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 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 traded on commodity futures exchanges primarily outside Canada and cleared through clearing corporations primarily outside Canada, subject to certain terms and conditions.

Statutes Cited

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.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

BREVAN HOWARD OFFSHORE

MANAGEMENT LIMITED

 

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of Brevan Howard Offshore Management Limited (the Investment Manager) and certain affiliates of the Investment Manager (the Sub-Advisors, as described below, and together with the Investment Manager, the Applicants) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA that the Applicants and their respective directors, officers and employees acting on their behalf as an adviser (collectively, 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 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 staff of the Commission;

AND UPON the Applicants having represented to the Commission that:

1. The Investment Manager is a company incorporated in the Cayman Islands and having its registered office at PO Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies.

2. BH Macro Limited (the Feeder Fund) is a closed-ended investment company registered and incorporated in Guernsey on January 17, 2007. The Feeder Fund will be organized as a feeder fund to invest all its assets (other than working capital) in shares of Brevan Howard Master Fund Limited (the Master Fund), a hedge fund in the form of a Cayman Islands open-ended investment company. The Investment Manager may in the future establish or advise certain other mutual funds, non-redeemable investment funds or similar investment vehicles (collectively, together with the Feeder Fund and Master Fund, the Funds).

3. The Investment Manager is regulated as manager of the Feeder Fund by the Jersey Financial Services Commission pursuant to the Collective Investment Funds (Jersey) Law 1988 and the orders made thereunder.

4. Pursuant to a management agreement between the Feeder Fund and the Investment Manager, the Investment Manager has been appointed to manage the investment portfolio of the Feeder Fund. Under a similar management agreement between the Master Fund and the Investment Manager, the Investment Manager has been appointed to manage the investment portfolio of the Master Fund (the Management Agreement).

5. Under the terms of the Management Agreement, the Investment Manager may delegate its portfolio management duties to sub-advisors. However, the Investment Manager remains responsible for all acts or omissions of these sub-advisors.

6. The Investment Manager has delegated its portfolio management duties in respect of the Master Fund to its affiliates, Brevan Howard Asset Management LLP, Brevan Howard US Asset Management L.P., Brevan Howard (Hong Kong) Limited and Brevan Howard (Israel) Limited (collectively, the Sub-Advisors).

7. Brevan Howard Asset Management LLP was established as a limited liability partnership in England and Wales in July 2002 and is regulated by the UK Financial Services Authority.

8. Brevan Howard US Asset Management L.P. is a limited partnership formed under the laws of Delaware, USA in October 2005 and is not required to be registered in the United States to provide advice to the Master Fund.

9. Brevan Howard (Hong Kong) Limited is a company incorporated under the laws of Hong Kong in March 2004 and is licensed by the Hong Kong Securities and Futures Commission pursuant to the Hong Kong Securities and Futures Ordinance to carry on type 9 (asset management) regulated activity.

10. Brevan Howard (Israel) Limited is a company incorporated under the laws of Israel in December 2005 and is not required to be registered in Israel to provide advice to the Master Fund.

11. None of the Applicants are registered in any capacity under the CFA or the Securities Act (Ontario) (OSA).

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

13. The Funds invest, or may in the future invest in commodity futures contracts and commodity futures options traded on organized exchanges primarily outside Canada and cleared through clearing corporations primarily outside Canada.

14. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a partner or an officer of a registered adviser and is acting on behalf of a registered adviser. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" means commodity futures contracts and commodity futures options.

15. By advising the Master Fund on investing in commodity futures contracts and commodity futures options and advising the Feeder Fund to invest in the Master Fund, the Applicants will be providing advice to Ontario investors with respect to commodity futures contracts and commodity futures options and, in the absence of being granted the requested relief, would be required to register as advisers under the CFA.

16. 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 section 25(1)(c) 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 OSC Rule 35-502 Non Resident Advisers (Rule 35-502).

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

(a) primarily offered outside of Canada;

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

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

18. Prospective investors in the Funds who are Ontario residents will receive disclosure that includes:

(a) a statement that there may be difficulty in enforcing any legal rights against the relevant Applicant (or its Representatives) and the Funds (or their directors, officers and employees), because such entities are resident outside Canada and all or substantially all of their assets are situated outside Canada; and

(b) a statement that the relevant Applicant is not, or will not be, registered with the Commission under the CFA and, accordingly, the protections available to clients of a registered adviser under the CFA will not be available to purchasers of securities of the Funds.

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 each of the Applicants and their Representatives responsible for advising the Funds are not subject to the requirements of paragraph 22(1)(b) of the CFA in respect of their advisory activities in connection with the Funds, for a period of three years, provided that at the time such activities are engaged in:

(a) each 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 traded on commodity futures exchanges primarily outside Canada and cleared through clearing corporations primarily outside Canada;

(c) securities of the Funds are, or will be:

(i) primarily offered outside 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 an exemption from the adviser registration requirement of the OSA under section 7.10 of Rule 35-502; and

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

(i) a statement that there may be difficulty in enforcing any legal rights against the applicable Applicant (or its Representatives) and the Funds (or their directors, officers and employees), because such entities are resident outside Canada and all or substantially all of their assets are situated outside Canada; and

(ii) a statement that the applicable Applicant is not, or will not be, registered with the Commission under the CFA and, accordingly, the protections available to clients of a registered adviser under the CFA will not be available to purchasers of securities of the Funds.

March 6, 2007

"Carol S. Perry"
Commissioner
Ontario Securities Commission
 
"Kevin J. Kelly"
Commissioner
Ontario Securities Commission