Under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual acts as an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned firm. The Filer has sought relief from that prohibition. The individual will have sufficient time to adequately serve both firms. The firm also has policies in place to handle potential conflicts of interest. Relief from the prohibition has been granted.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 13.4, 15.1.
December 29, 2016
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
RP INVESTMENT ADVISORS LP AND
FIDELITY INVESTMENTS CANADA ULC AND
ANDREW MCKINNON PRINGLE
The principal regulator in the Jurisdiction has received an application from RPIA LP (the Filer) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), pursuant to section 15.1 of NI 31-103, to permit Andrew McKinnon Pringle (the Representative) to be registered as a dealing representative of the Filer and to act as a director of Fidelity Investments Canada ULC (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission 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 by the Filer in British Columbia, Alberta, Saskatchewan, Mani-toba, Quebec, Nova Scotia and New-foundland and Labrador (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filer:
1. The Filer is a limited partnership formed under the laws of Ontario with its head office in Toronto, Ontario. The general partner of the Filer is RP Investment Advisors GP Inc. (the “General Partner”).
2. On or about December 29, 2016, as a result of a reorganization, all “registrable” activities of RP Investment Advisors (“RPIA”) and its registered and approved individuals, will be transferred to the Filer.
3. RPIA was previously granted relief from section 4.1 of NI 31-103 to allow the Representative to be registered as a dealing representative of RPIA and be a director of Fidelity subject to certain terms and conditions in Re RP Investment Advisors et al. (2014), 38 OSCB 5943.
4. The Filer has applied for registration as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario, as an investment fund manager, portfolio manager and exempt market dealer in Quebec, as an investment fund manager and exempt market dealer in Newfoundland and Labrador and as an exempt market dealer in British Columbia, Alberta, Saskatchewan, Manitoba and Nova Scotia.
5. The Filer will be an alternative fixed income asset manager specializing in active investment grade credit funds and interest rate management. The Filer will provide investment management services and investment products to non-retail clients including high net worth investors, family offices and institutional clients. The Filer will act as fund manager and portfolio manager to four pooled funds offered to investors pursuant to exemptions from the prospectus requirements under Canadian securities legislation (the “Pooled Funds”) and one mutual fund offered under a simplified prospectus (together with the RP Pooled Funds, the “RP Funds”). Pursuant to its exempt market dealer registration, the Filer will also market and distribute units of the RP Pooled Funds to high net worth investors, family offices and institutional clients. The Filer will not manage, advise, or distribute any units of, the Fidelity Funds (as defined below).
6. Fidelity Investments Canada ULC (“Fidelity”) is a corporation continued under the laws of Alberta as an unlimited liability company with its head office in Toronto, Ontario.
7. Fidelity is registered as an investment fund manager, portfolio manager, mutual fund dealer and commodity trading manager in Ontario, as an investment fund manager, portfolio manager and mutual fund dealer in Quebec and Newfoundland and Labrador, and as a portfolio manager and mutual fund dealer in the remaining provinces and territories of Canada.
8. Fidelity is the fund manager for a wide variety of mutual funds offered under a simplified pros-pectus and pooled funds (collectively, the “Fidelity Funds”). Fidelity acts as portfolio manager for a number of the Fidelity Funds in addition to providing discretionary portfolio management services for other institutional clients. Fidelity does not manage, advise, or distribute any units of, the RP Funds.
9. The Filer and Fidelity are not affiliates.
10. The Representative is the Chairman of the Filer, and indirectly holds limited partnership interests in the Filer constituting less than 10% of the Filer and shares of the General Partner constituting less than 10% of the outstanding securities of the General Partner. The Representative was previously a member of the Independent Review Committee of Fidelity (the “Fidelity IRC”) for approximately 7 years until February 2014. This outside business activity was appropriately disclosed to the applicable regulators on the National Registration Database.
11. The Representative has been appointed as a director of Fidelity. In such capacity, the Representative is involved in both the fund governance and oversight of the business of Fidelity as manager and/or trustee of funds, pools and other products offered by Fidelity for both its retail mutual fund business and its institutional business. For clarity, the Representative is not involved in day-to-day operations of Fidelity or the Fidelity Funds as such activities continue to be the responsibility of the executive management and employees of Fidelity.
12. In addition to the Representative's knowledge and industry expertise, during his time on the Fidelity IRC, the Representative provided wise counsel on a number of issues and Fidelity wished to continue to have access to such guidance on a going forward basis. RPIA was amenable to the appointment of the Representative as director because it did not believe that there were any investor protection issues that would arise from the appointment.
13. The registered advising representatives of Fidelity's sub-advisers, and specifically not the Representative in his capacity as a director of Fidelity, are responsible for making all portfolio management decisions for the Fidelity Funds. In addition, the mandate of the Board of Directors of Fidelity is solely fund governance as corporate governance is done at the parent company holding level pursuant to a unanimous shareholders agreement. The Fidelity IRC, which no longer includes the Representative, continues to review any conflicts of interest that may arise between the fund manager's individual interests and the fund manager's duty to manage the Fidelity Funds in the best interests of the Fidelity Funds.
14. It is proposed that the Representative be registered as a dealing representative of the Filer in all Jurisdictions. The Representative is currently registered as a dealing representative of RPIA in all Jurisdictions (except Newfoundland and Labrador).
15. The Filer, Fidelity and the Representative are not in default of any requirement of securities, commodities or derivatives legislation in any of the Jurisdictions.
16. The Representative has had, and will continue to have, sufficient time and resources to meet his obligations to both the Filer and Fidelity.
17. The potential for conflicts of interest or client confusion due to the Representative acting as a dealing representative of the Filer and as a director of Fidelity are mitigated by the following:
a. the firms have generally different client bases and products;
b. the Filer will offer only prospectus exempt funds primarily to high net worth clients;
c. Fidelity primarily offers prospectus qualified funds to retail investors and also offers prospectus exempt funds to institutional investors;
d. each firm does not manage, advise, or distribute any units of, the funds of the other firm;
e. the Representative is not involved in or privy to any investment decision-making or investment strategy for, or involved in day-to-day operations of, Fidelity;
f. the Representative will have no client contact in connection with his role at Fidelity;
g. the Representative will not be employed as a typical dealing representative, as he will not receive commissions, and his activities as a dealing representative will be limited to the passive marketing of the RP Funds on an occasional basis to the Filer’s clients (activities that would be typical of a founder of a firm); and
h. the Representative, as a former member of the Fidelity IRC, understands conflicts of interest issues and appropriate ways to resolve them.
18. Each of the Filer and Fidelity have in place written policies and procedures to address any potential conflicts of interest that may arise as a result of the dual role of the Representative with the Filer and with Fidelity, and the Filer believes that it will be able to appropriately deal with these conflicts. These policies and procedures are expected to be similar to the policies and procedures that both RPIA and Fidelity already have in place to deal with any potential conflicts of interest that may have arisen as a result of the Representative acting as a dealing representative of RPIA and acting as a director of Fidelity. In addition, the Representative will be subject to Fidelity's Code of Ethics (which includes personal trading policies and procedures).
19. The Representative will be subject to supervision by, and the applicable compliance requirements of, both the Filer and Fidelity.
20. The Filer has compliance and supervisory policies and procedures in place to monitor the conduct and outside business activities of its registered representatives (including the Representative) and to ensure that the Filer can deal appropriately with any conflict of interest that may arise.
21. The Representative's employment and registration status with the Filer and his position on the Board of Directors of Fidelity will be fully and clearly disclosed to investors in the applicable annual information form or offering memorandum, as applicable, for each of the RP Funds and the Fidelity Funds.
22. Each of the Filer and Fidelity will be subject to the restrictions and requirements in Part 13 of NI 31-103 regarding conflict of interest matters, except as follows. Section 13.4 of NI 31-103 does not apply to Fidelity as the investment fund manager to certain Fidelity Funds that are subject to the requirements of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) because these funds must instead comply with the requirements in NI 81-107 relating to conflict of interest matters, inter-fund trades and transactions in securities of related issuers.
23. In the absence of the Exemption Sought, the Filer would be prohibited under paragraph 4.1(1)(a) of NI 31-103 from permitting the Representative to act as a dealing representative of the Filer and be a director of Fidelity.
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 the Exemption Sought is granted provided that (a) the circumstances described above remain in place, and (b) the Exemption Sought shall cease to be effective when:
(i) the Representative is no longer registered in any of the Jurisdictions as a dealing representative of the Filer; or
(ii) the Representative is no longer a director of Fidelity.
Director, Compliance and Registrant Regulation
Ontario Securities Commission