Mutual Reliance Review System for Exemptive Relief Applications -- exemption granted to permit dealers to satisfy the requirement under securities legislation to deliver or send a prospectus of a mutual fund using the Smart Prospectus® Service, provided by Broadridge Investor Communications Corporation, bound together with additional documents -- additional documents are restricted to documents that are either required or permitted by the Legislation to be delivered to investors, for mutual funds and non-mutual funds, and do not include marketing material -- investors to receive consolidated reporting of all of the trades placed by the investor in an account through a particular Dealer on a given day, along with the additional documents
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2(2), 5.1(3), 5.2, 6.1(2).
December 30, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC,
NEW BRUNSWICK, NOVA SCOTIA,
PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR, YUKON
TERRITORY, NORTHWEST TERRITORIES AND
IN THE MATTER OF
NATIONAL INSTRUMENT 81-101
MUTUAL FUND PROSPECTUS DISCLOSURE
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
BLACKMONT CAPITAL INC.
IN THE MATTER OF
BROADRIDGE INVESTOR COMMUNICATIONS CORPORATION
(Broadridge, and together with Blackmont, the Filers)
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for:
• an exemption from the provision that the requirement under the Legislation to deliver or send a simplified prospectus of a mutual fund to a person or company is only satisfied by delivering or sending such document prepared in a particular form stipulated in the Legislation that restricts the documents that may be attached to, or bound with, the simplified prospectus;
• an exemption from the restriction that a simplified prospectus may only be attached to, or bound with, certain documents permitted under the Legislation; and
• an exemption from the requirement to attach permitted documents to a simplified prospectus only in the order stipulated in the Legislation;
when Blackmont or other Dealers (as defined below) use the Smart Prospectus® Service (as defined below) to deliver a simplified prospectus to recipients in order to satisfy the requirement under the Legislation on Dealers to deliver a prospectus of a mutual fund to a person or a company (the Requested Relief) as described herein.
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in 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 the Filers:
1. Blackmont is a corporation incorporated under the laws of Ontario with its head office located in Toronto, Ontario and is registered as a dealer in the category of investment dealer in the Province of Ontario and has equivalent registration in each of the other Participating Jurisdictions.
2. Broadridge is a corporation incorporated under the laws of Nova Scotia with its head office located in Mississauga, Ontario.
3. Broadridge is in the business of investor communications including mailing or delivering on behalf of registered dealers to their clients preliminary prospectuses or simplified prospectuses, final prospectuses, trade confirmations, offering memoranda, continuous disclosure documentation and other documentation required or permitted under the Legislation to be so delivered or mailed in connection with trades and holdings of securities.
4. Registered dealers who sell securities issued by mutual funds are, pursuant to the Legislation, required to send or deliver confirmations of the trades in securities to the purchaser of such securities within specified time periods, and unless the registered dealer has previously done so, the registered dealer must send or deliver to the purchaser of such securities the latest prospectus and any amendments thereto (the Dealer Delivery Requirement).
5. Section 3.2(2) of National Instrument 81-101 (NI 81-101) provides that the requirement under the Legislation to deliver or send a simplified prospectus of a mutual fund to a person or company is satisfied by delivering or sending such document filed under NI 81-101 and prepared in accordance with Form 81-101F1 (the Form Requirement).
6. Subsection 5.1(3) of NI 81-101 lists those documents that may be attached to or bound with a simplified prospectus (the Attachment Requirement).
7. Section 5.2 of NI 81-101 specifies the order in which documents permitted to be attached to or bound with a simplified prospectus must be so attached or bound (the Order Requirement).
8. Using Broadridge's Smart Prospectus® service (Smart Prospectus® Service), a proprietary technology of Broadridge, Broadridge, with respect to all trades in mutual funds made by an investor in a day, prints and delivers by mail, or delivers electronically, trade confirmations, the required portions of one or more simplified prospectuses for securities issued by mutual funds together with any amendments thereto and a cover letter on behalf of registered dealers who have entered or will enter into contracts with Broadridge (the Dealers). The documents so delivered are in a format described in and are in compliance with the provisions of the MRRS Decision Document dated April 21, 2003 granted on the application of ADP Investor Communications Corporation, the predecessor corporation of Broadridge, on behalf of the Dealers with respect to the Smart Prospectus® Service (the First Decision).
9. Pursuant to the First Decision, the Dealers are exempt from the Form Requirement, the Attachment Requirement and the Order Requirement, provided that they satisfy the Dealer Delivery Requirement by using the Smart Prospectus® Service provided by Broadridge under contract subject to certain conditions.
10. In response to the demands of Blackmont and other Dealers and their clients, Broadridge's technology has been adapted subsequent to the First Decision to permit various and broader uses of the Smart Prospectus® Service by Dealers in the sending or delivery of documents that may include a simplified prospectus that would not comply with one or more of the Form Requirement, the Attachment Requirement or the Order Requirement.
11. Blackmont and other Dealers wish to enter into contracts with Broadridge to use the Smart Prospectus® Service with respect to the delivery of Additional Documents (as defined below) together with a simplified prospectus for securities issued by a mutual fund, in connection with the Dealer Delivery Requirement.
12. The technology underlying the Smart Prospectus® Service has been enhanced to permit the consolidation of trade confirmations for all trades by an investor in an account through a particular Dealer processed on the same day in one trade confirmation document. Such trades may be mutual fund trades and trades of non-mutual fund securities. Prior to such technological capability, each trade was confirmed by a separate paper trade confirmation. The clients of Blackmont prefer consolidated trade confirmations for trades processed on the same day. In Broadridge's experience, their Dealer clients prefer consolidated trade confirmations. Also, recent changes in the exemptions from prospectus and registration requirements have encouraged qualifying individuals to purchase securities in the exempt market as well as mutual funds resulting in an increased demand to consolidate confirmations for exempt trades and mutual fund trades.
13. The Smart Prospectus® Service also now permits the inclusion of documents in support of the delivery of consolidated trade confirmations in the same bound package as a simplified prospectus. Blackmont wishes to permit Broadridge to attach to and bind with the simplified prospectus such additional documents (Additional Documents, as further defined below) in using the Smart Prospectus® Service to permit it and other Dealers to satisfy the Dealer Delivery Requirement and provide other documents to support the consolidated trade confirmation.
14. The Additional Documents would be restricted to documents that are either required or permitted by the Legislation to be delivered to investors. The inclusion of Additional Documents reflects the ability of the new technology underlying the Smart Prospectus® Service to identify and produce an investor communication that includes, in a convenient format, material required by a consolidated trade confirmation, new and changing regulatory requirements and the changing investment practices of the public. Additional Documents include disclosure documents that are or may be from time to time required or permitted to be delivered to investors in respect of trades in a consolidated trade confirmation, such as long form or short form prospectuses with respect to securities, information folders, information memoranda, information statements, offering memoranda, information pages and term sheets with respect to securities or financial instruments distributed by a Dealer. Additional Documents may also include, but are not limited to, documents with respect to account opening, management or maintenance or other information that are or may be required or permitted to be delivered to investors in connection with a trade. Additional Documents will not include marketing material with respect to a mutual fund or other securities or financial instruments or a Dealer.
15. A simplified prospectus delivered or sent using the Smart Prospectus® Service including Additional Documents on behalf of a Dealer may not comply with the Attachment Requirement and the provisions of the First Decision in that one or more Additional Documents may be attached to the prospectus.
16. A simplified prospectus delivered or sent using the Smart Prospectus® Service including Additional Documents on behalf of a Dealer may also not comply with the Order Requirement and the provisions of the First Decision in that the portions of the prospectus may be preceded by one or more Additional Documents.
17. A simplified prospectus delivered or sent using the Smart Prospectus® Service including Additional Documents on behalf of a Dealer may also not comply with the Form Requirement and the provisions of the First Decision in that each page of each prospectus and Additional Document so delivered will have two page numbers: one relating to the page number in the prospectus or Additional Document and the second identifying a consecutive page number in the Smart Prospectus® Service document, which pagination system will be explained to the reader on the front of the Smart Prospectus® Service document.
18. The Filers submit that the Requested Relief would not be prejudicial to the public interest and will provide investors with concise and better organized documentation. The face page explanation of the documents, including the Additional Documents, included in a package, the index of documents, separation pages between documents and dual page numbering (as described in paragraph 17) all ensure that investors will not be confused about what documentation they are receiving.
19. Granting the Requested Relief will enable Blackmont and other Dealers to provide their investor clients with consolidated reporting on all of the trades placed by the investor on a given day that is being requested by the investors. In their meetings with, and in periodic feedback to, Broadridge, Blackmont and other Dealers have advised Broadridge that their clients have expressed a strong desire to receive customized, relevant and consolidated reporting of this nature.
20. Broadridge will keep records of the Dealers that use the Smart Prospectus® Service with respect to Additional Documents and will forward, on a confidential basis, a list of the Dealers relying on this Decision to the Principal Regulator on a quarterly basis within 10 business days of the end of each calendar quarter.
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 provided that:
(a) A Dealer relying on this relief uses the Smart Prospectus® Service pursuant to a contract with Broadridge the terms of which are consistent with the terms of this decision;
(b) with respect to the documents delivered by the Smart Prospectus® Service on behalf of a Dealer:
(i) if the pages of a document delivered under the Smart Prospectus® Service have two page numbers, one will relate to the page number in the filed prospectus or Additional Document, as applicable, and the second will identify a consecutive page number in the Smart Prospectus® Service document, which pagination system is explained to the reader on the front of the Smart Prospectus® Service document;
(ii) Additional Documents, when bound or attached together with a simplified prospectus relating to the purchase of a mutual fund security, shall be in the order of the documents listed in the related cover letter;
(iii) the simplified prospectus delivered or sent to an investor otherwise complies with the terms of the First Decision; and
(c) this decision shall cease to be of effect with the coming into force of any legislation or rule of the Decision Makers relating to the preparation, delivery, binding or ordering of disclosure documents of mutual funds subject to this decision.