Section 80 of the Commodity Futures Act (Ontario) -- International adviser exempted from the adviser registration requirement in section 22(1)(b) of the CFA where such adviser acts as an adviser in respect of commodity futures contracts or commodity futures options (commodities) for certain institutional investors in Ontario -- Commodities are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada.
Terms and conditions on exemption ruling correspond to the relevant terms and conditions on the comparable exemption from the adviser registration requirement available to international advisers in respect of securities set out in section 8.26 of NI 31-103 Registration Requirements and Exemptions -- Exemption also subject to a "sunset clause" condition.
Securities Act, R.S.O. 1990, c. S.5, as am.
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 1(1), 22(1)(b), 80.
National Instrument 31-103 Registration Requirements and Exemptions, s. 8.26.
July 23, 2010
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
IN THE MATTER OF
JEFFERIES ASSET MANAGEMENT, LLC
(Section 80 of the CFA)
UPON the application (the "Application") of Jefferies Asset Management, LLC (the "Applicant") to the Ontario Securities Commission (the "Commission") pursuant to section 80 of the CFA that the Applicant and any individuals engaging, in or holding themselves out as engaging in, the business of advising others on the Applicant's behalf (the "Representatives") be exempt from the requirement to register under 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 requirement in the CFA that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under the CFA;
"CFTC" means the United States Commodity Futures Trading Commission;
"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;
"NFA" means the United States National Futures Association;
"NI 31-103" means National Instrument 31-103 Registration Requirements and Exemptions, as amended;
"OSA" means the Securities Act, R.S.O. 1990, c. S.5, as amended;
"OSA Adviser Registration Requirement" means the requirement in the OSA that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under the OSA;
"Permitted Client" has the meaning ascribed to that term in subsection 8.26(2) [international adviser] of NI 31-103;
"SEC" means the United States Securities and Exchange Commission; and
"U.S. Advisers Act" means the United States Investment Advisers Act of 1940.
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 of America. The Applicant's head office and principal place of business are located in the United States of America.
2. The Applicant is a specialized portfolio manager that manages investments for institutional investors across multiple strategies and financial instruments. The Applicant is part of the Jefferies group of companies, a global institutional securities and investment banking group. As at December 31, 2009, the Applicant and its affiliates had over US$3.4 billion in assets under management.
3. The Applicant is registered in the United States with the SEC as an investment adviser under the U.S. Advisers Act.
4. The Applicant is not registered under the OSA and relies on the International Adviser Exemption to advise Permitted Clients in Ontario with respect to foreign securities.
5. The Applicant is registered with the CFTC as a commodity trading advisor and is an approved member of the NFA. The Applicant engages in the business of commodity trading advising in the United States.
6. The Applicant is not registered in any capacity under the CFA.
7. Institutional investors that are Permitted Clients seek to engage the Applicant as a discretionary investment manager for purposes of implementing certain specialized investment strategies.
8. The Applicant seeks to act as a discretionary investment manager on behalf of prospective institutional investors that are Permitted Clients. The proposed advisory services would include the use of specialized investment strategies employing Foreign Contracts.
9. Were the proposed advisory services limited to securities, the Applicant could rely on the International Adviser Exemption and carry out such activities on behalf of Permitted Clients on a basis that would be exempt from the OSA Adviser Registration Requirement.
10. There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the International Adviser Exemption under NI 31-103. Consequently, in order to advise Permitted Clients in Ontario as to trading in Foreign Contracts, the Applicant would be required to satisfy the CFA Adviser Registration Requirement and would have to apply for registration in Ontario as an adviser under the CFA in the category of commodity trading manager.
11. The Applicant submits that it would not be prejudicial to the public interest for the Commission to grant the requested relief as:
(a) the Applicant will only advise Permitted Clients as to trading in Foreign Contracts;
(b) Permitted Clients seek to access certain specialized portfolio management services provided by the Applicant, including advice on trading Foreign Contracts;
(c) the Applicant meets the prescribed conditions to rely on the International Adviser Exemption in connection with the provision of advice to Permitted Clients with respect to foreign securities; and
(d) the Applicant would provide advice to Permitted Clients as to trading in Foreign Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the International Adviser Exemption.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed,
IT IS ORDERED pursuant to Section 80 of the CFA that the Applicant and its Representatives are not subject to the requirements of paragraph 22(1)(b) of the CFA in respect of the provision of advice to Permitted Clients as to the trading of Foreign Contracts, for a period of five years, provided that:
1. the Applicant provides advice to Permitted Clients only as to trading in Foreign Contracts and does not advise in Canada as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts;
2. the Applicant's head office or principal place of business remains in the United States;
3. the Applicant remains registered in the United States in a category of registration that permits it to carry on the activities in the United States that registration as an adviser under the CFA Adviser Registration Requirement would permit it to carry on in Ontario;
4. the Applicant continues to engage in the business of adviser, as defined in the CFA, in the United States;
5. 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 is derived from the portfolio management activities of the Applicant, its affiliates and its affiliated partnerships in Canada;
6. 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 the local jurisdiction to provide the advice described under paragraph 1 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;
(v) the name and address of the Applicant's agent for service of process in Ontario;
7. the Applicant has submitted to the Commission a completed Form 31-103F2 Submission to Jurisdiction and Appointment of Agent for Service;
8. the Permitted Client is a resident of Canada; and
9. by December 1 of each year, the Applicant notifies the Commission if it is relying on the exemption from registration granted pursuant to this order.