Exemptive relief for a mutual fund dealer from the requirement to become a member of the Mutual Fund Dealers Association.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am s. 25.
Applicable Ontario Securities Commission Rule
Rule 31-506 - SRO Membership - Mutual Fund Dealers, ss. 2.1 and 3.1.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")
ONTARIO SECURITIES COMMISSION RULE 31-506
SRO MEMBERSHIP -- MUTUAL FUND DEALERS (the "Rule")
IN THE MATTER OF
OPEN ACCESS LIMITED
(Section 5.1 of the Rule)
UPON the Director having received an application (the "Application") from Open Access Limited (the "Registrant") for a decision, pursuant to section 5.1 of the Rule, exempting the Registrant from the requirements in sections 2.1 and 3.1 of the Rule, which would otherwise require that the Registrant be a member of the Mutual Fund Dealers Association of Canada (the "MFDA") on and after July 2, 2002, and file with the MFDA, no later than May 23, 2001, an application and corresponding fees for membership;
UPON considering the Application and the recommendation of staff of the Ontario Securities Commission;
AND UPON the Registrant having represented to the Director that:
1. The Registrant is registered under the Act as an adviser in the categories of investment counsel and portfolio manager and as a dealer in the categories of mutual fund dealer and limited market dealer.
2. The Registrant previously offered both advisory services and trading services, which pursuant to the Decision of the Ontario Securities Commission dated March 4, 2004, would have required the Registrant to become a member of the MFDA.
3. The Registrant intends to change its business model by offering solely advisory services and administration services. Furthermore, its advisory services will be limited to acting in respect of capital accumulation plans ("CAPs") for which the Registrant has been selected by the sponsor of the CAP (the "Plan Sponsor") pursuant to an agreement with the Plan Sponsor (the "Plan Sponsor Agreement"). Pursuant to the Plan Sponsor Agreement, any CAP Member (as defined in Schedule "A") participating in the CAP through the Registrant will be required to enter into an advisory agreement with the Registrant (the "Advisory Agreement").
4. Each Advisory Agreement will include the investment mandate (the "Mandate") granted by the client to the Registrant to invest in mutual funds, exchange traded funds, and/or guaranteed investment certificates ("GICs") reviewed and monitored by the Registrant and within any limits established by the plan sponsor of the CAP, provided that, in limited circumstances based on the requirements of the particular client after discussion with the Registrant, the Mandate may be further limited. The Advisory Agreement will not include the names of any funds.
5. The Registrant will create approximately nine portfolios consisting of a combination of mutual funds, exchange traded funds and GICs, which will range from very conservative to more growth oriented.
6. Some CAP Members may require a more limited portfolio and will restrict the portfolio through the Mandate. Even in such circumstance, the Mandate must be limited to the mutual funds, exchange traded funds, and GICs selected by the Registrant as described in paragraph 7 below. Pursuant to the Advisory Agreement with a CAP Member, the Registrant will have full discretionary authority to trade in securities comprising the portfolio for the account and selected in accordance with the Mandate without obtaining the client's specific consent to the trade.
7. The portfolio selected for a CAP Member will be based solely on the risk profile of the CAP Member determined through a client questionnaire attached to the Advisory Agreement. The Registrant will select the particular funds from the range of funds the Registrant follows through in-house analysis and with tools and information provided under contract by third parties in the business of evaluating funds. The Registrant will have full discretion to adjust the portfolios of CAP Members based on its ongoing research and monitoring of the funds and within the limits of the Mandate established with the Plan Sponsor and the CAP Member.
8. Only CAP Members who execute an Advisory Agreement will be permitted to participate in the CAP through the Registrant. Any CAP Member who fails to enter into the Advisory Agreement will not be able to participate in the CAP through the Registrant.
9. As advisor, the Registrant will have full authority to execute the trades in the securities comprising the portfolios of CAP Members. The Registrant will execute the trades in exchange traded funds through an account in the name of the Registrant at a dealer and provide to the dealer information required under section 1.6 of Ontario Securities Commission Rule 31-505.
10. All trades in mutual funds initiated by the Registrant in its capacity as advisor will be effected through the Registrant in its capacity as mutual fund dealer.
11. The positions in mutual funds and exchange traded funds are expected to be registered in the name of the Registrant as the portfolio manager. As part of its administration services and in compliance with its requirements as a registrant, the Registrant will keep records of all amounts for the CAP received from the Plan Sponsor, the allocations by the Plan Sponsor to the CAP Members, the names, addresses and other personal information of the CAP Members, the portfolio selected by the Registrant for each CAP Member, the purchases and sales (redemptions) of securities and the prices at which they are executed, all income receipts in respect of the portfolio for a CAP Member and such other information as is normally required in connection with an investment portfolio. The Registrant will provide reports to the Plan Sponsor and the CAP Members in accordance with the requirements of the Plan Sponsor Agreement.
12. As a result of its change in business model, the Registrant will be required to enter into new agreements with both existing Plan Sponsors and with CAP Members. These new agreements take into account the final guidelines for CAPs, with which Plan Sponsors have been asked to comply by December 31, 2005. Due to the number of Plan Sponsors and CAP Members to which the Registrant currently provides services, the Registrant will undertake in a timely manner the process of entering into these agreements, which it reasonably expects to take no longer than the same date by which Plan Sponsors are asked to comply with the new CAP guidelines.
13. The Registrant's trading activities as a mutual fund dealer currently represent and will continue to represent activities that are incidental to its principal business activities.
14. The Registrant has agreed to the imposition of the terms and conditions on the Registrant's registration as a mutual fund dealer set out in the attached Schedule "A", which outlines the activities the Registrant has agreed to adhere to in connection with its application for this Decision.
15. Any person or company that is not currently a client of the Registrant on the effective date of this Decision, will, before they are accepted as a client of the Registrant, receive prominent written notice from the Registrant that:
The Registrant is not currently a member, and does not intend to become a member of the Mutual Fund Dealers Association; consequently, clients of the Registrant will not have available to them investor protection benefits that would otherwise derive from membership of the Registrant in the MFDA, including coverage under any investor protection plan for clients of members of the MFDA.
16. Upon the next general mailing to its account holders by the end of January 2005, the Registrant shall provide, to any client that was a client of the Registrant on the effective date of this Decision, the prominent written notice referred to in paragraph 15 above;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS THE DECISION of the Director, pursuant to section 5.1 of the Rule, that, effective the date of this Decision, the Registrant is exempt from the requirements in sections 2.1 and 3.1 of the Rule;
The Registrant complies with the terms and conditions on its registration under the Act as a mutual fund dealer set out in the attached Schedule "A".
November 1, 2004.
"David M. Gilkes"
TERMS AND CONDITIONS OF REGISTRATION
OPEN ACCESS LIMITED
AS A MUTUAL FUND DEALER
1. For the purposes hereof, unless the context otherwise requires:
(a) "Act" means the Securities Act, R.S.O. 1990, c. S.5, as amended;
(b) "Adviser" means an adviser as defined in subsection 1(1) of the Act;
(c) "CAP" means a tax assisted or savings capital accumulation plan established by an employer, trade union, trade association or any combination of these entities for the benefit of its employees or members, which may include the spouses of such employees or members and former members and employees;
(d) "CAP Member" means employees or members who participate in a CAP, including the spouses of such employees or members and former members and employees who participate in a CAP;
(e) "Commission" means the Ontario Securities Commission;
(f) "Effective Date" means November 1, 2004;
(g) "Exempt Trade", for the Registrant, means:
(i) a trade in securities of a mutual fund that is made between a person or company and an underwriter acting as purchaser or between or among underwriters; or
(ii) a trade in securities of a mutual fund for which the Registrant would have available to it an exemption from the registration requirements of clause 25(1)(a) of the Act if the Registrant were not a "market intermediary" as such term is defined in section 204 of the Regulation;
(h) "Managed Account" means, for the Registrant, an investment account of a client who is a CAP Member, where
(i) the Registrant, pursuant to a written agreement made between the Registrant and the client, makes investment decisions for the account based on the Mandate granted by the client; and
(ii) the Registrant has full discretionary authority to trade in securities comprising the portfolio for the account and selected in accordance with the Mandate without obtaining the client's specific consent to the trade;
(i) "Managed Account Trade" means, for the Registrant, a trade to, or on behalf of a Managed Account of the Registrant, where the trade consists of a purchase or redemption, through the Registrant of securities of a mutual fund, that is made on behalf of the Managed Account, where, in each case, either of:
(A) the mutual fund is prospectus-qualified in Ontario; or
(B) the trade is not subject to sections 25 and 53 of the Act;
(j) "Mandate" means the investment mandate granted by the client to the Registrant to invest in mutual funds, exchange traded funds and/or guaranteed investment certificates reviewed and monitored by the Registrant and within any limits established by the plan sponsor of the CAP, provided that, in limited circumstances based on the requirements of the particular client after discussion with the Registrant, the Mandate may be further limited;
(k) "Mutual Fund Instrument" means National Instrument 81-102 Mutual Funds, as amended;
(l) "Registered Plan" means a registered pension plan, deferred profit sharing plan, registered retirement savings plan, registered retirement income fund, registered education savings plan or other deferred income plan registered under the Income Tax Act (Canada);
(m) "Registrant" means Open Access Limited;
(n) "securities", for a mutual fund, means shares or units of a mutual fund;
2. Any terms that are not specifically defined above shall, unless the context otherwise requires, have the meaning:
(a) specifically ascribed to such term in the Mutual Fund Instrument; or
(b) if no meaning is specifically ascribed to such term in the Mutual Fund Instrument, the same meaning the term would have for the purposes of the Act.
3. The registration of the Registrant as a mutual fund dealer under the Act shall be for the purposes only of trading by the Registrant in securities of a mutual fund where the trade consists of:
(a) an Exempt Trade;
(b) a Managed Account Trade, provided that, at the time of the trade, the Registrant is registered under the Act as an Adviser in the categories of "investment counsel" and "portfolio manager".