Desjardins Investments Inc.

Decision

Policy Statement 11-203 respecting Process for Exemptive Relief Applications in Multiple Jurisdictions: Relief from subsection 4.1(2) of Regulation 81-102 to permit mutual funds to purchase securities of related entities on primary and secondary market, subject to conditions.

Applicable Legislative Provisions

Regulation 81-102 respecting Investment Funds, ss. 4.1(2), 19.1.

[TRANSLATION]

May 29, 2018

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
(the Jurisdictions)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
DESJARDINS INVESTMENTS INC.
(the Filer)

AND

THE DESJARDINS FUNDS
(as defined below)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation), pursuant to section 19.1 of Regulation 81-102 respecting Investment Funds (chapter V-1.1, r.39) (Regulation 81-102), exempting the Desjardins Funds from the restriction contained in subsection 4.1(2) of Regulation 81-102 to permit the Desjardins Funds to purchase non-exchange-traded debt securities of Related Issuers (as defined below) having a designated rating within the meaning of that term in Regulation 81-102, in a Primary Offering (as defined below) and in the secondary market (the Exemption Sought).

Under the process of Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a)           the Autorité des marchés financiers is the principal regulator for this application,

(b)           the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System (chapter V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in each of the jurisdictions of Canada other than the Jurisdictions (the Other Jurisdictions); and

(c)           the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions (chapter V-1.1 r. 3), Regulation 11-102 and Regulation 81-102 have the same meaning if used in this decision, unless otherwise defined.

Desjardins Funds means all investment funds subject to Regulation 81-102 and any investment fund subject to Regulation 81-102 subsequently established in the future for which the Filer or an affiliate of the Filer acts, or will act, as investment fund manager.

IRC means the independent review committee established in accordance with Regulation 81-107 Respecting Independent Review Committee for Investment Funds (chapter V-1.1, r. 43) (Regulation 81-107).

Primary Offering means a primary distribution or treasury offering of non-exchange-traded debt securities of a Related Issuer.

Operation means a purchase of securities made in a Primary Offering or in the secondary market pursuant to this decision.

Related Issuer means an issuer of which a partner, director, officer or employee of the dealer manager of the Desjardins Funds, or of an affiliate or associate of the dealer manager is a partner, director or officer.

Representations

This decision is based on the following facts represented by the Filer:

The Filer and DSI

1.             The Filer’s head office is located in Montréal, Québec

2.             The Filer is registered as an investment fund manager in the Provinces of Québec, Ontario and Newfoundland and Labrador.

3.             The Filer is currently an affiliate of Desjardins Securities Inc. (DSI), and may become an associate or affiliate of additional dealers in the future.

4.             DSI is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and is registered as an investment dealer in each of the jurisdictions of Canada, as a futures commission merchant in both provinces of Ontario and Manitoba and as a derivatives dealer in the province of Québec.

5.             DSI is not in default of securities legislation in any jurisdiction of Canada.

6.             The Filer is not in default of securities legislation in any jurisdiction of Canada.

The Desjardins Funds

7.             The Filer is the investment fund manager of the existing Desjardins Funds. The Filer or an affiliate of the Filer may, in the future, become the investment fund manager of future Desjardins Funds.

8.             Each Desjardins Fund, has, or will have, a simplified prospectus and an annual information form prepared in accordance with Regulation 81-101 respecting Mutual Fund Prospectus Disclosure (chapter V-1.1, r. 38).

9.             Each Desjardins Fund is, or will be, qualified for distribution in each of the jurisdictions of Canada and is, or will be, a reporting issuer under the securities legislation of each of the jurisdictions of Canada.

10.          Either an associate of the Filer, an affiliate of the Filer or a third-party portfolio manager or sub-adviser is, or will be, the portfolio manager or sub-adviser to each of the Desjardins Funds.

11.          Currently, Desjardins Global Asset Management Inc. (DGAM) acts as portfolio manager of the existing Desjardins Funds. DGAM is registered as a portfolio manager in each of the jurisdictions of Canada and as an exempt market dealer in the Jurisdictions and in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, and Nova Scotia.

12.          DGAM is not in default of securities legislation in any jurisdiction of Canada.

13.          None of the existing Desjardins Funds are in default of securities legislation in any jurisdiction of Canada.

The Exemption Sought

14.          The principal shareholder of DSI holds directly or indirectly more than 10% of the total votes attaching to the securities of DGAM.

15.          Based on the facts above, all of the Desjardins Funds may be dealer managed investment funds within the meaning of Regulation 81-102, as the portfolio manager of the Desjardins Funds may be a dealer manager within the meaning of Regulation 81-102.

Reasons supporting the Exemption Sought

16.          A director, officer or employee of the Filer that acts as the investment fund manager of a Desjardins Fund, or a director, officer or employee of an associate or an affiliate of the Filer that acts as the portfolio manager of a Desjardins Fund, may also be a director or officer of a Related Issuer of the Filer.

17.          Subsection 6.2(2) of Regulation 81-107 provides an exemption from the investment fund conflict of interest investment restrictions as defined in Regulation 81-102 for purchases of Related Issuers securities if the purchase is made on an exchange. The Desjardins Funds are permitted to invest in exchange-traded securities of Related Issuers pursuant to subsection 6.2(2) of Regulation 81-107. However, subsection 6.2(2) of Regulation 81-107 does not provide an exemption from subsection 4.1(2) of Regulation 81-102 and it does not provide an exemption for purchases of non-exchange-traded debt securities.

18.          The Related Issuers are or may be significant issuers of investment grade quality fixed income securities in the debt market. The Filer considers that it would be in the best interest of the Desjardins Funds to have access, on the terms and conditions described herein, to non-exchange-traded debt securities of the Related Issuers with a designated rating by a designated rating organization as defined in Regulation 81-102, for the reasons set out below:

(a)           there is a limited supply of non-government debt securities which have a designated rating by a designated rating organization as defined in Regulation 81-102; and

(b)           diversification is reduced to the extent that a Desjardins Fund is limited with respect to investment opportunities; and

(c)           investing in debt securities of Related Issuers is a fundamentally distinct investment and cannot simply be replicated by investing in other securities of similarly situated issuers that are unrelated to the Desjardins Funds. A Desjardins Fund may be prejudiced if it cannot purchase, in either a Primary Offering or the secondary market, non-exchange-traded debt securities of a Related Issuer that are consistent with the Desjardins Fund’s investment objectives.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

1.             At the time of each transaction, the transaction is consistent with or necessary to meet the investment objectives of the Desjardins Fund, and represents the business judgment of the portfolio manager of the Desjardins Fund uninfluenced by considerations other than the best interests of the Desjardins Fund or in fact is in the best interests of the Desjardins Fund.

2.             The Filer or an affiliate of the Filer, acting as manager of the Desjardins Funds, complies with section 5.1 of Regulation 81-107 and the Filer or an affiliate of the Filer and the IRC of the Desjardins Funds comply with section 5.4 of Regulation 81-107 for any standing instructions the IRC provides in connection with the Operations.

3.             The IRC of the Desjardins Fund has approved the transaction in accordance with subsection 5.2(2) of Regulation 81-107.

4.             The IRC of the Desjardins Funds complies with the obligation provided by section 4.5 of Regulation 81-107 for any Operation.

5.             No later than the time a Desjardins Fund files its annual financial statements, the Filer or an affiliate of the Filer, as manager of the Desjardins Funds, files with the securities regulatory authority the particulars of any such Operation.

6.             If the Operation is made in a Primary Offering:

(i)            the debt securities are non-exchange-traded debt securities, other than asset backed commercial paper securities, with a term to maturity of 365 days or more and is purchase in a Primary Offering where the terms, such as the size and the pricing are a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document;

(ii)           the size of the Primary Offering is at least $100 million;

(iii)           at least two purchasers who are independent and at arm's-length, which may include an independent underwriter as defined in Regulation 33-105 respecting Underwriting Conflicts (chapter V-1.1, r. 11) purchase collectively at least 20% of the Primary Offering;

(iv)          no Desjardins Fund shall participate in the Primary Offering, if following its Operation, the Desjardins Fund would have more than 5% of its net assets invested in non-exchange-traded debt securities of the Related Issuer;

(v)           no Desjardins Fund shall participate in the Primary Offering, if following its Operation, the Desjardins Fund, together with other Desjardins Funds will hold more than 20% of the securities issued under the Primary Offering;

(vi)          the price paid for the non-exchange-traded debt securities by the Desjardins Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's-length purchasers who participate in the Primary Offering; and

(vii)         the non-exchange-traded debt security has been given and continues, at the time of the Operation, to have a designated rating by a designated rating organization within the meaning of those terms in Regulation 81-102;

7.             If the Operation occurs in the secondary market:

(i)            the price payable for the security is not more than the ask price of the security;

(ii)           the ask price of the security is determined as follows:

(A)           if the Operation occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or

(B)           if the Operation does not occur on a marketplace:

(I)            the Desjardins Fund may pay the price for the security, at which an independent, arm’s-length seller is willing to sell the security, or

(II)           if the Desjardins Fund does not purchase the security from an independent, arm’s-length seller, the Desjardins Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the Operation, at least one quote from an independent, arm’s-length purchaser or seller and not pay more than that quote; and,

(iii)           the security has been given and continues, at the time of the Operation, to have a designated rating by a designated rating organization as defined in Regulation 81-102; and

(iv)          the transaction complies with any applicable market integrity requirements as defined in paragraph 6.1(1)(b) of Regulation 81-107.

“Hugo Lacroix”
Senior Director, Investment Funds
Autorité des marchés financiers