Securities Law & Instruments


Headnote

Subsection 78(1) of the Commodity Futures Act (Ontario) – Order to revoke previous relief from paragraph 22(1)(b) of the CFA granted to sub-adviser headquartered in a foreign jurisdiction in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions.

Section 80 of the Commodity Futures Act (Ontario) – Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to sub-adviser headquartered in a foreign jurisdiction in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions – Relief mirrors exemption available in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations made under the Securities Act (Ontario) – Relief is subject to a sunset clause.

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 1(1), 22(1)(b), 78(1), 80.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.26.1.
Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.11.

Applicable Orders

In the Matter of SEI Investments Canada Company and SEI Investments Management Corporation, dated August 7, 2012, (2012) 35 OSCB 7628.

IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA)

AND

IN THE MATTER OF
SEI INVESTMENTS CANADA COMPANY AND
SEI INVESTMENTS MANAGEMENT CORPORATION

ORDER
(Subsection 78(1) and Section 80 of the CFA)

 

                UPON the application (the Application) of SEI Investments Canada Company (the Principal Adviser) and SEI Investments Management Corporation (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order (a) pursuant to subsection 78(1) of the CFA, revoking the exemption order granted by the Commission to the Sub-Adviser on August 7, 2012 (the Previous Order) and (b) pursuant to section 80 of the CFA, that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services (as defined below) (the Representatives) be exempt, for a specified period of time, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser in respect of the Clients (as defined below) in respect of commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges and cleared through clearing corporations;

                AND UPON considering the Application and the recommendation of staff of the Commission;

                AND UPON the Principal Adviser having represented to the Commission that:

1.             The Principal Adviser is an unlimited liability company organized under the laws of the Province of Nova Scotia, having its head office in Ontario.

2.             The Principal Adviser is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the securities legislation of each province of Canada and the Yukon, and is also registered as an investment fund manager in Ontario, Newfoundland and Labrador and Québec. The Principal Adviser is also registered under the CFA as an adviser in the category of commodity trading manager.

3.             The Principal Adviser is, or will be, the investment manager of and/or provides, or will provide, discretionary portfolio management services in Ontario to (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds); (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus Exemptions (the Pooled Funds); (iii) managed accounts of clients which have entered into investment management agreements with the Principal Adviser (the Managed Accounts); and (iv) other Investment Funds, Pooled Funds and Managed Accounts that may be established in the future in respect of which the Principal Adviser engages the Sub-Adviser to provide portfolio advisory services (the Future Clients) (each of the Investment Funds, Pooled Funds, Managed Accounts and Future Clients being referred to individually as a Client and collectively as the Clients).

4.             Certain of the Clients may, as part of their investment program, invest in Contracts. The Principal Adviser acts, or will act, as a commodity trading manager in respect of such Clients.

                AND UPON the Sub-Adviser having represented to the Commission that:

5.             The Sub-Adviser is a company incorporated under the laws of the State of Delaware. The head office of the Sub-Adviser is located in Oaks, Pennsylvania.

6.             The Sub-Adviser and the Principal Adviser are affiliates and are each indirect wholly-owned subsidiaries of SEI Investments Company, a Pennsylvania corporation, the shares of which are listed on the Nasdaq Stock Market under the symbol “SEIC”.

7.             The Sub-Adviser is registered in the United States as an investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940 and as a commodity pool operator with the U.S. Commodity Futures Trading Commission under the Commodity Exchange Act.

8.             The Sub-Adviser is not resident in any province or territory of Canada.

9.             The Sub-Adviser is not registered in any capacity under the CFA or the Securities Act (Ontario) (the OSA) or under the securities or derivatives legislation of any other Canadian jurisdiction.

10.          The Sub-Adviser is registered in a category of registration under the commodities futures or other applicable legislation of the United States, that permits it to carry on the activities in that jurisdiction that registration as a commodity trading manager under the CFA would permit it to carry on in Ontario.

11.          The Sub-Adviser engages in the business of an adviser in respect of Contracts in the United States.

12.          The Sub-Adviser is not in default of any requirement of securities legislation, commodity futures legislation or derivatives legislation of any jurisdiction of Canada and is in compliance in all material respects with securities laws, commodity futures laws and derivatives laws of the United States.

13.          In connection with the Principal Adviser acting as an adviser to Clients in respect of the purchase or sale of Contracts, the Principal Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, has retained, or will retain, the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of Contracts in which the Sub-Adviser has experience and expertise by exercising discretionary authority on behalf of the Principal Adviser, in respect of all or a portion of the assets of the investment portfolio of the respective Client, including discretionary authority to buy or sell Contracts for the Client (the Sub-Advisory Services), provided that:

(a)           in each case, the Contracts must be cleared through an “acceptable clearing corporation” (as defined in National Instrument 81-102 Investment Funds, or any successor thereto (NI 81-102)) or a clearing corporation that clears and settles transactions made on a futures exchange listed in Appendix A of NI 81-102; and

(b)           such investments are consistent with the investment objectives and strategies of the applicable Client.

                AND UPON the Principal Adviser and the Sub-Adviser having represented to the Commission that:

14.          The written agreement between the Principal Adviser and the Sub-Adviser sets out the obligations and duties of each party in connection with the Sub-Advisory Services and permits the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Sub-Adviser in respect of the Sub­Advisory Services.

15.          The relationship among the Principal Adviser, the Sub-Adviser and any Client will be consistent with the requirements of section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

16.          The Sub-Adviser will only provide the Sub-Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.

17.          Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as partner or an officer of a registered adviser and is acting on behalf of a registered adviser.

18.          By providing the Sub-Advisory Services, the Sub-Adviser and its Representatives will be engaging in, or holding himself, herself or itself out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA.

19.          There is currently no rule or regulation under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in subsection 25(3) of the OSA that is provided under section 8.26.1 of NI 31-103.

                AND UPON the Principal Adviser having further represented to the Commission that:

20.          The Principal Adviser will deliver to the Clients all applicable reports and statements required under applicable securities, commodity futures and derivatives legislation.

21.          As would be required under section 8.26.1 of NI 31-103,

(a)           the obligations and duties of the Sub-Adviser in connection with the Sub­Advisory Services are set out in a written agreement with the Principal Adviser; and

(b)           the Principal Adviser has and will enter into a written agreement with each Client, agreeing to be responsible for any loss that arises out of the failure of the Sub-Adviser:

(i)            to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and each Client; or

(ii)           to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (this obligation, together with the obligation in subparagraph (i), the Assumed Obligations).

22.          The prospectus or other offering document (in either case, the Offering Document), if any, for each Client for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will include the following disclosure (the Required Disclosure):

(a)           a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b)           a statement that there may be difficulty in enforcing any legal rights against the Sub­Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

23.          In circumstances where a Client for which the Principal Adviser engages the Sub­Adviser to provide the Sub-Advisory Services is an Investment Fund or a Pooled Fund, all investors of the Client who are Ontario residents will receive the Required Disclosure in writing prior to the purchasing of any Contracts for such Client (which may be in the form of an Offering Document).

24.          Each Client that is a Managed Account Client for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will receive, or has received, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client.

25.          The Principal Adviser and the Sub-Adviser obtained substantially similar relief in the Previous Order, pursuant to which the Sub-Adviser provided Sub-Advisory Services to the Principal Adviser in respect of the Clients.

26.          Pursuant to the conditions contained in the Previous Relief, the Sub-Adviser entered into a sub-advisory agreement with the Principal Adviser whereby the Sub-Adviser acts as a sub-adviser to the Principal Adviser and provides advice to the Principal Adviser on behalf of the Clients with respect to Contracts.

27.          The anticipated expiry of the five-year period set out in sunset clause of the Previous Order has triggered the requested relief, since the Sub-Adviser wants to continue to provide sub-advisory services to the Principal Adviser with respect to Contracts and the Principal Adviser wants to continue to receive such sub-advisory services from the Sub-Adviser on behalf of the Clients.

28.          Except in respect of any deficiencies noted in past compliance reviews of the Principal Adviser by the Commission and the Québec Autorité des marchés financiers that are still undergoing remediation and the late filing by the Principal Adviser of an application to register an advising representative in respect of its registration under the CFA as a commodity trading manager, the Principal Adviser is not in default of any requirement of securities legislation, commodity futures legislation or derivatives legislation of any jurisdiction of Canada.

                AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the relief requested;

                IT IS ORDERED, pursuant to subsection 78(1) of the CFA, that the Previous Order is revoked;

                IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser in respect of the Clients in respect of the Sub-Advisory Services, provided that at the relevant time that such activities are engaged in:

(a)           the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b)           the Sub-Adviser's head office or principal place of business is in a jurisdiction outside of Canada;

(c)           the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodity futures or other applicable legislation of the foreign jurisdiction in which its head office or principal place of business is located, that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario;

(d)           the Sub-Adviser engages in the business of an adviser in respect of Contracts in the foreign jurisdiction in which its head office or principal place of business is located;

(e)           the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(f)            the Principal Adviser has entered into a written agreement with each Client, agreeing to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(g)           the Offering Document for each Client that is an Investment Fund or a Pooled Fund and for which the Principal Adviser engages the Sub-Adviser to provide Sub-Advisory Services will include the Required Disclosure;

(h)           prior to purchasing any securities of one or more of the Clients that is an Investment Fund or a Pooled Fund directly from the Principal Adviser, all investors in these Clients who are Ontario residents will receive, or have received, the Required Disclosure in writing; and

(i)            each Client that is a Managed Account Client for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will receive, or has received, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client; and

                IT IS FURTHER ORDERED that this Order will terminate on the earliest of:

(a)           the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;

(b)           six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the ability of the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services; and

(c)           five years after the date of this Order.

                DATED at Toronto, Ontario, this 1st day of August, 2017.

“Deborah Leckman”
Commissioner
Ontario Securities Commission

“Robert P. Hutchison”
Commissioner
Ontario Securities Commission