Securities Law & Instruments

Headnote

 

Section 80 of the Commodity Futures Act (Ontario) – Foreign adviser exempted from the adviser registration requirement in paragraph 22(1)(b) of the CFA where such adviser acts as an adviser in respect of commodity futures contracts or commodity futures options (Contracts) for certain investors in Ontario who meet the definition of “permitted client” in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – Contracts are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada.

 

Terms and conditions of exemption correspond to the relevant terms and conditions of the comparable exemption from the adviser registration requirement available to international advisers in respect of securities set out in section 8.26 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – Exemption also subject to a “sunset clause” condition.

 

Applicable Legislative Provisions

 

Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 1(1), 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 1.1, 8.26.

Ontario Securities Commission Rule 13-502 Fees.

 

January 15, 2019

 

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

 

AND

 

IN THE MATTER OF

NWQ INVESTMENT MANAGEMENT COMPANY, LLC

 

ORDER

(Section 80 of the CFA)

 

UPON the application (the Application) of NWQ Investment Management Company, LLC (the Applicant) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA (the Order), that the Applicant, and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the Applicant’s behalf (the Representatives), be exempt, for a specified period of time, from the adviser registration requirement in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;

 

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

 

AND WHEREAS for the purposes of this Order:

 

“CFA Adviser Registration Requirement” means the provisions of section 22 of the CFA that prohibit a person or company from acting as an adviser with respect to trading in Contracts unless the person or company is registered in the appropriate category of registration under the CFA;

 

“CFTC” means the Commodity Futures Trading Commission of the United States;

 

“Contract” has the meaning ascribed to that term in subsection 1(1) of the CFA;

 

“Foreign Contract” means a Contract that is primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;

 

“International Adviser Exemption” means the exemption set out in section 8.26 of NI 31-103 from the OSA Adviser Registration Requirement;

 

“NI 31-103” means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, as amended from time to time;

“OSA” means the Securities Act, R.S.O. 1990, c. S.5, as amended from time to time;

 

“OSA Adviser Registration Requirement” means the provisions of section 25 of the OSA that prohibit a person or company from acting as an adviser with respect to investing in, buying or selling securities unless the person or company is registered in the appropriate category of registration under the OSA;

 

“Permitted Client” means a client in Ontario that is a “permitted client”, as that term is defined in section 1.1. of NI 31-103, except that for purposes of this Order such definition shall exclude a person or company registered under the securities or commodities futures legislation of a jurisdiction of Canada as an adviser or dealer;

 

“Previous Order” means the exemption from the CFA Adviser Registration Requirement in respect of providing advice to Permitted Clients as to the trading of Foreign Contracts (subject to certain terms and conditions), granted by the Commission to the Applicant on January 17, 2014, and expiring on January 17, 2019;

 

“SEC” means the Securities and Exchange Commission of the United States;

 

“specified affiliate” has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information;

 

“U.S. or United States” means the United States of America; and

 

“U.S. Advisers Act” means the Investment Advisers Act of 1940 of the United States, as amended from time to time.

 

AND UPON the Applicant having represented to the Commission that:

 

1.             The Applicant is a limited liability company organized under the laws of the State of Delaware, United States. The Applicant’s principal place of business is located in Los Angeles, California.

 

2.             The Applicant is an indirect, wholly-owned, subsidiary of Teachers Insurance and Annuity Association of America, the principal office of which is located in New York, New York.

 

3.             The Applicant is registered in the United States with the SEC as an investment adviser under the U.S. Advisers Act and is exempted from registration as a commodity trading adviser with the CFTC.

 

4.             The Applicant engages in the business of an adviser with respect to securities and with respect to other investments, including Contracts, in California and its other offices in the United States. As of December 31, 2017, the Applicant managed approximately U.S.$12.2 billion in assets.

 

5.             The Applicant provides its advisory services in a broad array of fixed income, equity and other investment strategies, including: government securities of the U.S. and other countries; debt securities, preferred securities, and equity securities of U.S. and non-U.S. companies, including depository receipts of these securities; convertible securities; exchange traded funds and shares of mutual funds; securities of master limited partnerships; shares of business development companies; and money market instruments including certificates of deposit, time deposits, bankers acceptances notes, commercial paper, repurchase agreements, and money market funds. Depending on the particular strategy, the Applicant may invest in a variety of securities and other financial instruments, including, in certain cases, derivatives, and employ various methods of analysis and investment techniques. In the United States, the Applicant instructs trades for fixed income futures, commodity futures, options on equity securities, options on commodity futures, and credit default swaps, all on a limited basis for a variety of strategies.

 

6.             The Applicant is registered in a category of registration, or operates under an exemption from registration, under the applicable securities legislation or commodity futures legislation of the United States that permits it to carry on the activities in the United States that registration as an adviser under the CFA in the category of commodity trading manager would permit it to carry on in Ontario.

 

7.             The Applicant advises Permitted Clients with respect to foreign securities in reliance on the International Adviser Exemption and therefore is not registered under the OSA.

 

8.             The Applicant is not registered in any capacity under the CFA.

 

9.             In reliance on, and in accordance with the terms and conditions of, the Previous Order, the Applicant provides discretionary advisory services to Permitted Clients in respect of Foreign Contracts in connection principally with respect to foreign currency and interest rate futures, options, and forwards.

 

10.          As it does pursuant to the Previous Order, the Applicant proposes to continue providing advisory services in respect of Foreign Contracts to Permitted Clients (Advisory Services).

 

11.          The Applicant is not in default of securities legislation, commodity futures legislation, or derivatives legislation of any jurisdiction in Canada. The Applicant is in compliance in all material respects with the securities laws, commodity futures laws, and derivatives laws of the United States.

 

12.          If the advisory services were being provided by the Applicant with respect to securities (as defined in subsection 1(1) of the OSA), the Applicant would be able to rely on the International Adviser Exemption to provide such services to Permitted Clients on a basis that would be exempt from the OSA Adviser Registration Requirement.

 

13.          There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the International Adviser Exemption. Consequently, in the absence of the Order, the Applicant would be required to satisfy the CFA Adviser Registration Requirement to provide the Advisory Services by applying for and obtaining registration in Ontario as an adviser under the CFA in the category of commodity trading manager.

 

14.          In connection with the Previous Order, the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service substantially in the form attached as Appendix “A” to the Order.

 

15.          To the best of the Applicant’s knowledge, the Applicant confirms that there are currently no regulatory actions of the type contemplated by the Notice of Regulatory Action attached as Appendix “B” to the Order, except as otherwise disclosed to the Commission.

 

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make this Order.

 

IT IS ORDERED, pursuant to section 80 of the CFA, that the Applicant and the Representatives are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of providing advice to Permitted Clients as to the trading of Foreign Contracts, provided that:

 

(a)           the Applicant provides advice to Permitted Clients only as to trading in Foreign Contracts and does not advise any Permitted Client as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts;

 

(b)           the Applicant’s head office or principal place of business remains in the United States;

 

(c)           the Applicant is registered in a category of registration, or operates under an exemption from registration, under the applicable securities legislation or commodity futures legislation of the United States, that permits it to carry on the activities in the United States that registration as an adviser under the CFA in the category of commodity trading manager would permit it to carry on in Ontario;

 

(d)           the Applicant continues to engage in the business of an adviser, as defined in the CFA, in the United States;

 

(e)           as at the end of the Applicant’s most recently completed financial year, not more than 10% of the aggregate consolidated gross revenue of the Applicant, its affiliates, and its affiliated partnerships (excluding the gross revenue of an affiliate or affiliated partnership of the Applicant if the affiliate or affiliated partnership is registered under securities legislation, commodity futures legislation, or derivatives legislation of a jurisdiction of Canada) was derived from the portfolio management activities of the Applicant, its affiliates, and its affiliated partnerships in Canada (which, for greater certainty, includes both securities-related and commodity futures-related activities);

 

(f)            before advising a Permitted Client with respect to Foreign Contracts, the Applicant notifies the Permitted Client of all of the following:

 

(i)            the Applicant is not registered in Ontario to provide the advice described under paragraph (a) of this Order;

 

(ii)           the foreign jurisdiction in which the Applicant’s head office or principal place of business is located;

 

(iii)           all, or substantially all, of the Applicant’s assets may be situated outside of Canada;

 

(iv)          there may be difficulty enforcing legal rights against the Applicant because of the above; and

 

(v)           the name and address of the Applicant’s agent for service of process in Ontario;

(g)           the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix “A”;

 

(h)           the Applicant notifies the Commission of any regulatory action initiated after the date of this Order with respect to the Applicant or, to the best of the Applicant’s knowledge and after reasonable inquiry, any predecessors or the specified affiliates of the Applicant by filing Appendix “B” within 10 days of the commencement of each such action; and

 

(i)            if the Applicant is not subject to the requirement to pay a participation fee in Ontario because it is not registered under the OSA and does not rely on the International Adviser Exemption, by December 31st of each year, the Applicant pays a participation fee based on its specified Ontario revenues for its previous financial year in compliance with the requirements of Part 3 and section 6.4 of Ontario Securities Commission Rule 13-502 Fees as if the Applicant relied on the International Adviser Exemption; 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 Applicant to act as an adviser to a Permitted Client; and

 

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

 

DATED at Toronto, Ontario this 15th day of January, 2019.

 

“Cecilia Williams”

 Commissioner

Ontario Securities Commission

“AnneMarie Ryan”

Commissioner

Ontario Securities Commission

 


 

APPENDIX “A”

 

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

 

INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM

REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO

 

1.             Name of person or company (“International Firm”):

 

2.             If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

 

3.             Jurisdiction of incorporation of the International Firm:

 

4.             Head office address of the International Firm:

 

5.             The name, e-mail address, phone number and fax number of the International Firm’s individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

 

Name:

E-mail address:

Phone:

Fax:

6.             The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the “Relief Order”):

 

 Section 8.18 [international dealer]

 Section 8.26 [international adviser]

 Other [specify]:

7.             Name of agent for service of process (the “Agent for Service”):

 

8.             Address for service of process on the Agent for Service:

 

9.             The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a “Proceeding”) arising out of or relating to or concerning the International Firm’s activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

 

10.          The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm’s activities in the local jurisdiction.

 

11.          Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator:

 

(a)           a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;

 

(b)           an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service;

 

(c)           a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.

12.          This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

 


 

Dated: __________________________

____________________________________________________________

(Signature of the International Firm or authorized signatory)

____________________________________________________________

(Name of signatory)

____________________________________________________________

(Title of signatory)

 


 

Acceptance

 

The undersigned accepts the appointment as Agent for Service of ____________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

 

Dated: ___________________________

 

____________________________________________________________

(Signature of the Agent for Service or authorized signatory)

____________________________________________________________

(Name of signatory)

____________________________________________________________

(Title of signatory)

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

 

https://www.osc.gov.on.ca/filings

 


 

APPENDIX “B”

 

NOTICE OF REGULATORY ACTION

 

1.             Settlement agreements

 

Has the firm, or any predecessors or specified affiliates[1] of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

 

Yes _____ No _____

 

If yes, provide the following information for each settlement agreement:

 

Name of entity

Regulator/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

 

2.             Disciplinary history

 

Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

 

 

Yes

No

(a)           Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

___

___

(b)           Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

___

___

(c)           Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

___

___

(d)           Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

___

___

(e)           Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

___

___

(f)            Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

___

___

(g)           Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g., cease trade order)?

___

___

 

If yes, provide the following information for each action:

 

Name of entity

Type of action

Regulator/organization

Date of action (yyyy/mm/dd)

Reason for action

Jurisdiction

3.             Ongoing investigations

 

Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?

 

Yes _____ No _____

 

If yes, provide the following information for each investigation:

 

Name of entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

 

Authorized signing officer or partner

 

Name of firm

Name of firm’s authorized signing officer or partner

Title of firm’s authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

Witness

 

The witness must be a lawyer, notary public or commissioner of oaths.

 

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

 

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

 

https://www.osc.gov.on.ca/filings

 

 



[1]       Terms defined in Form 33-506F6 Firm Registration to Ontario Securities Commission Rule 33-506 (Commodity Futures Act) Registration Information have the same meaning if used in this Appendix except that any reference to “firm” means the person or company relying on relief from the requirement to register as an adviser or dealer under the Commodity Futures Act (Ontario).