National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Relief granted to portfolio manager to engage the funds it manages in principal trading of debt securities of third parties with a related dealer in the secondary market - relief conditional on IRC approval and compliance with pricing requirements.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.2, 19.1.
National Instrument 31-103 Registration Requirements, s. 13.5(2)(b)(i).
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.2.
October 30, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
SCOTIA ASSET MANAGEMENT L.P.
IN THE MATTER OF
THE MUTUAL FUNDS
listed in Schedule A and any mutual funds subject to
National Instrument 81-102 Mutual Funds
(NI 81-102) that may be established in the future
for which the Filer acts as portfolio advisor
and/or manager (the Filer Funds)
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of each Filer Fund for relief from the prohibition in the Legislation of the Jurisdiction that the Filer, as adviser to the Filer Funds, be exempt from the requirement which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell securities of any issuer from or to the investment portfolio of a responsible person (the Related Account Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission (the OSC) is the principal regulator for the Application; and
(ii) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-02 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (the Non-principal Jurisdictions).
Defined terms contained in National Instrument 14-101 -- Definitions (NI 14-101), MI 11-102, in NI 81-102 and in National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meaning in this decision unless otherwise defined.
This decision is based on the following facts represented by an Filer in respect of the Filer and the Filer Funds:
1. The Filer is or will be the portfolio adviser and/or the manager of the Filer Funds.
2. Schedule A contains a list of all the mutual funds that are subject to NI 81-102 of which the Filer will, as of November 1, 2009, be the portfolio adviser and/or the manager.
3. An Independent Review Committee (IRC) has or will be constituted for each of the Filer Funds in accordance with the requirements of NI 81-107.
4. The investment strategies of a Filer Fund that relies on the Related Account Relief permit or will permit it to invest in the securities purchased, either as a principal strategy in achieving its investment objective or as a temporary strategy, pending the purchase of other securities.
5. The predecessors to the Filer, Scotia Cassels Investment Counsel Limited (SCICL), and Scotia Securities Inc.(SSI) and Scotia Capital Inc. (SCI) previously obtained Related Account Relief under an MRRS Decision Document dated November 1, 2007 (the Existing Related Person Purchase Relief) so that a Filer Fund of the Filer may purchase from or sell to a related person or company (a Related Person) that is a principal dealer in the Canadian debt securities market (a Principal Dealer) debt securities of an issuer other than the federal or a provincial government (Non-Government Debt Securities) or debt securities issued or fully and unconditionally guaranteed by the federal or a provincial government (Government Debt Securities) in the secondary market.
6. Related Persons of the Filer Funds are Principal Dealers in the Canadian debt securities market, both primary and secondary.
7. The Filer has made the Application for the Related Account Relief so that a Filer Fund may continue to purchase from or sell to a Related Person of the Filer Fund Non-Government Debt Securities or Government Debt Securities in the secondary market after the Termination Date.
8. The purchase of Non-Government Debt Securities and Government Debt Securities from a Related Person of the Filer Fund in the secondary market is subject to the prohibition on a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell securities of any issuer from or to the investment portfolio of a responsible person.
9. The representations by the Filer referred to by the decision makers in the Existing Related Person Purchase Relief, in respect of the role played by Related Persons of the Filer Fund in the Government and Non-Government Debt Securities markets remain, in all material respects, accurate as of the date of this Decision Document, particularly,
(a) there is a limited supply of Non-Government Debt Securities and Government Debt Securities available to the Filer Funds; and
(b) frequently the only source of Non-Government Debt Securities and Government Debt Securities for a Filer Fund is a Related Person of the Filer Fund.
10. The Filer Funds require the Related Account Relief in order to pursue their investment objectives and strategies effectively.
11. Pursuant to an internal reorganization effective November 1, 2009 involving SCICL, the Filer and certain of their affiliates, the portfolio management and investment fund manager activities carried on by SCICL, SSI and/or SCI (except for the portfolio management activities SCI carries on as an IIROC member) prior to November 1, 2009 will be transferred to and carried on by the Filer as of November 1, 2009. As a result of this reorganization, neither SCICL, SSI nor SCI will, as of November 1, 2009, be relying on the relief granted under the Existing Related Person Purchase Relief and the Filer will require the Related Account Relief as the Existing Related Person Purchase Relief is not available to the Filer.
12. The Filer is, to the best of its knowledge, not in default of securities legislation of any jurisdiction of Canada.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Related Account Relief is granted subject to the following conditions:
(1) the purchase or sale is consistent with, or is necessary to meet, the investment objective of the Filer Fund;
(2) the IRC has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(3) the Filer, as manager of the Filer Fund, complies with section 5.1 of NI 81-107 and the manager and the IRC of the Filer Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(4) the bid and ask price of the security are readily available, as provided in Commentary 7 of section 6.1 of NI 81-107;
(5) a purchase is not executed at a price which is higher than the available ask price and a sale is not executed at a price which is lower than the available bid price;
(6) the purchase or sale is subject to "market integrity requirements" as defined in NI 81-107; and
(7) the Filer Fund keeps the written records required by Section 6.1(2)(g) of NI 81-107.
This decision is effective on November 1, 2009.