Securities Law & Instruments

Headnote

MRRS exemption granted from requirement contained in s. 15.13(1) of NI 81-102 to permit Barclays funds to refer to index participation units using Barclays trademark "iShares" -- Barclays has been using term "iShares" to describe its index participation units worldwide since 1999 -- exemption subject to certain conditions.

Rules Cited

National Instrument 81-102 - Mutual Funds, s. 15.13(1).

November 14, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC,

NEW BRUNSWICK, NOVA SCOTIA, PRINCE EDWARD

ISLAND, NEWFOUNDLAND AND LABRADOR,

YUKON, NUNAVUT AND

THE NORTHWEST TERRITORIES

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BARCLAYS GLOBAL INVESTORS CANADA LIMITED

AND

THE BARCLAYS CANADA FUNDS

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from Barclays Global Investors Canada Limited (the "Applicant" or the "Manager") as the manager of the exchange traded mutual funds (the "Existing Funds") listed on Schedule A and any additional exchange-traded funds (the "Future Funds") which the Manager may establish and which are operated on a similar basis to the Existing Funds, for a decision under the securities legislation (the "Legislation") of the Jurisdictions providing an exemption under section 19.1 of National Instrument 81-102 -- Mutual Funds ("NI 81-102") from the requirements in section 15.13(1) of NI 81-102 (the "Requested Relief") such that securities issued by the Existing Funds and the Future Funds (collectively, the "Barclays Canada Funds") may be described using the term "iShares".

Under the Mutual Reliance Review System for Exemptive Relief Applications ("MRRS"),

(a) the Ontario Securities Commission is the principal regulator for the Application, and

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

Interpretation

Terms defined in N1 81-102 have the same meaning in this decision as in NI 81-102, and defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

The decision is based on the following facts represented by the Applicant:

1. Each of the Barclays Canada Funds is, or will be, a mutual fund trust governed by the laws of Ontario.

2. Each of the Barclays Canada Funds is, or will be, organized as a trust because a trust is the most efficient vehicle under the Income Tax Act (Canada) to achieve a "flow through" to securityholders of income and capital gains earned by the vehicle.

3. Each of the Barclays Canada Funds is, or will be, a reporting issuer under the laws of Ontario and each of the other Jurisdictions.

4. Securities of each of the Barclays Canada Funds are, or will be, listed on the Toronto Stock Exchange or another stock exchange recognized under the Legislation.

5. The securities issued by the Barclays Canada Funds are, or will be, index participation units ("IPUs") within the meaning of NI 81-102 and the Barclays Canada Funds are, or will be, generally, described as exchange traded funds "("ETFs").

6. The Barclays Canada Funds are, or will be, subject to NI 81-102 and to National Instrument 81-106 -- Investment Fund Continuous Disclosure ("NI 81-106") and are, or may be, subject to other rules applicable to mutual funds, including proposed National Instrument 81-107 -- Independent Review Committee for Investment Funds ("NI 81-107").

7. The Manager or an affiliate of the Manager is, or will be, the manager of the Barclays Canada Funds.

8. Securities of the Barclays Canada Funds are, or will be, offered on a continuous basis in the Jurisdictions pursuant to a prospectus filed in each of the Jurisdictions.

9. The securities issued by the Existing Funds are currently described as "iUnits" or "Units" and are also described by reference to their exchange symbol (e.g. "XIUs", "XICs").

10. The Manager, together with its affiliates, (collectively, "Barclays Global Investors") is the world's largest manager of ETFs as measured by assets under management. The assets under management in all ETFs, collectively, managed by Barclays Global Investors as at June 30, 2005 was $179.3 billion.

11. The assets under management in the Existing Funds, collectively, as at August 31, 2005 was $10.7 billion.

12. The securities of the ETFs managed by Barclays Global Investors are listed on various exchanges in 12 countries, including the United States, the United Kingdom, Italy, France, Switzerland, Germany, Japan, Singapore and Hong Kong. In some cases the ETFs are organized as trusts or other non-incorporated vehicles.

13. Except in Canada, the securities issued by ETFs managed by Barclays Global Investors are described as "iShares" regardless of the form of organization of the issuer.

14. "iShares" is a registered trademark of Barclays Global Investors, N.A. ("BGINA"), an affiliate of the Manager. The registered trademark provides BGINA with the exclusive right to use "iShares" to describe financial services in the nature of pooled investment funds. "iShares" has become recognized as the designation, except in Canada, of the securities issued by ETFs managed by Barclays Global Investors, as described below. Except in Canada, BGINA and Barclays Global Investors have been using the term "iShares" since approximately 1999.

15. The Manager intends to use the term "iShares" in connection with the Barclays Canada Funds and the securities issued by the Barclays Canada Funds as part of the global branding by Barclays Global Investors of similar funds and securities.

16. The securities issued by the Barclays Canada Funds have, or will have, similar characteristics to the "iShares". These characteristics include:

(i) the securities are offered on a continuous basis, under a prospectus, to underwriters or designated brokers and must be acquired in a prescribed number or integral multiple of a prescribed number or in a minimum amount and paid for, generally, by delivery of securities with a value equal to the net asset value of the securities being purchased. In some circumstances, described in the prospectus, the securities are issued for a combination of securities and cash and, in the case of ETFs, the underlying portfolios of which are fixed income securities, securities and/or cash. The securities are issued directly to investors only on the re-investment of certain distributions to securityholders;

(ii) the securities are purchased and sold by investors on an exchange in a manner similar to the securities of other issuers that are incorporated and listed on an exchange;

(iii) the securities, in a prescribed number, may be exchanged at net asset value, generally, for proceeds that include one or more baskets of the portfolio securities held by the relevant Barclays Canada Fund and/or cash;

(iv) the securities, in any number, may be redeemed at 95% of the closing price of the securities on the exchange on which they are listed for cash proceeds;

(v) the securities carry the right to vote on certain material changes to a Barclays Canada Fund;

(vi) the securities carry the right to receive distributions from the income and capital gains of a Barclays Canada Fund; and

(vii) the securities carry the right to a pro rata distribution of the assets of a Barclays Canada Fund on the wind-up of a Barclays Canada Fund.

17. The Manager understands that investment advisers who are involved in advising clients as to their purchase and sale of "iUnits" are often familiar with "iShares". Using the term iShares in Canada will therefore be helpful in assisting investment advisers in understanding and explaining the securities issued by the Barclays Canada Funds.

18. The Manager will issue a press release on behalf of the Barclays Canada Funds regarding the use of the term "iShares" prior to the Barclays Canada Funds adopting the term "iShares".

Decision

Each of the Decision Makers is satisfied that the test 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 so long as:

(i) the securities are IPUs;

(ii) the securities are described as "iShares";

(iii) the securities are offered under a prospectus in which it is clearly disclosed, including on the cover page, that the Barclays Canada Funds are organized as trusts and that securityholders of the iShares are not shareholders of a corporation;

(iv) the financial statements are prepared on a basis in which it is clearly disclosed that the Barclays Canada Funds are organized as trusts and that securityholders of the iShares are not shareholders of a corporation; and

(v) the description of the securities issued by other ETFs (including those that are not corporations) managed by Barclays Global Investors continues to be "iShares".

"Leslie Byberg"
Manager, Investment Funds Branch
Ontario Securities Commission

 

SCHEDULE A

EXISTING FUNDS

iUnits Canadian Equity Funds
 
iUnits S&P®/TSX® 60 Index Fund
iUnits S&P/TSX 60 Capped Index Fund
iUnits S&P/TSX MidCap Index Fund
iUnits S&P/TSX Capped Energy Index Fund
iUnits S&P/TSX Capped Financials Index Fund
iUnits S&P/TSX Capped Gold Index Fund
iUnits S&P/TSX Capped Information Technology Index Fund
iUnits S&P/TSX Capped REIT Index Fund
 
iUnits Fixed Income Funds
iUnits Government of Canada 5-Year Bond Fund
iUnits Canadian Bond Broad Market Index Fund
 
iUnits International Funds
iUnits S&P 500 Index RSP Fund
iUnits MSCI® International Equity Index RSP Fund