Securities Law & Instruments


NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption granted to a commodity pool from margin deposit limit contained in paragraph 6.8(2)(c) of National Instrument 81-102. Exemption granted to permit commodity pools to invest in derivatives in the U.S. through their portfolio manager that, in turn, will use U.S. future commission merchants. Exemption conditional on the amount of margin deposited not exceeding 20% of the net assets of the fund and on all margin deposited with U.S. futures commission merchants being held in segregated accounts.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 6.8(2)(c), 19.1.

December 19, 2008




(the Jurisdiction)








(the Filer)



(the Fund)




The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation), for relief pursuant to the section 19.1 exempting the Fund from the margin deposit limit contained in paragraph 6.8(2)(c) of NI 81-102 (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this 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 each of the provinces and territories of Canada, other than Quebec (the Jurisdictions).


Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.


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

1. The Fund is an open-end mutual fund trust established under the laws of British Columbia. The Fund is not in default of securities legislation in any of the Jurisdictions.

2. Units of the Fund are sold and distributed in all of the Jurisdictions pursuant to a prospectus dated August 21, 2008.

3. The Fund is a "commodity pool" as is defined in section 1.1 of National Instrument 81-104.

4. The investment objective of the Fund is to provide superior returns through investment in a diversified portfolio of securities, exchange traded funds (ETFs), commodities and derivative instruments while utilizing money management techniques that include limiting risk and percentage capital commitment to any one trade. The Fund will use ETFs and derivatives instruments such as standardized futures contracts that will be based on equity indices, foreign exchange, financial instruments and traditional commodities including, but not limited to, minerals, metals, energies, forest products and agricultural products. The Fund will also invest in debt securities guaranteed by the Canadian government which will be used to support the Fund's derivative positions.

5. The Fund will take both long and short positions in the portfolio on exchanges in the United States, Canada and elsewhere around the world. The Fund will apply leverage.

6. The Filer is the manager and trustee of the Fund, and is a corporation originally incorporated under the laws of the Province of British Columbia and continued under the Canada Business Corporations Act. The Filer is not in default of securities legislation in any of the Jurisdictions.

7. JovInvestment Management Inc., (the Investment Manager) acts as the investment manager of the Fund and is a corporation incorporated under the laws of Ontario.

8. The Investment Manager may engage in specified derivative transactions outside of Canada.

9. Subject to the prior written approval of Horizons, the Investment Manager is authorized to establish, maintain, change and close brokerage accounts on behalf of the Fund. In order to facilitate specified derivatives transactions outside of Canada, the Fund has established accounts (each an Account) with futures commission merchants in the United States (the FCM).

10. Each FCM is regulated by the Commodity Futures Trading Commission (the CFTC) and the National Futures Association (the NFA) in the United States, and is required to segregate all assets held on behalf of clients, including the Fund. Each FCM is subject to audits and must have insurance to guard against employee fraud. Each FCM has an exchange assigned to it as its designated self-regulatory organization (the DSRO). As a member of a DSRO, each FCM must meet capital requirements, comply with the conduct rules of the CFTC, NFA and its DSRO, and participate in an arbitration process with a complainant.

11. Each FCM is a member of the clearing corporations and exchanges that the standardized futures in the Fund's portfolio are primarily traded through. Each clearing corporation is obliged to apply its surplus funds and the security deposits of its members to reimburse clients of failed members.

12. Each FCM requires, for each Account, that cash and/or government securities be deposited with the FCM as collateral for specified derivatives transactions (Margin). Margin represents the minimum amount of funds that must be deposited with the FCM to initiate trading in specified derivatives transactions or to maintain the FCM's open position in standardized futures.

13. Each FCM is required to hold all Margin, including cash and government securities, in segregated accounts and the Margin is not available to satisfy claims against the FCM made by parties other than the Fund.

14. Margin will be deposited with an FCM in respect of standardized futures traded on exchanges.

15. Levels of Margin are established at the FCM's discretion.

16. The use of Margin allows the Fund to use leverage to invest in standardized futures more extensively than if no leverage was used.

17. The use of leverage is in accordance with the investment objectives and investment restrictions of the Fund.


The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) the amount of Margin deposited does not, when aggregated with the amount of Margin already held by the FCMs on behalf of a Fund, exceed 20% of the net assets of the Fund, taken at market value as at the time of the deposit; and

(b) all Margin deposited with the FCMs is held in segregated accounts and is not available to satisfy claims against an FCM made by parties other than the Filer or the Fund.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission