Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to a sub-adviser headquartered in a foreign jurisdiction in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions -- Relief mirrors exemption available in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations made under the Securities Act (Ontario) -- Relief is subject to a sunset clause.

June 8, 2018

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA) AND IN THE MATTER OF WELLINGTON MANAGEMENT CANADA ULC AND WELLINGTON MANAGEMENT COMPANY LLP

ORDER (Section 80 of the CFA)

UPON the application (the Application) of Wellington Management Company LLP (the Sub-Adviser) and Wellington Management Canada ULC (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services (as defined below) (the Representatives) be exempt, for a specified period of time, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser for the benefit of the Clients (as defined below) regarding commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges and cleared through clearing corporations;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Principal Adviser and the Sub-Adviser having represented to the Commission that:

1. The Principal Adviser is an unlimited liability company continued under the Business Corporations Act (British Columbia) with its head office located in Toronto, Ontario.

2. The Principal Adviser is registered as:

(a) an adviser in the category of portfolio manager and a dealer in the category of exempt market dealer under the Securities Act (Ontario) (the OSA) and under the respective securities legislation of each of the remaining provinces of Canada; and

(b) an adviser in the category of commodity trading manager under the CFA.

3. The Sub-Adviser is a limited liability partnership organized under the laws of the State of Delaware, with its principal place of business located in Boston, Massachusetts in the United States. The Sub-Adviser is registered with the Securities and Exchange Commission of the United States of America as an investment adviser and as a commodity trading adviser and swap firm with the United States Commodity Futures Trading Commission (CFTC). The Sub-Adviser is a member firm of the National Futures Association in the United States. The Sub-Adviser is also registered as a Foreign Portfolio Investor with the Securities Board of India. The Sub-Adviser's permitted activities pursuant to its registration with the CFTC include, among other things, advising on Contracts.

4. The Sub-Adviser is not resident in any province or territory of Canada.

5. The Sub-Adviser and the Principal Adviser are affiliates, as defined in the OSA.

6. The Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodity futures or other applicable legislation of the jurisdiction in which its head office is located that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario. As such, the Sub-Adviser is authorized and permitted to carry on the Sub-Advisory Services (as defined below) in the jurisdiction in which its head office is located.

7. The Sub-Adviser engages in the business of an adviser in respect of Contracts in its principal jurisdiction.

8. The Sub-Adviser is not registered in any capacity under the CFA or under the securities legislation of any province or territory of Canada. However, the Sub-Adviser is currently availing itself, or will avail itself, of the sub-adviser registration exemption in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

9. The Principal Adviser and the Sub-Adviser are not in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada. The Sub-Adviser is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws in the jurisdiction in which its head office or principal place of business is located.

10. The Principal Adviser provides, or may provide, discretionary and/or non-discretionary portfolio management services in Ontario to (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (Retail Funds); (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus Exemptions (Pooled Funds); (iii) managed accounts of clients who have entered into investment management agreements with the Principal Adviser (Managed Accounts); and (iv) other Retail Funds, Pooled Funds and Managed Accounts that may be established in the future in respect of which the Principal Adviser engages the Sub-Adviser to provide portfolio advisory services (the Future Clients) (each of the Retail Funds, Pooled Funds, Managed Accounts and Future Clients being referred to individually as a Client and collectively as the Clients).

11. Clients may, as part of their investment program, invest in Contracts. The Principal Adviser acts, or will act, as a commodity trading manager in respect of such Clients.

12. In connection with the Principal Adviser acting as an adviser to a Client in respect of the purchase or sale of Contracts, the Principal Adviser has retained, or will retain, the Sub-Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, to act as a sub-adviser to the Principal Adviser in respect of Contracts in which the Sub-Adviser has experience and expertise by exercising discretionary authority on behalf of the Principal Adviser, in respect of all or a portion of the assets of the investment portfolio of the respective Client, which may include discretionary authority to buy or sell Contracts for the Client (the Sub-Advisory Services), provided that:

(a) in each case, the Contracts are cleared through an "acceptable clearing corporation" (as defined in National Instrument 81-102 Investment Funds, or any successor thereto (NI 81-102)) or a clearing corporation that clears and settles transactions made on a futures exchange listed in Appendix A of NI 81-102; and

(b) such investments are consistent with the investment objectives and strategies of the applicable Client.

13. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA or is registered as a representative, a partner or an officer of a registered adviser and is acting on behalf of such registered adviser.

14. By providing the Sub-Advisory Services, the Sub-Adviser and its Representatives will be engaging in, or holding themselves out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA.

15. There is presently no rule or regulation under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in subsection 25(3) of the OSA which is provided under section 8.26.1 of NI 31-103.

16. The Sub-Adviser will only provide the Sub-Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.

17. The relationship among the Principal Adviser, the Sub-Adviser and a Client is, or will be, consistent with the requirements of section 8.26.1 of NI 31-103, namely that:

(a) the obligations and duties of the Sub-Adviser are, or will be, set out in a written agreement with the Principal Adviser;

(b) the Principal Adviser has entered into, or will enter into, a written contract with each Client, agreeing to be responsible for any loss that arises out of the failure of the Sub-Adviser:

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and each Client; or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations).

18. The written agreement between the Principal Adviser and the Sub-Adviser sets out, or will set out, the obligations and duties of each party in connection with the Sub-Advisory Services and permits, or will permit, the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Sub-Adviser in respect of the Sub-Advisory Services.

19. The Principal Adviser will deliver to the Clients all required reports and statements under applicable securities, commodity futures and derivatives legislation.

20. The prospectus or other offering document (in either case, the Offering Document) of each Client that is a Retail Fund or a Pooled Fund and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services includes, or will include, the following disclosure (the Required Disclosure):

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

21. Prior to purchasing any securities of one or more of the Clients that are Retail Funds or Pooled Funds directly from the Principal Adviser, all investors in these Retail Funds or Pooled Funds who are Ontario residents will receive the Required Disclosure in writing (which may be in the form of an Offering Document).

22. Each Client that is a Managed Account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will receive the Required Disclosure in writing prior to the purchasing of any Contracts for such Client.

AND UPON the Commission being of the opinion that to do so would not be prejudicial to the public interest:

IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the adviser registration requirements in paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services provided that at the time that such activities are engaged in:

(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) the Sub-Adviser's head office or principal place of business is in a jurisdiction outside of Canada;

(c) the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodity futures or other applicable legislation of the jurisdiction outside of Canada in which its head office or principal place of business is located, that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario;

(d) the Sub-Adviser engages in the business of an adviser in respect of Contracts in the jurisdiction outside of Canada in which its head office or principal place of business is located;

(e) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(f) the Principal Adviser has entered into a written agreement with each Client, agreeing to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(g) the Offering Document of each Client that is a Retail Fund or Pooled Fund and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services includes the Required Disclosure;

(h) prior to purchasing any securities of a Client that is a Retail Fund or a Pooled Fund directly from the Principal Adviser, each investor in any of these Retail Funds or Pooled Funds who is an Ontario resident has received the Required Disclosure in writing (which may be in the form of an Offering Document); and

(i) each Client that is a Managed Account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services has received the Required Disclosure in writing prior to the purchasing of any Contracts for such Client; and

IT IS FURTHER ORDERED that this Order will terminate on the earliest of:

(a) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;

(b) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the ability of the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services; and

(c) five years after the date of this Order.

Dated at Toronto, Ontario, this 8th of June, 2018

"Janet Leiper"
Commissioner
Ontario Securities Commission
 
"William Furlong"
Commissioner
Ontario Securities Commission