Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a firm registered in any jurisdiction of Canada must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another firm registered in any jurisdiction of Canada. The Filers are affiliated entities and have valid business reasons for the individuals to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
May 27, 2015
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 TANGERINE INVESTMENT MANAGEMENT INC. (TIMI) AND 1832 ASSET MANAGEMENT L.P. (1832, and together with TIMI, the Filers)
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (the Dual Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit the individuals identified in Schedule A (the 1832 Representatives) and any future registered advising representatives of 1832 (the Future Representative and, together with the 1832 Representatives, the Representatives) to each be registered as an advising representative of TIMI (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 for this application; and
b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in each jurisdiction of Canada except Ontario and Nunavut (the Other Jurisdictions, together with Ontario, the Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. TIMI is a company incorporated under the Canada Business Corporations Act, which is wholly-owned, indirectly, by The Bank of Nova Scotia (BNS).
2. TIMI is registered as (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; and (ii) an adviser in the category of portfolio manager in Ontario under the Securities Act (Ontario) (the Act). The head office of TIMI is located in Toronto, Ontario.
3. TIMI acts as portfolio advisor and promoter to the Tangerine Investment Funds (the Funds), which is a family of four index-based mutual funds: Tangerine Balanced Income Portfolio, Tangerine Balanced Portfolio, Tangerine Balanced Growth Portfolio and Tangerine Equity Growth Portfolio. Each of the Funds is a separate trust formed under a Declaration of Trust governed under the laws of the Province of Ontario and is subject to National Instrument 81-102 Investment Funds.
4. The portfolios of the Funds are managed by State Street Bank and Trust Company (SSBTC), which has been hired by TIMI pursuant to an investment sub-advisor agreement (the Sub-Advisory Agreement) to provide portfolio sub-advisory services to the Funds and manage the Funds' portfolio investments. SSBTC has primary responsibility for the investment advice given to the Funds.
5. As manager and portfolio advisor of the Funds, TIMI is responsible for overseeing and monitoring SSBTC's compliance with the overall investment objectives and strategies of the Funds, but does not provide prior approval or review of specific portfolio security investment decisions taken by SSBTC.
6. 1832 is an Ontario limited partnership, which is wholly-owned, indirectly, by BNS. The general partner of 1832 is 1832 Asset Management G.P. Inc., an Ontario corporation wholly-owned, directly, by BNS with its head office in Ontario.
7. 1832 is registered as (i) an investment fund manager in Ontario, Quebec, Newfoundland and Labrador and the Northwest Territories; (ii) an adviser in the category of portfolio manager in all of the provinces and territories of Canada (except Nunavut); (iii) a dealer in the category of exempt market dealer in all of the provinces of Canada (except Prince Edward Island and Saskatchewan); and (iv) an adviser in the category of commodity trading manager under the Commodity Futures Act (Ontario). The head office of 1832 is located in Toronto, Ontario.
8. 1832 manages discretionary assets on behalf of mutual funds, institutions, foundations, endowments, and private clients.
9. 1832 is the investment fund manager and/or portfolio adviser, and for funds organized as trusts, the trustee, of open-ended mutual fund trusts or corporations and closed end funds.
10. State Street Global Advisors, Ltd. (SSGA) has been appointed as an investment sub-advisor to 1832 pursuant to an investment sub-advisor agreement between 1832 and SSGA. SSGA is ultimately responsible for the management of the portfolios of the index-based mutual funds of 1832. SSGA and SSBTC are affiliates, and SSGA has delegated its advisory activities to SSBTC such that trade execution and other activities relating to the index-based mutual funds of 1832 are directly performed by SSBTC.
11. TIMI and 1832 are wholly-owned, directly or indirectly, by BNS and, as a consequence, are affiliates for purposes of securities legislation of the Jurisdictions.
12. Each of the 1832 Representatives is currently registered as an advising representative of 1832 in Ontario and/or Other Jurisdictions, as the case may be.
13. The 1832 Representatives provide portfolio/asset management services in respect of various mutual funds, institutions, foundations, endowments, and private clients of 1832, as applicable.
14. TIMI (formerly, ING Direct Asset Management Limited) is a wholly-owned subsidiary of Tangerine Bank (formerly, ING Bank of Canada) (the Bank). Through a share purchase agreement dated November 15, 2012, BNS acquired directly the Bank and acquired indirectly TIMI (the Acquisition).
15. Prior to the Acquisition, in addition to the TIMI Activities (as defined below), the advising representative(s) for TIMI also provided services to the Bank's treasury department, including the buying and selling of securities, mortgages, asset-backed securities, etc. (Treasury Department Activities).
16. Subsequent to the Acquisition, while most of TIMI's staff, business, and operations remain much as they were prior to the Acquisition, a number of changes have occurred in the operations of the Bank, including that the treasury departments for the Bank have been consolidated with the treasury departments for BNS.
17. As a result of the consolidation of the treasury departments of the Bank and BNS, the advising representative(s) of TIMI currently only have advisory tasks of an oversight nature (rather than direct involvement) with respect to the Funds, which include participation in the development of the Funds and the selection and ongoing oversight of the sub-advisors to the Funds, but do not include direct involvement in the execution of the day to day portfolio management activities of the Funds (the TIMI Activities).
18. Following the Acquisition and the consolidation of the treasury departments of the Bank and BNS, TIMI has had greater difficulty recruiting and maintaining advising representatives as without the Treasury Department Activities, the TIMI Activities became more of an oversight role into the sub-advisor's activities, and from TIMI's experience in searching for advising representative candidates, many individuals who hold the category of registration of advising representative are not interested in a solely oversight-type role and seek a more active execution based position.
19. Due to the difficulties of finding a suitable representative subsequent to the Acquisition, it is proposed that certain 1832 Representatives will seek registration as TIMI Representatives in order to perform the TIMI Activities on behalf of TIMI (the Dual Registration).
20. On September 5, 2014, the sole advising representative of TIMI who was responsible for the oversight of SSBTC's sub-advisory services departed TIMI. In the interim, TIMI has begun to work closely with the 1832 Representatives who have been reviewing reports provided by the sub-advisor (including reports on fund performance, detailed trading reports (including execution costs, brokers used, commissions paid), tracking error reports as against market benchmarks, and proxy voting). The 1832 Representatives have also begun to attend the monthly TIMI committee meetings, where the advising representative would summarize any fund matters for management for the current month, as well as comment on general market trends and performance.
21. There are valid business reasons for the Representatives to be registered with each of the Filers. Specifically, the Dual Registration is being requested to permit the Representatives, who provide portfolio/asset management services in respect of various mutual funds, institutions, foundations, endowments, and private clients of 1832, as applicable, in their capacities as advising representatives of 1832, to perform the TIMI Activities on behalf of TIMI.
22. Since TIMI does not provide prior approval or review of specific portfolio security investment decisions taken by SSBTC, there will be minimal potential for client confusion or conflicts of interest in this respect as the TIMI Representative will continue to have a mostly oversight role and SSBTC will continue to provide portfolio sub-advisory services to the Funds and manage the Funds' portfolio investments.
23. Each Filer has appropriate compliance and supervisory policies and procedures in place to monitor the conduct of its registered individuals and to ensure that the Filers can deal appropriately with any conflicts of interest that may arise as a result of the Dual Registration of the Representatives. In particular, the Representatives will be subject to the supervisory, and the applicable compliance, requirements of each of the Filers and BNS, which has an existing compliance and supervisory structure in place for its oversight over all of its subsidiaries, including the Filers. The Filers will be able to appropriately deal with any conflicts, including supervising how Representatives will deal with conflicts, should they arise.
24. The Representatives will have sufficient time and resources to adequately serve both Filers. The chief compliance officers of the respective Filers will ensure that each Representative has sufficient time and resources to adequately serve each Filer and its clients.
25. In order to minimize client confusion, the relationship between TIMI and 1832, and the fact that the Representatives are dually registered with both TIMI and 1832, will be fully disclosed to clients of each of TIMI and 1832 that deal with those Representatives.
26. The Representatives shall act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.
27. The Filers are not in default of any requirement of securities, commodity futures or derivatives legislation in any of the jurisdictions; except to the extent that TIMI has been in default of the requirement in the Legislation to ensure it has employed a fully registered advising representative at all times to oversee and service its clients since September 5, 2014 until the date of this decision.
28. In the absence of the Exemption Sought, the Filers would be prohibited by the Dual Registration Restriction from permitting a Representative to also act as an advising representative of TIMI even though the Filers are affiliates and have controls and compliance procedures in place to deal with their advising activities.
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 provided that the circumstances described above in paragraphs 23, 24, 25 and 26 remain in place.
List of 1832 Representatives
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