Davis Distributors, LLC

Headnote

MI 11-102 -- relief granted from margin rate applicable to U.S. money market mutual funds in calculation of market risk in Form 31-103F1 -- margin rate for funds qualified for distribution in Canada is 5%, while funds qualified for distribution in U.S. is 100% -- similar regulation of money market funds -- NI 31-103 -- unique set of facts represented by the applicant.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 12.1, 15.

Multilateral Instrument 11-102 Passport System, s. 4.7.

March 29, 2012

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

DAVIS DISTRIBUTORS, LLC

(the Filer)

DECISION

Background

The Principal Regulator (as defined below) in the Principal Jurisdiction has received an application from the Filer for a decision under Subsection 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) for relief from the requirement in section 12.1 of NI 31-103 that the Filer calculate its excess working capital using Form 31-103F1 (the Form F1) only to the extent that the Filer be permitted to apply the same margin rate to investments in money market mutual funds qualified for sale by prospectus in the United States of America as is the case for money market mutual funds qualified for sale in a province of Canada when calculating market risk pursuant to Line 9 of Form F1 (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 (the OSC or 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 the province of Alberta.

Interpretation

Defined terms contained in National Instrument 31-103 -- Registration Requirements and Exemptions and MI 11-102 have the same meanings in this decision (the Decision) unless they are otherwise defined in this Decision.

Representations

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

1. The Filer is a limited liability company organized under the laws of the state of Delaware. The Filer's head office is located at 2949 E. Elvira Rd., Suite 101, Tucson, Arizona 85756.

2. The Filer is a wholly owned subsidiary of Davis Selected Advisers, LP (DSA, LP), a privately held U.S. investment adviser.

3. The Filer is registered with the U.S. Securities and Exchange Commission (SEC) as a broker-dealer and is a member of the Financial Industry Regulatory Authority (FINRA).

4. The Filer is registered in the category of exempt market dealer (EMD) in the provinces of Ontario and Alberta.

5. The Filer is not a reporting issuer in any jurisdiction of Canada and is not, to its knowledge, in default of securities regulation in any jurisdiction of Canada, other than as disclosed in this Decision.

6. The Filer's sole business is to serve as principal underwriter of collective investments/mutual funds that are advised by DSA, LP.

7. The Filer invests its cash balances in money market mutual funds advised by DSA, LP and qualified for sale by prospectus in the U.S., specifically money market mutual funds which are registered investment companies under the Investment Company Act of 1940, as amended (the 1940 Act) and which comply with Rule 2a-7 thereunder (Rule 2a-7).

8. The Filer has a longstanding practice to invest its cash balances alongside clients in mutual funds advised by DSA, LP. DSA, LP, the Filer and their employees and directors have over $2 billion USD invested alongside clients in the various mutual funds underwritten by the Filer and advised by DSA, LP.

9. The Filer has represented that it is not practicable for the Filer to invest its cash balances in money market mutual funds qualified for sale by prospectus in a province of Canada because: (i) the Filer has a longstanding practice to invest its cash balances alongside clients in mutual funds advised by DSA, LP; and (ii) there would be additional impediments that would limit or prevent entirely the Filer's investment in a money market mutual fund qualified for sale by prospectus in a province in Canada. These additional impediments include the possible disallowance by FINRA in calculation of the Filer's excess capital calculation, unfavorable tax treatment for the Filer, and the risk related to the fluctuation of the exchange rate between the Canadian and U.S. dollar.

10. Under Schedule 1 of Form F1 an investment in the securities of a money market mutual fund qualified for sale by prospectus only in the U.S. would be subject to a margin rate of 100% of the market value of such investments for the purposes of Line 9 of Form F1.

11. The Filer would have excess working capital as calculated using Form F1 of less than zero unless relief is granted, and could not meet the capital requirements under NI 31-103.

12. The margin rate required for a money market mutual fund qualified for sale by prospectus in a province of Canada is 5% of the market value of such investment, as opposed to 100% for the market value of investments in a money market mutual fund qualified for sale by prospectus in the U.S.

13. The regulatory oversight and the quality of investments held by a money market mutual fund qualified for sale by prospectus in each of the U.S. and a province of Canada is similar. In particular Rule 2a-7 sets out requirements dealing with portfolio maturity, quality, diversification and liquidity, which are similar to requirements under National Instrument 81-102 -- Mutual Funds (NI 81-102).

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 the Exemption Sought is granted so long as:

(a) any money market mutual fund invested in by the Filer is qualified for sale by prospectus in the U.S. as a result of being a registered investment company under the 1940 Act and which complies with Rule 2a-7;

(b) the requirements for money market mutual funds under Rule 2a-7 or any successor rule or legislation are similar to the requirements for Canadian money market mutual funds under NI 81-102 or any successor rule or legislation;

(c) the Filer is registered with the SEC as a broker-dealer and is a member of FINRA; and

(d) the Filer continues to maintain a practice of co-investment alongside clients.