Securities Law & Instruments

Headnote

 

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from s.13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit inter-fund trades between public and exempt mutual funds, public and exempt closed-end funds, and managed accounts managed by the same or affiliated managers – Inter-fund trades subject to conditions, including IRC approval and pricing requirements – Trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules.

 

Applicable Legislative Provisions

 

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5, 15.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).

 

May 15, 2017

 

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

CI INVESTMENTS INC.

(the Filer)

 

DECISION

 

Background

 

The principal regulator in the Jurisdiction has received an application from the Filer for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer, or an affiliate of the Filer, (collectively, the Investment Portfolio Managers and, individually, an Investment Portfolio Manager) from subparagraphs 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit:

 

(a)           each Fund (as defined below) to purchase securities from, or sell securities to, the investment portfolio of another Fund where the second Fund is:

 

(i)            an associate of an Investment Portfolio Responsible Person (as defined below) of the first Fund; or

 

(ii)           an investment fund for which an Investment Portfolio Responsible Person of the first Fund acts as an adviser;

 

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price (as defined below) in lieu of the closing sale price contemplated by the definition of “current market price of the security” in subparagraph 6.1(1)(a)(i) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) on that trading day (the Closing Sale Price);

 

(b)           an account over which an Investment Portfolio Manager has discretionary authority (each, a Managed Account) to purchase securities from, or sell securities to, the investment portfolio of a Fund where the Fund is:

 

(i)            an associate of an Investment Portfolio Responsible Person of the Managed Account; or

 

(ii)           an investment fund for which an Investment Portfolio Responsible Person of the Managed Account acts as an adviser;

 

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price;

 

(collectively, the Inter-Fund Trades).

 

The Filer is also requesting that the Original Decision (as defined below) be revoked and replaced with the Exemption Sought (the Revocation).

 

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

 

(a)           the Ontario 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 each of the other provinces and territories of Canada (the Other Jurisdictions and, together with the Jurisdiction, the Jurisdictions).

 

Interpretation

 

Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 31-103, NI 81-102 or NI 81-107 have the same meaning if used in this decision, unless otherwise defined. In addition, the following terms as used in this decision have the following meanings.

 

Exempt Fund means an existing or future investment fund for which an Investment Portfolio Manager is the investment fund manager, adviser and/or trustee and to which NI 81-102 does not apply.

 

Investment Portfolio Responsible Person means, in respect of a Fund or Managed Account, (i) the Investment Portfolio Manager of the Fund or Managed Account, as applicable, and (ii) an affiliate of such Investment Portfolio Manager that has access to, or participates in formulating, an investment decision made on behalf of, or advice to be given to, the Fund or Managed Account, as applicable.

 

Last Sale Price means the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade.

 

NI 81-102 Fund means an existing or future investment fund for which an Investment Portfolio Manager is the investment fund manager, adviser and/or trustee and to which NI 81-102 applies.

 

Fund means an NI 81-102 Fund and/or an Exempt Fund, as applicable.

 

Representations

 

1.             The Filer is a corporation subsisting under the laws of Ontario with its head office located in Toronto, Ontario. The Filer is registered:

 

(a)           under the securities legislation of all provinces of Canada as a portfolio manager;

 

(b)           under the securities legislation of Ontario, Québec, and Newfoundland and Labrador as an investment fund manager;

 

(c)           under the securities legislation of Ontario as an exempt market dealer; and

 

(d)           under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.

 

2.             An Investment Portfolio Manager is, or will be, the investment fund manager of each Fund. An Investment Portfolio Manager is, or will be, the adviser of each Fund and each Managed Account. An Investment Portfolio Manager may also be the trustee of a Fund constituted as a trust.

 

3.             The Filer is not in default of securities legislation in any Jurisdiction, except with respect to a registration matter in certain Jurisdictions for which registration applications have been filed.

 

The Funds

 

4.             Each Fund is, or will be, an investment fund that is a trust, a corporation or a limited partnership established under the laws of Canada or a Jurisdiction.

 

5.             Each NI 81-102 Fund is, or will be, a reporting issuer in one or more Jurisdictions and is, or will be, subject to NI 81-102.

 

6.             The securities of the Exempt Funds are, or will be, distributed on a private placement basis pursuant to the securities legislation of one or more Jurisdictions. The Exempt Funds are not, and will not be, reporting issuers and are not, and will not be, subject to NI 81-102.

 

7.             A Fund may be an associate of an Investment Portfolio Responsible Person.

 

Managed Accounts

 

8.             The Managed Accounts are, or will be, managed pursuant to investment management agreements or other documentation which are or will be executed by each client who wishes to receive the portfolio management services of an Investment Portfolio Manager and which provide the Investment Portfolio Manager full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute the trade.

 

9.             Each client of a Managed Account will not be a ‘responsible person’ as defined in NI 31-103.

 

10.          The investment management agreement or other documentation in respect of each Managed Account will contain the authorization from the client for the Investment Portfolio Manager of the Managed Account to purchase securities from, or sell securities to, the investment portfolio of a Fund.

 

Independent Review Committee

 

11.          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 between an NI 81-102 Fund and another Fund or a Managed Account will be referred to the relevant IRC of the NI 81-102 Fund under subsection 5.2(1) of NI 81-107.

 

12.          Though the Exempt Funds are not subject to the requirements of NI 81-107, each Exempt Fund has, or will have, an IRC at the time the Exempt Fund relies upon the Exemption Sought. Certain Exempt Funds have already established an IRC in order to comply with conditions attached to the Original Decision. The mandate of the IRC of each Exempt Fund will include approving Inter-Fund Trades.

 

13.          The IRC of the Exempt Funds is, or will be, comprised in accordance with section 3.7 of NI 81-107 and is, or will be, expected to comply with the standard of care set out in section 3.9 of NI 81-107. The IRC of an Exempt Fund will not approve a purchase or sale of securities between the Exempt Fund and another Fund or a Managed Account unless the IRC has made the determination in the same manner as set out in subsection 5.2(2) of NI 81-107.

 

Inter-Fund Trades

 

14.          When an Investment Portfolio Manager engages in an Inter-Fund Trade, it will generally comply with the following procedures:

 

(a)           the portfolio manager will deliver the trading instructions for the Inter-Fund Trade to a trader on a trading desk;

 

(b)           upon receipt of the trade instructions, the trader on the trading desk will execute the trade as an Inter-Fund Trade in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 provided that, for exchange-traded securities, the Inter-Fund Trade may be executed at the Last Sale Price of the security in lieu of the Closing Sale Price;

 

(c)           the policies applicable to the trading desk will require that all orders be executed on a timely basis; and

 

(d)           the trader on the trading desk will advise the portfolio manager of the price at which the Inter-Fund Trade occurs.

 

15.          Each Inter-Fund Trade will be consistent with the investment objectives of the relevant Fund or Managed Account, as applicable.

 

16.          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.

 

17.          The Investment Portfolio Managers of the NI 81-102 Funds 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 available to the NI 81-102 Funds only if, among other conditions, the trade involves two investment funds to which NI 81-107 applies (which is not the case when an Exempt Fund or a Managed Account is the other party to the transaction).

 

18.          The Investment Portfolio Managers of the Exempt Funds and the Managed Accounts 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 to the Exempt Funds and the Managed Accounts.

 

19.          If the IRC of a Fund becomes aware of an instance where the Filer, or an affiliate of the Filer, in its capacity as the investment fund manager of the Fund, 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 Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Fund is organized.

 

20.          It would be in the best interests of the Funds and Managed Accounts, as applicable, if an Inter-Fund Trade could be made, in the Investment Portfolio Manager’s discretion, 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.

 

The Original Decision

 

21.          The Filer previously received relief from paragraph 13.5(2)(b) of NI 31-103 pursuant to a decision dated March 16, 2010 (the Original Decision). Subject to the terms and conditions described therein, the Original Decision permits the Funds and Managed Accounts to engage in various Inter-Fund Trades with other Funds and Managed Accounts at the Closing Sale Price.

 

22.          The Exemption Sought differs from the relief granted by the Original Decision in that it allows transactions in exchange-traded securities to be executed at the Last Sale Price in lieu of the Closing Sale Price. Accordingly, the Filer wishes to revoke the Original Decision and replace it with a new decision granting the Exemption Sought.

 

Decision

 

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

 

(a)           the Revocation is granted; and

 

(b)           the Exemption Sought is granted provided that:

 

(i)            each Inter-Fund Trade is consistent with the investment objectives of the relevant Fund or the Managed Account, as applicable;

 

(ii)           the manager of each Fund involved in the Inter-Fund Trade refers the Inter-Fund Trade to the IRC of the Fund in the manner contemplated by section 5.1 of NI 81-107, and the applicable IRC 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;

 

(iii)          in the case of an Inter-Fund Trade between Funds:

 

(A)           the IRC of each Fund approves the Inter-Fund Trade in respect of the Fund in accordance with the terms of subsection 5.2(2) of NI 81-107; and

 

(B)           the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that, for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price; and

 

(iv)          in the case of an Inter-Fund Trade between a Managed Account and a Fund:


(A)           the IRC of the Fund approves the Inter-Fund Trade in respect of such Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;

 

(B)           the investment management agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade; and

 

(C)          the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that, for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price.

 

“Vera Nunes”

Manager, Investment Funds and Structured Products

Ontario Securities Commission