Section 80 of the Commodity Futures Act (Ontario) -- relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to a non-resident sub-adviser in respect of advising certain mutual funds, non-redeemable investment funds and similar investment vehicles established outside of Canada in respect of trades in commodity futures contracts and commodity futures options principally traded on commodity futures exchanges outside Canada and cleared through clearing corporations outside Canada, subject to certain terms and conditions.
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 80.
Securities Act, R.S.O. 1990, c. S.5, as am. -- Rule 35-502 -- Non Resident Advisers, s. 7.10
June 30, 2005
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA)
IN THE MATTER OF
DIAPASON COMMODITIES MANAGEMENT S.A.
(Section 80 of the CFA)
UPON the application (the Application) of Diapason Commodities Management S.A. (the Applicant) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that neither the Applicant, nor any of its directors, officers and employees acting on its behalf as an adviser, shall be subject to the requirements of paragraph 22(1)(b) of the CFA in respect of advising in Ontario with respect to purchases and sales of commodity futures contracts and related products traded on commodity futures exchanges primarily outside Canada and cleared through clearing corporations primarily outside Canada;
AND UPON considering the Application and the recommendation of the Staff of the Commission;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is an investment management company organized under the laws of Switzerland, with its principal place of business located in Lausanne, Switzerland. The Applicant specializes in the fields of asset management, commodities markets, futures and option trading.
2. The Applicant is registered as a commodities trading adviser with the United States Commodity Futures Trading Commission (CFTC). The Applicant is not registered or licensed in any capacity in Switzerland as the laws of Switzerland do not require registration or licensing from any regulatory body in order to be able to provide advice or portfolio management services in connection with commodity futures.
3. Sentry Select Capital Corp. (Sentry Select) is a corporation incorporated under the laws of Ontario. It is registered with the Commission as an adviser in the categories of investment counsel and portfolio manager and has an application pending for registration under the CFA as an adviser in the category of commodity trading manager. Sentry Select will act as trustee and manager of Commodities Investment Trust (the Trust), an investment trust to be established under the laws of the Province of Ontario pursuant to a declaration of trust, and will also act as manager and trustee of the investment fund, Sentry Select Commodities Income Trust (SSCIT).
4. Toron Capital Markets Inc. (the Interim Adviser) is a corporation organized under the laws of Ontario and is registered in Ontario as an adviser in the category of investment counsel and portfolio manager, as a dealer in the category of limited market dealer, and under the CFA as an adviser in the category of commodity trading manager.
5. The Applicant is proposing to enter into an investment sub-advisory agreement with Sentry Select whereby the Applicant would be appointed as the sub-adviser in respect of purchases and sales of commodity futures contracts and related products.
6. A preliminary prospectus has been filed with the Commission on behalf of SSCIT. Approximately 15% of the net proceeds of the offering of units of SSCIT will be used to purchase common shares of Canadian public companies (the Common Share Portfolio). SSCIT will enter into one or more forward purchase and sale agreements (the Forward Agreement) with Canadian Imperial Bank of Commerce (the Counterparty). Under the Forward Agreement the Counterparty will agree to pay to SSCIT on its termination date the purchase price for the Common Share Portfolio, an amount based upon the redemption proceeds of a specified number of units of the Trust.
7. It is expected that the Sentry Select will also appoint the Applicant as sub-adviser for other investment portfolios (Other Clients) which Sentry Select manages.
8. In acting as sub-adviser to Sentry Select with respect to the Trust and Other Clients (the Proposed Advisory Services), Sentry Select and the Applicant, will enter into written sub-advisory agreements which will set out the obligations and duties of the Applicant.
9. The Applicant will provide the Proposed Advisory Services only if Sentry Select has contractually agreed with the Trust, or the Other Client, to be responsible for any loss arising out of the failure of the Applicant to:
(a) exercise its powers and discharge its duties honestly, in good faith and in the best interests of Sentry Select and the Trust, or Other Clients, as the case may be; or
(b) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances,
(collectively the Standard of Care);
and Sentry Select cannot be relieved by the Trust or Other Client from its responsibility for such loss.
10. As there will be no offering documents for the Trust, the prospectus for the SSCIT, and the offering documents for any other product for which the Proposed Advisory Services are applicable, will disclose that:
(a) Sentry Select assumes responsibility for the investment advice or portfolio management services provided by the Applicant; and
(b) to the extent applicable, there may be difficulty in enforcing any legal rights against the Applicant because it is resident outside Canada and all or a substantial portion of its assets are situated outside Canada.
11. The Applicant will provide the Proposed Advisory Services only while Sentry Select is registered as a commodity trading manager under the CFA.
12. Until such time as Sentry Select is granted registration as an adviser under the CFA, the Interim Adviser may be required to act as the investment adviser to the Trust, and will appoint the Applicant as its sub-adviser and will assume all responsibilities of Sentry Select under this Order.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed,
IT IS ORDERED pursuant to section 80 of the CFA that, for a period of three years, the Applicant and its directors, officers and employees are not subject to the requirements of paragraph 22(1)(b) of the CFA with respect to the Proposed Advisory Services, provided that:
(a) the obligations and duties of the Applicant are set out in a written agreement with Sentry Select, or the Interim Adviser, as the case may be;
(b) Sentry Select has contractually agreed with the Trust or Other Client, as the case may be, to be responsible for any loss that arises out of the failure of the Applicant to meet the Standard of Care, and Sentry Select may not be relieved by the Trust or Other Client from its responsibility for such loss;
(c) the Applicant will provide the Proposed Advisory Services only where the prospectus for SSCIT, and the offering documents for any other product for which the Proposed Advisory Services are applicable, shall disclose that Sentry Select is responsible for any loss that arises out of the failure of the Applicant to meet the Standard of Care, and that:
(i) Sentry Select will be responsible for any investment advice given or portfolio management services provided by the Applicant; and
(ii) there may be difficulty in enforcing any legal rights against the Applicant because it is resident outside Canada and all or a substantial portion of its assets are situated outside Canada;
(d) the Applicant maintains its registration as a commodities trading adviser with the CFTC; and
(e) the Applicant will provide the Proposed Advisory Services only so long as Sentry Select, or the Interim Adviser, as the case may be, maintains its registration as a commodity trading manager under the CFA.
"Wendell S. Wigle"