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-advisers headquartered in foreign jurisdictions 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-advisers headquartered in foreign jurisdictions 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 Manulife Asset Management Limited and Manulife Asset Management (US) LLC and Manulife Asset Management (Hong Kong) Limited, dated August 14, 2012, (2012) 35 OSCB 7765.

In the Matter of Manulife Asset Management Limited and Manulife Asset Management (Europe) Limited, dated February 26, 2016, (2016) 39 OSCB 1991.

 

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

 

AND

 

IN THE MATTER OF

MANULIFE ASSET MANAGEMENT LIMITED,

MANULIFE ASSET MANAGEMENT (US) LLC,

MANULIFE ASSET MANAGEMENT (HONG KONG) LIMITED, AND

MANULIFE ASSET MANAGEMENT (EUROPE) LIMITED

 

ORDER

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

 

                UPON the application (the Application) of Manulife Asset Management Limited (the Principal Adviser), Manulife Asset Management (US) LLC, Manulife Asset Management (Hong Kong) Limited and Manulife Asset Management (Europe) Limited (each, a Sub-Adviser and together, the Sub-Advisers) to the Ontario Securities Commission (the Commission) for an order:

 

(a)           pursuant to subsection 78(1) of the CFA, revoking (i) the exemption order granted by the Commission to Manulife Asset Management (US) LLC and Manulife Asset Management (Hong Kong) Limited on August 14, 2012 (the First Previous Order) and (ii) the exemption order granted by the Commission to Manulife Asset Management (Europe) Limited on February 26, 2016 (the Second Previous Order); and

 

(b)           pursuant to section 80 of the CFA, that each 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 Sub-Adviser Individuals) 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) regarding 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 each Sub-Adviser and the Principal Adviser having represented to the Commission that:

 

1.             The Principal Adviser is a corporation amalgamated under the laws of Canada with its head office located in Toronto, Ontario.

 

2.             The Principal Adviser is registered under securities law as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador and as an adviser in the category of portfolio manager in each province and territory of Canada. The Principal Adviser is also registered in Ontario under the CFA as an adviser in the category of commodity trading manager and in Quebec under derivatives law as a derivatives portfolio manager.

 

3.             Manulife Asset Management (US) LLC (MAM US) is a limited liability company existing under the laws of the State of Delaware, United States with its head office located in Boston, Massachusetts.

 

4.             MAM US is currently registered as an investment adviser with the U.S. Securities and Exchange Commission and is exempted from registration as a commodity trading adviser and commodity pool operator with the U.S. Commodity Futures Trading Commission.

 

5.             Manulife Asset Management (Hong Kong) Limited (MAM HK) is a company incorporated under the laws of Hong Kong with its head office located in Hong Kong.

 

6.             MAM HK is currently licensed with the Securities and Futures Commission in Hong Kong to conduct various regulated activities in Hong Kong including advising in futures contracts.

 

7.             Manulife Asset Management (Europe) Limited (MAM Europe) is a corporation incorporated under the laws of England and Wales with its head office located in London, England.

 

8.             MAM Europe is authorized with the United Kingdom Financial Conduct Authority as a financial services firm authorized to advise on investments including commodity futures, commodity options and options on commodity futures.

 

9.             The Sub-Advisers and the Principal Adviser are affiliates. MAM US is a direct subsidiary, and the Principal Adviser, MAM HK and MAM Europe are indirect subsidiaries, of Manulife Financial Corporation.

 

10.          None of the Sub-Advisers is a resident of any province or territory of Canada.

 

11.          Each 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 (i.e., a jurisdiction outside of Canada) 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. As such, each Sub-Adviser is authorized and permitted to carry on the Sub-Advisory Services (as defined below) in their respective foreign jurisdiction.

 

12.          Each 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.

 

13.          None of the Sub-Advisers is registered in any capacity under the securities legislation of Ontario or any other jurisdiction of Canada or under the CFA. Each Sub-Adviser acts in reliance on the exemption from the requirement to register as an adviser under the Securities Act (Ontario) (OSA) pursuant to section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

 

14.          The Principal Adviser and the Sub-Advisers are not in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada. Each Sub-Adviser is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws in each foreign jurisdiction in which its head office or principal place of business is located.

 

15.          The Principal Adviser provides investment advice and/or 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) clients who have entered into investment management agreements with the Principal Adviser to establish managed accounts (the Managed Account Clients); and (iv) other Investment Funds, Pooled Funds and Managed Account Clients that may be established or retained in the future and 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 Account Clients and Future Clients being referred to individually as a Client and collectively as the Clients).

 

16.          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.

 

17.          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 each respective Sub-Adviser, has retained the respective Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of Contracts in which that 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 are 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.

 

18.          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 a partner or an officer of a registered adviser and is acting on behalf of such registered adviser.

 

19.          By providing the Sub-Advisory Services, each Sub-Adviser and the Sub-Adviser Individuals 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.

 

20.          There is presently 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.

 

21.          The relationship among the Principal Adviser, each Sub-Adviser and any Client is consistent with the requirements of section 8.26.1 of NI 31-103.

 

22.          Each 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.

 

23.          As would be required under section 8.26.1 of NI 31-103:

 

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

 

(b)           the Principal Adviser has entered, or will enter, into a written agreement with each of the Clients on whose behalf investment advice is or portfolio management services are being provided, 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 (together with (i), the Assumed Obligations).

 

24.          The written agreement between the Principal Adviser and each 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 Sub-Advisory Services.

 

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

 

26.          The prospectus or other offering document (the Offering Document), if any, for each Client that is an Investment Fund or a Pooled Fund and for which the Principal Adviser engages a Sub-Adviser to provide the Sub-Advisory Services includes or 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 Sub-Adviser (or any of its Sub-Adviser Individuals) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

 

27.          Prior to purchasing any securities of one or more of the Clients that are Investment Funds or Pooled Funds directly from the Principal Adviser, all investors in these Clients who are Ontario residents will receive, or have received, the Required Disclosure in writing (which may be in the form of an Offering Document).

 

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

 

29.          The Principal Adviser, MAM US and MAM HK obtained substantially similar relief in the First Previous Order and the Principal Adviser and MAM Europe obtained substantially similar relief in the Second Previous Order, pursuant to which the Sub-Advisers provided Sub-Advisory Services to the Principal Adviser in respect of the Clients.

 

30.          The expiry of the five year period set out in the First Previous Order has triggered the requested Order.

 

                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 First Previous Order and the Second Previous Order are revoked; and

 

                IT IS FURTHER ORDERED, pursuant to section 80 of the CFA, that each Sub-Adviser and its Sub-Adviser Individuals 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 Sub-Advisory Services, provided that at the 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 foreign jurisdiction;

 

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

 

(h)           prior to purchasing any securities of a Client that is an Investment Fund or a Pooled Fund directly from the Principal Adviser, each investor in any of these Clients who was or is an Ontario resident received, or will receive, 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 purchase 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 any 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 11th day of August, 2017

“William Furlong”

Commissioner

Ontario Securities Commission

“Philip Anisman”

Commissioner

Ontario Securities Commission