Artemis Investment Management Limited and Omega Advisors, Inc. -- s. 80 of the CFA

Order

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to sub-adviser not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions. Relief mirrors exemption available in section 7.3 of OSC Rule 35-502 Non-Resident Advisers made under the Securities Act (Ontario).

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am. -- Rule 35-502 Non Resident Advisers.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

ARTEMIS INVESTMENT MANAGEMENT LIMITED

AND OMEGA ADVISORS, INC.

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of Artemis Investment Management Limited (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that Omega Advisors, Inc. (the Sub-Adviser) and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Advisory Services (as defined below) be exempt, for a period of five years, from the adviser registration requirement of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser in respect of the Funds (as defined below) in respect of commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges and cleared through clearing corporations;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Principal Adviser having represented to the Commission that:

1. The Principal Adviser is a corporation incorporated under the laws of Ontario and its principal business office is in Toronto, Ontario.

2. The Principal Adviser is registered under the Securities Act (Ontario) (the Act) as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer, and under the CFA as an adviser in the category of commodity trading manager.

3. The Principal Adviser has applied for registration under the Act as an investment fund manager and for exempt market dealer registration in the following additional jurisdictions: British Columbia, Alberta, Saskatchewan and Québec.

4. Pursuant to the terms of an investment management agreement (the IMA), the Principal Adviser will be appointed to implement the investment strategies of Omega Advisors U.S. Capital Appreciation Fund (the Omega Fund). The IMA will grant the Principal Adviser the authority to appoint sub-advisers to the Omega Fund, provided certain conditions are met.

5. In addition to the Omega Fund, the Principal Adviser may in the future provide advice to other mutual funds, non-redeemable investment funds or similar investment vehicles with respect to which the Sub-Adviser may potentially provide advice, directly or indirectly, to the Principal Adviser (each a Fund, and collectively with the Omega Fund, the Funds). Each Fund is, or will be, offered pursuant to a prospectus or pursuant to appropriate prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions.

6. The Funds may, as part of their investment program, invest in Contracts.

7. The Funds are or will be formed in Ontario where the Principal Adviser is registered as an adviser in the category of commodity trading manager.

8. The Sub-Adviser is organized under the laws of the State of Delaware, United States of America. The executive offices of the Sub-Adviser are located in New York, New York in the United States of America. The Sub-Adviser is not affiliated with the Principal Adviser.

9. The Sub-Adviser is currently registered as an investment adviser with the U. S. Securities and Exchange Commission and is registered as both commodity trading adviser and a commodity pool operator with the U.S. Commodity Futures Trading Commission and the U.S. National Futures Association.

10. The Sub-Adviser is, or will be, appropriately registered or licensed, or is, or will be, entitled to rely on appropriate exemptions from such registrations or licences, to provide advice to the Funds pursuant to the applicable legislation of its principal jurisdiction.

11. The Sub-Adviser is not a resident of any province or territory of Canada.

12. The Sub-Adviser is not registered in any capacity under either the CFA or the Act.

13. The Principal Adviser may, pursuant to a written investment management agreement with each Fund, act as an adviser to the Fund in respect of:

(a) securities, as defined in the Act; and

(b) Contracts, as defined in the CFA

by exercising discretionary authority to purchase or sell securities and Contracts on behalf of the Funds.

14. In connection with the Principal Adviser acting as an adviser to the Funds in respect of the purchase or sale of securities and Contracts, the Principal Adviser will, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, retain the Sub-Adviser to act as a sub-adviser to the Principal Adviser (the Proposed Advisory Services) in respect of capital markets and Contracts in which the Sub-Adviser has experience and expertise by exercising discretionary authority on behalf of the Principal Adviser, in respect of all or a portion of all of the assets of the investment portfolio of the respective Fund, including discretionary authority to buy or sell Contracts for the Fund, provided that:

(a) the Contracts must be cleared through an "acceptable clearing corporation" (as defined in National Instrument 81-102 Mutual Funds); and

(b) such investments are consistent with the investment objectives and strategies of the Fund.

15. The written agreement between the Principal Adviser and the Sub-Adviser will set out the obligations and duties of each party in connection with the Proposed Advisory Services and will permit the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Sub-Adviser in respect of the Proposed Advisory Services.

16. The Principal Adviser will deliver to the Funds all applicable reports and statements required under applicable securities and derivatives legislation.

17. If there is any direct contact between a Fund and a Sub-Adviser in connection with the Proposed Advisory Services, a representative of the Principal Adviser, duly registered in accordance with Ontario commodity futures law, will be present at all times either in person or by telephone.

18. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative, a partner or an officer of a registered adviser and is acting on behalf of a registered adviser.

19. By providing the Proposed Advisory Services, the Sub-Adviser and any individuals acting on behalf of the Sub-Adviser in respect of the Proposed Advisory Services will be engaging in, or holding themselves out as engaging in, the business of advising others in respect of the Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser, or a representative of an adviser, as the case may be, under the CFA.

20. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in section 25(3) of the Act which is provided under section 7.3 of OSC Rule 35-502 Non-Resident Advisers (OSC Rule 35-502).

21. The relationship among the Principal Adviser, the Sub-Adviser and any Fund satisfies, or will satisfy, the requirements of section 7.3 of OSC Rule 35-502.

22. As would be required under section 7.3 of OSC Rule 35-502:

(a) the duties and obligations of the Sub-Adviser will be set out in a written agreement with the Principal Adviser;

(b) the Principal Adviser will contractually agree with the Funds to be responsible for any loss that arises out of the failure of the Sub-Adviser:

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and the Funds; or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations); and

(c) the Principal Adviser cannot be relieved by the Funds from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.

23. The Sub-Adviser will only provide the Proposed Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.

24. The prospectus or similar offering document for each Fund for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Advisory Services will include the following disclosure:

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

25. In circumstances where a Fund for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Advisory Services does not prepare a prospectus or similar offering document for delivery to prospective purchasers, all investors who are Ontario residents will receive written disclosure prior to purchasing any securities of such Fund that includes:

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested;

IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Advisory Services are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of the Proposed Advisory Services provided to the Principal Adviser with respect to the Funds, for a period of five years, provided that at the relevant time that such activities are engaged in:

(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Advisory Services are appropriately registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the particular Fund pursuant to the applicable legislation of their principal jurisdiction;

(c) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(d) the Principal Adviser has contractually agreed with the respective Fund to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(e) the Principal Adviser cannot be relieved by a Fund or its securityholders from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations;

(f) the prospectus or similar offering document for each Fund for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Advisory Services will include the following disclosure:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others on behalf of the Sub-Adviser in respect of the Proposed Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and

(g) in circumstances where a Fund for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Advisory Services does not prepare a prospectus or similar offering document for delivery to prospective purchasers, all investors who are Ontario residents will receive written disclosure prior to purchasing any securities of such Fund that includes:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others on behalf of the Sub-Adviser in respect of the Proposed Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

February 25, 2011

"Margot C. Howard"
Commissioner
Ontario Securities Commission
 
"Mary G. Condon"
Commissioner
Ontario Securities Commission