National Policy 11-203 Passport System and Multilateral Instrument 11-102 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from section 13.5(2)(b) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit the filer to engage in inter-entity trades between the investment portfolios of affiliates for which it acts as an adviser – inter-entity trades will comply with conditions of section 6.1(2) of National Instrument 81-107 Independent Review Committee for Investment Funds except for the requirements to have an independent review committee and obtain its approval of trades.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b), 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).
September 1, 2016
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
INDUSTRIAL ALLIANCE, INVESTMENT MANAGEMENT INC.
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation in the Jurisdictions (the Legislation) for an exemption under section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) from the restriction on certain managed account transactions contained in section 13.5(2)(b) of NI 31-103 in order to permit the Filer to knowingly cause the investment portfolio of an Affiliate (as defined below), for which the Filer acts as an adviser, to purchase securities from or sell securities to the investment portfolio of another Affiliate for which the Filer also acts as an adviser (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers du Québec is the principal regulator for this application,
(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 Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia and Saskatchewan, and
(c) the decision with respect to the Exemption Sought is the decision of the principal regulator and evidences the decision of the regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Current Market Price of the Security means,
(a) if the security is an exchange-traded security or a foreign exchange-traded security,
(i) the closing sale price on the day prior to the transaction as reported on the exchange upon which the security is listed or the quotation trade reporting system upon which the security is quoted, or
(ii) if there are no reported transactions for the day prior to the transaction, the average of the highest current bid and lowest current ask for the security as displayed on the exchange upon which the security is listed or the quotation trade reporting system upon which the security is quoted, or
(iii) if the closing sale price on the day prior to the transaction is outside of the closing bid and closing ask, the average of the highest current bid and lowest current ask for the security as displayed on the exchange upon which the security is listed or the quotation trade reporting system upon which the security is quoted; or
(b) for all other securities, the average of the current values determined on the basis of reasonable inquiry; and
Market Integrity Requirements means
(a) if the security is an exchange-traded security, the purchase or sale
(i) is printed on a marketplace that executes trades of the security; and
(ii) complies with the market conduct and display requirements of the marketplace, its regulation services provider and securities regulatory authorities; or
(b) if the security is a foreign exchange-traded security, the purchase or sale complies with the requirements that govern transparency and trading of foreign exchange-traded securities on the foreign exchange or foreign quotation and trade reporting system; or
(c) for all other securities, the purchase or sale is through a dealer, if the purchase or sale is required to be reported by a registered dealer under applicable securities legislation.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Canada with its head office located in Québec City, Québec.
2. The Filer is a subsidiary of Industrial Alliance Insurance and Financial Services Inc. (Industrial Alliance), a publicly listed company in Canada and part of the Industrial Alliance group of companies. Industrial Alliance is a life and health insurance company and financial services provider that has individual insurance, individual wealth management, group insurance and group savings and retirement businesses, and controls a large network of subsidiaries inside and outside of Canada.
3. The Filer is registered as: (a) a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan; (b) a commodity trading counsel and a commodity trading manager in Ontario; and (c) a derivatives portfolio manager in Québec.
4. The Filer is not in default of securities legislation of any of the provinces and territories of Canada.
5. The Filer provides portfolio management services to certain affiliated entities within the Industrial Alliance group of companies, and may act as portfolio manager for the investment portfolios of additional affiliated entities in the future (collectively, the current and future affiliates that have their head offices or principal places of business in Canada are referred to as the Affiliates). Investment portfolios of Affiliates managed by the Filer include portfolios of related insurance companies that are invested to satisfy their liabilities under insurance contracts. The current affiliates for which the Filer provides portfolio management services are: Industrial Alliance; Industrial Alliance, Auto and Home Insurance Inc.; Industrial Alliance Pacific General Insurance Corporation; Investia Financial Services Inc.; Industrial Alliance Trust Inc.; SAL Marketing Inc.; The Excellence Life Insurance Company; and Prysm Assurances générales inc.
6. The Filer enters into a written portfolio management agreement with each Affiliate and has, or will have, full discretionary authority to trade in securities for each Affiliate’s investment portfolio without obtaining the specific consent or instructions of the Affiliate with respect to the trade.
7. Other than Industrial Alliance, which is a reporting issuer in Canada, each of the Affiliates is not and does not intend to become a reporting issuer in Canada.
8. The Filer wishes to cause the investment portfolio of an Affiliate to purchase securities from or sell securities to the investment portfolio of another Affiliate (the Inter-Entity Trades). The Filer has determined that there are significant benefits that could be achieved for Affiliates through such Inter-Entity Trades, including cost and timing efficiencies.
9. Because of the operation and structure of the Industrial Alliance group of companies and the Filer’s investment process, an Affiliate may be a “responsible person” of the Filer as defined in section 13.5(1) of NI 31-103. In the absence of the Exemption Sought, to the extent the Affiliates are responsible persons of the Filer, the Filer would be prohibited from engaging in the Inter-Entity Trades under section 13.5(2)(b) of NI 31-103.
10. Each Inter-Entity Trade will be consistent with the investment objectives and strategies of the investment portfolios of each of the applicable Affiliates.
11. The portfolio management agreements between the Filer and each of the Affiliates contain, or will contain, the authorization of the Affiliate for the Filer to engage in Inter-Entity Trades. In addition, all Inter-Entity Trades will be made in compliance with the provisions of any applicable insurance legislation.
12. The Filer has written policies and procedures in place to govern the Inter-Entity Trades.
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.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:
(a) Each of the Affiliates, other than Industrial Alliance, is not a reporting issuer in Canada;
(b) The Inter-Entity Trades are consistent with the investment objectives and strategies of the investment portfolios of each of the applicable Affiliates;
(c) The portfolio management agreement or other documentation in respect of the investment portfolios of the Affiliates permits Inter-Entity Trades;
(d) At the time of the Inter-Entity Trade,
(i) the bid and ask price of the security is readily available;
(ii) the Inter-Entity Trade is executed at the Current Market Price of the Security;
(iii) the Inter-Entity Trade is subject to Market Integrity Requirements; and
(iv) the Filer keeps written records of each Inter-Entity Trade including,
(A) a record of each purchase and sale of securities,
(B) the parties to the trade, and
(C) the terms of the purchase or sale
for five years after the end of the fiscal year in which the trade occurred, the most recent two years in a reasonably accessible place;
(e) Each Inter-Entity Trade represents the business judgement of the Filer uninfluenced by considerations other than the best interests of the investment portfolios of each of the Affiliates that is party to the Inter-Entity Trade;
(f) Each Inter-Entity Trade is in compliance with the Filer's written policies and procedures relating to Inter-Entity Trades;
(g) Each Inter-Entity Trade achieves a fair and reasonable result for the investment portfolios of each of the Affiliates; and
(h) No fees or costs will be paid by or to any party for an Inter-Entity Trade other than the nominal cost incurred by a party to print or otherwise display the trade.
Superintendent, Client Services and Distribution Oversight
Autorité des marchés financiers