, a Fund (as defined below);
the transactions listed in (a) to (c) above, in the case of exchange-traded securities, to be executed at the Last Sale Price (as defined below) in lieu of the Closing Sale Price (as defined below); and
(d) an NI 81-102 Fund to purchase exchange-traded securities from or sell exchange-traded securities to another NI 81-102 Fund at the Last Sale Price in lieu of the Closing Sale Price
(the transactions described in (a) through (d) above being referred to herein as the Inter-Fund Trades and the requested relief as the Inter Fund Trading Relief); and
(e) the purchase by a Managed Account or Pooled Fund of securities of a Fund, and the redemption of securities of a Fund held by a Managed Account or Pooled Fund, and as payment:
(i) for such purchase, in whole or in part, by the Managed Account or Pooled Fund making good delivery of portfolio securities to the other Fund; and
(ii) for such redemption, in whole or in part, by the Managed Account or Pooled Fund receiving good delivery of portfolio securities from the other Fund
(a purchase or redemption described in paragraph (e) above being referred to herein as an In Specie Transaction).
(a) the Ontar$ep:io Securities Commission is the principal regulator for the Application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in respect of the Exemption Sought in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, and the Yukon (together with Ontario, the Jurisdictions).
"Closing Sale Price" means the closing sale price contemplated by the definition of "current market price of the security" in subparagraph 6.1(1)(a)(i) of NI 81-107 on that trading day;
"Fund" means an NI 81-102 Fund or a Pooled Fund;
"Last Sale Price" means the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade on that trading day where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities);
"Managed Account" means an existing or future account over which the Filer has discretionary authority for a client and acts as the portfolio manager;
"NI 81-102 Fund" means an existing or future investment fund, as defined in the Legislation, which may be either a mutual fund or a non-redeemable investment fund that is a reporting issuer and subject to NI 81-102 and NI 81-107, for which the Filer acts or will act as the investment fund manager and acts or may act as the portfolio manager in the future; and
"Pooled Fund" means an existing or future investment fund for which the Filer acts or will act as the investment fund manager and acts or may act as the portfolio manager and to which neither NI 81-102 nor NI 81-107 apply.
1. The Filer is a corporation incorporated under the laws of the Province of Ontario, with its registered head office located in Toronto, Ontario.
(a) an exempt market dealer, a portfolio manager and investment fund manager under the securities legislation of Alberta, British Columbia, Manitoba, and Ontario;
(b) an investment fund manager and exempt market dealer under the securities legislation of Quebec; and
(c) investment fund manager in Newfoundland and Labrador.
3. The Filer has or will have complete discretion to invest and reinvest the assets of the Funds and Managed Accounts and is or will be responsible for executing all portfolio transactions. Furthermore, the Filer, subject to compliance with applicable securities laws, may act as a distributor of securities of the Pooled Funds not otherwise sold through another registered dealer.
4. The Filer:
(a) acts or may act as the trustee of each Fund that is a trust;
(b) acts or will act as the investment fund manager of each Fund;
(c) acts or may act as the portfolio manager to each Fund; and
(d) acts or will act as the portfolio manager to each Managed Account.
5. The Filer is not in default of the securities legislation of any Jurisdiction.
6. Each Fund is, or will be, an investment fund that is either a trust established, or limited partnership formed, under the laws of Ontario or another Jurisdiction.
7. Each Fund's reliance on the Exemption Sought will be compatible with its investment objective and strategies.
8. Each NI 81-102 Fund is, or will be, a reporting issuer under the securities legislation of one or more Jurisdictions and whose securities are, or will be, qualified for distribution pursuant to a prospectus and, if applicable, annual information form and fund facts that have been, or will be, prepared and filed in accordance with the securities legislation of those Jurisdictions.
10. An affiliate of the Filer acts or will act as the general partner of each Fund structured as a limited partnership.
11. Each Fund for which the Filer acts or will act as trustee is, or will be, an associate of the Filer.
12. Each existing Fund is not in default of the securities legislation of any Jurisdiction.
15. Each NI 81-102 Fund has, or will have, an independent review committee (an IRC) in accordance with the requirements of NI 81-107. Each Inter-Fund Trade by an NI 81-102 Fund will be authorized by the IRC of the NI 81-102 Fund under section 5.2 of NI 81-107, and the Filer will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with such Inter-Fund Trade.
16. Though the Pooled Funds are not, and will not be, subject to the requirements of NI 81-107, each Pooled Fund will have an IRC at the time the Pooled Fund makes an Inter-Fund Trade. The mandate of the IRC of each Pooled Fund will include approving Inter-Fund Trades. The IRC of the Pooled Funds will be composed by the Filer in accordance with section 3.7 of NI 81-107 and the IRC will be expected to comply with the standard of care set out in section 3.9 of NI 81-107.
17. If the IRC of a Pooled Fund becomes aware of an instance where the Filer did not comply with the terms of this decision or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Pooled Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the Jurisdiction under which the Pooled Fund is organized.
18. The Filer wishes to be able to permit Inter-Fund Trades of portfolio securities at the Last Sale Price between:
(a) an NI 81-102 Fund and another NI 81-102 Fund, a Pooled Fund or a Managed Account;
(b) a Pooled Fund and another Pooled Fund, an NI 81-102 Fund or a Managed Account; and
(c) a Managed Account and a Pooled Fund or an NI 81-102 Fund.
19. Different sections of NI 31-103, NI 81-102 and NI 81-107 impose different prohibitions and exceptions on different types of Funds with respect to Inter-Fund Trades.
20. The Filer has submitted that because of the various investment objectives and investment strategies utilized by the Funds and Managed Accounts, it may be appropriate for different investment portfolios to acquire or dispose of the same securities directly, rather than with a third party. Authorizing the Inter-Fund Trades may result in such benefits as lower trading costs, reduced market disruption and quicker execution.
21. The Filer has determined that it would be in the best interests of the Funds and Managed Accounts to receive the Inter-Fund Trading Relief because making the Funds and Managed Accounts subject to the same set of rules governing the execution of Inter-Fund Trades will result in:
(a) a consistent and fair result for all the Filer's clients;
(b) cost and timing efficiencies in respect of the execution of Inter-Fund Trades; and
(c) simplified and more efficient monitoring thereof, for the Filer in connection with the execution of Inter-Fund Trades.
22. Each Inter-Fund Trade will be consistent with the investment objectives of the relevant Fund or Managed Account, as applicable.
23. At the time of an Inter-Fund Trade, the Filer will have policies and procedures in place to enable the applicable Funds and Managed Accounts to engage in Inter-Fund Trades.
24. The Filer cannot rely on the exemption codified under subsection 6.1(4) of NI 81-107 unless each party to the transaction is a reporting issuer and the Inter-Fund Trade occurs at the "current market price of the security" which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.
25. The Filer considers that it would be in the best interests of the Funds and Managed Accounts, as applicable, if an Inter-Fund Trade could be made at the Last Sale Price prior to the execution of the trade, in lieu of the Closing Sale Price, as this will result in the trade being done at the price which is closest to the price at the time the decision to make the trade is made.
26. An Inter-Fund Trade to be effected at the Last Sale Price will be implemented by the Filer as follows:
(a) the Filer, as the portfolio manager, will deliver the trade instruction in respect of a purchase or sale of a portfolio security by a Fund or a Managed Account, as applicable (Party A), to a trader on the Filer's trading desk;
(b) the Filer, as the portfolio manager, will deliver the trade instruction in respect of a purchase or sale of a portfolio security by a Managed Account or another Fund, as applicable (Party B), to a trader on the Filer's trading desk;
(c) the trader on the Filer's trading desk will have the discretion to execute the trade as an Inter-Fund Trade between Party A and Party B at the Last Sale Price of the portfolio security, prior to the execution of the trade;
(d) the policies applicable to the Filer's trading desk will require that all orders are to be executed on a timely basis; and
27. When acting for a Managed Account of a client, the Filer wishes to be able, in accordance with the investment objectives and restrictions of the client, to cause the client's Managed Account to either invest in securities of a Fund, or to redeem such securities, pursuant to an In Specie Transaction.
28. In acting on behalf of a Pooled Fund, the Filer wishes to be able, in accordance with the investment objectives and restrictions of the Pooled Fund, to cause the Pooled Fund to either invest in securities of another Fund, or to redeem such securities, pursuant to an In Specie Transaction.
29. The Filer has determined that effecting the In Specie Transactions will allow the Filer to manage each asset class more effectively and reduce transaction costs for the client, as applicable, and the Funds. For example, In Specie Transactions may:
(a) reduce market impact costs, which can be detrimental to clients and/or the Funds
30. The only cost which will be incurred by a Fund or a Managed Account for an In Specie Transaction is a nominal administrative charge levied by the custodian of the Fund in recording the trades and/or any commission charged by the dealer executing the trade.
31. At the time of each In Specie Transaction, the Filer will have in place policies and procedures governing such transactions, including the following:
(a) each In Specie Transaction involving an NI 81-102 Fund will be referred to its IRC for approval in accordance with the requirements of subsection 5.2(2) of NI 81-107;
(c) the portfolio securities transferred in an In Specie Transaction will be consistent with the investment criteria of the Fund or Managed Account acquiring the portfolio securities;
(d) the portfolio securities transferred in In Specie Transactions will be valued on the same valuation day using the same valuation principles as are used to calculate the net asset value for the issue price or redemption price of securities of the Fund;
(h) if any illiquid securities are the subject of an In Specie Transaction, the illiquid securities will be transferred on a basis, whether pro rata or otherwise, that fairly represents the portfolio of the Managed Account or Pooled Fund. The Filer will not cause any Pooled Fund to accept an in specie subscription or pay out redemption proceeds in specie if, at the time of the proposed In Specie Transaction, illiquid securities represent more than an immaterial portion of the portfolio of the Pooled Fund;
(i) the Filer will not cause any NI 81-102 Fund to engage in an In Specie Transaction unless the applicable NI 81-102 Fund is in compliance with the portfolio restrictions on the holding of illiquid securities described in section 2.4 of NI 81-102; and
(j) the Funds will keep written records of each In Specie Transaction, including records of each purchase and redemption of portfolio securities and the terms thereof for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place.
32. The Filer has determined that it would be in the interests of the Funds and the Managed Accounts to engage in In Specie Transactions.
33. In Specie Transactions will be subject to:
(b) the oversight of the Filer to ensure that the In Specie Transactions represent the business judgment of the Filer acting in its discretionary capacity with respect to the Funds and the Managed Accounts, uninfluenced by considerations other than the best interests of the Funds and Managed Accounts. The results of the oversight and review by the Filer will be submitted in the form of a report to the Filer's board of directors on a semi-annual basis.
34. Each Fund for which the Filer acts or will act as trustee is, or will be, an associate of the Filer. Where the Filer is the portfolio manager to a Fund, whether the Fund is a structured as a trust or a limited partnership, the Filer is a responsible person of the Fund. The Filer is or will be a responsible person of each Managed Account. Accordingly, each Fund structured as a trust is, or may be, an "associate" of a "responsible person" of another Fund or Managed Account as such terms are defined in the Legislation.
35. Pursuant to the Trading Prohibition, a Fund or a Managed Account, as applicable, may be restricted from making Inter-Fund Trades and In Specie Transactions with another Fund if:
(a) the second Fund is an associate of a responsible person of the first Fund or of the Managed Account, as applicable, which will be the case on each occasion that the second Fund is structured as a trust; or
(b) a responsible person of the first Fund or the Managed Account, as applicable, is a portfolio manager to the second Fund, which may be the case for each second Fund.
36. The Filer, as the portfolio manager to a Pooled Fund or Managed Account, cannot rely upon the exemption from paragraph 13.5(2)(b) of NI 31-103 codified in subsection 6.1(4) of NI 81-107 because such codified relief is not available in the context of the Pooled Funds and Managed Accounts.
37. Absent the granting of the Exemption Sought, the Filer may be prohibited from engaging in Inter-Fund Trades and In Specie Transactions due to the Trading Prohibitions.
(b) the Filer refers the Inter-Fund Trade to the IRC of the Fund involved in the manner contemplated by section 5.1 of NI 81-107, and each of the Filer and the IRC of the Fund complies with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;
(a) if the transaction involves the purchase of securities in an NI 81-102 Fund, the IRC of the NI 81-102 Fund has approved the In Specie Transaction on behalf of the NI 81-102 Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;
(a) if the transaction involves the redemption of securities in an NI 81-102 Fund, the IRC of the NI 81-102 Fund has approved the In Specie Transaction on behalf of the NI 81-102 Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;
(e) the value of the portfolio securities is equal to the amount at which those portfolio securities were valued by the Fund in calculating the net asset value per security used to establish the redemption price;
(e) the value of the portfolio securities is at least equal to the issue price of the securities of the Fund issuing the securities for which they are used as payment, valued as if the portfolio securities were portfolio assets of that Fund; and
(d) the value of the portfolio securities is equal to the amount at which those securities were valued by the Fund in calculating the net asset value per security used to establish the redemption price; and
1832 Asset Management L.P. and Dynamic Credit Absolute Return II Fund
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from short selling restrictions in NI 81-102 to permit alternative mutual funds to short sell "government securities", as defined in NI 81-102, up to 300% of NAV, subject to conditions.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS ANDIN THE MATTER OF 1832 ASSET MANAGEMENT L.P. (the Filer) AND IN THE MATTER OF DYNAMIC CREDIT ABSOLUTE RETURN II FUND (the Initial Fund) and any future alternative mutual funds, as that term is defined in National Instrument 81-102 Investment Funds (NI 81-102), managed by the Filer or an affiliate of the Filer (the Future Funds, together with the Initial Fund, the Funds)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Funds from the following provisions of NI 81-102 in order to permit the Funds to short sell "government securities", as that term is defined in NI 81-102 and set out below (Government Securities), up to a maximum of 300% of a Fund's net asset value (NAV) (the Requested Relief):
(b) section 2.6.2, which restricts a Fund from borrowing cash or selling securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the Fund (the Combined Aggregate Value) would exceed 50% of the Fund's NAV and which requires a Fund, if the Combined Aggregate Value exceeds 50% of the Fund's NAV, as quickly as commercially reasonable, to take all necessary steps to reduce the Combined Aggregate Value to 50% or less of the Fund's NAV
(together, the Short Selling Restrictions).
Terms defined in MI 11-102, National Instrument 14-101 Definitions and NI 81-102 have the same meaning if used in this decision, unless otherwise defined. For ease of reference, "Government Security", as defined in NI 81-102 and used in this decision, means an evidence of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a province or territory of Canada, or the government of the United States of America.
2. The Filer will be the trustee, investment fund manager and the portfolio manager of the Initial Fund. The Filer or an affiliate of the Filer will be the investment fund manager of the Future Funds.
5. Each Fund will be a mutual fund created under the laws of the Province of Ontario or another Jurisdiction and will be governed by NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities.
6. Each Fund will be an "alternative mutual fund" as defined in NI 81-102.
7. The Initial Fund is not in default of securities legislation in any Jurisdiction.
8. Securities of each Fund will be offered by simplified prospectus filed in one or more of the Jurisdictions and, accordingly, each Fund will be a reporting issuer in one or more of the Jurisdictions.
9. The proposed investment objective of the Initial Fund is to maximize absolute returns over a complete market cycle through investment in diversified long and short positions of North American credit securities while seeking to mitigate interest rate risk while maintaining a weighted averaged credit rating of "Investment Grade". The Initial Fund will use alternative investment strategies including the use of leverage.
10. The Initial Fund may use leverage created primarily through physical short sales of fixed-income securities and other portfolio assets as well as leverage created by borrowing cash for investment purposes and/or the use of specified derivatives.
11. The Requested Relief would permit the Initial Fund to effectively pursue one of its investment strategies, namely, purchasing corporate bonds primarily with maturities of five years or less to take advantage of pricing changes as the corporate bonds approach maturity and roll down the yield curve, while short selling Government Securities of equivalent maturities to reduce interest rate sensitivity (the Short Hedging Strategy). The Filer believes this strategy will mitigate the impact of changes in interest rates on the Initial Fund's portfolio.
12. The Filer has submitted that short sales of fixed income securities have a significantly different risk profile than short sales of equity securities. Where equity securities have the potential to significantly increase in value, the risk to a mutual fund that has sold an equity security short is much higher. In theory a mutual fund that has sold an equity security short may bear unlimited losses. With fixed income securities, there is a more limited downside given that the security will mature and that when it matures it will typically mature at the security's par value. In this scenario, a fund's risk at maturity is limited to the security's par value and the carrying cost of the short position.
13. For the reasons in the Filer's submissions referenced above, the Filer believes that from a risk management perspective, short sales of Government Securities are comparatively more straightforward to manage in that a fund's portfolio advisor knows the maturity price of the security. As a strategy to mitigate the impact of changes in interest rates on a fund's portfolio, the Filer believes the Short Hedging Strategy is a highly effective way to manage the portfolio's duration.
14. Ultimately, the Requested Relief would allow the Initial Fund to take a levered position in liquid, short-term investment grade corporate bonds with the increased potential returns associated with these investments, while managing the Initial Fund's duration and risk of mark-to-market losses on the corporate bond positions.
15. There are a number of specific reasons why the Filer believes the flexibility to execute the Short Hedging Strategy up to 300% of the Initial Fund's NAV would benefit the Initial Fund versus being limited to either using specified derivatives alone, or a combination of physical short selling and specified derivatives. Such short sales of Government Securities would enable the Filer to hedge and to remove interest rate risk more accurately across the maturity spectrum as compared to utilizing interest rate futures. There are hundreds of different available Government Securities in the market with varying maturities as opposed a limited number of interest rate futures available in Canada. If the Initial Fund were to hedge such risks through interest rate futures for maturities that did not correspond accurately to the interest rate risks the Initial Fund was trying to mitigate, there is the possibility that such risks could not be effectively mitigated, which would increase the Initial Fund's general level of risk and prevent it from achieving one of its fundamental investment objectives. A further limitation of interest rate futures is their liquidity. Particular interest rate future contracts may lack sufficient liquidity at a given moment in time.
16. Another type of specified derivative the Initial Fund could use to mitigate interest rate exposure is interest rate swaps. Although interest rate swaps may be customized to fit different available maturities, they are operationally more burdensome and require cumbersome legal agreements with potential trading counterparties. While the Filer will utilize interest rate swaps where appropriate, short selling Government Securities is a highly liquid and efficient means of removing interest rate risk from the portfolio.
17. As such, the Filer is of the view that it would be in the Initial Fund's best interest to permit it to physically short sell Government Securities, up to 300% of the Fund's NAV, instead of being limited to achieving that degree of leverage through either specified derivatives alone, or a combination of physical short selling and specified derivatives, including for the following reasons:
18. Short selling Government Securities in this manner also permits the Initial Fund use the proceeds of the sales to buy cash corporate bonds as opposed to seeking additional synthetic exposure. Long and short sales of Government Securities by the Initial Fund will be considerably easier to trade and settle than certain specified derivatives the Initial Fund could utilize.
19. Notwithstanding the Requested Relief, the Funds would still be required to comply with all of the requirements applicable to alternative mutual funds in sections 2.6.1 and 2.6.2 of NI 81-102, including with the 50% of NAV restriction on cash borrowing and the 50% of NAV restriction on short selling securities that are not Government Securities in paragraphs 2.6(2)(c) and 2.6.1(1)(v) of NI 81-102 respectively and with the total borrowing and short sale limits in section 2.6.2 of NI 81-102.
20. The Requested Relief would not change each Fund's obligation to comply with the aggregate gross exposure restriction in section 2.9.1 of NI 81-102, which places an overall limit on a Fund's exposure to borrowing, short selling and derivatives equal to 300% of the Fund's NAV (the Aggregate Leverage Limit).
21. The Aggregate Leverage Limit would continue to apply to a Fund's combined exposure to borrowing, short selling and derivatives and the Requested Relief. A decision to grant the Requested Relief would not permit a Fund to exceed the Aggregate Leverage Limit through a combination of investment strategies.
22. If the aggregate gross exposure were to exceed the Aggregate Leverage Limit, subsection 2.9.1(5) of NI 81-102 would require a Fund to, as quickly as commercially reasonable, take all necessary steps to reduce the aggregate gross exposure to 300% of the Fund's NAV or less.
23. Each short sale will be made consistent with the Fund's investment objectives and strategies.
24. Each Fund will implement the following controls when conducting a short sale:
25. Each Fund's simplified prospectus will contain adequate disclosure of the Fund's short selling activities, including the material terms of the Requested Relief.
26. For the reasons provided above, the Filer respectfully submits that it would not be prejudicial to the public interest to grant the Requested Relief.
5. Each Fund's simplified prospectus discloses that the Fund is able to short sell Government Securities (as defined in NI 81-102) in an amount up to 300% of the Fund's NAV, including the material terms of this decision.
U.S. registered broker-dealer exempted from dealer and adviser registration requirements in section 25 of the Act to allow the Filer to conduct trading and advising activities with "Additional Category Permitted Clients" on the same terms and conditions as if the Filer had relied on the international dealer and international adviser exemptions in NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- "Additional Category Permitted Clients" includes certain family trusts, similar to clause (w) added to the "accredited investor" definition in NI 45-106 Prospectus Exemptions in May 2015 -- requested relief intended to benefit individual permitted clients in Canada in that it allows the Filer to provide services to individual permitted clients and their immediate family members collectively as a family unit, allowing the individual permitted client to make use of a family trust or otherwise organize their financial affairs in an efficient manner for estate planning, business succession planning, charitable or other purposes.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(3), and 74(1).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 1.1 definition of "permitted client" and ss. 8.18 and 8.26.
National Instrument 45-106 Prospectus Exemptions, clause (w) of the definition of "accredited investor" in s. 1.1 of NI 45-106.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF J.P. MORGAN SECURITIES LLC (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from
(a) the dealer registration requirement under the Legislation in respect of trades in Prescribed Securities (as defined below) to, with or on behalf of Additional Category Permitted Clients (as defined below) on the same terms and conditions as would apply to the Filer as if the Filer had made the trades to, with or on behalf of a permitted client (as defined below) in reliance on the international dealer exemption (as defined below) in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103); and
(b) the adviser registration requirement under the Legislation in respect of advising Additional Category Permitted Clients in respect of investing in or buying or selling Prescribed Securities on the same terms and conditions as would apply to the Filer as if the Filer had provided such advice to a permitted client in reliance on the international adviser exemption (as defined below) in NI 31-103 (collectively, the Exemptions Sought).
For the purposes of this decision, the following terms have the following meaning:
"Additional Category Permitted Client" means any of the following:
(a) a trust established by a permitted client for the benefit of the permitted client's family members of which a majority of the trustees are permitted clients and all of the beneficiaries are the permitted client's spouse, a former spouse of the permitted client, or a parent, grandparent, brother, sister, child or grandchild of that permitted client, of that permitted client's spouse or of that permitted client's former spouse;
(b) an individual who is not a permitted client under clause (o) of the definition of "permitted client" in NI 31-103 but who, together with a spouse and/or a family trust as described in clause (a) above established by the individual or the individual's spouse, beneficially own financial assets, as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions (NI 45-106), having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5 million;
(c) a person or company that distributes securities of its own issue in Canada only to persons or companies who are permitted clients or who are referred to in clauses (a) and (b) above;
"international adviser exemption" means the exemption in section 8.26 of NI 31-103;
"international dealer exemption" means the exemption in section 8.18 of NI 31-103;
"permitted client" means a "permitted client" as defined in section 1.1 of NI 31-103;
"Prescribed Security" means a foreign security or other security that may be traded by a person or company to a permitted client in reliance on the international dealer exemption in NI 31-103 or in respect of which a person or company may provide advice to a permitted client in reliance on the international adviser exemption in NI 31-103.
1. The Filer is a limited liability company incorporated under the laws of the State of Delaware. Its head office is located at 383 Madison Avenue, New York, NY 10179, USA. It is a wholly owned subsidiary of J.P. Morgan Securities Holdings LLC, a Delaware limited liability company, and an indirect wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM Chase), a Delaware corporation.
2. The Filer is registered as a broker-dealer with the U.S. Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization. This registration subjects the Filer to requirements over regulatory capital, lending of money, extension of credit and provision of margin, financial reporting to the SEC and FINRA, and segregation and custody of assets, as well as conduct rules, which provide protections that are substantially similar to the protections provided by the rules to which dealer-members of the Investment Industry Regulatory Organization of Canada (IIROC) are subject.
5. J.P. Morgan Securities Canada Inc. (JPMSCI) is an affiliate of the Filer. JPMSCI is registered as an investment dealer in each of the provinces of Canada, and as a derivatives dealer in Quebec, and is a dealer member of IIROC.
6. The Filer is currently relying on the international dealer exemption in NI 31-103 in each of the Jurisdictions to trade Prescribed Securities with permitted clients without being registered as a dealer and the international adviser exemption in NI 31-103 to provide advice in respect of Prescribed Securities to permitted clients without being registered as an adviser.
7. The definition of permitted client in NI 31-103 includes various categories that are generally similar to corresponding categories of the definition of "accredited investor" in subsection 73.3(1) of the Securities Act (Ontario) (OSA) and s. 1.1 of NI 45-106. However, as a result of minor differences in drafting, it appears that the categories in the definition of permitted client in NI 31-103 do not include certain persons or companies included in the corresponding categories in the definition of "accredited investor" in NI 45-106.
8. Specifically, under clause (o) of the definition of "permitted client" in section 1.1 of NI 31-103, "permitted client" includes "an individual who beneficially owns financial assets, as defined in section 1.1 of NI 45-106, having an aggregated realizable value that, before taxes but net of any related liabilities, exceeds $5 million" (an Individual Permitted Client).
9. The financial test under clause (o) only applies to the Individual Permitted Client, and not to a spouse of the Individual Permitted Client. Under clause (o) as it is currently written a spouse of the Individual Permitted Client would also be required to satisfy the financial test under clause (o) separately.
10. Additionally, trusts are often used by individual investors for estate planning, business succession planning, charitable and other purposes. Under the current definition of "permitted client", the only category that applies to a trust is clause (q) (i.e., a person or company, other than an individual or an investment fund, that has net assets of at least $25 million as shown on its most recently prepared financial statements). Therefore, in order to qualify as a "permitted client", a trust would be required to meet the $25 million net asset test. This is too restrictive because it would exclude many family-oriented trusts, including most spousal trusts.
11. On or about May 5, 2015, the definition of "accredited investor" in s. 1.1 of NI 45-106 was amended to include new clause (w):
(w) a trust established by an accredited investor for the benefit of the accredited investor's family members of which a majority of the trustees are accredited investors and all of the beneficiaries are the accredited investor's spouse, a former spouse of the accredited investor or a parent, grandparent, brother, sister, child or grandchild of that accredited investor, of that accredited investor's spouse or of that accredited investor's former spouse;
12. However, a corresponding change has not been made to the definition of "permitted client" in NI 31-103.
13. The Filer currently has Canadian clients who are Individual Permitted Clients and would like to establish relationships with prospective Canadian clients who may not qualify as Individual Permitted Clients because they are unable to satisfy the financial test under clause (o). Such current and prospective Canadian clients often want to receive trading and advisory services for their spouses as part of an integrated family wealth management and tax and succession planning program.
14. There are many possible scenarios in which a Canadian client and his or her spouse may collectively satisfy the financial test, but fail to do so individually, including where:
(a) the Canadian client accumulated the bulk of the family's assets and has sole beneficial ownership of those assets, so that the Canadian client qualifies as an Individual Permitted Client;
(b) the Canadian client accumulated the bulk of the family's assets but put those assets in the name of his or her spouse, so that the spouse qualifies as an Individual Permitted Client; and
(c) the family's assets are divided among the family members so that no individual family member satisfies the financial test to qualify as an Individual Permitted Client, but the family unit satisfies the financial test collectively.
15. In the above scenarios, one or more members of the family unit fail to satisfy the financial test and therefore do not qualify as an Individual Permitted Client. As a result, the Filer is prohibited under the terms of the international dealer exemption and the international adviser exemption from servicing such family members individually or collectively as a family unit.
16. The Filer wishes to treat (i) Canadian clients that are Individual Permitted Clients and their spouses, and (ii) Canadian clients that do not qualify as Individual Permitted Clients, but who collectively with their family members satisfy the financial test under clause (o) of the definition of "permitted client", as applicable, as a single investing unit for purposes of the international dealer exemption and the international adviser exemption, regardless of the actual ownership allocation.
17. Similarly, the Filer wishes to treat Canadian clients that are Individual Permitted Clients and their family trusts as described in clause (a) of the definition of "Additional Category Permitted Client" as a single investing unit. In determining whether a trust is a family trust as described in clause (a) of the definition of "Additional Category Permitted Client", the Filer will take reasonable steps to confirm that
(a) a majority of the trustees are permitted clients;
(b) actions by the trustees require consent of at least a majority of the trustees; and
(c) all of the beneficiaries of the trust are within the class of persons described in clause (a) of the definition of "Additional Category Permitted Client".
18. The Filer is a "market participant" as defined under the Legislation. As a market participant, among other requirements, the Filer is required to comply with the record keeping and provision of information provisions under the Legislation, which include the requirement to keep such books, records and other documents (a) as are necessary for the proper recording of business transactions and financial affairs, and the transactions executed on behalf of others, (b) as may otherwise be required under Ontario securities law, and (c) as may reasonably be required to demonstrate compliance with Ontario securities laws, and to deliver such records to the OSC if required.
19. The Filer is in compliance in all material respects with U.S. securities laws. The Filer is not in default of securities legislation in any jurisdiction in Canada.
The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that
(a) in the case of the exemption from the dealer registration requirement, the Filer complies with the terms and conditions of the international dealer exemption as if the Filer had made the trades to, with or on behalf of a permitted client in reliance on the international dealer exemption; and
(b) in the case of the exemption from the adviser registration requirement, the Filer complies with the terms and conditions of the international adviser exemption as if the Filer had provided such advice to a permitted client in reliance on the international adviser exemption;
It is further the decision of the principal regulator that this decision shall expire on the date that is the earlier of
(a) the date on which amendments to NI 31-103 come into force that address the subject matter of this decision; and
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to mutual funds for extensions of lapse dates of their prospectuses -- Filer will incorporate offering of the funds under the same offering documents when they are renewed -- Extensions of lapse dates will not affect the currency or accuracy of the information contained in the current prospectuses.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF SUN LIFE GLOBAL INVESTMENTS (CANADA) INC. (the Filer) AND IN THE MATTER OF THE FUNDS LISTED IN SCHEDULE A HERETO (the Funds)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the time limits for the renewal of the simplified prospectus of the Funds dated February 22, 2019 be extended to the time limits that would apply if the lapse date of the simplified prospectus of the Funds was July 18, 2020 (the Requested Relief).
2. The Filer is registered as: (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; (ii) a commodity trading manager in Ontario; (iii) a portfolio manager in Ontario; and (iv) a mutual fund dealer in each of the Jurisdictions.
3. The Filer is the trustee and manager of each of the Funds. The Filer is also the manager of 45 other Sun Life mutual funds as listed in Schedule B (the Other Funds) that are offered in each of the Jurisdictions under a simplified prospectus with a lapse date of July 18, 2020.
4. Neither the Filer nor any of the Funds is in default of securities legislation in any of the Jurisdictions.
5. Each of the Funds is an open-ended mutual fund trust established under the laws of Ontario or a class of a mutual fund corporation established under the laws of Ontario. Each of the Funds is a reporting issuer in each of the Jurisdictions.
6. Securities of the Funds are currently qualified for distribution in each of the Jurisdictions under the current simplified prospectus of the Funds dated February 22, 2019, as amended by amendment no. 1 dated May 24, 2019 (the Current Prospectus).
7. The lapse date for the Current Prospectus is February 22, 2020 (the Current Lapse Date). Accordingly, under the Legislation, the distribution of securities of each of the Funds would have to cease on the Current Lapse date unless: (i) the Funds file a pro forma simplified prospectus at least 30 days prior to its Current Lapse Date; (ii) the final simplified prospectus is filed no later than 10 days after its Current Lapse Date; and (iii) a receipt for the final simplified prospectus is obtained within 20 days after its Current Lapse Date.
8. The Filer wishes to combine the simplified prospectus of the Funds with the simplified prospectus of the Other Funds in order to reduce renewal, printing and related costs. Offering the Funds under the same renewal simplified prospectus and annual information form (the Prospectus Documents) as the Other Funds would facilitate the distribution of the Funds in the Jurisdictions under the same prospectus disclosure and enable the Filer to streamline disclosure across the Filer's fund platform. The Funds share many common operational and administrative features with the Other Funds and combining them in the same simplified prospectuses will allow investors to more easily compare the features of the Other Funds and the Funds.
9. The Filer may make changes to the features of the Other Funds as part of the process of renewing the Other Funds' Prospectus Documents. The ability to file the Prospectus Documents of the Funds with those of the Other Funds will ensure that the Filer can make the operational and administrative features of the Funds and the Other Funds consistent with each other, if necessary.
10. If the Requested Relief is not granted, it will be necessary to renew the Prospectus Documents of the Funds twice within a short period of time in order to consolidate the Prospectus Documents of the Funds with the Prospectus Documents of the Other Funds, and it would be unreasonable for the Filer to incur the costs and expenses associated therewith, given investors would not be prejudiced by the Requested Relief.
11. There have been no material changes in the affairs of the Funds since the date of the Current Prospectus. Accordingly, the Current Prospectus and current fund facts document(s) of each of the Funds continue to provide accurate information regarding the Funds.
12. Given the disclosure obligations of the Filer and the Funds, should any material change in the business, operations or affairs of the Funds occur, the Current Prospectus and current fund facts document(s) of the applicable Fund(s) will be amended as required under the Legislation.
13. New investors of the Funds will receive delivery of the most recently filed fund facts document(s) of the applicable Fund(s). The Current Prospectus will remain available to investors upon request.
14. The Requested Relief will not affect the accuracy of the information contained in the Current Prospectus or the respective fund facts document(s) of each of the Funds, and will therefore not be prejudicial to the public interest.
Sun Life Franklin Bissett Canadian Equity Class{*}
Sun Life Invesco Canadian Class{*}
{*} each a class of shares of Sun Life Global Investments Corporate Class Inc., a mutual fund corporation.
Sun Life BlackRock Canadian Balanced Class{*}
Sun Life BlackRock Canadian Composite Equity Class{*}
Sun Life BlackRock Canadian Equity Class{*}
Sun Life Money Market Class{*}
Sun Life Dynamic Equity Income Class{*}
Sun Life Dynamic Strategic Yield Class{*}
Sun Life MFS Dividend Income Class{*}
Sun Life Granite Conservative Class{*}
Sun Life Granite Moderate Class{*}
Sun Life Granite Balanced Class{*}
Sun Life Granite Balanced Growth Class{*}
Sun Life Granite Growth Class{*}
Sun Life MFS Canadian Equity Growth Class{*}
Sun Life Sentry Value Class{*}
Sun Life MFS U.S. Growth Class{*}
Sun Life MFS Global Growth Class{*}
Sun Life MFS International Growth Class{*}
NP 11-203 -- Relief granted from the requirement in section 6.1 of NI 81-102 that all portfolio assets of an investment fund must be held under the custodianship of one custodian -- Relief needed because plain reading of exemption in section 6.8.1 of NI 81-102 from the requirement in section 6.1 of NI 81-102 results in unintended consequences -- Relief permits mutual funds and alternative mutual funds to deposit portfolio assets with a borrowing agent as security in connection with a short sale of securities, if the aggregate market value of the portfolio assets held by the borrowing agent after such deposit, excluding the aggregate market value of the proceeds from outstanding short sales of securities held by the borrowing agent does not: (a) in the case of a mutual fund, other than an alternative mutual fund, exceed 10% of the net asset value of the mutual fund at the time of deposit; and (b) in the case of an alternative mutual fund, exceed 25% of the net asset value of the alternative mutual fund at the time of deposit.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GUARDIAN CAPITAL LP (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Guardian Strategic Income Fund (GSIF), any alternative mutual fund established in the future and managed by the Filer or an affiliate of the Filer (together with GSIF, the Alternative Mutual Funds) and any current or future mutual fund, other than an Alternative Mutual Fund, managed by the Filer or an affiliate of the Filer (each, a Mutual Fund and, together with the Alternative Mutual Funds, the Funds) for a decision under the securities legislation of the principal regulator (the Legislation) exempting the Funds from the requirement set out in subsection 6.1(1) of National Instrument 81-102 Investment Funds (NI 81-102) that provides that, except as provided in section 6.8, 6.8.1 and 6.9 of NI 81-102, all portfolio assets of an investment fund must be held under the custodianship of one custodian that satisfies the requirements of section 6.2, in order to permit a Fund to deposit portfolio assets with a borrowing agent that is not the Fund's custodian or sub-custodian in connection with a short sale of securities, if the aggregate market value of the portfolio assets held by the borrowing agent after such deposit, excluding the aggregate market value of the proceeds from outstanding short sales of securities held by the borrowing agent, does not:
1. The Filer is a limited partnership established under the laws of the Province of Ontario. The general partner of the Filer is Guardian Capital Inc., a corporation incorporated under the laws of the Province of Ontario. The Filer's head office is located in Toronto, Ontario.
2. The Filer is registered as a portfolio manager and exempt market dealer in each province of Canada and as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. The Filer is also registered as a commodity trading counsel and commodity trading manager in Ontario.
4. Since May 27, 2013, the series A, series F, series I and series X units of GSIF have been distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) in each Jurisdiction.
5. The Filer has filed a simplified prospectus, annual information form and fund facts (the Disclosure Documents) with respect to the series A, series F and series I units (the Units) of GSIF under which GSIF will distribute Units to the public, thereby becoming a reporting issuer under the securities legislation of the Jurisdictions except for Québec. In addition, GSIF will become subject to the requirements of NI 81-102 that relate to alternative mutual funds and to the requirements of NI 81-106 that apply to investment funds that are reporting issuers. The series X units of GSIF will continue to be offered only on a prospectus-exempt basis.
6. Each Fund is, or will be, a reporting issuer in one or more Jurisdictions and distributes its units to the public pursuant to disclosure documents prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure or National Instrument 41-101 General Prospectus Requirements.
7. None of the Filer, GSIF, or an existing Fund is in default of securities legislation in any Jurisdiction.
8. In connection with, among other things, the short sale of securities that the Funds will or may engage in, each Fund is permitted to grant a security interest in favour of, and deposit pledged portfolio assets with, the entity that acts as, among other things, a Prime Broker to it, whether the Fund is an Alternative Mutual Fund or a Mutual Fund.
9. Effective as of January 3, 2019, NI 81-102 was amended to include alternative mutual funds. The ability of alternative mutual funds to borrow cash and to sell short securities more extensively than other investment funds governed by NI 81-102 has led to the increased involvement of Prime Brokers in the operations of these alternative mutual funds. While the prime brokerage model works well in the exempt investment fund space, the prime brokerage community and investment fund managers are experiencing greater difficulties in applying that model to alternative mutual funds and other investment funds under NI 81-102.
10. Under section 6.8.1 of NI 81-102, if a Mutual Fund engages as its Prime Broker an entity that is not its custodian or sub-custodian, then it may only deliver to its Prime Broker portfolio assets having a market value, in the aggregate, of not more than 10% of the NAV of the Mutual Fund at the time of deposit. If an Alternative Mutual Fund engages as its Prime Broker an entity that is not its custodian or sub-custodian, then it may only deliver to its Prime Broker portfolio assets having a market value, in the aggregate, of not more than 25% of the NAV of the Alternative Mutual Fund at the time of deposit.
11. A Prime Broker may not wish to act as borrowing agent for a Mutual Fund that wants to sell short securities having an aggregate market value of up to 20% of the Mutual Fund's NAV if the Prime Broker is only permitted to hold as security for such transactions portfolio assets, including the proceeds from the short sale, having an aggregate market value that is not in excess of 10% of the NAV of the Mutual Fund.
12. The issue is even greater in the context of an Alternative Mutual Fund, as a Prime Broker will not want to act as borrowing agent for an Alternative Mutual Fund that wants to sell short securities having an aggregate market value of up to 50% of the Alternative Mutual Fund's NAV if the Prime Broker is only permitted to hold as security for such transactions portfolio assets, including the proceeds from the short sale, having an aggregate market value that is not in excess of 25% of the NAV of the Alternative Mutual Fund.
13. The prime brokerage operational and pricing models in the context of short selling are premised on the ability of the Prime Broker to retain, as collateral for the obligations of the applicable Fund, the proceeds from the short sales, whether such proceeds are cash or are used by the Fund to purchase other portfolio assets. These models are also based on the ability of the Prime Broker to hold additional assets of the Fund as collateral for those obligations.
14. Many Prime Brokers are not appointed as custodians or sub-custodians under NI 81-102, as it can be operationally challenging to appoint them to act in that capacity.
15. Given the collateral requirements that Prime Brokers impose on their customers that engage in the short sale of securities, if the 10% and 25% of NAV limitations set out in section 6.8.1 of NI 81-102 apply, then the Funds will need to retain two or more Prime Brokers in order to sell short securities to the extent permitted under section 2.6.1 of NI 81-102. This will result in inefficiencies for the Funds, increase their costs of operations, reduce returns and negatively impact investors.
16. While the collateral limits for the short sale of securities is currently topical in the context of alternative mutual funds, the Filer submits that there is no policy reason to differentiate between Alternative Mutual Funds and Mutual Funds to the extent that Mutual Funds also engage in the short selling of securities.
17. The Filer submits that it is not prejudicial to the public interest to grant the Exemption Sought.
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions relief granted from sections 15.6(1)(a)(i), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of National Instrument 81-102 Investment Funds to permit new exchange traded funds to include in their sales communications performance data from their terminating funds -- terminating funds are substantially similar to their continuing funds including investment strategies, objectives, expenses and fees -- relief granted from section 3B.2 of National Instrument 41-101 General Prospectus Disclosure for the purposes of relief requested from Items 2 and 5 of Part I of Form 41-101F4 Information Required in an ETF Facts Document, to permit the new funds to include in their respective ETF facts documents the past performance data for their respective terminating funds, Items 1.3 and 1.4 of Part 2 of Form 41-101F4 to permit the new funds to include in their respective ETF facts documents the expenses and fees of their respective terminating funds, and also item 17.2 of Form 41-101F2 Information Required in an Investment Fund Prospectus to permit the new funds to disclose the trading price and volume information of their respective terminating funds in their long-form prospectus -- relief granted from section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure for the purposes of the relief requested from Form 81-106F1, Items 3.1(1), 3.1(7), 3.1(8), 4.1(1), 4.1(2), 4.2(1), 4.2(2) and 4.3(1)(a) of Part B of Form 81-106F1, and Items 3(1) and 4 of Part C of Form 81-106F1, to permit exchange traded funds to include in annual and interim management reports of fund performance the financial highlights and past performance of the funds that are derived from the funds' annual financial statements that pertain to their respective terminating funds.
National Instrument 81-102 Investment Funds, ss. 15.6(1)(a)(i), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a), 15.9(2)(d) and 19.1.
National Instrument 41-101 General Prospectus Requirements, ss. 3B.2 and 17.1.
Item 17.2 of Form 41-101F2 Information Required in an Investment Fund Prospectus.
Items 2 and 5 of Part I of Form 41-101F4 and Item 1.3 and 1.4 of Form 41-101F4 Information Required in an ETF Facts Document.
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.1, 2.3, 4.4 and 17.1.
Items 3.1(1), 3.1(7), 3.1(8), 4.1(1), 4.1(2), 4.2(1), 4.2(2) and 4.3(1)(a) and 4.3(2) of Part B of Form 81-106F1 and Items 3(1) and 4 of Part C of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF HORIZONS ETFS MANAGEMENT (CANADA) INC. (the Filer) AND HORIZONS S&P/TSX 60TM INDEX ETF HORIZONS S&P 500® INDEX ETF HORIZONS S&P 500 CAD HEDGED INDEX ETF HORIZONS S&P/TSX CAPPED ENERGY INDEX ETF HORIZONS S&P/TSX CAPPED FINANCIALS INDEX ETF HORIZONS CDN SELECT UNIVERSE BOND ETF HORIZONS NASDAQ-100® INDEX ETF HORIZONS EURO STOXX 50® INDEX ETF HORIZONS CDN HIGH DIVIDEND INDEX ETF HORIZONS US 7-10 YEAR TREASURY BOND ETF HORIZONS US 7-10 YEAR TREASURY BOND CAD HEDGED ETF HORIZONS LADDERED CANADIAN PREFERRED SHARE INDEX ETF HORIZONS INTL DEVELOPED MARKETS EQUITY INDEX ETF HORIZONS EQUAL WEIGHT CANADA REIT INDEX ETF HORIZONS EQUAL WEIGHT CANADA BANKS INDEX ETF HORIZONS GOLD ETF HORIZONS SILVER ETF HORIZONS CRUDE OIL ETF HORIZONS NATURAL GAS ETF BETAPRO GOLD BULLION 2X DAILY BULL ETF BETAPRO GOLD BULLION -2X DAILY BEAR ETF BETAPRO CRUDE OIL 2X DAILY BULL ETF BETAPRO CRUDE OIL -2X DAILY BEAR ETF BETAPRO NATURAL GAS 2X DAILY BULL ETF BETAPRO NATURAL GAS -2X DAILY BEAR ETF BETAPRO SILVER 2X DAILY BULL ETF BETAPRO SILVER -2X DAILY BEAR ETF BETAPRO S&P/TSX 60TM 2X DAILY BULL ETF BETAPRO S&P/TSX 60TM -2X DAILY BEAR ETF BETAPRO S&P/TSX CAPPED FINANCIALSTM 2X DAILY BULL ETF BETAPRO S&P/TSX CAPPED FINANCIALS TM -2X DAILY BEAR ETF BETAPRO S&P/TSX CAPPED ENERGYTM 2X DAILY BULL ETF BETAPRO S&P/TSX CAPPED ENERGY TM -2X DAILY BEAR ETF BETAPRO NASDAQ-100® 2X DAILY BULL ETF BETAPRO NASDAQ-100® -2X DAILY BEAR ETF BETAPRO S&P 500® 2X DAILY BULL ETF BETAPRO S&P 500® -2X DAILY BEAR ETF BETAPRO CANADIAN GOLD MINERS 2X DAILY BULL ETF BETAPRO CANADIAN GOLD MINERS -2X DAILY BEAR ETF BETAPRO MARIJUANA COMPANIES 2X DAILY BULL ETF BETAPRO MARIJUANA COMPANIES INVERSE ETF BETAPRO S&P/TSX 60TM DAILY INVERSE ETF BETAPRO S&P 500® DAILY INVERSE ETF BETAPRO S&P 500 VIX SHORT-TERM FUTURESTM ETF (the Horizons ETFs or the Continuing Funds)
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Horizons ETFs, for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption from:
(a) item 17.2 of Form 41-101F2 Information Required in an Investment Fund Prospectus to permit the Horizons ETFs to disclose the trading price and volume information required thereunder of the respective Terminating Funds (as defined below) as their trading price and volume information (the Prior Sales Data);
(b) section 3B.2 of National Instrument 41-101 General Prospectus Requirements (NI 41-101) for the purposes of the relief requested herein from Form 41-101F4 Information Required in an ETF Facts Document (Form 41-101F4);
(c) item 2 of Part 1 of Form 41-101F4 to permit the Continuing Funds to disclose the Quick Facts, Trading Information and Pricing Information of the respective Terminating Funds as their Quick Facts, Trading Information and Pricing Information in the ETF facts document;
(d) item 5 of Part 1 of Form 41-101F4 to permit the Continuing Funds to use performance data of the respective Terminating Funds in the Year-by-year returns, Best and worst 3-month returns and Average return in the ETF facts document;
(e) items 1.3 and 1.4 of Part 2 of Form 41-101F4 to permit the Continuing Funds to use the information about the expenses and fees of the respective Terminating Funds in the ETF facts document;
(f) sections 15.6(1)(a)(i), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Continuing Funds to use performance data of the Terminating Funds in sales communications and reports to securityholders (collectively, the Fund Communications);
(g) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of the relief requested herein from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) for the Continuing Funds;
(h) sections 2.1 and 2.3 of NI 81-106 to permit the Continuing Funds to use the information required to be included in the financial statements of the Terminating Funds in the Continuing Funds' annual and interim financial statements; and
(i) items 3.1(1), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.9(2)(d) of NI 81-102, 4.1(2), 4.2(1), 4.2(2) and 4.3(1)(a) of Part B of Form 81-106F1 and items 3(1) and 4 of Part C of Form 81-106F1 to permit the Continuing Funds to include in their annual and interim management reports of fund performance the performance data and information derived from the financial statements, or otherwise derived, as applicable (collectively, the Financial Data) of their respective Terminating Funds,
(b) the Filer has provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Canadian Jurisdictions).
1. The Filer is a corporation existing under the laws of Canada, with its head office located in Toronto, Ontario. The Filer is a wholly-owned subsidiary of Mirae Asset Global Investments Co., Ltd.
2. The Filer is registered as (a) an investment fund manager in Newfoundland and Labrador, Ontario and Québec, (b) a portfolio manager in Alberta, British Columbia, Ontario and Québec (c) a dealer in the category of exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, (d) a commodity trading adviser in Ontario and (e) a commodity trading manager in Ontario.
3. The Filer is not in default of applicable securities legislation in any of the Canadian Jurisdictions.
4. The Filer is the manager and trustee of certain exchange traded funds (the Terminating Funds), currently structured as trusts, and is the manager and investment manager of the Continuing Funds.
5. The Filer's primary business is to act as manager and investment manager for the Terminating Funds, the Continuing Funds and other exchange traded funds in Canada.
6. Each of the Terminating Funds is an exchange traded mutual fund or alternative mutual fund established under the laws of the Province of Ontario.
7. Securities of the Terminating Funds are distributed in each of the Canadian Jurisdictions under long form prospectuses and ETF facts documents prepared in accordance with the requirements of NI 41-101 and NI 81-102, as applicable.
8. Each Terminating Fund is a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.
9. The Terminating Funds are subject to, among other laws and regulations, NI 81-102, NI 81-106 and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).
10. The Terminating Funds are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
11. Horizons ETF Corp. is a mutual fund corporation established under the laws of Canada. The authorized capital of the Company includes an unlimited number of non-cumulative, redeemable, non-voting classes of shares (each, a Corporate Class), issuable in an unlimited number of series, and one class of voting shares designated as "Class J Shares".
12. Each Horizons ETF will be a separate Corporate Class and initially consists of a single series of exchange traded fund shares (ETF Shares).
13. Securities of the Horizons ETFs will be distributed in each of the Canadian Jurisdictions under long form prospectuses and ETF facts documents prepared in accordance with the requirements of NI 41-101 and NI 81-102, as applicable.
14. Each Horizons ETF will be a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.
15. The Horizons ETFs will be subject to, among other laws and regulations, NI 81-102, NI 81-106 and NI 81-107.
16. The Horizons ETFs are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
17. The Filer has proposed to reorganize the Terminating Funds into the Continuing Funds before the end of 2019, subject to the approval of the securityholders of the Terminating Funds, at a special meeting to be held for that purpose.
18. The Filer separately filed an application on September 9, 2019 for pre-approval of the proposed merger (the Mergers) of the Terminating Funds into the Horizons ETFs. The Commission granted approval of the Mergers on October 24, 2019, provided that before implementing a Merger in respect of a particular Terminating Fund, the Filer obtains the prior approval of the securityholders of that Terminating Fund at a special meeting held for that purpose.
19. The Continuing Funds are being created for purposes of implementing the Mergers, and therefore:
a) the unitholders of Terminating Funds will have rights as shareholders of the Continuing Funds that are substantially similar in all respects to the rights they had as unitholders of the Terminating Funds;
b) the unitholders of the Terminating Funds will become holders of a corresponding class of ETF Shares of the relevant Continuing Fund, with the same aggregate net asset value as they held before the Mergers as unitholders of the relevant Terminating Fund;
c) the Continuing Funds will have fundamental investment objectives, as well as investment strategies, that are substantially similar in all material respects to the fundamental investment objectives and investment strategies of the corresponding Terminating Funds; and
d) the Continuing Funds will have fee structures and valuation procedures that are substantially similar to the fee structures and valuation procedures of the corresponding Terminating Fund.
20. As a result, notwithstanding the Mergers, the Continuing Funds will be managed in a manner which is substantially similar in all material respects to the manner in which the Terminating Funds have been managed.
21. The Terminating Funds' Independent Review Committee has reviewed the conflicts of interests matters associated with the Mergers, including the process to be followed in connection with such Mergers and the preservation of some or all of the Terminating Funds for the benefit of the holders of the Continuing Funds, and after reasonable inquiry has advised the Filer that, in its determination, if implemented, the Mergers achieve a fair and reasonable result for each of the Terminating Funds.
22. The Filer filed preliminary prospectuses and preliminary ETF facts documents dated October 11, 2019 with respect to the Continuing Funds.
23. The Continuing Funds will operate in accordance with NI 81-102, except for any exemptive relief that has been previously obtained.
24. As the Continuing Funds are new, the funds will not have their own past performance, price or trading data on the date the Mergers are implemented.
25. The Filer will not begin distribution of ETF Shares of the Continuing Funds prior to the completion of the Mergers.
26. As the Filer intends to cease distribution of the Terminating Funds following the Mergers, it does not intend to renew the Terminating Funds' prospectus under subsection 62(2) of the Securities Act (Ontario).
27. The Continuing Funds will be new funds. However, while the Continuing Funds will each have the same underlying assets and liabilities as the corresponding Terminating Funds, as new funds, they will not have their own Financial Data or Prior Sales Data as at the effective date of the Mergers. In order for the Mergers to be as seamless as possible for unitholders of the Terminating Funds, the Filer proposes that:
(a) the Continuing Funds will prepare annual management reports of fund performance commencing with the year ended December 31, 2019 and interim management reports of fund performance commencing with the six-month period ended June 30, 2020 using the relevant Terminating Funds' historical Financial Data; and
(b) the Continuing Funds will prepare comparative annual financial statements commencing with the year ended December 31, 2019 under section 2.1 of NI 81-106 using the relevant Terminating Funds' historical Financial Data.
28. The Financial Data and Prior Sales Data of the Terminating Funds is significant information which can assist investors in determining whether to purchase shares of the Continuing Funds. In the absence of the relief requested herein, investors will have no financial information (such as past performance) on which to base such an investment decision.
29. The Filer proposes to include the Prior Sales Data of the Terminating Funds in the applicable final prospectuses for the Continuing Funds.
30. The Filer proposes to include the performance data of each of the Terminating Funds in the corresponding Continuing Funds' Fund Communications and ETF facts document because the investment objectives and investment strategies employed by the Terminating Funds prior to the Mergers and the Continuing Funds after the Mergers are the same.
31. The Filer proposes to state that the Quick Facts, Trading Information and Pricing Information in the ETF facts document for each of the Continuing Funds is based upon the Quick Facts, Trading Information and Pricing Information of the corresponding Terminating Fund.
32. The Filer proposes to use information of the Terminating Funds for the purposes of performance data in the Year-by-year returns, Best and worst 3-month returns and Average return in the ETF facts document for each of the Continuing Funds.
33. The Filer proposes to use the information about the expenses and fees of the Terminating Funds in the ETF facts document for each of the Continuing Funds.
34. Each Continuing Fund will be indistinguishable from its corresponding Terminating Fund since the investment objectives, investment strategies and management fees attached to each continuing series of each Continuing Fund will be substantially similar in all material respects as the corresponding Terminating Fund.
35. The Filer is seeking to make the Mergers as seamless as possible for unitholders of the Terminating Funds. Accordingly, the Filer submits that treating each Continuing Fund as a continuation of the Terminating Fund for purposes of the above-mentioned information would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the differences between the Terminating Funds and the Continuing Funds. Any such disclosure would note that the performance includes information from the time that the Continuing Fund operated as a trust prior to the Mergers.
36. The Filer submits that investors will not be misled if the above mentioned information of each Continuing Fund reflects the information of the corresponding Terminating Fund.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that in respect of the Exemption Sought:
(a) the Continuing Funds' Fund Communications include the applicable performance data of the Terminating Funds prepared in accordance with Part 15 of NI 81-102;
(b) the Continuing Funds' prospectuses disclose that the Prior Sales Data is the Prior Sales Data of the corresponding Terminating Fund;
(c) the ETF facts document of each Continuing Fund:
(i) states that the Quick Facts, Trading Information and Pricing Information of the Continuing Fund is the Quick Facts, Trading Information and Pricing Information of the corresponding Terminating Fund and discloses the applicable Merger;
(ii) includes the performance data of the respective Terminating Fund in the Year-by-year returns, Best and worst 3-month returns and Average return prepared in accordance with Part 15 of NI 81-102;
(iii) includes the information about fees and expenses required by Form 41-101F4 of the respective Terminating Fund; and
(d) the management reports of fund performance for each Continuing Fund include the Financial Data of the Terminating Funds, pertaining to the corresponding class of the Terminating Funds, and disclose the Mergers for the relevant time periods.
Citation: 2009-IC-0019
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR CEASE TO BE A REPORTING ISSUER APPLICATIONS AND IN THE MATTER OF VALENER INC. (the Filer)
(b) the Filer has provided notice that subsection 4C.5(1) of Regulation 11-102 respecting Passport System (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador and in each of the Yukon, the Northwest Territories and Nunavut.
Holloway Lodging Corporation -- s. 1(6) of the OBCA
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT (ONTARIO) R.S.O. 1990, c. B.16, AS AMENDED (the OBCA) AND IN THE MATTER OF HOLLOWAY LODGING CORPORATION (the Applicant)
2. The Applicant has no intention to seek public financing by way of an offering of securities; and
3. On November 1, 2019, the Applicant was granted an order (the November 1, 2019 Order) by the Nova Scotia Securities Commission that it has ceased to be a reporting issuer in all of the jurisdictions of Canada in accordance with the simplified procedure set out in National Policy 11-206 -- Process for Cease to be a Reporting Issuer Applications. The representations set out in the November 1, 2019 Order continue to be true.
Callidus Capital Corporation -- s.1(6) of the OBCA
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT R.S.O. 1990, c. B.16, AS AMENDED (the OBCA) AND IN THE MATTER OF CALLIDUS CAPITAL CORPORATION (the Applicant)
3. On November 8, 2019, the Applicant was granted an order (the November 8, 2019 Order) pursuant to subparagraph 1(10)(a)(ii) of the Securities Act (Ontario) that it is not a reporting issuer in Ontario and is not a reporting issuer or equivalent in any other jurisdiction in Canada in accordance with the simplified procedure set out in National Policy 11-206 -- Process for Cease to be a Reporting Issuer Applications. The representations set out in the November 8, 2019 Order continue to be true.
iShares Core S&P U.S. Total Market Index ETF ("XUU")
iShares Core MSCI EAFE IMI Index ETF ("XEF")
iShares Core MSCI Emerging Markets IMI Index ETF ("XEC")
iShares Core MSCI All Country World ex Canada Index ETF ("XAW")
iShares Core MSCI US Quality Dividend Index ETF ("XDU")
iShares Core MSCI Global Quality Dividend Index ETF ("XDG")
iShares S&P U.S. Mid-Cap Index ETF ("XMC")
iShares Edge MSCI Min Vol USA Index ETF ("XMU")
iShares Edge MSCI Multifactor USA Index ETF ("XFS")
Amendment #3 to Final Long Form Prospectus dated November 14, 2019
Received on November 14, 2019
Final Shelf Prospectus (NI 44-102) dated November 12, 2019
NP 11-202 Receipt dated November 13, 2019
$300,000,000 -- Preferred Shares and Class A Shares
Project #2981059
Amendment #1 to Final Long Form Prospectus dated November 6, 2019
NP 11-202 Receipt dated November 12, 2019
Project #2862187
Project #2981052
Preliminary Simplified Prospectus dated Nov 13, 2019
NP 11-202 Preliminary Receipt dated Nov 14, 2019
Series B units, Series O units and Series F units
Project #2985908
Preliminary Long Form Prospectus dated Nov 13, 2019
Series L units
Project #2985914
Fidelity U.S. Growth Opportunities Investment Trust
Series P3 shares, Series E3 shares, Series T8 shares, Series E2 shares, Series P2 shares, Series B shares, Series F shares, Series F5 shares, Series E1 shares, Series P1 shares, Series O units, Series T5 shares, Series A shares, Series S8 shares, Series F8 shares and Series S5 shares
Project #2985873
NEI Select Income & Growth Portfolio (Series I units)
NEI Select Income & Growth RS Portfolio (Series I units)
NEI Select Balanced RS Portfolio (Series I units)
NEI Select Growth RS Portfolio (Series I units)
NEI Select Income RS Portfolio (I units)
NEI Tactical Yield Portfolio (Series I units)
NEI Jantzi Social Index® Fund) (Series O units)
NEI International Equity Fund (Series O units)
NEI U.S. Equity Fund (Series O units)
Amendment #1 to Final Simplified Prospectus dated November 8, 2019
NP 11-202 Final Receipt dated Nov 13, 2019
Series I units and Series O units
Amendment #2 to Final Annual Information Form dated November 8, 2019
NP 11-202 Final Receipt dated Nov 14, 2019
Amendment #3 to Final Simplified Prospectus dated November 12, 2019
Class A shares, Class AT8 shares, Class E shares, Class EF shares, Class EFT8 shares,
Class ET8 shares, Class F shares, Class FT8 shares, Class I shares, Class IT8 shares,
Class O shares, Class OT8 shares, Class P shares
Final Short Form Prospectus dated November 12, 2019
$75,000,000.00 -- 5.25% Senior Subordinated Unsecured Debentures
Project #2979951
Preliminary Long Form Prospectus dated November 18, 2019
NP 11-202 Preliminary Receipt dated November 18, 2019
$150,012,000.00
Project #2987745
Aphria Inc. (formerly, Black Sparrow Capital Corp.)
Amendment dated November 13, 2019 to Preliminary Shelf Prospectus dated August 23, 2019
NP 11-202 Preliminary Receipt dated November 13, 2019
Project #2955437
Preliminary Long Form Prospectus dated November 13, 2019
NP 11-202 Preliminary Receipt dated November 14, 2019
32,600,000 Class A Subordinate Voting Shares of Brookfield Infrastructure Corporation
Up to 46,300,000 Limited Partnership Units of Brookfield Infrastructure Partners L.P.
(issuable or deliverable upon exchange, redemption or purchase of Class A Subordinate Voting Shares)
Project #2986176
Project #2986180
Preliminary Long Form Prospectus dated November 14, 2019
NP 11-202 Preliminary Receipt dated November 15, 2019
44,700,000 Class A Subordinate Voting Shares of Brookfield Renewable Corporation
Project #2987334
Project #2987335
Preliminary Shelf Prospectus dated November 18, 2019
Received on November 18, 2019
Project #2987843
Final CPC Prospectus dated November 13, 2019
NP 11-202 Receipt dated November 15, 2019
Offering: $225,000.00
Project #2969686
Final Shelf Prospectus dated November 7, 2019
Final Short Form Prospectus dated November 15, 2019
NP 11-202 Receipt dated November 18, 2019
C$7,678,388,000.00 -- Offering of Rights to subscribe for 59,292,571,428 Common Shares at a Subscription Price of C$0.1295 per Common Share
Project #2983092
Final Shelf Prospectus dated November 15, 2019
Units Debt Securities Subscription Receipts Warrants
Final Long Form Prospectus dated November 14, 2019
NP 11-202 Receipt dated November 14, 2019
Preliminary Long Form Prospectus dated November 12, 2019
Yeon W. Seol
Project #2986090
TGOD Acquisition Corporation
Up to $3,216,578.00
Up to 6,433,156 Units Issuable upon Exercise of 6,433,156 Warrants
Project #2987044
Amendment dated November 7, 2019 to Preliminary Long Form Prospectus dated August 13, 2019
14,000,000 Common Shares issuable upon deemed exercise of 14,000,000 outstanding Subscription Receipts
Francisco Azvedo
Project #2951892
Preliminary Shelf Prospectus dated November 14, 2019
Project #2986340
Investment Industry Regulatory Organization of Canada (IIROC) -- Notice of Proposed Derivatives Rule Modernization, Stage 1 -- Request for Comment
NOTICE OF PROPOSED DERIVATIVES RULE MODERNIZATION, STAGE 1
IIROC is publishing for public comment proposed amendments to its Dealer Member related plain language rules arising from its derivatives rule modernization project, Stage 1. The stated objectives of the proposed amendments are to:
• ensure its rules continue to be materially harmonized with the equivalent Canadian Securities Administrators requirements as they apply to securities and derivatives;
• more clearly specify which of the core regulatory obligations apply to securities, listed derivatives and over-the-counter derivatives; and
• eliminate inconsistencies in the regulatory treatment of securities, listed derivatives and over-the-counter derivatives, where justified.
Due to the extent and nature of these proposed amendments, IIROC is publishing for public comment in two separate stages:
• Currently, Stage 1 includes all amendments IIROC proposes to make (other than those relating to margin requirements); and
• At a later date, Stage 2 will include proposed amendments relating to the margin requirements.
A copy of the IIROC Notice, including the text of the proposed amendments, is also published on our website at http://www.osc.gov.on.ca. The comment period ends on February 19, 2020.
Liquidnet Canada -- Notice of Proposed Changes
Comment on the proposed changes should be in writing and submitted by December 23, 2019 to
Fax : (416) 595-8940
As previously approved by the Commission, IIROC-registered brokers seeking to execute blocks (known as Liquidity Partners or LPs) can send resting orders in Canadian equities to the Liquidnet Canada ATS. LPs may elect whether or not to display their resting orders to matching buy-side contras via the Liquidnet desktop application. If an LP has elected to display its orders, a buy-side participant (known as a Member) with an opposite-side indication to an LP resting order can receive notification of the LP resting order as a broker block opportunity (denoted by a small indicator on the match notification). A broker block notification is only provided to a Member when the limit price specified by the LP for its buy resting order is at or above the mid-price, or when the limit price specified by the LP for its sell resting order is at or below the mid-price. If a notification is provided and the mid-price subsequently moves above the limit price of the LP's buy order, or below the limit price of the LP's sell order, this is indicated in the notification to the Member. Once notified, the Member can choose whether to act on a broker block opportunity by creating a resting order known as a "broker block accept." The minimum broker block execution quantity for Canadian equities is the lesser of 10,000 shares and $100,000 in value and, currently, all broker block executions occur at the mid-price.
If an LP has elected not to display its resting orders to buy-side contras, the LP's block orders will only execute against other actionable dark orders in the ATS (either other LP orders or buy-side orders). Regardless of whether an LP has elected to display or not, it may transmit resting orders on a firm or conditional basis and the execution fees to LPs are the same in both cases (currently $0.0020 per share).
Liquidnet Canada plans to make the following changes to broker blocks functionality:
• LP resting orders displayed to buy-side participants must be firm orders (while non-displayed orders may continue to be either firm or conditional orders);
• Fees charged to LPs for executions resulting from LP resting orders displayed to buy-side contras will be different and higher than fees for executions resulting from non-displayed LP resting orders{1}; and
• Buy-side participants will have the option to execute against LP resting orders at a price away from the mid-price, but within the best bid/ask (i.e., below the mid-price in the case of a buy-side sell order or above the mid-price in the case of a buy-side buy order). Buy-side participants may also opt to continue only executing against LP resting orders at the mid-price.
To be clear, with regard to the proposed change permitting buy-side participants to execute against an LP resting order at a price away from the mid-price, Liquidnet Canada will only permit such an execution if the buy-side order is for more than 50 standard trading units or has a value of more than CAD$100,000, as per UMIR Rule 6.6.{2}
Liquidnet Canada plans to implement the proposed changes for several reasons. First, Liquidnet Canada's European affiliate -- which also chiefly operates in attributed markets -- currently employs a similar broker blocks model with the goal of increasing actionable, i.e., firm, liquidity in the Liquidnet marketplace and providing buy-side participants with additional, i.e., non-mid, trading opportunities. Given the similarities in market structure between Canada and Europe, Liquidnet believes that this model is also well-suited to the Canadian market. Second, Liquidnet Canada also believes the proposed increase in fees to LPs associated with displayed orders is appropriate given the unique block liquidity in the Liquidnet Canada ATS only accessible via displayed LP orders.{3} And third, the proposed change will also discourage arbitrage behavior by brokers who may attempt to offer buy-side clients "equivalent" access to Liquidnet at a rate lower than Liquidnet's standard rate to buy-side firms participating directly on the Liquidnet Canada ATS.
In addition, Liquidnet's affiliates in both Europe and the United States currently permit buy-side participants -- at their option -- to execute against LP resting orders at prices away from the mid-price, so the proposed change will further harmonize broker blocks functionality across regions.
We foresee no adverse impact on market structure, subscribers, investors or the capital markets because the proposed changes should only increase actionable liquidity and trading opportunities in the Liquidnet Canada ATS for buy-side participants, with an associated fee to LPs that reflects the value of the natural block liquidity accessible via displayed LP orders. In this regard, it should also be noted that brokers are not required to send any order flow to a non-displayed marketplace like the Liquidnet Canada ATS, so brokers who may have objections to the proposed changes are free not to participate.
We foresee no adverse impact on Liquidnet Canada's compliance with Ontario securities laws or to requirements of fair access and the maintenance of a fair and orderly market. With regard to fair access, the proposed changes regarding different fees to LPs for executions resulting from displayed vs. non-displayed LP orders and requiring that all displayed LP orders be firm orders will apply uniformly to an entire class of subscribers, i.e., to all block order flow from LPs, so there will be no discrimination among broker participants. Similarly, the proposed change permitting buy-side participants to execute their block-size orders against LPs at prices other than the mid-price will be available to all buy-side Members, so there are no fair-access concerns with that aspect of the proposed changes.
Liquidnet Canada and its affiliates consulted with certain customers before proceeding with the proposed changes. The proposed changes were approved by the management of Liquidnet Canada.
The proposed change does not constitute a material change to "technology requirements regarding interfacing with or accessing the marketplace" within the meaning of Part 12.3 of NI 21-101 because subscribers and service vendors will not be required to do any significant amount of systems-related development work or testing to enable the proposed changes or fully interact with the Liquidnet Canada ATS as a result of the proposed change. More particularly, the proposed functionality has already been developed, tested and implemented in other jurisdictions, e.g., Europe, so Liquidnet Canada need only make minor back-end changes in order to implement the proposed change for Canada broker blocks.
The proposed changes to the broker blocks offering have been implemented by Liquidnet Canada's European affiliate.
{1} Pursuant to Section 3.2(2) of NI 21-101, Liquidnet Canada will separately submit a proposed amendment to Exhibit L to Form 21-101F2 regarding this contemplated fee change. At present, Liquidnet Canada plans to charge LPs $0.0050 per share for executions resulting from orders displayed to buy-side contras, while the fee to LPs for executions resulting from non-displayed orders would remain at the current rate of $0.0020 per share.
{2} Liquidnet Canada will also take into account the approved amendments to UMIR Rule 6.6 (effective February 4, 2020) as per IIROC Notice 19-0134, which add a minimum order value of CAD$30,000 to the current volume threshold of 50 standard trading units.
{3} Non-displayed orders will generally result in fewer trading opportunities for LPs (and their underlying customers) when compared to displayed orders.