Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Relief granted from conflict of interest reporting requirement in subsection 117(1)(3) of the Securities Act (Ontario) for transactions involving related parties of an investment fund -- monthly reporting not required provided that similar disclosure is made in the annual and interim management reports on fund performance for each investment fund and that certain records of related party portfolio transactions are kept by the investment funds.

Applicable Legislative Provisions

Securities Act (Ontario), ss. 117(1)3, 117(2).

February 22, 2016

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 INVESCO CANADA LTD. (the Filer)

DECISION

Background

The principal regulator of the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator pursuant to Section 117(2) of the Securities Act (Ontario) (the "Legislation") for an exemption from the obligation to file a report in respect of each investment fund that is a reporting issuer and which is currently managed by, or in the future is managed by, it (each a "Fund" and collectively, the "Funds"), relating to every purchase or sale effected by such Funds through any related person or company with respect to which the related person or company received a fee either from the Funds or from the other party to the transaction, or both (the "Reporting Requirement"), within 30 days after the end of the month in which it occurs (the "Exemption Sought").

Under the Process of 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 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 British Columbia, Alberta, Saskatchewan, Nova Scotia, New Brunswick and Newfoundland and Labrador.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

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

"NI 81-106" means National Instrument 81-106 Investment Fund Continuous Disclosure;

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

"Related Party" means Invesco Capital Markets, Inc.

Representations

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

1. The head office of the Filer is located in Toronto, Ontario.

2. The Funds are reporting issuers in each province and territory of Canada.

3. The Filer is the investment fund manager of and investment advisor to the Funds.

4. The Filer is not in default of securities legislation in any jurisdiction in Canada.

5. The Funds follow the standard investment restrictions and practices applicable to investment funds pursuant to NI 81-102 and applicable Legislation, except to the extent that a Fund has obtained regulatory relief to deviate from such requirements.

6. The Filer and the Related Party is a "related person or company" within the meaning of the Legislation as the Filer and Related Party are wholly owned subsidiaries of Invesco Ltd.

7. As investment advisor to the Funds, the Filer either directly provides investment advice to the Funds or may appoint sub-advisors to provide advice to the Funds (the Filer in its capacity as investment advisor and the sub-advisors are collectively hereafter referred to as the "Portfolio Advisors").

8. In providing investment advice, the Portfolio Advisors of the Funds also have discretion to allocate the brokerage transactions of each Fund in any manner that they believe to be in the Fund's best interests, subject to such policies as may be established by the Filer from time to time. The Filer's policies require "best execution" meaning executing securities in a manner that the client's total cost or proceeds in each transaction is the most favourable under the circumstances. Total cost or proceeds includes price, commission paid, trade ticketing costs, market impact, certainty of execution, speed of execution, anonymity (if applicable) and research (if applicable).

9. As disclosed in the prospectus or annual information form of the Funds, the Portfolio Advisors have the ability to allocate brokerage transactions to the Related Party and in doing so, the same factors will apply to the selection of a broker regardless of whether the broker is affiliated or unaffiliated with the Filer.

10. The purchase or sale of securities effected through the Related Party reflects the business judgment of the Portfolio Advisors uninfluenced by considerations other than the best interests of the Funds.

11. The independent review committee of the Funds, appointed pursuant to NI 81-107, has considered the policies and procedures of the Filer and has determined that the proposed Related Party transactions achieve a fair and reasonable result for the Funds in accordance with section 5.2(2) of NI 81-107.

12. NI 81-106 requires that the Funds prepare and file annual and interim management reports of fund performance that include a discussion of transactions involving the related parties to the Funds. When discussing portfolio transactions with related parties, NI 81-106 requires the Funds to include: the identity of the related party; the relationship between the related party and the Fund; the purpose of the transaction; the measurement basis used to determine the recorded amount; any ongoing commitments to the related party; the dollar amount of commission, spread, or any other fee that the Fund paid to any related party in connection with a portfolio transaction; whether the Fund has relied on the positive recommendation or approval of the independent review committee to proceed with a related party transaction; and any details of conditions or parameters surrounding the transaction imposed by the independent review committee in its positive recommendation or approval.

13. The Legislation requires the filing of a report by the Filer with respect to each transaction between a Fund and the Related Party in respect of which the Related Party receives a fee either from the Fund or from the other party to the transaction or from both.

14. Such report is to be filed within 30 days after the end of the month in which the transaction occurs, disclosing the name of the Fund, the name of the Applicant, the date of the transaction, the category of the transaction (namely, a transaction or purchase and sale of securities resulting in a related person or company receiving a fee), the parties to the transaction, the nature of the transaction (namely, the name of the issuer of the securities purchased or sold, the class or designation of the securities, the amount or number of securities, the consideration paid, the name of the related person or company receiving a fee on the transaction, the name of the person or company that paid the fee and the amount of the fee received).

15. It would be costly and time consuming to provide the information required by the Reporting Requirement on a monthly and segregated basis for each Fund, and similar information is already included in the annual and interim management reports of fund performance.

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 Exemption Sought is granted provided that:

(1) the annual and interim management reports of fund performance for the Funds disclose:

(i) the name of the Related Party;

(ii) the amount of fees paid to the Related Party; and

(iii) the person or company who paid the fees if they were not paid by the Fund; and

(2) the records of portfolio transactions maintained by the Funds include, separately for every portfolio transaction effected by the Funds through the Related Party:

(i) the name of the Related Party;

(ii) the amount of fees paid to the Related Party; and

(iii) the person or company who paid the fees.

"Edward Kerwin"
"Mary G. Condon"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission