Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement of subsection 22(1)(b) of the CFA granted to a sub-adviser headquartered in a foreign jurisdiction 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 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations made under the Securities Act (Ontario).

Applicable Legislative Provisions

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

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.26.1.

Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.11.

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA) AND IN THE MATTER OF HORIZONS ETFs MANAGEMENT (CANADA) INC., formerly JOVINVESTMENT MANAGEMENT INC. AND PROSHARE ADVISORS LLC

ORDER (Section 80 of the CFA)

UPON the application (the Application) of Horizons ETFs Management (Canada) Inc., formerly JovInvestment Management Inc., (the Principal Adviser) and ProShare Advisors LLC (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser (and 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 Sub-Advisory Services (as defined below) (the Representatives)) be exempt, for a specified period of time, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser for the benefit of the Clients (as defined below) regarding commodity futures contracts and commodity futures options traded on commodity futures exchanges (collectively, the Contracts) and cleared through clearing corporations.

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

AND UPON the Principal Adviser and the Sub-Adviser having represented to the Commission that:

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

2. The Principal Adviser is registered as:

(a) an investment fund manager, portfolio manager and exempt market dealer under the Securities Act (Ontario) (the Act);

(b) a commodity trading adviser and as a commodity trading manager under the CFA;

(c) a portfolio manager and exempt market dealer under the securities legislation in Alberta, British Columbia and Québec; and

(d) an exempt market dealer under the securities legislation in Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and Saskatchewan.

3. The Sub-Adviser is a limited liability company organized under the laws of the State of Maryland, United States. The head office of the Sub-Adviser is in Bethesda, Maryland.

4. The Sub-Adviser is registered as an investment adviser in the United States with the U.S. Securities and Exchange Commission. As an investment adviser in the United States the Sub-Adviser is authorized and permitted to carry on the Sub-Advisory Services.

5. The Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodities futures or other applicable legislation of the United States, that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario.

6. The Sub-Adviser engages in the business of an adviser in respect of Contracts in the United States.

7. The Sub-Adviser is not registered in any capacity under the CFA or the Act. The Sub-Adviser acts in reliance on the exemption from the requirement to register as an adviser under the Act available to it pursuant to section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

8. The Principal Adviser and Sub-Adviser are not affiliates.

9. The Principal Adviser provides investment advice and/or discretionary portfolio management services in Ontario to (i) investment funds (specifically, exchange traded mutual funds and other investment vehicles), the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (each an Investment Fund); and (ii) other Investment Funds that may be established in the future in respect of which the Principal Adviser engages the Sub-Adviser to provide portfolio advisory services (the Future Funds) (each of the Investment Funds and Future Funds being referred to individually as a Client and collectively as the Clients). In addition, the Principal Adviser also provides portfolio management services to certain exchange traded mutual funds listed in foreign jurisdictions, and the Principal Adviser acts the manager and trustee to certain exchange traded mutual funds.

10. Certain of the Clients may, as part of their investment program, invest in Contracts. The Principal Adviser acts as a commodity trading manager in respect of such Clients.

11. The Principal Adviser, when it was JovInvestment Management Inc., and the Sub-Adviser previously obtained substantially similar relief from the Commission in Re: Jovinvestment Management Inc. and Proshare Advisors LLC dated December 11, 2009 (the Previous Relief). The Previous Relief terminated on December 10, 2014.

12. Except in respect of applying for a renewal of the Previous Relief after the termination of the Previous Relief and the Principal Adviser's late filing of an application to add additional jurisdictions to its category of registration, the Principal Adviser and the Sub-Adviser are not in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada.

13. Pursuant to the conditions contained in the Previous Relief, the Sub-Adviser entered into a sub-advisory agreement with the Principal Adviser whereby the Sub-Adviser acted as a sub-adviser to the Principal Adviser and provided advice to the Principal Adviser on behalf of the Clients with respect to Contracts.

14. The Sub-Adviser wants to continue to provide sub-advisory services to the Principal Adviser with respect to Contracts and the Principal Adviser wants to continue to receive such sub-advisory services from the Sub-Adviser on behalf of the Clients.

15. In connection with the Principal Adviser acting as an adviser to Clients in respect of the purchase or sale of securities and Contracts, the Principal Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, has retained the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of securities 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 the assets of the investment portfolio of each respective Client, including discretionary authority to buy or sell Contracts for such Client (the Sub-Advisory Services), provided that:

(a) in each case, the Contracts must be cleared through an "acceptable clearing corporation" (as defined in National Instrument 81-102 Investment Funds, or any successor thereto (NI 81-102)) or a clearing corporation that clears and settles transactions made on a futures exchange listed in Appendix A of NI 81-102; and

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

16. The written agreement between the Principal Adviser and the Sub-Adviser sets out the obligations and duties of each party in connection with the Sub-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 Sub-Advisory Services.

17. 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 partner or an officer of a registered adviser and is acting on behalf of a registered adviser.

18. By providing the Sub-Advisory Services, the Sub-Adviser is engaging in, or holding itself out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the exemption requested, would be required to register as an adviser under the CFA.

19. There is presently no rule or regulation 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 8.26.1 of NI 31-103.

20. The relationship among the Principal Adviser, the Sub-Adviser and any Client is consistent with the requirements of section 8.26.1 of NI 31-103.

21. As would be required under section 8.26.1 of NI 31-103:

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

(b) the Principal Adviser has entered into a written contract with each Client, agreeing 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 each Client; 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).

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

23. The Principal Adviser will deliver to the Clients all required reports and statements under applicable securities, commodity futures and derivatives legislation.

24. The prospectus or other offering document for each Client 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 of its Representatives) 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 its Representatives are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA when acting as sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services 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's head office or principal place of business is in a foreign jurisdiction;

(c) the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodities futures or other applicable legislation of the foreign jurisdiction in which its head office or principal place of business is located, that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario;

(d) the Sub-Adviser engages in the business of an adviser in respect of Contracts in the foreign jurisdiction in which its head office or principal place of business is located;

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

(f) the Principal Adviser has entered into a written agreement with the Clients, agreeing to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(g) the prospectus or similar offering document for each Client that is an Investment Fund and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-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 of its Representatives) because the Sub-Adviser 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 will terminate on the earlier of:

(a) six months, or such other transition period as provided by operation of law, after the effective date of the repeal of the CFA;

(b) six months, or such other transition period as provided by operation of law, after the coming into force of any amendment to Ontario commodity futures law or Ontario securities law (as defined in the Act) that affects the ability of the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services; and

(c) five years after the date of this Order.

DATED at Toronto, Ontario this 12th day of May, 2015.

"Edward P. Kerwin"
Commissioner
Ontario Securities Commission
 
"Judith Robertson"
Commissioner
Ontario Securities Commission