Securities Law & Instruments

Headnote

Mutual reliance review system for exemptive relief applications -- Portfolio manager exempted from the dealer registration requirements in the Legislation in respect of trades in shares or units of mutual funds managed by portfolio manager, made by portfolio manager through its officers and employees acting on its behalf, to managed accounts, subject to terms and conditions.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 74(1).

Rules Cited

National Instrument 81-102 Mutual Funds.

Ontario Securities Commission Rule 31-506 - SRO Membership - Mutual Fund Dealers.

Ontario Securities Commission Rule 45-501 Exempt Distributions.

Published Documents Cited

Letter Sent to The Investment Funds Institute of Canada and the Investment Counsel Association of Canada, December 6, 2000 (2000), 23 OSCB 8467.

June 22, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ONTARIO AND YUKON (the JURISTICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ASSANTE ASSET MANAGEMENT LTD. (the FILER)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions) has received an application (Application) from the Filer for a decision that the requirement (the Dealer Registration Requirement) in the Legislation that prohibits a person or company from trading in a security unless the person or company is registered in the appropriate category of registration under the Legislation should not apply in respect of any trades made by the Filer to a client account of the Filer, in shares or units of a mutual fund (the Funds) that is managed by the Filer (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this Application;

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

1. The Filer is an investment management firm formed under the laws of the Province of Manitoba, and is registered as an advisor in the category of extra-provincial investment counsel and portfolio manager (or its equivalent) in all provinces and territories of Canada.

2. The Filer offers portfolio management services to a large retail client base through fully managed discretionary accounts which it establishes and maintains for its clients (the Managed Accounts). The Filer currently has assets under management of approximately $8.9 billion, $3.2 billion of which is in the Managed Accounts. The Filer conducts its portfolio management operations in accordance with adviser registrations which it maintains with each of the securities regulatory authorities in the Jurisdictions.

3. The Filer's portfolio management operations are designed to cater to individual investors. In some cases, the Filer exercises its discretion to cause the Managed Accounts to acquire units of the Funds. The Funds are, or will be, mutual funds governed under National Instrument 81-102 - Mutual Funds and offered by a simplified prospectus prepared in accordance with National Instrument 81-101 - Mutual Fund Prospectus Disclosure. The Funds are, or will be, managed by the Filer.

4. The Filer currently purchases securities of the Funds for settlement in the Managed Accounts through registered dealers.

5. The Filer would like to be able to distribute securities of the Funds directly to its clients without being compelled to engage registered dealers for such distributions. In order for the Filer to distribute mutual fund securities on a retail basis to its Managed Accounts would normally require the Filer to become registered as a mutual fund dealer and become a member of the Mutual Fund Dealers Association of Canada (MFDA). For the reasons discussed below, the Filer does not believe it to be desirable or appropriate to become a mutual fund dealer.

6. As a mutual fund dealer, AAM would be subject to the requirements of Ontario Securities Commission Rule 31-506 - SRO Membership - Mutual Fund Dealers (the MFDA Rule) and its counterpart in the other Juristictions, and must become a member of the MFDA in accordance with the MFDA Rule.

7. Upon becoming a member of the MFDA, the Filer would be required to comply with the By-law and Rules of the MFDA including Section 2.3.1 of the MFDA Rules. Section 2.3.1 of the MFDA Rules provides that no member shall accept or act upon a general power of attorney or other similar authorization from a client in favour of the member. Section 2.3.1 is complemented by Section 2.3.4 which provides that the form of limited trading authorization contemplated by Section 2.3.2 may not in any way confer general discretionary trading authority upon a member.

8. The MFDA has advised that the words "or other similar authorization" in Section 2.3.1 of the MFDA Rules are intended to preclude mutual fund dealers from acting as advisers and accepting discretionary portfolio management mandates even though they may be both qualified and expressly registered to provide portfolio management services.

9. Accordingly, it would not be possible for the Filer to conduct its portfolio management business while at the same time be a member of the MFDA. If the Filer were precluded from directly offering mutual funds to its Managed Accounts, it would be deprived of a fundamentally important means of delivering investment management advice to Managed Accounts.

Decision

Each of the Decision Makers is satisfied that the tests contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) at the time of the trade, the Filer is registered under the Legislation as an adviser in the category of portfolio manager (or the equivalent);

(b) if the trade is made in the Yukon, it is made by or at the direction of an officer or employee of the Filer who is, at the time of the trade, registered under the Legislation to act on behalf of the Filer as an adviser in the category of portfolio manager (or the equivalent);

(c) if the trade is made in Ontario, the Filer is, at the time of the trade, registered under the Legislation of the Jurisdiction as a dealer in the category of limited market dealer, and the trade is made on behalf of the Filer at the direction of an officer or employee of the Filer who is, at the time of the trade, either (i) registered under the Legislation to act on behalf of the Filer as an adviser in the category of portfolio manager (or the equivalent), or (ii) acting under the direction of such a person and is himself or herself registered under the Legislation to trade on behalf of the Filer pursuant to its limited market dealer registration; and

(d) for each Jurisdiction, this Decision shall terminate one year after the coming into force, subsequent to the date of this Decision, of a rule or other regulation under the Legislation of the respective Jurisdiction that relates, in whole or part, to any trading by persons or companies that are registered under the Legislation as portfolio managers (or the equivalent), in securities of a mutual fund, to an account of a client, in respect of which the person or company has full discretionary authority to trade in securities for the account, without obtaining the specific consent of the client to the trade, but does not include any rule or regulation that is specifically identified by the Decision Maker for the Jurisdiction as not applicable for these purposes.

"Paul M. Moore"
Commissioner
Ontario Securities Commission
 
"Suresh Thakrar"
Commissioner
Ontario Securities Commission