Policy Statement 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from subsections 2.3(f) and (h) and paragraphs 2.5(2)(a) and (c) of Regulation 81-102 Investment Funds to permit mutual funds to invest in gold ETFs, silver ETFs, gold/silver ETFs and silver, the Filer does not invest in leveraged ETFs and inverse ETFs, subject to a limit of 10% exposure in gold and silver, and certain conditions.
Applicable Legislative Provisions
Regulation 81-102 respecting Investment Funds, ss. 2.3(f) and (h), 2.5(2)(a) and (c), 19.1.
September 21, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DESJARDINS INVESTMENTS INC. (the Filer)
The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer on behalf of the Desjardins Funds (as defined below) for a decision under the securities legislation of the Jurisdictions (the Legislation), pursuant to section 19.1 of Regulation 81-102 respecting Investment Funds, CQRL, c. V-1.1, r. 39 (Regulation 81-102), exempting the Desjardins Funds (as defined below) from the restrictions contained in subsections 2.3(f) and 2.3(h) and paragraphs 2.5(2)(a) and 2.5(2)(c) of Regulation 81-102 (the Requested Relief) to permit each Desjardins Fund to purchase and hold:
(a) securities of exchange-traded funds (ETFs) that seek to replicate (i) the performance of gold on an unlevered basis; or (ii) the value of a specified derivative the underlying interest of which is gold on an unlevered basis (Gold ETFs);
(b) securities of ETFs that seek to replicate (i) the performance of silver on an unlevered basis; or (ii) the value of a specified derivative the underlying interest of which is silver on an unlevered basis (Silver ETFs);
(c) securities of ETFs that seek to replicate (i) the performance of gold and silver on an unlevered basis; or (ii) the value of specified derivatives the underlying interests of which are gold and silver on an unlevered basis (Gold/Silver ETFs); and
(d) silver and Permitted Silver Certificates (as defined below) and/or to enter into specified derivatives the underlying interest of which is silver on an unlevered basis (collectively, Silver).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for this application;
(b) the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System, CQRL, c. V-1.1, r. 1 (Regulation 11-102) is intended to be relied upon in each jurisdiction of Canada other than the Jurisdictions (the Other Jurisdictions); and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 81-102, Regulation 14-101 respecting Definitions, CQRL, c. V-1.1, r. 3, and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined. Capitalized terms used in this decision have the following meanings:
"Desjardins Funds" means all existing mutual funds (the Existing Desjardins Funds) and any mutual funds subsequently established in the future other than money market funds as defined in Regulation 81-102 that may invest in Underlying ETFs (as defined below) and Silver and for which the Filer acts, or will act, as investment fund manager;
"Permitted Silver Certificates" means Silver certificates that the Desjardins Funds invest in and will be certificates that represent silver that is:
(a) available for delivery in Canada, free of charge, to or to the order of the holder of the certificate;
(b) of a minimum fineness of 999 parts per 1,000;
(c) held in Canada;
(d) in the form of either bars or wafers; and
(e) if not purchased from a bank listed in Schedule I, II or III of the Bank Act (Canada), fully insured against loss and bankruptcy by an insurance company licensed under the laws of Canada or a province or territory of Canada.
"Underlying ETFs" means Gold ETFs, Silver ETFs and Gold/Silver ETFs, collectively.
This decision is based on the following facts represented by the Filer:
1. The Filer is, or will be, the investment fund manager of each Desjardins Fund. The Filer is registered as an investment fund manager in the Provinces of Québec, Ontario and Newfoundland and Labrador. The head office of the Filer is in Montreal, Québec.
2. Either the Filer, an affiliate of the Filer or a third party portfolio manager is, or will be, the portfolio manager or sub-manager, of all or a portion of the investment portfolio of each Desjardins Fund.
3. The Filer is not in default of securities legislation in the Jurisdictions or any of the Other Jurisdictions.
The Desjardins Funds
4. Each Desjardins Fund is, or will be, a mutual fund created under the laws of the Province of Québec and is, or will be, subject to the provisions of Regulation 81-102.
5. The Existing Desjardins Funds are not in default of securities legislation in the Jurisdictions or any of the Other Jurisdictions.
6. The securities of each Desjardins Funds are, or will be, qualified for distribution pursuant to a simplified prospectus prepared in accordance with Regulation 81-101 respecting Mutual Fund Prospectus Disclosure, CQRL, c. V-1.1, r. 38 ("Regulation 81-101") in each jurisdiction in Canada. Accordingly, each Desjardins Fund is, or will be, a reporting issuer or the equivalent in each jurisdiction in Canada.
7. Each Desjardins Fund that relies on the Requested Relief will be permitted in accordance with its investment objectives and investment strategies to invest in Underlying ETFs and Silver.
The Reasons for the Requested Relief
8. The Desjardins Funds do not invest in leveraged ETFs or inverse ETFs.
9. Each Underlying ETF will be a "mutual fund" as such term is defined under the Securities Act, CQLR, c. V-1.1 such as, per example, the iShares Gold Trust and the SPDR Gold Trust.
10. In the absence of the Requested Relief, an investment by the Desjardins Funds in securities of the Underlying ETFs would be contrary to paragraph 2.5(2)(a) of Regulation 81-102 as the securities of some Underlying ETFs will not be subject to Regulation 81-102 and the securities of the Underlying ETFs will not be offered under a simplified prospectus in accordance Regulation 81-101.
11. In the absence of the Requested Relief, an investment by the Desjardins Funds in securities of some Underlying ETFs would be contrary to paragraph 2.5(2)(c) of Regulation 81-102 as some Underlying ETFs are not reporting issuers in the Jurisdictions.
12. To obtain exposure to gold or silver indirectly, the Filer may use specified derivatives the underlying interest of which is gold or silver and invest in the Underlying ETFs.
13. The Filer believes that the markets for gold/Silver are highly liquid, and there are no liquidity concerns that should lead to a conclusion that investments in gold or Silver need to be prohibited.
14. The Filer believes that the potential volatility or speculative nature of Silver is no greater than that of gold, some equity and debt securities.
15. The Underlying ETFs and Silver are attractive investments for the Desjardins Funds as they provide an efficient and cost effective means of achieving diversification in addition to any investment in gold.
16. An investment by a Desjardins Fund in the securities of the Underlying ETFs and/or Silver will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Desjardins Fund.
17. The Desjardins Funds may invest in Silver from time to time when the Filer determines that it is desirable to do so following a valuation of assets, a determination of the effect of monetary policy and economic environment on asset prices, and after assessing historic price movements on likely future returns.
18. In the absence of the Requested Relief, an investment by the Desjardins Funds in Silver would be contrary to subsections 2.3(f) and 2.3(h) of Regulation 81-102 as those sections only stipulate gold as a permissible commodity to be held directly or as an underlying interest of a specified derivative.
19. Any investment by a Desjardins Fund in Silver will be made in compliance with the custodian requirements in part 6 of Regulation 81-102.
20. If the investment in gold and/or Silver (including gold, permitted gold certificates, Silver, Permitted Silver Certificates, Underlying ETFs and specified derivatives the underlying interest of which is gold or Silver) represents a material change for any Existing Desjardins Fund, the Filer will comply with the material change reporting obligations for that Desjardins Fund.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:
(a) the investment by a Desjardins Fund in securities of an Underlying ETF and/or Silver is in accordance with the fundamental investment objectives and investment strategies of the Desjardins Fund;
(b) the Desjardins Fund does not short sell securities of an Underlying ETF;
(c) the securities of the Underlying ETFs are traded on a stock exchange in Canada or the United States;
(d) if the Desjardins Fund invests in Underlying ETFs which receives their exposure to gold/Silver through the use of specified derivatives, that the indirect mark-to-market value of the exposure of the Desjardins Fund to any one counterparty, other than an acceptable clearing corporation or a clearing corporation that clears and settles transactions made on a futures exchanged listed in Appendix A of Regulation 81-102, calculated in accordance with subsection 2.7(5) of Regulation 81-102, not exceed, for a period of 30 days or more, 10 percent of the net asset value of the Desjardins Fund;
(e) a Desjardins Fund does not purchase gold, permitted gold certificates, Silver, Permitted Silver Certificates, Underlying ETFs or enter into specified derivatives the underlying interest of which is gold or Silver if, immediately after the transaction, more than 10% of the net assets of a Desjardins Fund, taken at market value at the time of the transaction, would in aggregate consist of gold, permitted gold certificates, Silver, Permitted Silver Certificates, Underlying ETFs and underlying market exposure of specified derivatives linked to gold or Silver.
(f) the simplified prospectus for each of the Desjardins Funds that rely on the Requested Relief discloses, or will disclose the next time it is renewed:
(i) in the investment strategy section of the Desjardins Fund the fact that the Desjardins Fund has obtained relief to invest in securities of Underlying ETFs and/or Silver; and
(ii) to the extent applicable, the risk associated with the Underlying ETFs and/or Silver.