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 received an application (the Application) from the Filer on behalf of each Filer Fund under section 19.1 of NI 81-102 for relief from the requirement in Section 4.2 of NI 81-102 (the Requested Section 4.2 Relief) which prevents a mutual fund from purchasing a security from or selling a security to any of the following persons or companies:
1. The manager, portfolio adviser or trustee of the mutual fund;
2. A partner, director or officer of the mutual fund or of the manager, portfolio adviser or trustee of the mutual fund;
3. An associate or affiliate of a person or company referred to in paragraph 1 or 2;
4. A person or company, having fewer than 100 securityholders of record, of which a partner, director or officer of the mutual fund or a partner, director or officer of the manager or portfolio adviser of the mutual fund is a partner, director, officer or securityholder,
if such persons or companies (each a Related Person) are acting as principal.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) is the principal regulator for this Application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (M1 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (the Non-principal Jurisdictions).
Defined terms contained in National Instrument 14-101 -- Definitions (NI 14-101), 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.
In this Decision Document the term Related Person of the Filer Funds will be used to refer to a Related Person of a Filer Fund that is a principal dealer (Principal Dealer) in the Canadian debt securities market.
This decision is based on the following facts represented by the 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 be, as of November 1, 2009, 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 each Filer Fund that relies on the Requested Section 4.2 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. Related Persons of the Filer Funds are Principal Dealers in the Canadian debt securities market, both primary and secondary.
6. Section 4.3 of NI 81-102 which provides certain relief from Section 4.2(1) does not provide an exemption from Section 4.2(1) for transactions in debt securities issued or fully and unconditionally guaranteed by the federal or a provincial government (Government Debt Securities) or debt securities of an issuer other than the federal or a provincial government (Non-Government Debt Securities) that are either not the subject of public quotations or not inter-fund trades that comply with Section 6.1(2) of NI 81-107.
7. The Filer has made the Application for the Requested Section 4.2 Relief so that a Filer Fund may continue to purchase from or sell to a Related Person that is a Principal Dealer, Non-Government Debt Securities or Government Debt Securities in the secondary market.
8. The purchase of debt securities from a Related Person in the secondary market is subject to Section 4.2 of NI 81-102.
9. The Filer considers that the Filer Funds should have access to the Government Debt Securities and Non-Government Debt Securities for the following reasons,
(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 Requested Section 4.2 Relief in order to continue to pursue their investment objectives and strategies effectively.
11. The Filer is, to the best of its knowledge, not in default of the securities legislation of the Jurisdiction or any of the Non-principal Jurisdictions.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator with the jurisdiction to make the decision.
The decision of the principal regulator is that the Requested Section 4.2 Relief is granted subject to the following conditions:
(a) the purchase or sale is consistent with, or is necessary to meet, the investment objective of the Filer Fund;
(b) the IRC has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(c) 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;
(d) the bid and ask price of the security are readily available, as provided in Commentary 7 of section 6.1 of NI 81-107;
(e) 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;
(f) the purchase or sale is subject to "market integrity requirements" as defined in NI 81-107; and
(g) the Filer Fund keeps the written records required by Section 6.1(2)(g) of NI 81-107.
This decision is effective November 1, 2009.