Securities Law & Instruments

Headnote

Multilateral Instrument11-102 section 4.7(1)- Exemption granted for limited time period from requirement to include 100% of amount guaranteed on Line 11 of Form 31-102 F1 -- Loan and inter-corporate guarantee in place prior to National Instrument 31-103 requirements -- Conditions concerning not holding client assets and increased financial reporting.

Applicable Legislative Provisions

Multilateral Instrument 11-102, s. 4.7(1).

National Instrument 31-103, ss. 12.1, 15.1.

September 8, 2010

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

ARROWSTREET CAPITAL, LIMITED PARTNERSHIP

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), in particular, under section 15.1 of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103), that the requirement for a registered firm to deduct 100% of the total amount of any guarantee that it has provided when calculating its excess working capital in Form 31-103F1 Calculation of Excess Working Capital pursuant to section 12.1 of NI 31-103 (the 100% Guarantee Deduction Requirement) does not apply to the Filer (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 decision; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Nova Scotia and Quebec (the Non-Principal Jurisdictions, and, together with the Jurisdiction, the Passport Jurisdictions).

Interpretation

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

Representations

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

The Filer

1. The Filer is a private limited partnership formed under the laws of the Commonwealth of Massachusetts on June 16, 1999;

2. the Filer's head office is located in Boston, Massachusetts, United States of America (U.S.);

3. the Filer is a wholly-owned subsidiary, directly and indirectly, of Arrowstreet Capital Holding LLC (Holding). Holding is a limited liability company that was formed under the laws of the State of Delaware for the sole purpose of holding an ownership interest in the Filer;

4. the same individuals comprise the mind and management of the Filer and Holding;

5. the Filer's principal business activity and purpose is to engage in the investment advisory and investment management business. The Filer generates the majority of its revenue by providing advisory services to customers in the U.S., Canada and other countries. Fees for such services comprise asset based management advisory fees and, in some cases, incentive/performance fees;

6. in the U.S., the Filer is registered as an investment adviser with the U.S. Securities and Exchange Commission, registered as a commodity trading advisor with the U.S. Commodity Futures Trading Commission, and is a member of the U.S. National Futures Association to provide discretionary investment advisory services to sophisticated institutional investors and investment funds;

7. in Canada, the Filer is registered as an unrestricted portfolio manager and commodity trading manager in Ontario, registered as a portfolio manager, subject to terms and conditions, in Alberta (for securities and exchange contracts) and Nova Scotia, and relying on the international adviser registration exemption in section 8.26 of NI 31-103 in British Columbia and Quebec, respectively, to provide advisory services to clients resident in the Passport Jurisdictions;

8. as at the date of this decision, the highest number of the Filer's Canadian clients reside in Ontario;

The Guarantee

9. in May 2006, a syndicate of lenders having ING Capital LLC as lead agent, made a commercial loan to the Filer's parent company, Holding (the Commercial Loan), so that the ownership interests of all non-management owners of the Filer could be redeemed;

10. as of June 30, 2010, the outstanding principal amount of the Commercial Loan was approximately U.S.$34.6 million;

11. the Commercial Loan will be fully repaid by Holding on December 31, 2012;

12. payments by Holding on the Commercial Loan are funded from the Filer's operations;

13. every quarter, the Filer provides Holding with approximately U.S.$3.5 million to pay down the principal amount of the Commercial Loan;

14. to date, Holding has never failed to pay all amounts owing in respect of the Commercial Loan, and Holding does not anticipate having any difficulty in continuing to pay all such amounts until the Commercial Loan is paid in full by Holding on December 31, 2012;

15. the Filer has guaranteed payment by Holding of the Commercial Loan (the Guarantee);

16. to date, the Filer has never had to make a payment under the Guarantee;

17. the Guarantee will automatically terminate on December 31, 2012 when the Commercial Loan is fully repaid by Holding;

18. if required to make payments under the Guarantee, Holding and Filer would expect to be able to make other arrangements to repay the Commercial Loan within two calendar quarters;

19. under separate cover, the Filer has provided the Principal Regulator with a copy of its audited financial statements for the year ended December 31, 2009 in which both the Commercial Loan and the Guarantee are described in the notes; and

20. the Filer is currently not in default of any of its obligations under the securities legislation of the Passport Jurisdictions.

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 the Exemption Sought is granted as long as:

(a) When calculating its excess working capital in Form 31-103F1, the Filer will deduct the Canadian equivalent of U.S.$7 million on line 11 which is the aggregate amount that the Filer must provide to Holding for Holding to pay down the principal amount of the Commercial Loan for two quarters and as at the date hereof, is roughly equal to 20% of the total amount of the Guarantee;

(b) as a supplement to the Filer satisfying its financial reporting obligations in Part 12, Division 4, of NI 31-103, the Filer will also provide to the Principal Regulator, on a confidential and quarterly basis until December 31, 2012: (i) a copy of each of the Filer's and Holding's unaudited financial statements; (ii) the Filer's unaudited excess working capital calculation in Form 31-103F1 showing excess working capital greater than zero following a deduction of the Canadian equivalent of U.S.$7 million on line 11; and (iii) a written certification that the Filer is not aware of any circumstance which may result in the accelerated payment of the Commercial Loan by Holding, or any payment by the Filer under the Guarantee;

(c) the Filer will immediately notify the Principal Regulator if it becomes aware that the accelerated payment of the Commercial Loan by Holding, or any payment by the Filer under the Guarantee, may or will occur;

(d) the Filer continues to be a wholly-owned subsidiary of Holding; and

(e) the Filer does not hold any client assets;

provided that this decision will have no further force and effect after December 31, 2012.

"Erez Blumberger"
Deputy Director
Registrant Regulation
Ontario Securities Commission