Mutual reliance review systemfor exemptive relief applications - Portfolio manager exemptedfrom the dealer registration requirements in the Legislationin respect of trades in shares or units of mutual funds managedby portfolio manager, made by portfolio manager through itsofficers and employees acting on its behalf, to managed accounts,subject to terms and conditions.
Published Documents Cited
MRRS DECISION DOCUMENT
WHEREAS the local securitiesregulatory authority or regulator (individually, a "DecisionMaker", and, collectively, the "Decision Makers")in each of the provinces and territories of British Columbia,Alberta, Saskatchewan, Ontario, Nova Scotia, New Brunswick,Prince Edward Island, Newfoundland and Labrador, Yukon, NorthwestTerritories and Nunavut (the "Jurisdictions") hasreceived an application (the "Application") from TDAsset Management Inc. ("TDAM"), for a decision thatthe requirement (the "Dealer Registration Requirement")in the Legislation that prohibits a person or company from tradingin a security unless the person or company is registered inthe appropriate category of registration under the Legislationshould not apply in respect of any trades, in shares or unitsof a mutual fund (a "TDAM Fund") that is managed byTDAM, made by TDAM to a client account of TDAM that is a ManagedAccount (as defined below):
AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this Application;
AND WHEREAS TDAM hasrepresented to the Decision Makers that:
1. TDAM is a corporation incorporatedunder the Business Corporations Act (Ontario) and conductsan investment management business offering passive, quantitative,enhanced and active portfolio management services to a largeand diversified client base. TDAM currently has assets undermanagement of approximately $116 billion.
2. TDAM is a wholly-ownedsubsidiary of The Toronto-Dominion (the "TD Bank"),a bank listed in Schedule I to the Bank Act (Canada).
3. TDAM conducts its portfoliomanagement operations (the "Portfolio Management Operations")in accordance with adviser registrations under the Legislationof each Jurisdiction, except Prince Edward Island. TDAM isalso currently registered as a mutual fund dealer under theLegislation of each Jurisdiction.
4. TDAM is also registeredas a limited market dealer under the Legislation of each ofOntario and Newfoundland and Labrador, and as a commoditytrading manager under the Legislation of Ontario.
5. TDAM is the trustee, manager,and promoter of the "TD Mutual Funds" and "TDPrivate Funds", all of which are offered for sale bymeans of simplified prospectuses and annual information formsthat have been prepared and filed in accordance with the Legislationof each Jurisdiction. The TD Mutual Funds currently consistof 97 different mutual funds which are offered for sale toretail investors by TD Investment Services Inc. (as a resultof the restructuring described in paragraph 11) directly,through TD Canada Trust branches and via the Internet. TheTD Private Funds currently consist of 17 different mutualfunds which are used for servicing accounts which are fullymanaged by TDAM. The TD Private Funds allow TDAM to pool theassets of fully managed accounts in order to reduce the costof administering such accounts so that TDAM's individuallymanaged account services can be offered to individuals whocould not otherwise gain access to such services.
6. TDAM is also the manager,principal distributor and promoter of the "Emerald PooledFunds", some of which are offered for sale by means ofsimplified prospectuses and annual information forms thathave been prepared and filed in accordance with the Legislationof all Jurisdictions. The Emerald Pooled Funds currently consistof 27 different mutual funds which are only offered for saleto institutional investors, members of corporate sponsoredgroup plans and accounts that are fully managed by TDAM.
7. As a mutual fund dealer,TDAM is subject to the requirements under the Legislationof British Columbia, Alberta, Saskatchewan, Ontario and NovaScotia (each, an "MFDA Jurisdiction") that wouldrequire TDAM, in order to maintain its registration as a mutualfund dealer under the Legislation of each MFDA Jurisdiction,to apply for, and ultimately obtain, membership in eitherthe Investment Dealers Association or the Mutual Fund Dealers'Association of Canada ( the "MFDA").
8. Upon becoming a memberof the MFDA, TDAM would be required to comply with the Rules(the "MFDA Rules") and by-laws of the MFDA.
9. Section 2.3.1 of the MFDARules provides that no member shall accept or act upon a generalpower of attorney or other similar authorization from a clientin favour of the member. Section 2.3.1 is complemented bysection 2.3.4 of the MFDA Rules which provides that the formof limited trading authorization contemplated by section 2.3.2of the MFDA Rules may not in any way confer general discretionarytrading authority upon a member.
10. The effect of the MFDARules is to preclude mutual fund dealers such as TDAM fromtrading in securities of mutual funds in an MFDA Jurisdictionand at the same time acting as advisers and accepting discretionaryportfolio management mandates.
11. TD Investment ServicesInc. ("TDIS"), a corporation incorporated underthe laws of Ontario, was incorporated by The Toronto-DominionBank as its subsidiary for the purpose of acquiring, and continuingto conduct TDAM's mutual fund distribution operations (the"Distribution Operations") in each of the Jurisdictions.
12. TDIS is a member of theMFDA and is registered as a mutual fund dealer (or the equivalent)under the Legislation of each Jurisdiction.
13. With the transfer of itsDistribution Operations to TDIS, TDAM intends to continueto conduct Portfolio Management Operations under its adviserand commodity trading manager registrations. TDAM also expectsto retain its registrations as a limited market dealer underthe Legislation of each of Ontario and Newfoundland.
14. As part of its PortfolioManagement Operations, TDAM provides discretionary portfoliomanagement services to investment portfolio accounts (a "ManagedAccount") of clients, under which TDAM, pursuant to awritten agreement made between TDAM and each client, makesinvestment decisions for the account and has full discretionaryauthority to trade in securities for the account without obtainingthe specific consent of the client to the trade.
15. TDAM endeavours to makeits portfolio management services available to a broad rangeof potential customers, including persons who would not generallybe considered to have sufficient assets to warrant the establishmentof a managed account due to related cost and asset diversificationconsiderations. In order to accommodate the widest possiblerange of clients in its private client business, TDAM hasfiled and obtained receipts for prospectuses offering someof the mutual funds comprising the TD Private Funds and EmeraldPooled Funds.
AND WHEREAS pursuantto the System, this MRRS Decision Document evidences the decision(collectively, the "Decision") of each Decision Maker;
AND WHEREAS each of theDecision Makers is satisfied that the tests contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;
IT IS THE DECISION ofthe Decision Makers under the Legislation of each Jurisdictionthat the Dealer Registration Requirement in the Legislationshall not apply to trades in shares or units of TDAM Funds madeby TDAM, through its officers and employees acting on its behalf(each, a "TDAM Representative"), to Managed Accounts,
(A) TDAM is at the timeof the trade, registered under the Legislation as an adviserin the category of "portfolio manager" (or theequivalent);
(B) if the trade is madein a Jurisdiction other than Ontario or Newfoundland, itis made by or at the direction of a TDAM Representativewho is, at the time of the trade, registered under the Legislationto act on behalf of TDAM as an adviser in the category of"portfolio manager" (or the equivalent);
(C) if the trade is madein the Jurisdiction of Ontario or Newfoundland, TDAM is,at the time of the trade, registered under the Legislationof the Jurisdiction as a dealer in the category of "limitedmarket dealer", and the trade is made on behalf ofTDAM by a TDAM Representative who is, at the time of thetrade, either (i) registered under the Legislation to acton behalf of TDAM as an adviser in the category of "portfoliomanager" (or the equivalent), or (ii) acting underthe direction of such a person and is himself or herselfregistered under the Legislation to trade on behalf of TDAMpursuant to its limited market dealer registration; and
(D) for each Jurisdiction,this Decision shall terminate one year after the cominginto force, subsequent to the date of this Decision, ofa rule or other regulation under the Legislation of theJurisdiction that relates, in whole or part, to any tradingby persons or companies that are registered under the Legislationas portfolio managers (or the equivalent), in securitiesof a mutual fund, to an account of a client, in respectof which the person or company has full discretionary authorityto trade in securities for the account, without obtainingthe specific consent of the client to the trade, but doesnot include any rule or regulation that is specificallyidentified by the Decision Maker for the Jurisdiction asnot applicable for these purposes.
June 12, 2002.
"Paul M. Moore" "HaroldP. Hands"