Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from the requirement to become a member of the Mutual Fund Dealers Association of Canada -- amendment of the terms and conditions placed upon registration pursuant to previous decision exempting mutual fund dealer from the requirement to be a member of the MFDA -- terms and conditions updated to reflect changes in securities law, including the implementation of NI 31-103 Registration Requirements and Exemptions.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, ss. 4.7 and 4A.5.

Multilateral Instrument 11-203 Passport System, s. 3.2.

National Instrument 31-103 Registration Requirements and Exemptions, ss. 9.2 and 15.1.

Ontario Securities Commission Rule 31-506 SRO Membership -- Mutual Fund Dealers (revoked).

December 17, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FRANKLIN TEMPLETON INVESTMENTS CORP.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation)

(a) Revoking the exemption order granted by the principal regulator on June 25, 2002 (Ontario Order) providing an exemption from the requirement that the Filer be a member of the MFDA pursuant to OSC Rule 31-506 SRO Membership -- Mutual Fund Dealers (OSC Rule 31-506); and

(b) for an exemption (the Exemption Sought) from the requirement that the Filer be a member of the MFDA pursuant to section 9.2 of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) 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 (MI 11-102) is intended to be relied upon in respect of the Exemption Sought in those provinces and territories of Canada in which the Filer is registered as a mutual fund dealer.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

The following terms shall have the following meanings:

1. Act means the Securities Act (Ontario).

2. Existing Orders means those orders of the OSC and the Alberta Securities Commission granting relief to the Filer under the legislation then in force in the applicable provinces from the requirement that the Filer become a member of the MFDA.

3. Existing Terms and Conditions means the existing terms and conditions that have been placed against the Filer's registration as a mutual fund dealer in the applicable provinces and that were imposed under the Existing Orders and through the operation of section 4A.5 of MI 11-102.

4. MFDA means the Mutual Fund Dealers Association of Canada.

5. OSC means the Ontario Securities Commission.

6. Terms and Conditions means the terms and conditions that will be placed against the Filer's registration as a mutual fund dealer in the applicable provinces and territories in accordance with this decision, as attached as Appendix A to this Decision.

Representations

This decision is based on the following facts represented by the Filer.

1. The Filer is a corporation established under the laws of Canada with its head office located in Toronto, Ontario.

2. The Filer is registered with the OSC and the securities regulatory authorities in all other provinces and the Yukon Territory as a mutual fund dealer and an adviser (portfolio manager). The Filer is also registered as an investment fund manager with the OSC. The Filer's registration as an investment fund manager and as a mutual fund dealer in all provinces and the Yukon Territory, other than Ontario and Alberta, was granted as a result of the Filer's application for such registration which was filed prior to September 28, 2010.

3. Securities of the Filer's retail mutual funds are primarily distributed to the public through other registered dealers and are qualified for such distribution by prospectuses filed with the OSC and other applicable provinces and territories. The Filer also manages mutual funds distributed pursuant to prospectus exemptions (pooled funds). The pooled funds are distributed by the Filer pursuant to the Existing Terms and Conditions. Prior to September 28, 2010, 2010, to the extent trades in mutual funds, including the pooled funds, took place, the Filer relied on registration exemptions provided for in National Instrument 45-106 Prospectus and Registration Exemptions to trade in securities of mutual funds to residents of those provinces and territories where it was not registered as a mutual fund dealer.

4. The Filer is not a reporting issuer in any jurisdiction of Canada and is not, to its knowledge, in default of securities regulation of any jurisdiction of Canada.

5. The Filer obtained an order from the Director of the OSC that provided a similar exemption to the Exemption Sought on the Existing Terms and Conditions, but that relief was in respect of OSC Rule 31-506. The Filer also obtained a substantially similar exemption from the requirements in the securities regulation of Alberta on similar terms and conditions. Pursuant to the operation of sections 4.8 and 4A.5 of Multilateral Instrument 11-102 Passport System

(a) The Filer's above-noted order from the Director of the OSC was "passported" prior to September 28, 2010, to the other provinces and territories of Canada where the Filer was seeking to become registered as a mutual fund dealer; and

(b) The Existing Terms and Conditions were extended to all provinces and territories where the Filer was registered as of October 28, 2009.

6. The Filer's activities as a mutual fund dealer are restricted to servicing, and acting as the mutual fund dealer of record in respect of, trades in mutual funds only as permitted by the Existing Terms and Conditions. Membership of the Filer in the MFDA is not appropriate due to the limited nature of the Filer's mutual fund dealer activities, which is consistent with the rationale behind the Existing Orders.

7. The CSA propose to amend section 3.15 of NI 31-103 via proposed amendments published for comment in June 2010, in ways that clarify that the Filer does not need relief from this section. OSC Rule 31-506 (and its equivalents in the other provinces) did not contain a similar requirement as section 3.15 of NI 31-103.

8. The Filer gives a written notice to any person or company who is not currently a client of the Filer in its capacity as a registered mutual fund dealer, before they are accepted as a client of the Filer about its status as a non-member of the MFDA, using substantially the following words:

The Registrant is not currently a member, and does not intend to become a member of the Mutual Fund Dealers Association of Canada. Consequently, clients of the Registrant will not have available to them investor protection benefits that would otherwise derive from membership of the Registrant in the MFDA, including coverage under the investor protection plan for clients of members of the MFDA.

9. The Existing Terms and Conditions need modification to reflect:

(a) the coming into force of NI 31-103, given that, among other things, the Existing Terms and Conditions define Exempt Trades as those trades "in securities of a mutual fund for which the Registrant would have available to it an exemption from the registration requirements of clause 25(1)(a) of the Securities Act (Ontario) if the Registrant were not a "market intermediary" as such term is defined in section 204 of the Regulation.". With the coming into force of NI 31-103 and section 8.5 of NI 45-106 this terminology is no longer valid;

(b) the revocation of Ontario Securities Commission Rule 45-503 Trades to Employees, Executives and Consultants; and

(c) an internal change to the business carried on by the Filer, whereby certain managed account business previously carried on by the Filer is now conducted by an affiliate of the Filer.

10. The Filer has agreed to the imposition of the Terms and Conditions set out in the attached Appendix A, as a condition of its registration under the Act as a dealer in the category of mutual fund dealer in replacement of the Existing Terms and Conditions.

Decision

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

(a) The Ontario Order is hereby revoked and

(b) the Exemption Sought is granted

provided that the Filer's registration as a mutual fund dealer in each province and territory, as applicable, is subject to the Terms and Conditions in Appendix A in full substitution for the Existing Terms and Conditions.

"Erez Blumberger"
Deputy Director
Registrant Regulation

 

Appendix A

Terms and Conditions on the Registration of

Franklin Templeton Investments Corp.

as a Mutual Fund Dealer under the Legislation

Interpretation

1. In this Appendix A, except as otherwise defined below or unless the context otherwise requires, defined terms contained in National Instrument 14-101 Definitions have the same meaning in this Appendix A.

2. In this Appendix A,

(a) "Adviser" means an adviser as defined in the Legislation;

(b) "Client Name Trade" means, for the Firm, a trade to, or on behalf of, a person or company, in securities of a mutual fund, that is managed by the Firm or an affiliated entity, where, immediately before the trade, the person or company is shown on the records of the mutual fund or of an other mutual fund managed by the Firm or an affiliated entity as the holder of securities of such mutual fund, and the trade consists of:

(A) a purchase, by the person or company, through the Firm, of securities of the mutual fund; or

(B) a redemption, by the person or company, through the Firm, of securities of the mutual fund;

and where the person or company,

(C) is a client of the Firm that was not solicited by the Firm; or

(D) was an existing client of the Firm on the Effective Date;

(c) "Effective Date" means December 17, 2010;

(d) "Employee", for the Firm, means:

(i) an employee of the Firm;

(ii) an employee of an affiliated entity of the Firm; or

(iii) an individual that is engaged to provide, on a bona fide basis, consulting, technical, management or other services to the Firm or to an affiliated entity of the Firm, under a written contract between the Firm or the affiliated entity and the individual or a consultant company or consultant partnership of the individual, and, in the reasonable opinion of the Firm, the individual spends or will spend a significant amount of time and attention on the affairs and business of the Firm or an affiliated entity of the Firm;

(e) "Employee", for a Service Provider, means an employee of the Service Provider or an affiliated entity of the Service Provider, provided that, at the relevant time, in the reasonable opinion of the Firm, the employee spends or will spend, a significant amount of time and attention on the affairs and business of:

(i) the Firm or an affiliated entity of the Firm; or

(ii) a mutual fund managed by the Firm or an affiliated entity of the Firm;

(f) "Executive", for the Firm, means a director, officer or partner of the Firm or of an affiliated entity of the Firm;

(g) "Executive", for a Service Provider, means a director, officer or partner of the Service Provider or of an affiliated entity of the Service Provider;

(h) "Exempt Trade", for the Firm, means a trade in securities of a mutual fund that the Firm would be authorized to make if it were registered under the Legislation as an exempt market dealer;

(i) "Firm" means Franklin Templeton Investments Corp.

(j) "Fund-on-Fund Trade" means a trade that consists of:

(i) a purchase, through the Firm, of securities of a mutual fund that is made by another mutual fund;

(ii) a purchase, through the Firm, of securities of a mutual fund that is made by a person or company where the person or company, an affiliated entity of the person or company, or an other person or company is, or will become, the counterparty in a specified derivative or swap with another mutual fund; or

(iii) a sale, through the Firm, of securities of a mutual fund that is made by another mutual fund where the party purchasing the securities is:

(A) a mutual fund managed by the Firm or an affiliated entity of the Firm; or

(B) a person or company that acquired the securities where the person or company, an affiliated entity of the person or company, or an other person or company is, or was, the counterparty in a specified derivative or swap with another mutual fund; and

where, in each case, at least one of the referenced mutual funds is a mutual fund that is managed by either the Firm or an affiliated entity of the Firm;

(k) "In Furtherance Trade" means, for the Firm, a trade by the Firm that consists of any act, advertisement, or solicitation, directly or indirectly in furtherance of an other trade in securities of a mutual fund, where the other trade consists of:

(i) a purchase or sale of securities of a mutual fund that is managed by the Firm or an affiliated entity of the Firm; or

(ii) a purchase or sale of securities of a mutual fund where the Firm acts as the principal distributor of the mutual fund;

and where, in each case, the purchase or sale is made by or through an other registered dealer if the Firm is not otherwise permitted to make the purchase or sale pursuant to these terms and conditions;

(l) "Legislation" ,as the context permits, means the securities legislation of the principal regulator of the Firm, being the Ontario Securities Commission or the securities legislation of a jurisdiction where the Firm is registered as a mutual fund dealer;

(m) "Managed Account" means, for the Firm or an affiliate of the Firm, an investment portfolio account of a client under which the Firm or an affiliate of the Firm, pursuant to a written agreement made between the Firm or the Firm's affiliate and the client, makes investment decisions for the account and has full discretionary authority to trade in securities for the account without obtaining the client's specific consent to the trade;

(n) "Managed Account Trade" means, for the Firm, a trade to, or on behalf of, a Managed Account of the Firm or an affiliated entity of the Firm, where the trade consists of a purchase or redemption, through the Firm of securities of a mutual fund, that is made on behalf of the Managed Account, where, in each case:

(i) the Firm or an affiliated entity of the Firm is the portfolio adviser to the mutual fund;

(ii) the mutual fund is managed by the Firm or an affiliated entity of the Firm; and

(iii) either of:

(A) the mutual fund is prospectus-qualified in the Jurisdiction; or

(B) the trade is not subject to the prospectus requirement under the Legislation of the Jurisdiction;

(o) "Mutual Fund Instrument" means National Instrument 81-102 Mutual Funds, as amended;

(p) "Permitted Client" means a person or company that is a client of the Firm, and that is, or was at the time the person or company became a client of the Firm:

(i) an Executive or Employee of the Firm;

(ii) a Related Party of an Executive or Employee of the Firm;

(iii) a Service Provider or an affiliated entity of a Service Provider;

(iv) an Executive or Employee of a Service Provider; or

(v) a Related Party of an Executive or Employee of a Service Provider;

(q) "Permitted Client Trade" means, for the Firm, a trade to a person, who is a Permitted Client or who represents to the Firm that he or she is a person included in the definition of Permitted Client, in securities of a mutual fund that is managed by the Firm or an affiliate of the Firm, and the trade consists of a purchase or redemption, by the person, through the Firm, of securities of the mutual fund;

(r) "Pooled Fund Rule" means, for the Firm, and for a Jurisdiction, a rule or other regulation under the Legislation of the Jurisdiction that relates, in whole or in part, to the distribution of securities of a mutual fund and/or non-redeemable investment fund, other than pursuant to a prospectus for which a receipt has been issued under the Legislation, made by the Firm to or on behalf of a Managed Account, but does not include National Instrument 45-106 Prospectus and Registration Exemptions or BC Instrument 45-505 Alternative Reporting Requirements for Exempt Distributions of Securities of Eligible Pooled Funds or National Instrument 31-103 Registration Requirements and Exemptions;

(s) "Registered Plan" means a registered pension plan, deferred profit sharing plan, registered retirement savings plan, registered retirement income fund, registered education savings plan or other deferred income plan registered under the Income Tax Act (Canada);

(t) "Related Party", for a person, means another person who is:

(i) the spouse of the person;

(ii) the issue of:

(A) the person;

(B) the spouse of the person; or

(C) the spouse of any person that is the issue of a person referred to in subparagraphs (A) or (B) above;

(iii) the parent, grandparent or sibling of the person, or the spouse of any of them;

(iv) the issue of any person referred to in paragraph (iii) above;

(v) a Registered Plan established by, or for the exclusive benefit of, one, some or all of the foregoing;

(vi) a trust where one or more of the trustees is a person referred to above and the beneficiaries of the trust are restricted to one, some, or all of the foregoing; or

(vii) a corporation where all the issued and outstanding shares of the corporation are owned by one, some, or all of the foregoing;

(u) "securities", for a mutual fund, means shares or units of the mutual fund;

(v) "Seed Capital Trade" means a trade in securities of a mutual fund made to persons or company referred to in any of subparagraphs 3.l(l)(a)(i) to 3.l(l)(a)(iii) of the Mutual Fund Instrument; and

(w) "Service Provider" means:

(i) a person or company that provides or has provided professional, consulting, technical, management or other services to the Firm or an affiliated entity of the Firm;

(ii) an Adviser to a mutual fund that is managed by the Firm or an affiliated entity of the Firm; or

(iii) a person or company that provides or has provided professional, consulting, technical, management or other services to a mutual fund that is managed by the Firm or an affiliated entity of the Firm.

3. In this Appendix A, a person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other or if both are subsidiary entities of the same person or company, or if each of them is controlled by the same person or company.

(2) In this Appendix A, a person or company is considered to be controlled by a person or company if

(a) in the case of a person or company

(i) voting securities of the first-mentioned person or company carrying more than 50 percent of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of the other person or company; and

(ii) the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;

(b) in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50 percent of the interests in the partnership; or

(c) in the case of a limited partnership, the general partner is the second-mentioned person or company.

(3) In this Appendix A, a person or company is considered to be a subsidiary entity of another person or company if

(a) it is controlled by

(i) that other; or

(ii) that other and one or more persons or companies, each of which is controlled by that other; or

(iii) two or more persons or companies, each of which is controlled by that other; or

(b) it is a subsidiary entity of a person or company that is that other's subsidiary entity.

4. In this Appendix A:

(a) "issue" and "sibling" includes any person having such relationship through adoption, whether legally or in fact;

(b) "parent" and "grandparent" includes a parent or grandparent through adoption, whether legally or in fact;

(c) "registered dealer" means a person or company that is registered under the Legislation of the Jurisdiction as a dealer in a category that permits the person or company to act as dealer for the subject trade; and

(d) "spouse", for an Employee or Executive, means a person who, at the relevant time, is the spouse of the Employee or Executive.

5. In this Appendix A, any terms that are not otherwise defined in National Instrument 14-101 Definitions or specifically defined above shall, unless the context otherwise requires, have the meaning:

(a) specifically ascribed to such term in the Mutual Fund Instrument; or

(b) if no meaning is specifically ascribed to such term in the Mutual Fund Instrument, the same meaning the term would have for the purposes of the Legislation of the Jurisdiction.

Restricted Registration: Permitted Activities

6. The registration of the Firm as a mutual fund dealer under the Legislation of the Jurisdictions shall be for the purposes only of trading by the Firm in securities of a mutual fund where the trade consists of:

(a) a Client Name Trade;

(b) an Exempt Trade;

(c) a Fund-on-Fund Trade;

(d) an In Furtherance Trade;

(e) a Managed Account Trade, provided, at the time of the trade, the Firm or an affiliated entity of the Firm who is a portfolio manager to the Managed Account, is registered under the Legislation of the Jurisdictions as an adviser in the category of portfolio manager;

(f) a Permitted Client Trade; or

(g) a Seed Capital Trade.

provided that, in the case of all trades that are only referred to in clauses (a) or (f), the trades are limited and incidental to the principal business of the Firm, and provided also that paragraph (e) will cease to be in effect one year after the coming into force, subsequent to the Effective Date, of any Pooled Fund Rule.