Relief from the adviser registration requirement of paragraph 22(1)(b) of the Commodity Futures Act (Ontario) (CFA) granted to a non-resident adviser in connection with the proposed advisory services to be provided to a registered commodity trading manager under the CFA, subject to certain terms and conditions, pursuant to subsection 38(1) of the CFA.
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., s. 22(1)(b) and s. 38(1).
Securities Act, R.S.O. 1990, c. S.5, as am. -- Rule 35-502 -- Non Resident Advisers.
IN THE MATTER OF
THE COMMODITY FUTURES ACT, RSO. 1990, c. 20
IN THE MATTER OF
LAKE SHORE ASSET MANAGEMENT INC.
UPON the application of Lake Shore Asset Management Inc. (Lake Shore) to the Ontario Securities Commission (the Commission) for a ruling under subsection 38(1) of the Commodity Futures Act, R.S.O. 1990, c.20 (the CFA) that Lake Shore and its officers are not subject to the requirement of paragraph 22(1)(b) of the CFA;
AND UPON considering the application and the recommendation of the staff of the Commission;
AND UPON Lake Shore having represented to the Commission that:
1. Lake Shore is incorporated under the laws of Illinois and is resident in Illinois. It does not have a place of business in Ontario with partners or officers that are resident in Ontario who act as advisors on its behalf in Ontario;
2. Lake Shore is a commodity trading advisor registered with the Commodity Futures Trading Commission and a member of the National Futures Association in the United States, which permits Lake Shore to advise in respect of future and forward contracts and options on futures and forward contracts in the U.S.;
3. Lake Shore currently acts as an adviser providing discretionary portfolio management services to Ontario clients of a registered adviser under the CFA, and may in the future act as an adviser by providing such portfolio management services to clients of one or more:
(a) registered advisers under the CFA, or
(b) registered brokers and dealers acting as a portfolio adviser pursuant to section 44 of the Regulations to the CFA,
(collectively the Registrants) in Ontario;
4. Lake Shore has entered into a written agreement with a Registrant which sets out the obligations and duties of Lake Shore, and a similar agreement would be entered into with any other Registrants in the future;
5. Lake Shore now provides, and will in the future only provide, discretionary portfolio management services in circumstances where:
(a) the Registrant has agreed in a document providing rights to the client of the Registrant to be responsible for any loss that arises out of the failure of Lake Shore to:
(i) exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the client; and
(ii) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances,
(the standard of care), and in providing portfolio management services to the Registrant's clients this responsibility cannot be waived; and
(b) disclosure is made to Ontario clients of the Registrant that the Registrant is responsible for any loss that arises out of the failure of Lake Shore to meet the standard of care, that there may be difficulty in enforcing legal rights against Lake Shore, and that all or substantially all of Lake Shore's assets are situated outside of Ontario;
AND WHEREAS paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person is registered as an adviser, or is registered as a partner or an officer of a registered adviser and is acting on behalf of a registered adviser, and the registration is in accordance with the CFA and the Regulations;
AND UPON the Commission being satisfied that to make this ruling would not be prejudicial to the public interest;
IT IS RULED, pursuant to subsection 38(1) of the CFA, that Lake Shore and its officers are not subject to the requirements of paragraph 22(1)(b) of the CFA in respect of advice provided for the benefit of clients of a Registrant, provided that:
(a) the obligations and duties of Lake Shore are set out in a written agreement with the Registrant in Ontario;
(b) the Registrant agrees in a document providing rights to the client of the Registrant to be responsible for any loss that arises out of the failure of Lake Shore to meet the standard of care in providing advice to the client of the Registrant and this responsibility is not waived;
(c) a client agreement or offering document discloses that the Registrant is responsible for any loss that arises out of the failure of Lake Shore to meet the standard of care in providing advice to the client of the Registrant and, that there may be difficulty enforcing any legal rights against Lake Shore and all or a substantial portion of Lake Shore's assets are situated outside of Ontario;
and provided that this order will terminate three years from the date hereof.
December 16, 2003.
"H. Lorne Morphy"