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 sub-advisers headquartered in foreign jurisdictions 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.

June 15, 2015

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA) AND IN THE MATTER OF RUSSELL INVESTMENTS CANADA LIMITED, RUSSELL IMPLEMENTATION SERVICES INC. AND RUSSELL INVESTMENT MANAGEMENT COMPANY

ORDER (Section 80 of the CFA)

UPON the application (the Application) of Russell Implementation Services Inc. (RIS) and Russell Investment Management Company (RIMCo and, together with RIS, the Sub-Advisers and individually a Sub-Adviser) and Russell Investments Canada Limited (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that each of the Sub-Advisers (and individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of their respective 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 Sub-Advisers and the Principal Adviser having represented to the Commission that:

1. The Principal Adviser is a corporation organized under the laws of Canada, with its head office located in Toronto, Ontario, Canada. The Principal Adviser is registered as (a) an investment fund manager, exempt market dealer and portfolio manager in all the provinces and territories of Canada under the relevant securities legislation of the respective jurisdiction, (b) a mutual fund dealer in Ontario, and (c) an adviser in Manitoba. The Principal Adviser is also registered under the CFA as a commodity trading manager.

2. RIS is a corporation organized under the laws of the State of Washington, United States. The principal place of business of RIS is located in Seattle, Washington, United States. RIS is registered with the United States Securities and Exchange Commission (the SEC) as an investment adviser and a broker-dealer and is exempted from registration as a commodity trading adviser or commodity pool operator with the United States Commodity Futures Trading Commission (the CFTC).

3. RIS 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. As such, it is authorized and permitted to carry on the Sub-Advisory Services.

4. RIS engages in the business of an adviser in respect of Contracts in the United States.

5. RIMCo is a corporation organized under the laws of the State of Washington, United States. The principal place of business of RIMCo is located in Seattle, Washington, United States. RIMCo is registered with the SEC as an investment adviser. RIMCo is registered as a commodity pool operator, and is exempted from registration as a commodity trading adviser, with the CFTC.

6. RIMCo 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. As such, it is authorized and permitted to carry on the Sub-Advisory Services.

7. RIMCo engages in the business of an adviser in respect of Contracts in the United States.

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

9. Each Sub-Adviser is an affiliate of the Principal Adviser.

10. The Principal Adviser and the Sub-Advisers are not in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada.

11. The Principal Adviser provides investment advice and/or discretionary portfolio management services in Ontario to (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario (the Investment Funds); (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions (the Pooled Funds); (iii) clients who have entered into investment management agreements with the Principal Adviser to establish managed accounts (the Managed Account Clients); and (iv) other Investment Funds, Pooled Funds and Managed Account Clients that may be established or retained in the future and in respect of which the Principal Adviser engages the Sub-Advisers to provide portfolio advisory services (the Future Clients) (each of the Investment Funds, Pooled Funds, Managed Account Clients and Future Clients being referred to individually as a Client and collectively as the Clients).

12. 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.

13. 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 written agreements made between the Principal Adviser and each respective Sub-Adviser, has retained the respective Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of securities and Contracts in which that 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 the respective Client, including discretionary authority to buy or sell Contracts for the Client (the Sub-Advisory Services), provided that:

(a) in each case, the Contracts must be cleared through a clearing corporation; and

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

14. 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.

15. By providing the Sub-Advisory Services, the Sub-Advisers will be engaging in, or holding themselves out as engaging in, the business of advising others with respect to Contracts and, in the absence of being granted the requested relief, would be required to register as advisers under the CFA.

16. 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 OSA which is provided under section 8.26.1 of NI 31-103.

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

18. The Sub-Advisers 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 category of commodity trading manager.

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

(a) the obligations and duties of each 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 any 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).

20. The written agreements between the Principal Adviser and each Sub-Adviser set 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.

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

22. The prospectus or other offering document, if any, (in either case, the Offering Document) for each Client that is an Investment Fund or a Pooled Fund and for which the Principal Adviser engages one or more Sub-Advisers to provide the Sub-Advisory Services will include the following disclosure (the Required Disclosure):

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of any Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Advisers (or any of their Representatives) because the Sub-Advisers are resident outside of Canada and all or substantially all of their assets are situated outside of Canada.

23. Prior to purchasing any securities of one or more of the Clients that are Investment Funds or Pooled Funds directly from the Principal Adviser, all investors in the Investment Funds or Pooled Funds who are Ontario residents will receive, or have received, the Required Disclosure in writing (which may be in the form of an Offering Document).

24. Each Client that is a Managed Account Client for which the Principal Adviser engages one or more Sub-Advisers to provide the Sub-Advisory Services will receive, or has received, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client.

25. The Principal Adviser and the Sub-Advisers obtained substantially similar relief in an order dated June 17, 2014 (the Previous Order), pursuant to which the Sub-Advisers provided Sub-Advisory Services to the Principal Adviser in respect of the Clients.

26. The repeal of section 7.3 of OSC Rule 35-502 Non-Resident Advisers triggered the revocation of the Previous Order.

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 each 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 Offering Document of each Client that is an Investment Fund or Pooled Fund for which the Principal Adviser engages a Sub-Adviser to provide the Sub-Advisory Services will include the Required Disclosure;

(h) prior to purchasing any securities of one or more of the Clients that are Investment Funds or Pooled Funds directly from the Principal Adviser, all investors in the Investment Funds or Pooled Funds who are Ontario residents will receive, or have received, the Required Disclosure in writing; and

(i) each Client that is a Managed Account Client for which the Principal Adviser engages a Sub-Adviser to provide the Sub-Advisory Services will receive, or has received, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client; and

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 OSA) 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 15th day of June, 2015.

"Tim Moseley"
Commissioner
Ontario Securities Commission
"Edward P. Kerwin"
Commissioner
Ontario Securities Commission