Mutual Reliance Review System for Exemptive Relief Applications -- Exemptive relief granted to exchange traded funds offered in continuous distribution from certain mutual fund requirements and restrictions on: transmission of purchase or redemption orders, issuing units for cash or securities, calculation and payment of redemptions and date of record for payment of distributions -- National Instrument 81-102 Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 9.1, 9.4(2), 10.2, 10.3, 14.1, 19.1.
April 27, 2007
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,
NORTHWEST TERRITORIES AND NUNAVUT
IN THE MATTER OF
NATIONAL INSTRUMENT 81-102 -- MUTUAL FUNDS
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
BARCLAYS GLOBAL INVESTORS CANADA LIMITED
IN THE MATTER OF
iSHARES CDN S&P/TSX SMALLCAP INDEX FUND,
iSHARES CDN JANTZI SOCIAL INDEX FUND AND
iSHARES CDN RUSSELL 2000® INDEX - CANADIAN
DOLLAR HEDGED INDEX FUND
(collectively, the "New Funds")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from Barclays Canada for a decision under Section 19.1 of NI 81-102 for exemptive relief from the following provisions of NI 81-102:
1. Sections 9.1 and 10.2 to permit purchases and sales of units ("Units") of the New Funds and any additional exchange-traded funds that Barclays Canada may establish that have the investment objective of replicating, to the extent possible, the returns of an index, net of expenses (the "Future Funds", and together with the New Funds, the "Funds") on The Toronto Stock Exchange (the "TSX");
2. Section 9.4(2) to permit the Funds to accept a combination of cash and securities as subscription proceeds for Units;
3. Section 10.3 to permit the Funds to redeem less than the Prescribed Number of Units at a discount to their market price, as compared to their net asset value; and
4. Section 14.1 to permit the Funds to establish a record date for distributions in accordance with TSX rules.
Under the Mutual Reliance Review System for Exemptive Relief Applications ("MRRS"):
1. the Ontario Securities Commission is the principal regulator for this application; and
2. this MRRS decision document evidences the decision of each Decision Maker.
"Baskets" means (i) in relation to a particular Fund, a group of securities of each constituent issuer of the applicable index which, when multiplied by the constituent issuer's last sale price per security, is approximately equivalent to the constituent issuer's relative weight in the applicable index, or (ii) a group of bonds, shares or other securities as Barclays Canada may determine in its discretion from time to time, that may be used, along with cash, by Designated Brokers and Underwriters as subscription proceeds for a Prescribed Number of Units of the relevant Fund and for which, along with cash, a Prescribed Number of Units of the relevant Fund may be exchanged.
"Designated Brokers" means registered brokers and dealers that enter into agreements with the Funds to perform certain duties in relation to the Funds.
"index" means an index provided to Barclays Canada by a third party provider for use in connection with a Fund.
"Prescribed Number of Units" means, in relation to a Fund, the number of Units of the Fund determined by Barclays Canada from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
"Underwriters" means registered brokers and dealers that have entered into underwriting agreements with the Funds and that subscribe for and purchase Units from the Funds, and "Underwriter" means any one of them.
"Unitholders" means beneficial and registered holders of Units.
Section references set out in this decision are references to NI 81-102, unless otherwise indicated.
Defined terms contained in NI 81-102 and National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by Barclays Canada:
1. Each New Fund is, and it is expected that each of the Future Funds will be, a mutual fund trust governed by the laws of Ontario and a reporting issuer under the laws of all the Jurisdictions.
2. A preliminary long form prospectus for the New Funds dated March 22, 2007 was filed with the securities regulatory authorities in each of the Jurisdictions. A preliminary receipt was issued on March 23, 2007.
3. Barclays Canada has applied to list the Units of each New Fund on the TSX and will apply to list the Units of each Future Fund on the TSX. Barclays Canada will not file a final prospectus for any Fund until the TSX has conditionally approved the listing of Units of such Fund.
4. Units issued by the Funds will be index participation units within the meaning of NI 81-102. The Funds will be generally described as exchange traded funds ("ETFs").
5. Barclays Canada is, or will be, the trustee of all Funds. Barclays Canada is registered under the Legislation of all Jurisdictions, as a portfolio manager and investment counsel (or the equivalent categories of registration). Barclays Canada is also registered as a Commodity Trading Manager and Limited Market Dealer in Ontario and as a Limited Market Dealer in Newfoundland and Labrador. The head office of Barclays Canada is located in Toronto, Ontario.
6. The investment objective of each Fund is, or will be, to replicate the performance of an index, net of expenses. The investment objective and applicable index for each Fund, as well as its investment strategy will be disclosed on an ongoing basis in the prospectus of each Fund.
7. Units may only be subscribed for or purchased directly from the Funds by Underwriters or Designated Brokers and orders may only be placed for Units in the Prescribed Number of Units (or an integral multiple thereof) on any day when there is a trading session on the TSX.
8. The Funds have appointed or will appoint Designated Brokers to perform certain functions which include standing in the market with a bid and ask price for Units of each Fund for the purpose of maintaining liquidity for the Units.
9. Each Underwriter or Designated Broker that subscribes for Units must deliver, in respect of each Prescribed Number of Units to be issued, a Basket and cash in an amount sufficient so that the value of the Basket and cash delivered is equal to the net asset value of the Units subscribed for next determined following the receipt of the subscription order. In the discretion of Barclays Canada, the Funds may also accept cash only subscriptions for Units in amount equal to the net asset value of the Units next determined following the receipt of the subscription order.
10. The net asset value per Unit of each Fund will be calculated and published daily.
11. Upon notice given by Barclays Canada from time to time and, in any event, not more than once quarterly, a Designated Broker will subscribe for Units in cash in an amount not to exceed 0.30% of the net asset value of the New Funds, or such other amount established by Barclays Canada in respect of each Future Fund and disclosed in the prospectus of such Future Fund, next determined following delivery of the notice of subscription to that Designated Broker.
12. Neither the Underwriters nor the Designated Brokers will receive any fees or commissions in connection with the issuance of Units to them. Barclays Canada may, at its discretion, charge an administration fee on the issuance of Units to the Designated Brokers or Underwriters.
13. Except as described in paragraphs 7 through 11 above, Units may not be purchased directly from the Funds. Investors are generally expected to purchase Units through the facilities of the TSX. However, Units may be issued directly to Unitholders upon the reinvestment of distributions of income or capital gains and in accordance with the distribution reinvestment plan of each Fund as disclosed in its prospectus.
14. Unitholders that wish to dispose of their Units may generally do so by selling their Units on the TSX, through a registered broker or dealer, subject only to customary brokerage commissions. A Unitholder that holds a Prescribed Number of Units or an integral multiple thereof may exchange such Units for Baskets and cash; Unitholders may also redeem their Units for cash at a redemption price equal to 95% of the closing price of the Units on the TSX on the date of redemption.
15. As trustee, Barclays Canada will be entitled to receive a fixed annual fee from each Fund. Such annual fee will be calculated as a fixed percentage of the net asset value of each Fund. Barclays Canada will be responsible for the payment of all expenses of the Funds, except for the trustee fee, any administration fee payable by Designated Brokers or Underwriters in connection with the issuance of Units, any redemption fees payable by Unitholders upon the redemption of a Prescribed Number of Units, any expenses related to the implementation and on-going operation of an independent review committee under National Instrument 81-107 -- Independent Review Committee for Investment Funds, any withholding taxes and any income taxes.
Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers under NI 81-102 is that:
The Funds are exempt from the following provisions of NI 81-102, on the following conditions:
1. Sections 9.1 and 10.2 -- to enable the purchase and sale of Units of the Funds on the TSX, which precludes the transmission of purchase or redemption orders to the order receipt offices of the Funds.
2. Section 9.4(2) -- to permit payment for the issuance of Units of the Funds to be made partially in cash and partially in securities, provided that the acceptance of securities as payment is made in accordance with Section 9.4(2)(b).
3. Section 10.3 -- to permit the redemption of less than the Prescribed Number of Units of the Funds at a price equal to 95% of the closing price of the Units on the TSX; and
4. Section 14.1 -- to relieve the Funds from the requirement relating to the record date for the payment of distributions, provided that the Funds comply with applicable TSX requirements.