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BlackRock Institutional Trust Company, N.A. and BlackRock Asset Management Canada Limited - s. 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement in paragraph 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 -- Renewal of previous relief -- Relief mirrors exemption available in section 7.3 of OSC Rule 35-502 Non-Resident Advisers made under the Securities Act (Ontario).
Applicable Legislative Provisions
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 BLACKROCK INSTITUTIONAL TRUST COMPANY, N.A. AND BLACKROCK ASSET MANAGEMENT CANADA LIMITED
ORDER (Section 80 of the CFA)
UPON the application (the Application) of BlackRock Institutional Trust Company, N.A. (the Sub-Adviser) and BlackRock Asset Management Canada Limited (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser (and any directors, officers and employees 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 specified period of time, from the adviser registration requirement in paragraph 22(1)(b) of the CFA when acting as an adviser for the Principal Adviser in respect of the Funds (as defined below) regarding commodity futures contracts and commodity futures options traded on commodity futures exchanges (Contracts) and cleared through clearing corporations;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Sub-Adviser and the Principal Adviser having represented to the Commission that:
The Principal Adviser
1. The Principal Adviser is a corporation amalgamated under the laws of Ontario and is registered:
(a) under the Securities Act (Ontario) (the OSA) as a dealer in the category of exempt market dealer, as an adviser in the category of portfolio manager, and as an investment fund manager, and
(b) under the CFA as an adviser in the category of commodity trading manager.
2. The Principal Adviser is not in default of Ontario securities, commodity futures or derivatives legislation.
The Sub-Adviser
3. The Sub-Adviser is a national banking association organized under the laws of the United States and operates as a limited purpose trust company. It is primarily regulated in the United States by the Office of the Comptroller of the Currency, the agency of the U.S. Treasury Department that regulates U.S. national banks. The Sub-Adviser is also subject to the jurisdiction of the U.S. Department of Labor to the extent that its fiduciary clients are subject to the U.S. Employee Retirement Income Security Act of 1974, as amended.
4. The Sub-Adviser is registered in the United States with the Commodity Futures Trading Commission as a commodity trading adviser.
5. The Sub-Adviser is not registered in any capacity under the CFA or the OSA.
6. The Sub-Adviser is an affiliate of the Principal Adviser; for this purpose, an "affiliate" means any entity that is controlled by BlackRock, Inc. or other ultimate parent company of the Principal Adviser, as the case may be, and "control" and any derivation thereof, means the possession, directly or indirectly, of the power to direct or significantly influence the management and policies/business or affairs of an entity whether through ownership of voting securities or otherwise.
The Funds
7. The Principal Adviser is the investment manager of (i) iShares exchange-traded funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the iShares ETFs), (ii) mutual funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Mutual Funds), (iii) pooled funds, the securities of which are sold on a private placement basis in Ontario and the other provinces and territories of Canada to accredited investors pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions (the Pooled Funds), (iv) managed accounts of institutional clients who have entered into investment management agreements with the Principal Adviser (the Managed Accounts) and (v) such other iShares ETFs, Mutual Funds, Pooled Funds and Managed Accounts as may established in the future and for which the Principal Adviser engages the Sub-Adviser to provide advisory services (each of the funds and managed accounts in (i), (ii), (iii), (iv) and (v) is referred to individually as a Fund and collectively as the Funds).
8. The Funds may, as part of their investment program, invest in Contracts.
9. The Principal Adviser offers the portfolio management services of the Sub-Adviser to the respective Funds that choose to have exposure to capital markets and Contracts in which the Sub-Adviser has experience and expertise.
10. The iShares ETFs, Mutual Funds and Pooled Funds and other Funds that may be established in the future are or will be formed in Ontario where the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager.
The Proposed Advisory Services
11. The Principal Adviser may, pursuant to a written agreement with each Fund:
(a) act as an adviser (as defined in the OSA) to the Fund in respect of securities; and
(b) act as an adviser (as defined in the CFA) to the Fund in respect of Contracts by exercising discretionary authority in respect of the investment portfolio of the Fund, with discretionary authority to purchase or sell on behalf of the Fund:
(i) securities; and
(ii) Contracts.
12. 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 an adviser to it (the Proposed Advisory Services) by exercising discretionary authority on behalf of the Principal Adviser, in respect of the investment portfolios of the Funds, including discretionary authority to buy or sell Contracts for the Funds, provided that:
(a) in each case, the Contract must be cleared through an acceptable clearing corporation; and
(b) such investments are consistent with the investment objectives and strategies of the Funds.
13. 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 permits 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.
14. The Principal Adviser delivers, and will continue to deliver, to the Funds all applicable reports and statements required under applicable securities, commodity futures and derivatives legislation.
15. If there is any direct contact between a Fund and the 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.
16. 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 or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser. In the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" means commodity futures contracts and commodity futures options.
17. By providing the Proposed Advisory Services, the Sub-Adviser will be acting as an adviser with respect to commodity futures contracts and commodity futures options and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA.
18. 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 for a person or company acting as an adviser in respect of commodity futures contracts and commodity futures options that is similar to the exemption from the adviser registration requirement in section 25(3) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.3 of Ontario Securities Commission Rule 35-502 Non-Resident Advisers (OSC Rule 35-502).
19. The relationship among the Principal Adviser, the Sub-Adviser and the Funds satisfies the requirements of section 7.3 of OSC Rule 35-502.
20. 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.
21. The Sub-Adviser is not a resident of any province or territory of Canada.
22. 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 for the Funds pursuant to the applicable legislation of its principal jurisdiction.
23. The Sub-Adviser will only provide the Proposed Advisory Services so long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.
Disclosure
24. The prospectus or similar offering document, if any, for each iShares ETF, Mutual Fund or Pooled Fund or other Fund that may be established in the future 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 the individual representatives of the Sub-Adviser) advising the iShares ETF, Mutual Fund or Pooled Fund or other Fund that may be established in the future because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
25. Prior to purchasing any securities of one or more of the iShares ETFs, Mutual Funds, Pooled Funds or other Funds that may be established in the future directly from the Principal Adviser or entering into an investment management agreement with the Principal Adviser for a Managed Account, all investors who are Ontario residents will receive written disclosure 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 the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
Previous Order
26. On March 27, 2009, the Commission granted the Sub-Adviser an exemption from the requirement in paragraph 22(1)(b) of the CFA for advisory services provided in respect of the investment portfolios of the iShares ETFs, Pooled Funds and Managed Accounts and such other iShares ETFs, Pooled Funds and Managed Accounts as may established in the future and for which the Principal Adviser engages the Sub-Adviser to provide advisory services (the Previous Order). The Previous Order is scheduled to terminate on March 27, 2014.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed;
IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser (and any directors, officers and employees 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) is 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, 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 directors, officers and employees 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) is appropriately registered or licensed, or is entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of its 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, if any, for each iShares ETF, Mutual Fund, Pooled Fund or other Fund that may be established in the future 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 the individual representatives of the Sub-Adviser) advising the iShares ETF, Mutual Fund or Pooled Fund or other Fund that may be established in the future because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and
(g) prior to purchasing any securities of one or more of the iShares ETFs, Mutual Funds, Pooled Funds or other Funds that may be established in the future directly from the Principal Adviser or entering into an investment management agreement with the Principal Adviser for a Managed Account, all investors who are Ontario residents will receive written disclosure 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 the individual representatives of the Sub-Adviser) advising the relevant Fund because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
IT IS FURTHER ORDERED, that this Order is effective as at March 27, 2014 (the Effective Date) and will terminate on the earlier of (i) the coming into force of any amendments to section 7.3 of OSC Rule 35-502, (ii) the effective date of the repeal of section 7.3 of OSC Rule 35-502, and (iii) five years from the Effective Date.
DATED at Toronto, Ontario this 21st day of March, 2014.
"Deborah Leckman"
Commissioner
Ontario Securities Commission
"Sarah B. Kavanagh"
Commissioner
Ontario Securities Commission