Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Application in Multiple Jurisdictions -- Relief granted from the self-dealing provision in s.4.2(1) of NI 81-102 Investment Funds to permit inter-fund trades in debt securities between investment funds and pooled funds managed by the same manager -- Inter-Fund trades will comply with the conditions in subsection 6.1(2) of NI 81-107 Independent Review Committee for Investment Funds, including the requirement for independent review committee approval.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from subparagraphs 13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit inter-fund trades between investment funds and pooled funds managed by the same manager -- Inter-fund trades subject to conditions, including IRC approval and pricing requirements -- Trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 4.2(1), 4.3(1) and 4.3(2),19.1.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5, 15.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).

Citation: Re Canoe Financial LP, 2015 ABASC 736

June 5, 2015

IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CANOE FINANCIAL LP (the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for the following exemptions (the Exemption Sought):

(a) an exemption (Subsection 4.2(1) Relief) from the prohibition in subsection 4.2(1) of National Instrument 81-102 Investment Funds (NI 81-102) to permit each NI 81-102 Fund (defined below) to purchase debt securities from, or sell debt securities to, a Pooled Fund (defined below); and

(b) an exemption (the Inter-Fund Trading Relief) from the prohibitions in subparagraphs 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) against a registered adviser knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, in order to permit

(i) a Fund (defined below) to purchase securities from or sell securities to a Fund (an Inter-Fund Trade), and

(ii) an Inter-Fund Trade of an Exchange-Traded Security (defined below) to be executed at the "last sale price", as defined in the UMIR Rules prior to the execution of the trade (the Last Sale Price), in lieu of the closing sale price on the day of the transaction (the Closing Sale Price) contemplated by the definition of "current market price of the security" in subparagraph 6.1(1)(a)(i) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Alberta Securities Commission is the principal regulator for this application;

(b) the Filer has 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 Filer in each of the provinces and territories of Canada other than Ontario; and

(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in the Legislation, MI 11-102, National Instrument 14-101 Definitions, NI 31-103, NI 81-102 or NI 81-107 have the same meaning if used in this decision, unless otherwise defined herein. The following terms have the following meanings:

Exchange-Traded Security means a security of a class that is listed for trading on an exchange in Canada or a foreign jurisdiction.

Fund means each NI 81-102 Fund or Pooled Fund.

NI 81-102 Fund means each existing or future investment fund that is a reporting issuer and subject to NI 81-102, for which the Filer or an affiliate of the Filer acts, or may act, as manager, portfolio adviser or both.

Pooled Fund means each existing or future investment fund that is not a reporting issuer, for which the Filer or an affiliate of the Filer acts, or may act, as manager, portfolio adviser or both.

UMIR means the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a limited partnership established under the laws of Alberta with its head office in Calgary, Alberta.

2. The Filer is registered as a portfolio manager, exempt market dealer and investment fund manager in each province and territory of Canada.

3. The Filer is the portfolio manager and manager of each existing Fund and may, in the future, be the portfolio manager, manager or both of other Funds.

4. The Filer is the trustee of certain Funds structured as trusts and may, in the future, be the trustee of other Funds structured as trusts. Where the Filer is the trustee of a Fund, the Fund will be an associate of the Filer.

5. Each of the NI 81-102 Funds is, or will be, established under the laws of Canada or a province or territory of Canada as an investment fund and is, or will be, a reporting issuer in one or more provinces and territories of Canada.

6. The securities of each NI 81-102 Fund are, or will be, qualified for distribution under a prospectus.

7. Each NI 81-102 Fund is, or will be, a mutual fund or a non-redeemable investment fund that is a reporting issuer in one or more provinces or territories of Canada and subject to NI 81-102.

8. Each Pooled Fund is, or will be, an investment fund established as a trust, partnership or corporation under the laws of Canada or a province or territory of Canada.

9. The securities of each Pooled Fund are, or will be, distributed on a private placement basis pursuant to one or more available exemptions from the prospectus requirement. None of the Pooled Funds are, or will be, reporting issuers in any province or territory of Canada and none are, or will be, subject to NI 81-102 or NI 81-107.

10. Neither the Filer nor any of the existing Funds are in default of securities legislation of any province or territory of Canada.

11. The Filer wishes to be able to permit Inter-Fund Trades of portfolio securities between:

(a) an NI 81-102 Fund and another NI 81-102 Fund or a Pooled Fund; and

(b) a Pooled Fund and another Pooled Fund or an NI 81-102 Fund.

12. Different sections of NI 31-103, NI 81-102 and NI 81-107 impose different prohibitions and exceptions on different types of Funds with respect to Inter-Fund Trades.

13. An exception from the inter-fund trading prohibition in subsection 4.2(1) of NI 81-102 currently exists in subsection 4.3(1) of NI 81-102, which permits the NI 81-102 Funds to inter-fund trade listed equity securities with the Pooled Funds. The NI 81-102 Funds are unable to rely on the exception in subsection 4.3(1) of NI 81-102 to inter-fund trade debt securities because debt securities are typically not subject to public quotations as required by subsection 4.3(1) of NI 81-102. The NI 81-102 Funds are further unable to rely on the exception in subsection 4.3(2) to inter-fund trade debt securities with the Pooled Funds because that exception only applies where funds on both sides of the inter-fund trade are investment funds governed by NI 81-107.

14. The Filer has submitted that effecting Inter-Fund Trades amongst the Funds allows the Filer to properly manage the Funds and has the effect of reducing transaction costs for the Funds due to reduced commission costs. Inter-Fund Trades can also reduce market impact costs and increase the speed of execution of trading, all of which will be to the benefit of the Funds.

15. The Filer has determined that it would be in the best interests of the Funds to receive the Inter-Fund Trading Relief because subjecting the Funds to a consistent set of rules governing the execution of Inter-Fund Trades will result in:

(a) cost and timing efficiencies in respect of the execution of Inter-Fund Trades; and

(b) simplified and more efficient monitoring thereof, for the Filer in connection with the execution of Inter-Fund Trades.

16. Each Inter-Fund Trade will be consistent with the investment objective of the relevant Fund.

17. At the time of an Inter-Fund Trade, the Filer will have policies and procedures in place to enable the applicable Funds to engage in Inter-Fund Trades.

18. The manager of each NI 81-102 Fund has established an independent review committee (IRC) in respect of each existing NI 81-102 Fund and will establish an IRC in respect of any future NI 81-102 Fund, as required by NI 81-107.

19. The manager of each Pooled Fund will establish an IRC in respect of each Pooled Fund to review and provide its approval for any proposed Inter-Fund Trades between a Pooled Fund and another Fund.

20. Each Pooled Fund and each IRC of a Pooled Fund will comply with the following provisions of NI 81-107 as if the Pooled Fund was a reporting issuer: (a) composition of the IRC as set out in section 3.7 and (b) the standard of care set out in section 3.9. The IRC of the Pooled Funds will not approve an Inter-Fund Trade involving a Pooled Fund unless it has made the determination set out in subsection 5.2(2) of NI 81-107.

21. Inter-Fund Trades involving an NI 81-102 Fund will be referred to the IRC of the NI 81-102 Fund under subsection 5.2(1) of NI 81-107 and the manager and the IRC of the NI 81-102 Fund will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade. The IRC of the NI 81-102 Funds will not approve an Inter-Fund Trade involving an NI 81-102 Fund unless it has made the determination set out in subsection 5.2(2) of NI 81-107.

22. The Filer cannot rely on the exemption from the trading prohibition and the investment counsel prohibition in subsection 6.1(4) of NI 81-107 because each party to the transaction would not be an investment fund that is a reporting issuer and the Inter-Fund Trade would not occur at the "current market price of the security" which, in the case of Exchange-Traded Securities, includes the Closing Sale Price but not the Last Sale Price.

23. The Filer considers that it would be in the best interests of the Funds if an Inter-Fund Trade could be made at the Last Sale Price prior to the execution of the trade, in lieu of the Closing Sale Price, as this will result in the trade being done at the price which is closest to the price at the time the decision to make the trade is made.

24. When the Filer engages in an Inter-Fund Trade, the Filer will follow the following procedures:

(a) the portfolio manager of the Filer will request approval of the Inter-Fund Trade from the chief compliance officer of the Filer, or his or her designated alternate;

(b) upon receipt of the required approval, the portfolio manager of the Filer will deliver the trading instructions to a trader on a trading desk of the Filer;

(c) upon receipt of the trade instructions and the required approval for the Inter-Fund Trade, the trader on the trading desk, regardless of whether either Fund is a reporting issuer, will execute the trade in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 provided that, for Exchange-Traded Securities, the Inter-Fund Trade may be executed at the Last Sale Price of the security in lieu of the Closing Sale Price;

(d) the policies applicable to the trading desk of the Filer must require that all orders are to be executed on a timely basis; and

(e) upon execution of the trade, the trader on the trading desk will advise the portfolio manager of the price at which the Inter-Fund Trade occurred.

25. If the IRC of an NI 81-102 Fund becomes aware of an instance where the Filer did not comply with (a) the terms of this decision or (b) a condition imposed by the Legislation or the IRC in its approval, the IRC of the NI 81-102 Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under the laws of which the Fund is organized.

26. The Filer has determined that it will be in the best interests of the Funds to obtain the Exemption Sought.

27. Absent the Exemption Sought, neither the Funds nor the Filer on their behalf, will be permitted to engage in Inter-Fund Trades.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

1. The decision of the Decision Makers under the Legislation is that:

(a) the Subsection 4.2(1) Relief is granted in respect of the Inter-Fund Trade of debt securities provided that, whether or not the Fund is a reporting issuer, the following conditions are satisfied:

(i) the Inter-Fund Trade is consistent with the investment objective of each of the Funds involved in the trade;

(ii) the IRC of each Fund involved in the trade has approved the Inter-Fund Trade in accordance with the terms of section 5.2 of NI 81-107; and

(iii) the transaction complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107; and

(b) the Inter-Fund Trading Relief is granted provided that, whether or not the Fund is a reporting issuer, the following conditions are satisfied:

(i) the Inter-Fund Trade is consistent with the investment objective of each Fund;

(ii) the Inter-Fund Trade has been referred by the Filer, as manager of each Fund, to the IRC of that Fund in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Fund have complied with section 5.4 of NI 81-107 in respect of any standing instructions the IRC has provided in connection with the Inter-Fund Trade;

(iii) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of subsection 5.2(2) of NI 81-107; and

(iv) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of Exchange-Traded Securities, the Last Sale Price may be used in lieu of the Closing Sale Price.

"David Linder, QC"
Executive Director