Securities Law & Instruments

Headnote

 

Application for relief from trade confirmation and account statement requirements contained in the securities laws and National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – Filer operates an online platform focussed on blended financing for international development projects – Investment is limited to non-individual permitted clients – Filer is not involved in the negotiation, documentation, financing and transaction closing of any investment – relief granted subject to certain terms and conditions – decision is time-limited and will expire in five years.

 

Applicable Legislative Provisions

 

Statutes Cited

 

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 36, 147.

 

Instrument Cited

 

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 14.12, 14.14, 15.1.

 

November 21, 2016

 

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUÉBEC

(the Jurisdictions)

 

AND

 

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS

IN MULTIPLE JURISDICTIONS

 

IN THE MATTER OF

CONVERGENCE BLENDED FINANCE, INC.

(the Filer)

 

DECISION

 

Background

 

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 of the Jurisdictions (the Legislation) for relief from the following:

 

a.             under Section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103):

 

i.              the requirement in Section 14.12 [Content and delivery of trade confirmation] of NI 31-103 that a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security promptly deliver to the client a written confirmation of the transaction setting out certain prescribed information (the trade confirmation requirement); and

 

ii.             the requirement in Section 14.14 [Account statements] of NI 31-103 that a registered dealer deliver to a client a statement containing certain prescribed information at least once every three months or, if the client has requested to receive statements on a monthly basis, for each one-month period (the account statement requirement); and

 

b.             under section 147 of the Securities Act (Ontario) (the Act) and its counterpart in the securities legislation of Québec, from the requirement found in section 36(1) [Confirmation of trade] of the Act and its counterpart in the securities legislation of Québec that every registered dealer who has acted as principal or agent in connection with a purchase or sale of a security or derivative shall promptly send or deliver to the customer a written confirmation of the transaction (the trade confirmation delivery requirement);

 

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):

 

a.             the Ontario Securities Commission is the principal regulator for this application;

 

b.             the decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.

 

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 in this decision (the Decision).

 

Representations

 

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

 

The Filer

 

1.             The Filer is organized as a not-for-profit corporation under the Canada Not-for-profit Corporations Act. The Filer’s head office is in Toronto, Ontario.

 

2.             The purposes expressed in the Filer’s articles of incorporation are:

 

(a)           to facilitate the alignment of capital from public, private and philanthropic actors in global development by providing information, services and resources to these groups on a cost-recovery basis; and

 

(b)           to receive and maintain government grants and similar funds, and apply all or part of the principal and income thereafter, from time to time, to organizations that are for- and not-for-profit organizations engaged in global development.

 

3.             The Filer has received initial operational funding from Global Affairs Canada, the department of the Government of Canada responsible for international trade, international development and humanitarian assistance.

 

4.             The mandate of the Filer is to serve as a knowledge broker and accelerator for innovative development finance models for global development projects through establishing an online platform to raise awareness and promote blended financing mechanisms, and to help global investors find and connect with each other to co-invest in blended finance projects that address critical investment gaps in health and education delivery, business growth and infrastructure development support. Blended finance is the strategic use of development finance and philanthropic funds to mobilize private capital flows for global development projects in emerging and frontier markets.

 

5.             To carry out its mandate, the Filer offers three services through an online platform:

 

(a)           The Market Building Tools are intended for educational purposes to increase understanding of and share knowledge of blended finance, including training, workshops, a database of past blended finance deals and their financial and social performance, and a directory of advisors and other service providers experienced in supporting blended finance.

 

(b)           The New Product Design Facility is intended to allow global participants to design and to collaborate on the design of new blended finance products, to share design learnings and best practices, and to provide research grants to participants to design new blended finance products or to test and enhance existing blended finance products suitable for scaling, without being linked to live investment projects seeking funding.

 

(c)           The Investment Network is intended to enable parties seeking funding world-wide for potential projects, on the one hand, and global public and private investors, on the other hand, to identify and connect with one another online.

 

6.             As the Filer is based in Ontario and its Investment Network involves the facilitation of trades in securities of issuers to investors in Ontario and Quebec, among other foreign jurisdictions, the Filer is seeking registration as a restricted dealer in the provinces of Ontario and Quebec.

 

7.             The Filer is not in default of securities legislation in any province or territory in Canada.

 


Access to the online platform

 

8.             The Filer will allow any individual or institution access to the New Product Design Facility and the Market Building Tools.

 

9.             The Filer will limit access to the Investment Network to investors who:

 

(a)           are not individuals;

 

(b)           where such investors are resident in Canada, are “permitted clients”, as defined in section 1.1 of NI 31-103;

 

(c)           where such investors are in a foreign jurisdiction, are non-individual sophisticated institutions, government agencies or philanthropic investors;

 

(d)           have been in existence for at least 2 years; and

 

(e)           if not a well-known investor in emerging and frontier markets, have a referral from existing users on the Investment Network.

 

10.          As a condition to gaining access to the Investment Network, the Filer will require all potential investors:

 

(a)           to provide information sufficient to permit the Filer to take reasonable steps to verify each investor’s status as a non-individual permitted client, if resident in Canada, or as a permitted investor under the applicable laws of the investor’s home foreign jurisdiction; and

 

(b)           to waive in writing the suitability obligations of the Filer, as permitted by sections 13.2(6) and 13.3(4) of NI 31-103.

 

11.          The Filer has established, maintains and applies policies and procedures reasonably designed to ensure that access to the Investment Network is limited to non-individual permitted clients or the equivalent permitted investors in foreign jurisdictions.

 

Investment projects

 

12.          Investment projects will be limited to those within Convergence’s mandate described in paragraph 4.

 

13.          The party seeking funding for the project (a Deal Sponsor) will apply to the Filer to post an investment project on the Investment Network.

 

14.          Prior to submitting an application for the investment project to be posted on the Investment Network, the Deal Sponsor will acknowledge that it is responsible for ensuring any eventual financing will be made in compliance with all applicable laws.

 

15.          In order for an investment project to be posted on the Investment Network, the projects are reviewed by the Filer for the following criteria:

 

(a)           is a blended finance deal;

 

(b)           is intended to have an environmental, social or governance impact;

 

(c)           has provided the information satisfactory to the Filer for a project posting;

 

(d)           has a Deal Sponsor;

 

(e)           is seeking a minimum total investment of USD$5 million;

 

(f)            will not be listed on a “marketplace”, as defined in NI 31-103; and

 

(g)           has an investor identified in the posted project description (an Anchor Investor) that has invested in or has indicated that it is prepared to make an initial investment in, the investment project.

 

16.          If a project meets the criteria specified in paragraph 15, the Filer posts the project on the Investment Network.

 

17.          The Deal Sponsor has the ability to edit information about the project posted on the Investment Network. Any subsequent changes to the deal description posted on the Investment Network are monitored and reviewed by the Filer.

 

Investment Process

 

18.          Investors will be able to view potential projects posted to the Investment Network on a personalized dashboard and will be able to filter project opportunities using a variety of objective project criteria, including size, type of financing required, sector, geography, and other criteria.

 

19.          In addition, investors may elect to receive automated e-mail notifications when opportunities which meet their filtered project criteria (as described above) are posted to the Investment Network.

 

20.          The Filer will not make any recommendations or referrals to investors, including any recommendations or referrals based on investors’ expressed filter preferences, nor will it make any recommendations or referrals to Deal Sponsors, including any recommendations or referrals based on their project criteria.

 

21.          A Deal Sponsor will be able to communicate with and contact investors identified through the Investment Network to present a sponsored project directly.

 

22.          Initial messages between Investment Network participants will be hosted through the Investment Network to a participant’s dashboard, but replies to initial messages and subsequent related messaging will take place outside the Investment Network system on the participants’ regular email. The Filer will monitor any communications that take place on the platform.

 

23.          After indicating an initial expression of interest, investors may engage in direct communication with Deal Sponsors outside of the platform. If a Deal Sponsor and an investor decide to proceed with an investment, negotiation, documentation, financing and transaction closing will occur between investors and the Deal Sponsor directly. The Filer has no involvement in negotiation, execution or funding of a project posted on the Investment Network.

 

24.          Investors will have access to a wide range of tools outside of the Investment Network platform to help them structure and execute blended finance transactions. These tools include checklists and a secure space where investors and Deal Sponsors can share documents, such as an on-line repository of project information and due diligence materials provided by the Deal Sponsor. Deal Sponsors and investors are not required to use these tools.

 

25.          Apart from facilitating the initial contact between investors and Deal Sponsors, the Filer does not provide any financial services to any persons.

 

26.          The Filer does not promote any investment or provide any advice on the suitability of any investment opportunities, nor does it carry on any other advising activity.

 

27.          The Filer does not engage in any direct trading or settlement of securities in respect of any particular securities offerings.

 

28.          The Filer does not act as an underwriter, on either a firm commitment or agency basis.

 

29.          The Filer will not hold any investor or issuer funds or other client assets of any kind at any time, either in connection with an offering of securities or otherwise.

 

30.          The Filer will conduct periodic reviews of the Investment Network to ensure that all projects on the Investment Network are active and seeking investment.

 

31.          The Filer intends to charge users fees for access to some of its service offerings, but will not charge nor earn commissions, transaction-based compensation or incentive fees in connection with projects posted on the Investment Network or investments that it has facilitated.

 

32.          The Filer receives seed capital, funding for grants and financial support for its operations from the Government of Canada. The Filer also received funding and grants from international philanthropic organizations.

 

33.          As a not-for-profit corporation, the Filer’s activities are required to be carried on without the purpose of gain for its members, and any profits or other accretions to the Filer are to be used in furtherance of its purposes.

 

34.          Members of the Filer’s Board of Directors serve without remuneration.


35.          The Filer has established, maintains and applies policies and procedures that establish a system of controls and supervision sufficient to

 

(a)           provide reasonable assurance that the Filer and each individual acting on its behalf complies with securities legislation; and

 

(b)           manage the risks associated with its business in accordance with prudent business practices.

 

Relief from trade confirmation, account statement and trade confirmation delivery requirements

 

36.          The Filer submits that compliance with the trade confirmation requirement, the account statement requirement, and the trade confirmation delivery requirement are unnecessary in the circumstances and would impose an undue regulatory burden on the Filer and that the cost of such compliance would outweigh the benefits to its investors.

 

37.          The trade confirmation requirement in Section 14.12 of NI 31-103 applies to “a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security”.

 

38.          Unlike a conventional dealer, the Filer does not act on behalf of investors as clients in connection with a purchase or sale of securities, since:

 

(a)           the Filer’s role is generally limited to providing an online introductory platform whereby potential investors may be made aware of potential investment projects meeting the investor’s self-selected criteria;

 

(b)           the Filer does not act on behalf of any investor as a client in connection with that investor’s purchase or sale of any securities and has no involvement in negotiation, execution or funding of a project posted on the Investment Network; and

 

(c)           the Filer does not hold or have access to any investor or issuer funds or securities.

 

Decision

 

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 trade confirmation delivery requirement is granted, provided that and for so long as:

 

(a)           unless otherwise exempted by this Decision or by a further decision of the Decision Makers, the Filer complies with all of the registration requirements of a registered dealer and to a registered individual under Ontario securities laws, including the Act and NI 31-103, and any other terms, conditions, restrictions or requirements imposed by a securities regulatory authority or regulator on the Filer;

 

(b)           the Filer will deal fairly, honestly and in good faith with users of the platform.

 

(c)           the Filer has its head office in Ontario or Québec;

 

(d)           the Filer remains a not-for-profit corporation under the Canada Not-for-profit Corporations Act;

 

(e)           the Filer’s primary source of operational funding is from governments or philanthropic organizations;

 

(f)            the Filer’s mandate remains focused on blended finance for global development projects in emerging and frontier markets;

 

(g)           the Filer ensures that access to the Investment Network is limited in Canada to non-individual permitted clients or in foreign jurisdictions to sophisticated institutions, government agencies or philanthropic investors who, in each case, waive the requirement for the Filer to conduct a suitability assessment, in accordance with section 13.3(4) of NI 31-103;

 

(h)           where the Filer charges user fees, the Filer charges access fees and does not receive any commissions or transaction-based fees or incentive fees for its services;

 

(i)            neither the Filer nor any representative of the Filer provides a recommendation or advice to any investor in connection with an offering of securities or potential offering of securities;


(j)            the Filer is not involved in the negotiation, documentation, financing and transaction closing of any investment;

 

(k)           the Filer does not hold, handle or have access to any funds or securities of any investor or issuer;

 

(l)            the Filer does not engage in any direct trading or settlement of securities in respect of any particular securities offering;

 

(m)          the Filer does not act as an underwriter, on either a firm commitment or agency basis; and

 

(n)           this Decision shall expire on the earlier of:

 

(i)            five years after the date hereof; and

 

(ii)           90 days after any material change in the Filer’s business.

“Monica Kowal”

Vice Chair

Ontario Securities Commission

“D. Grant Vingoe”

Vice Chair

Ontario Securities Commission

The decision of Director under the Legislation is that the trade confirmation requirement and the account statement requirement are granted, provided that and for so long as:

 

(a)           the Filer complies with the terms and conditions of the Decision with respect to the relief from the trade confirmation delivery requirement as set forth above.

 

(b)           this Decision shall expire on the earlier of:

 

(i)            five years after the date hereof; and

 

(ii)           90 days after any material change in the Filer’s business.

 

(c)           this Decision may be amended by the Director from time to time upon prior written notice to the Filer.

“Marrianne Bridge”

Deputy Director

Ontario Securities Commission