Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) (the CFA) - Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to a non-resident adviser in respect of advising a non-Canadian mutual fund regarding trades in commodity futures contracts and commodity futures options traded on commodity futures exchanges primarily outside of Canada and cleared through clearing corporations primarily outside of Canada, subject to certain terms and conditions.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., s. 22(1)(b) and s. 80.

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

R.S.O. 1990, CHAPTER C.20, AS AMENDED (the "ACT")

AND

IN THE MATTER OF

BLACKSTAR FUNDS, LLC

 

ORDER

(Section 80 of the Act)

UPON the application of Blackstar Funds, LLC (the "Applicant") to the Ontario Securities Commission (the "Commission") for an order pursuant to section 80 of the Act that the Applicant and its directors, officers and employees are exempt from the requirements of paragraph 22(1)(b) of the Act in respect of advising Blackstar Fund, LP (the "Fund") in respect of trades in commodity futures contracts and options traded on commodity futures exchanges primarily outside of Canada and cleared through clearing corporations primarily outside of Canada (the "Proposed Advisory Business");

AND UPON considering the application and the recommendation of staff of the Commission;

AND UPON the Applicant having represented to the Commission as follows:

1. The Applicant is a limited liability company organized under the laws of the State of Delaware in the United States of America (the "USA").

2. The Fund is a limited partnership organized under the laws of the State of Delaware.

3. The Applicant is registered as a commodity pool operator with the Commodity Futures Trading Commission (the "CFTC") in the USA, is registered as an investment adviser with the State of Arizona in the USA, and is a member of the National Futures Association (the "NFA") in the USA.

4. The Fund invests and will invest its assets in a diversified portfolio of investment funds (the "Investment Funds") to be managed by a number of independent investment managers (the "Managers") selected by the Applicant, including managers who trade futures and/or commodities.

5. The Applicant, as the general partner of the Fund, conducts and manages the business of the Fund, and provides advice and makes all decisions with respect to investment in and selection of the Investment Funds. By investing with some managers that trade in futures and commodity options the Fund falls within the definition of a "commodity pool" under the Commodity Exchange Act. Commodity pools in the United States are regulated under the Commodity Exchange Act by the CFTC. In accordance with the Commodity Exchange Act, the Applicant is required to register as a commodity pool operator (or "CPO") before the Fund may trade in commodities. Accordingly, the Applicant is registered as a CPO under the Commodity Exchange Act based on its intention to invest with managers who may trade futures and/or commodities on behalf of the Fund.

6. It is at the Investment Funds level that the actual portfolio investments are made, including any investments in commodity futures and options contracts traded on commodity futures exchanges located primarily outside of Canada and cleared through clearing corporations located primarily outside of Canada. The Fund does not anticipate investing directly in commodity futures and options contracts. The Managers are unaffiliated with the Applicant and do not, and will not in the future, provide advice directly to the Fund.

7. The Investment Funds may, as part of their investment objective and policy, invest in commodity futures and options contracts traded on organized exchanges located primarily outside of Canada and cleared through clearing corporations located primarily outside of Canada.

8. As would be required under section 7.10 (Privately Placed Funds Offered Primarily Abroad) of Rule 35-502 of the Securities Act (Ontario) the Fund is non-Canadian and the securities of the Fund are:

(i) primarily offered outside of Canada;

(ii) only distributed in Ontario through one or more registrants under the Securities Act (Ontario); and

(iii) distributed in Ontario in reliance upon an exemption from the prospectus requirements under the Securities Act (Ontario).

9. Prospective investors in the Fund who are Ontario residents will receive disclosure that includes:

(a) a statement that there may be difficulty in enforcing any legal rights against the Applicant (or any of the Managers), or the directors, officers or employees of the Applicant (or any of the Managers) because they are resident outside of Canada and all or substantially all of their assets are situated outside of Canada, and

(b) a statement that the Applicant advising the Fund and, where applicable, the Managers advising the relevant Investment Funds are not, or will not be, registered with or licensed by any securities regulatory authority in Canada and, accordingly, the protections available to clients of a registered adviser will not be available to purchasers of securities of the Fund.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemptions requested.

IT IS ORDERED pursuant to section 80 of the Act that the Applicant and its directors, officers and employees responsible for advising the Fund are not subject to the requirements of paragraph 22(1)(b) of the Act in respect of the Proposed Advisory Business in connection with the Fund, for a period of three years, provided that, at the time such Proposed Advisory Business is engaged in:

1. the Applicant continues to be registered with the CFTC as commodity pool operator and is a member with the NFA;

2. the Fund and Investment Funds invest in investment funds that invest in commodity futures contracts and commodity futures options traded on organized exchanges located primarily outside of Canada and cleared through clearing corporations located primarily outside of Canada, in other derivative instruments traded over the counter primarily outside of Canada, and in securities primarily outside of Canada;

3. securities of the Fund will be offered primarily outside of Canada and will only be distributed in Ontario through Ontario-registered dealers, in reliance on an exemption from the prospectus requirements of the Securities Act (Ontario) (sections 53 and 62) and upon an exemption from the adviser registration requirement provided under section 7.10 of Commission Rule 35-502 Non-Resident Advisers; and

4. prospective investors in the Fund who are Ontario residents will receive disclosure that includes

(a) a statement that there may be difficulty in enforcing any legal rights against the Applicant (or any of the Managers), or the directors, officers or employees of the Applicant (or any of the Managers) because they are resident outside of Canada and all or substantially all of their assets are situated outside of Canada; and

(b) a statement that the Applicant advising the Fund and, where applicable, the Manager advising the relevant Investment Fund are not, or will not be, registered with or licensed by any securities regulatory authority in Canada and, accordingly, the protections available to clients of a registered adviser will not be available to purchasers of securities of the Fund.

March 2, 2004.

"Paul M. Moore"
"Paul K. Bates"