Securities Law & Instruments



National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted to exchange-traded mutual funds for continuous distribution of securities – relief from take-over bid requirements for normal course purchases of securities on the TSX or other marketplace.


Applicable Legislative Provisions


National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.


April 24, 2017





(the Jurisdiction)












(the Filer)






The principal regulator in the Jurisdiction has received an application from the Filer pursuant to section 6.1 of National Instrument 62-104 – Take-Over Bids and Issuer Bids (NI 62-104) on behalf of the exchange-traded mutual funds for which the Filer is the trustee and the manager (the Existing ETFs) and any additional exchange-traded mutual funds established in the future of which the Filer may be the manager (the Future ETFs, and, together with the Existing ETFs, the ETFs and individually, an ETF) for a decision under the securities legislation of the principal regulator (the Legislation) for a decision (the Exemption Sought) that exempts all purchasers of units of the ETFs in the normal course through the facilities of the TSX or another Marketplace (as defined below) from the Take-over Bid Requirements (as defined below).


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; 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 all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, 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.

Take-over Bid Requirements means the requirements in Part 2 of NI 62-104 relating to take-over bids, including the requirement to file a report of a take-over bid and to pay the accompanying fee.


Marketplace means a marketplace as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.


TSX means the Toronto Stock Exchange.


Unitholders means beneficial or registered holders of units of the ETFs, as applicable.




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


1.             The ETFs are, or will be, mutual fund trusts governed by the laws of Ontario and are, or will be, reporting issuers under the laws of each Jurisdiction. The Filer is not, and the ETFs are not, in default of securities legislation in any Jurisdiction.


2.             Units of the ETFs are, or will be, listed on the TSX or another recognized stock exchange.


3.             The Filer is a registered investment fund manager, portfolio manager and commodity trading manager in Ontario. The Filer is, or will be, the trustee and the manager of the ETFs and is, or will be, responsible for the administration of the ETFs.


4.             The Filer is a wholly-owned indirect subsidiary of The Vanguard Group, Inc., which in turn is wholly-owned by a number of U.S. registered investment companies that are part of the Vanguard family of mutual funds.


5.             Generally, units of the ETFs may only be subscribed for or purchased directly from the ETFs by dealers that have entered into certain agreements with the Filer on behalf of the ETFs, and orders may only be placed for units in a certain prescribed number of units (or a multiple thereof) on any day where there is a trading session on the TSX or other relevant exchange.


6.             The net asset value per unit of an ETF is, or will be, calculated and published daily on the Filer’s website.


7.             Except as described in paragraph 5 above, units may not be purchased directly from the ETFs. Persons that are not the dealers referred to in paragraph 5 above are generally expected to purchase units through the facilities of the TSX or another marketplace. However, units may be issued directly to all Unitholders upon the reinvestment of distributions.


8.             Unitholders that are not the dealers referred to in paragraph 5 above that wish to dispose of their units may generally do so by selling their units on the TSX or another marketplace, through a registered dealer, subject only to customary brokerage commissions. A Unitholder that holds a specified number of units or a multiple thereof may exchange such units for securities and/or cash, in the ETF’s discretion. Unitholders may also redeem their units for cash at a redemption price equal to the lesser of 95% of the closing price of the units on the TSX or other relevant exchange on the effective date of redemption and the net asset value per unit on the effective date of the redemption.


9.             Unitholders have, or will have, the right to vote at a meeting of Unitholders in respect of the matters prescribed by National Instrument 81-102 Investment Funds.


10.          Although units of the ETFs will trade on the TSX or other Marketplace and the acquisition of units can therefore be subject to the Take-over Bid Requirements:


(a)           it is not, or will not be, possible for one or more Unitholders to exercise control or direction over an ETF as the constating documents of each ETF provide, or will provide, that there can be no changes made to such ETF which do not have the support of the Filer;


(b)           it is, or will be, difficult for purchasers of units of an ETF to monitor compliance with the Take-over Bid Requirements because the number of outstanding units will always be in flux as a result of the ongoing issuance and redemption of units by each ETF; and


(c)           the way in which units of an ETF are, or will be, priced deters anyone from either seeking to acquire control of, or offering to pay a control premium for, outstanding units because unit pricing for each ETF is, or will be, dependent upon the performance of the portfolio of the ETF as a whole.


11.          The application of the Take-over Bid Requirements to the ETFs would have an adverse impact on the liquidity of units of the ETFs because they could cause dealers and other large Unitholders to cease trading units once prescribed take-over bid thresholds are reached. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the ETFs.


12.          In a decision document dated October 12, 2012, the Existing ETFs that track the performance of an index were granted relief from, among other things, the take-over bid requirements that were then set out in the Securities Act (Ontario), for Ontario, and in NI 62-104, for each of the other Jurisdictions.


13.          The Filer has since launched Existing ETFs that do not track the performance of an index.




The decision of the principal regulator under section 6.1 of NI 62-104 is that the Exemption Sought is granted.


“Darren McKall”


Investment Funds & Structured Products Branch

Ontario Securities Commission