Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from s. 13.5(2)(b) of NI 31-103 to permit inter-fund and In specie transfers between mutual funds, closed end funds, pooled funds and managed accounts -- inter-fund trades will comply with conditions in subsection 6.1(2) of NI 81-107 including IRC approval or client consent -- trades involving exchange-traded securities are permitted to occur at last sale price as defined in the Universal Market Integrity Rules -- relief also subject to pricing and transparency conditions -- inter-fund trades will comply with conditions in s. 6.1(2) of NI 81-107.

Applicable Legislative Provisions

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

National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1(1)(a)(i), 6.1(2).

December 4, 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 CIBC ASSET MANAGEMENT INC. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):

(a) granting an exemption from the prohibitions in section 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) which prohibit a registered adviser from 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 NI 81-102 Fund (as defined below) to purchase securities from or sell securities to any NI 81-102 Fund or any Pooled Fund (as defined below);

(ii) a Pooled Fund to purchase securities from or sell securities to another Pooled Fund or NI 81-102 Fund;

(iii) a Managed Account (as defined below) to purchase securities from or sell securities to a Pooled Fund or a NI 81-102 Fund;

(iv) the transactions listed in (i) to (iii) (each an Inter-Fund Trade) to be executed at the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of NI 81-107 (as defined below) on that trading day, where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities);

((i), (ii), (iii) and (iv) are collectively the Inter-Fund Trading Relief) and

(v) In specie subscriptions and redemptions by:

(A) Managed Accounts in the NI 81-102 Funds and Pooled Funds; and

(B) Pooled Funds in the NI 81-102 Funds and Pooled Funds

(collectively, the In specie Transfer Relief)

(the Inter-Fund Trading Relief and the In specie Transfer Relief are collectively the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 -- Definitions, NI 81-102, NI 81-107 and NI 31-103 have the same meaning if used in this decision, unless otherwise defined.

Existing NI 81-102 Fund means each NI 81-102 Fund, being a mutual fund that is a reporting issuer and subject to NI 81-102 of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;

Existing Fund means collectively, the Existing NI 81-102 Funds and the Existing Pooled Funds;

Existing Managed Account means each existing fully managed account managed by the Filer or an affiliate of the Filer for a client that is not a responsible person;

Existing Pooled Fund means each existing Pooled Fund, being an investment fund that is not a reporting issuer of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;

Filer means the Filer or an affiliate of the Filer;

Funds means collectively, the NI 81-102 Funds and the Pooled Funds;

Future Funds means collectively, the Future NI 81-102 Funds and the Future Pooled Funds;

Future Managed Account means each fully managed account that will be managed by the Filer or an affiliate of the Filer for a client that is not a responsible person in the future;

Future NI 81-102 Fund means each NI 81-102 Fund of which the Filer or an affiliate of the Filer will act as manager or portfolio adviser in the future;

Future Pooled Fund means each Pooled Fund, being an investment fund that is not a reporting issuer of which the Filer or an affiliate of the Filer will act as manager and/or portfolio adviser in the future;

Inter-Fund Trading Prohibition means section 13.5(2)(b) of NI 31-103;

In specie Transfer means causing a Managed Account or a Pooled Fund to deliver securities to a Pooled Fund or NI 81-102 Fund in respect of the purchase of securities of the Pooled Fund or NI 81-102 Fund by the Managed Account or Pooled Fund, or to receive securities from the investment portfolio of a Pooled Fund or NI 81-102 Fund in respect of a redemption of securities of the Pooled Fund or NI 81-102 Fund by the Managed Account or Pooled Fund;

Last Sale Price has the same meaning as in the Universal Market Integrity Rules;

Managed Accounts means the Existing Managed Accounts and the Future Managed Accounts;

Managed Account Agreements means the investment management agreements between clients and the Filer or an affiliate of the Filer;

NI 81-102 means National Instrument 81-102 Investment Funds;

NI 81-102 Funds means the Existing and Future NI 81-102 Funds that are subject to NI 81-102 and are reporting issuers;

NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds;

Pooled Funds means, collectively, the Existing Pooled Funds and the Future Pooled Funds; and

TSX means the Toronto Stock Exchange.

Representations

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

1. The Filer is a corporation organized under the laws of Canada and is registered as a portfolio manager in all provinces and territories of Canada, an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, a commodity trading manager in Ontario and a derivatives portfolio manager in Quebec.

2. The Filer is a wholly-owned subsidiary of CIBC. CIBC is a Schedule I bank under the Bank Act (Canada).

3. Each of the Funds is, or will be, an open-ended mutual fund trust, mutual fund corporation or limited partnership under the laws of Canada or a jurisdiction of Canada.

4. The securities of each of the NI 81-102 Funds are, or will be, qualified for distribution pursuant to simplified prospectuses and annual information forms that have been, or will be, prepared and filed in accordance with the securities legislation of each of one or more Jurisdictions.

5. Each of the NI 81-102 Funds is, or will be, a reporting issuer in one or more Jurisdictions.

6. The securities of the Pooled Funds are, or will be, distributed on a private placement basis pursuant to the securities legislation of one or more Jurisdictions and will not be reporting issuers.

7. The Filer is, or will be, the manager and adviser of each of the Funds.

8. The Filer is, or will be, the adviser of each Managed Account.

9. Each Fund may be an associate of the Filer.

10. The Filer and each of the Funds are not in default of securities legislation in any jurisdiction of Canada.

11. The Filer has established, or will establish, an independent review committee (IRC) in respect of each NI 81-102 Fund in accordance with the requirements of NI 81-107.

12. The Filer has established, or will establish, an IRC (which may also be the IRC in respect of the NI 81-102 Funds) in respect of each Pooled Fund. The mandate of the IRC of a Pooled Fund will include the approval of Inter-Fund Trades.

13. The IRC of the Pooled Funds was, or will be, composed by the Filer in accordance with section 3.7 of NI 81-107 and the IRC complies, or will comply, with the standard of care set out in section 3.9 of NI 81-107. Further, the IRC of the Pooled Funds will not approve Inter-Fund Trades unless it has made the determination set out in section 5.2(2) of NI 81-107. Inter-Fund Trades involving a NI 81-102 Fund will be referred to the relevant IRC of such NI 81-102 Fund under section 5.2(1) of NI 81-107.

14. The investment management agreement or other documentation in respect of a Managed Account will contain the authorization of the client for the adviser on behalf of the Managed Account to engage in Inter-Fund Trades with the Funds.

15. At the time of an Inter-Fund Trade, the Filer will have in place policies and procedures to enable the Funds to engage in Inter-Fund Trades with other Funds and Managed Accounts.

16. The Filer will generally comply with the following procedures when entering into Inter-Fund Trades between Funds and between Managed Accounts and Funds:

(a) for transactions not relating to fixed income securities, the portfolio manager will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund or a Managed Account (Fund A) to a trader on the trading desk of the Filer;

(b) for transactions not relating to fixed income securities, the portfolio manager will deliver the trade instructions in respect of a sale or purchase of a security by a Fund (Fund B) to a trader on the trading desk of the Filer;

(c) the portfolio manager or the trader on the trading desk, as applicable, will execute the trade as an Inter-Fund Trade between Fund A and Fund B 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 prior to the execution of the trade;

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

(e) Except for transactions in fixed income securities, the trader on the trading desk will advise the portfolio manager of Fund A and Fund B of the price at which the Inter-Fund Trade occurs. For transactions in fixed income securities, the portfolio manager trades its own position and does not use the trading desk.

17. The Filer cannot rely on the exemption in subsection 6.1(4) of NI 81-107 unless the parties to the Inter-Fund Trade are both reporting issuers and the Inter-Fund Trade occurs at the current market price which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.

18. It would be in the best interests of the Funds and the Managed Accounts if an Inter-Fund Trade could be made at the Last Sale Price prior to the execution of the trade since 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.

19. The Filer provides discretionary portfolio management services to certain clients pursuant to Managed Account Agreements, whereby the client appoints the Filer to act as portfolio manager in connection with an investment portfolio of the client with full discretionary authority, in accordance with the mandate of the clients, to trade in securities for the Managed Account without obtaining the specific consent of the client to execute the trade.

20. The Filer may wish to or otherwise be required to conduct In specie Transfers and deliver securities held in a Managed Account or a Pooled Fund to a Pooled Fund or a NI 81-102 Fund in respect of a purchase of securities of the Pooled Fund or NI 81-102 (Fund Securities), and may wish to or otherwise be required to receive securities from a Pooled Fund or NI 81-102 Fund in respect of a redemption of Fund Securities by a Managed Account or a Pooled Fund.

21. The In specie Transfers will allow the Filer to manage each asset class more effectively and reduce transaction costs for the Managed Account or Pooled Fund client and the Pooled Fund or NI 81-102 Funds. For example, In specie Transfers reduce market impact costs, which can be detrimental to the Managed Accounts, Pooled Fund or NI 81-102 Fund clients and/or Pooled Funds or NI 81-102 Fund(s). In specie Transfers also allow a portfolio manager to retain within its control institutional-size blocks of securities that otherwise would need to be broken and re-assembled.

22. The only cost which will be incurred by a Pooled Fund, a NI 81-102 Fund or a Managed Account for an In specie Transfer is a nominal administrative charge levied by the custodian of the Pooled Fund or NI 81-102 Fund in recording the trades and any commission charged by the dealer executing the trade and custodian transaction costs.

23. The Filer will obtain the prior specific written consent of the relevant Managed Account client before it engages in any In specie Transfers in connection with the purchase or redemption of securities of the Pooled Funds or NI 81-102 Funds for the Managed Account.

24. The Filer, as manager of the Funds, will value the securities transferred under an In specie Transfer on the same valuation day on which the purchase price or redemption price of the Fund Securities of a Fund is determined. With respect to the purchase of Fund Securities of a Fund, the securities transferred to a Fund under an In specie Transfer in satisfaction of the purchase price of those Fund Securities will be valued as if the securities were portfolio assets of the Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102. With respect to the redemption of Fund Securities of a Fund, the securities transferred to a Managed Account in satisfaction of the redemption price of those Fund Securities will have a value equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price of the Fund Securities of the Fund, as contemplated by section 10.4(3)(b) of NI 81-102.

25. In specie Transfers will be subject to (i) compliance with the written policies and procedures of the Filer respecting In specie Transfers that are consistent with applicable securities legislation and (ii) the oversight of the Filer's Business Controls Department, to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Pooled Fund or NI 81-102 Fund and the Managed Account, uninfluenced by considerations other than the best interests of the Pooled Fund or NI 81-102 Fund and Managed Account. The results of the oversight and review by the Filer's Business Controls Department will be submitted in the form of a report to the Filer's board of directors on a quarterly basis

26. The valuation of any illiquid securities which would be the subject of an In specie Transfer will be carried out according to the Filer's policies and procedures for the fair valuation of portfolio securities, including illiquid securities (FV Procedures). Should any In specie Transfer involve the transfer of an "illiquid asset" (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm's length purchaser or seller, immediately before effecting the In specie Transfer.

27. If any illiquid securities are the subject of In specie Transfer, the illiquid securities would be transferred on a pro rata basis. The Funds generally invest in liquid securities. The Filer will not cause any Fund to engage in an In specie Transfer, if illiquid securities represent more than an immaterial portion of the portfolio of the applicable Fund or Managed Account.

28. The Filer previously received inter-fund trading relief under a MRRS decision dated July 8, 2008 (the Prior Relief). The Inter-Fund Trading Relief differs from the inter-fund trading relief granted in the Prior Relief in that it allows transactions in exchange-traded securities to be executed at the Last Sale Price in lieu of the Closing Sale Price. Accordingly, the Filer will no longer rely on the inter-fund trading relief referred to in paragraph (a) under the heading "Background" in the Prior Relief and the relief referred to in paragraph (c) under the heading "Background" in the Prior Relief as the investment counsel prohibition no longer exists.

Decision

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:

(i) the Inter-Fund Trading Relief is granted provided that:

(a) the Inter-Fund Trade is consistent with the investment objective of the Fund or the Managed Account;

(b) the Filer, or an affiliate of the Filer, refers the Inter-Fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107 and the Filer, or an affiliate of the Filer, and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;

(c) in the case of an Inter-Fund Trade between Funds:

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

(ii) 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) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.

(d) in the case of an Inter-Fund Trade between a Managed Account and a Fund:

(i) the IRC of the Fund has approved the Inter-Fund Trade in respect of such Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(ii) the investment management agreement or other documentation in respect of the Managed Account authorizes the transaction; and

(iii) 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) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.

(ii) The In specie Transfer Relief is granted provided that:

(a) if the transaction is the purchase of Fund Securities by a Managed Account:

(A) in respect of the In specie Transfer Relief as it applies to purchases of a NI 81-102 Fund or a Pooled Fund,

I. the Filer, as manager of the NI 81-102 Fund, obtains the approval of the applicable IRC of the NI 81-102 Fund in respect of an In specie Transfer in accordance with the terms of s. 5.2 of NI 81-107; and

II. the Filer, as manager of the NI 81-102 Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In specie Transfer;

(B) the Filer obtains the prior written consent of the client of the relevant Managed Account before it engages in any In specie Transfers in connection with the purchase of Fund Securities of the NI 81-102 Fund or Pooled Fund;

(C) the NI 81-102 Fund or Pooled Fund would at the time of payment be permitted to purchase the securities of the Managed Account;

(D) the securities are acceptable to the Filer as portfolio manager of the NI 81-102 Fund or Pooled Fund and consistent with the NI 81-102 Fund's or Pooled Fund's investment objectives;

(E) the value of the securities sold to the NI 81-102 Fund or Pooled Fund is at least equal to the issue price of the Fund Securities of the NI 81-102 Fund or Pooled Fund for which they are payment, valued as if the securities were portfolio assets of that NI 81-102 Fund or Pooled Fund;

(F) the account statement next prepared for the Managed Account will include a note describing the securities delivered to the NI 81-102 Fund or Pooled Fund and the value assigned to such securities; and

(G) the NI 81-102 Fund or Pooled Fund keeps written records of all In specie Transfers during the financial year of the NI 81-102 Fund or Pooled Fund, reflecting details of the securities delivered to the NI 81-102 Fund or Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(b) if the transaction is the redemption of Fund Securities by a Managed Account:

(A) in respect of the In specie Transfer Relief as it applies to redemptions of a NI 81-102 Fund or a Pooled Fund:

I. the Filer, as manager of the NI 81-102 Fund, obtains the approval of the applicable IRC of the NI 81-102 Fund in respect of an In specie Transfer in accordance with the terms of section 5.2 of NI 81-107; and

II. the Filer, as manager of the NI 81-102 Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In specie Transfer;

(B) the Filer obtains the prior written consent of the client of the relevant Managed Account to the payment of redemption proceeds in the form of an In specie Transfer;

(C) the securities are acceptable to the Filer as portfolio manager of the Managed Account and consistent with the Managed Account's investment objectives;

(D) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security of the NI 81-102 Fund or the Pooled Fund used to establish the redemption price;

(E) the holder of the Managed Account has not provided notice to terminate its Managed Account Agreement with the Filer;

(F) the account statement next prepared for the Managed Account will include a note describing the securities delivered to the Managed Account and the value assigned to such securities; and

(G) the NI 81-102 Fund or the Pooled Fund keeps written records of all In specie Transfers during the financial year of the NI 81-102 Fund or the Pooled Fund, reflecting details of the securities delivered by the NI 81-102 Fund or the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(c) the Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a NI 81-102 Fund or a Pooled Fund and, in respect of any delivery of securities further to an In specie Transfer, the only charge paid by the Managed Account, if any, is the commission charged by the dealer executing the trade;

(d) if the transaction is the purchase of NI 81-102 Fund Securities by a Pooled Fund:

(A) If the transaction involves the purchase of Fund Securities of a NI 81-102 Fund, the Filer, as manager of the NI 81-102 Fund, obtains the approval of the IRC of the NI 81-102 Fund in respect of an In specie Transfer in accordance with the terms of section 5.2 of NI 81-107;

(B) the Filer, as manager of the NI 81-102 Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In specie Transfer;

(C) the NI 81-102 Fund would at the time of payment be permitted to purchase those securities;

(D) the securities are acceptable to the Filer (or its affiliate) as portfolio manager of the NI 81-102 Fund, and consistent with such NI 81-102 Fund's investment objectives;

(E) the value of the securities is at least equal to the issue price of the Fund Securities of the NI 81-102 Fund for which they are payment, valued as if the securities were portfolio assets of that NI 81-102 Fund; and

(F) each of the NI 81-102 Fund and the Pooled Fund will keep written records of an In specie Transfer in a financial year of the NI 81-102 Fund, reflecting details of the securities delivered to the NI 81-102 Fund or the Pooled Fund, and the value assigned to such securities, for at least five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(e) if the transaction is the redemption of NI 81-102 Fund Securities by a Pooled Fund:

(A) the Filer, as manager of the NI 81-102 Fund, obtains the approval of the IRC of the NI 81-102 Fund in respect of the In specie Transfer in accordance with the terms of section 5.2 of NI 81-107;

(B) the Filer, as manager of the NI 81-102 Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In specie Transfer;

(C) the securities are acceptable to the Filer (or its affiliate) as the portfolio manager of the Pooled Fund, and consistent with such Pooled Fund's investment objective;

(D) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value of the Fund Securities used to establish the redemption value of the NI 81-102; and

(E) each of the NI 81-102 Fund and the Pooled Fund will keep written records of an In specie Transfer in a financial year of the NI 81-102 Fund or the Pooled Fund, reflecting details of the securities delivered by the NI 81-102 Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and

(f) if the transaction is the purchase of Fund Securities of a Pooled Fund by a Pooled Fund:

(A) the Pooled Fund would at the time of payment be permitted to purchase those securities;

(B) the securities are acceptable to the Filer as portfolio manager of the Pooled Fund, and consistent with the Pooled Fund's investment objectives;

(C) the value of the securities is at least equal to the issue price of the Fund Securities of the Pooled Fund for which they are payment, valued as if the securities were portfolio assets of that Pooled Fund; and

(D) each Pooled Fund will keep written records of an In specie Transfer in a financial year of a Pooled Fund, reflecting details of the securities delivered to the Pooled Fund, and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(g) if the transaction is the redemption of Fund Securities of a Pooled Fund by a Pooled Fund:

(A) the securities are acceptable to the portfolio adviser of the Pooled Fund, and consistent with the investment objective of the Pooled Fund;

(B) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Securities used to establish the redemption price of the Pooled Fund; and

(C) each Pooled Fund will keep written records of an In specie Transfer in a financial year of the Pooled Fund, reflecting details of the securities delivered by the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and

(h) the Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a NI 81-102 Fund or a Pooled Fund and, in respect of any delivery of securities further to an In specie Transfer, the only charge paid by the Pooled Fund or the NI 81-102 Fund, if any, is the commission charged by the dealer executing the trade.

"Raymond Chan"
Manager
Investment Funds and Structured Products Branch