National Policy 11-203 National Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the investment prohibition in subsection 4.1(1) of NI 81-102 to permit purchases under private placements where the issuer is a reporting issuer in one or more Canadian jurisdiction -- relief conditional on funds complying with conditions under s. 4.1(4)(a), (b), (c)(ii), and (d) which include approval by the funds' independent review committee.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 5.2(2).
February 12, 2010
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.
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the existing mutual funds subject to National Instrument 81-102 Mutual Funds (NI 81-102) for which the Filer currently acts as manager or portfolio adviser or both, and any other mutual funds subject to NI 81-102 which may be created in the future for which the Filer or an affiliate may act as manager or portfolio advisor or both (each, a Fund and collectively, the Funds), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from subsection 4.1(1) of NI 81-102 to enable the Funds to purchase equity securities (Securities) of a reporting issuer during the period of distribution (the Distribution) of the Securities pursuant to a private placement offering (a Private Placement) and for the 60-day period (the 60-day Period) following completion of the Distribution (the Distribution and the 60-day period together, the Prohibition Period), notwithstanding that the dealer manager of the Funds or an associate or affiliate thereof acts or has acted as underwriter in connection with the Distribution (each a Relevant Offering and the above is collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission 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 (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision (Decision), unless otherwise defined.
IRC means Independent Review Committee.
NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds.
Related Underwriter means Scotia Capital Inc.
This Decision is based on the following facts represented by the Filer:
1. The Filer is a limited partnership under the laws of Ontario and is registered as a portfolio manager in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, New Brunswick, Newfoundland and Labrador and Yukon, as an exempt market dealer in Ontario and Newfoundland and as a commodity trading manager in Ontario. The head office of the Filer is located in Toronto, Ontario.
2. Each of the Funds is or will be an open-ended mutual fund trust or corporation established under the laws of Canada or a jurisdiction of Canada.
3. The securities of the Funds are or will be qualified for distribution in each of the provinces and territories of Canada pursuant to simplified prospectuses and annual information forms that have been prepared and filed in accordance with applicable securities legislation.
4. The Filer, or an affiliate or associate of the Filer, is or will be the manager and/or the portfolio adviser of the Funds. In addition, from time to time, third parties who are registered as portfolio managers may act as portfolio advisers to the Funds. Each Fund is or will be a "dealer managed mutual fund", as such term is defined in NI 81-102.
5. The Filer and the Funds are not in default of securities legislation in any jurisdiction of Canada.
6. The Filer has established an IRC in respect of the Funds in accordance with NI 81-107.
7. The Related Underwriter may be a party to an underwriting agreement with a reporting issuer in respect of Securities that are offered on a Private Placement basis. The Filer may wish to cause its relevant Funds to invest in such Securities during the Prohibition Period.
8. At the time of purchase by a Fund, the Securities will either be (i) equity securities of a reporting issuer or (ii) convertible securities, such as special warrants, which automatically permit the holder to purchase, convert or exchange such convertible securities into other equity securities of the reporting issuer once such other equity securities are listed and traded on an exchange.
9. Despite the affiliation between the Filer and the Related Underwriter, they operate independently of each other. In particular, the investment banking and related dealer activities of the Related Underwriter and the investment portfolio management activities of the portfolio adviser on behalf of the Funds are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:
(a) in respect of compliance matters (for example, the Filer and the Related Underwriter may communicate to enable the Filer to maintain an up to date restricted-issuer list to ensure that the Filer complies with applicable securities laws); and
(b) the Filer and the Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.
10. The Funds will not be required or obligated to purchase any Securities during the Prohibition Period.
11. Any purchase of Securities by the Funds will be consistent with the investment objectives of the Funds and represent the business judgment of the Filer uninfluenced by considerations other than the best interests of the Funds.
12. To the extent that a Related Underwriter participates as an underwriter in an offering, the investment prohibition contained in subsection 4.1(1) of NI 81-102 (the Prohibition) restricts the Funds from making certain investments in the issuer's Securities during the relevant Prohibition Period, which can result in the portfolio adviser of the Fund incurring extra costs, which are ultimately borne by the relevant Fund, to substitute investments for those that it is prohibited from purchasing.
13. Subsection 4.1(1) of NI 81-102 provides an exemption from the Prohibition if the Filer or any of its associates or affiliates acts as a member of a selling group distributing 5% or less of the underwritten securities. However, this de minimis exemption is not available to entities that are underwriting a Distribution (as opposed to being in the selling group) and therefore the Funds cannot avail themselves of this exemption.
14. The Funds would not be restricted by the Prohibition if, in accordance with subsection 4.1(4) of NI 81-102, certain conditions are met, including that the IRC of the Funds has approved the transaction in accordance with subsection 5.2(2) of NI 81-107, that a prospectus is filed with one or more securities regulatory authorities or regulators in Canada in connection with a Relevant Offering and, during the 60-day Period, that the investment is made on an exchange on which the class of equity securities of the issuer is listed and traded.
15. The Filer will not be able to rely on subsection 4.1(4) of NI 81-102 if the offering is made on a Private Placement basis, as a prospectus is not filed in such circumstance. However, the Filer will comply with each of the other conditions in subsection 4.1(4), including subparagraph 4.1(4)(a) that the IRC of the Fund will approve any purchases of Securities during the Prohibition Period.
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 Exemption Sought is granted provided that:
(a) At the time of each purchase of Securities by a Fund during a Prohibition Period for a Relevant Offering;
(i) the investment will be in compliance with the investment objectives of the Fund;
(ii) the Fund has an IRC that complies with NI 81-107;
(iii) the IRC of the Fund will have approved the investment in accordance with subsection 4.1(4)(a) of NI 81-102; and
(iv) the Fund complies with paragraphs 4.1(4)(c)(ii) and 4.1(4)(d) of NI 81-102;
(b) Each issuer of Securities in a Relevant Offering is a reporting issuer under the applicable securities legislation in a Canadian jurisdiction at the time of each purchase by a Fund during the Prohibition Period for the Relevant Offering;
(i) Prior to the first reliance on this Decision by a Fund, the website of the Fund or Filer, as applicable, discloses,
(ii) on the date which is the earlier of (A) the date when an amendment to the simplified prospectus of the Fund is filed for reasons other than this Decision and (B) the date on which the initial or renewal simplified prospectus of the Fund is receipted, Part A of the simplified prospectus of the Fund discloses,
that the Fund may invest in Securities during the Prohibition Period pursuant to this Decision, notwithstanding that the Related Underwriter has acted as underwriter in the Relevant Offering of the same class of such Securities.
(d) On the date which is the earlier of:
(i) the date when an amendment to the annual information form of the Fund is filed for reasons other than this Decision; and
(ii) the date on which the initial or renewal annual information form of the Fund is receipted,
the annual information form of the Fund discloses the information referred to in paragraph (c) above and describes the policies or procedures and standing instructions if any, that have been approved by the IRC in relation to investments that can only be made pursuant to this Decision.
This Decision will terminate on the coming into force of any legislation or rule of the principal regulator in the Jurisdiction dealing with Private Placements in the context of section 4.1 of NI 81-102.