Securities Law & Instruments

Headnote

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.

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, s. 7.10

August 19, 2005

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

AND

IN THE MATTER OF

PROVIDENCE INVESTMENT MANAGEMENT LLC

 

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of Providence Investment Management LLC (the Applicant) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA that the Applicant and each of its directors, officers, partners, members and employees (the Representatives), be exempt, for a period of three years, from the requirements of paragraph 22(1)(b) of the CFA 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;

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

AND UPON the Applicant having represented to the Commission that:

1. The Applicant is a limited liability company organized under the laws of the State of Delaware. The Applicant may also include affiliates of, or entities organized by, the Applicant, which may subsequently execute and submit to the Commission a verification statement confirming the truth and accuracy of the information set out in this Order with respect to that particular Applicant.

2. The Applicant is not registered in any capacity under the CFA or the Securities Act, Ontario (the OSA).

3. The Applicant is registered with the U.S. Securities and Exchange Commission as an investment adviser under the U.S. Investment Advisers Act of 1940 and with the U.S. Commodity Futures Trading Commission as a commodities pool operator. The Applicant is exempt from registration with the National Futures Association.

4. Providence MBS Offshore Fund, Ltd (the Offshore Fund), an exempted company formed under the laws of the Cayman Islands, invests in a "master" fund, Providence MBS Master Fund, Ltd. (the Master Fund), an exempted company formed under the laws of the Cayman Islands. The Master Fund serves as the master fund in which substantially all of the assets of the Offshore Fund and one more other feeder funds (each, a Feeder Fund) will be invested in a "master-feeder" structure. The Applicant may in future establish or advise certain other mutual funds, non-redeemable investment funds or similar investment vehicles (collectively, together with the Offshore Fund, the other Feeder Funds and the Master Fund, the Funds).

5. The Applicant will be the investment manager of the Funds and may provide advice to the Funds with respect to trading in commodity futures contracts and commodities futures options principally traded on commodity futures exchanges outside Canada and cleared through clearing corporations outside Canada.

6. None of the Funds is or has any current intention of becoming a reporting issuer in Ontario or in any other Canadian jurisdiction.

7. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA for a person or company acting as an adviser in respect of commodity futures options and commodity futures contracts that is similar to the exemption from the adviser registration requirement in clause 25(1)(b) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.10 (Privately Placed Funds Offered Primarily Abroad) of Rule 35-502 -- Privately Placed Funds Offered Primarily Abroad (Rule 35-502).

8. As would be required under section 7.10 of Rule 35-502, the securities of the Funds are, or will be:

(i) primarily offered outside of Canada;

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

(iii) distributed in Ontario in reliance upon an exemption from the prospectus requirements of the OSA.

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 the Applicant and its Representatives are, for a period of three years, not subject to the requirements of paragraph 22(1)(b) of the CFA in respect of their advisory activities in connection with the Funds, provided that:

(a) the Applicant, where required, is or will be registered or licensed, or is or will be entitled to rely on appropriate exemptions from such registrations or licences, to provide advice to the Funds pursuant to the applicable legislation of its principal jurisdiction;

(b) the Funds invest, or in the future may invest, in commodity futures contracts and commodity futures options principally traded on commodity futures exchanges outside Canada and cleared through clearing corporations outside of Canada;

(c) securities of the Funds are offered primarily outside of Canada and are only distributed in Ontario through Ontario-registered dealers, in reliance on an exemption from the prospectus requirements of the OSA and upon an exemption from the adviser registration requirement of the OSA under Section 7.10 of Rule 35-502;

(d) prospective investors who are Ontario residents will receive disclosure that includes:

(i) a statement that there may be difficulty in enforcing legal rights against the Funds and or the Applicant which advises the relevant Funds because such entities are resident outside of Canada and all or substantially all of their assets are situated outside of Canada; and

(ii) a statement that the Applicant advising the applicable Funds is not 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 Funds.

(e) any Applicant whose name does not specifically appear in this Order and who proposes to rely on the exemption granted under this Order, shall, as a condition of relying on such exemption, have executed and filed with the Commission a verification certificate referencing this Order and confirming the truth and accuracy of the information set out in this Order with respect to that particular Applicant.

M. Theresa McLeod
Commissioner
 
Harold P. Hands
Commissioner