Securities Law & Instruments



National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – A mutual fund that invests passively in a portfolio consisting of the six largest Canadian banks by tracking an index named in its investment objectives granted relief from the concentration restriction in NI 81-102.


Applicable Legislative Provisions


National Instrument 81-102 Investment Funds, ss. 2.1(1), 19.1.


August 29, 2017





(the Jurisdiction)












(the Filer)






The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the RBC Canadian Bank Yield Index ETF (the Fund) for a decision under the securities legislation of the Jurisdiction (the Legislation) for exemptive relief (the Exemption Sought) relieving the Fund from subsection 2.1(1) of National Instrument 81-102 – Investment Funds (NI 81-102), which prohibits a mutual fund from purchasing a security of an issuer, entering into a specified derivatives transaction or purchasing an index participation unit if, immediately after the transaction, more than 10% of the net assets of the mutual fund, taken at market value at the time of the transaction, would be invested in securities of any issuer (the Concentration Restriction).


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, MI 11-102 and National Instrument 81-102 – Investment Funds (NI 81-102) have the same meaning if used in this decision, unless otherwise defined.



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


1.             The Filer 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 of the Jurisdictions, is registered as an investment fund manager in each of British Columbia, Ontario, Québec and Newfoundland and Labrador and is also registered in Ontario as a commodity trading manager. The head office of the Filer is in Toronto, Ontario.


            2.             The Fund will be an exchange traded fund organized and governed by the laws of the province of Ontario.


3.             The Fund will be subject to NI 81-102, subject to any exemptions therefrom that may be granted by the securities regulatory authorities.


            4.             The Fund is subject to National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).


5.             The Fund filed a preliminary long-form prospectus dated July 20, 2017 (the Prospectus) with the securities regulatory authority in each of the Jurisdictions. The Ontario Securities Commission issued a receipt for the Prospectus on July 20, 2017.


            6.             The Fund will be a reporting issuer under the laws of all of the Jurisdictions.


7.             Units of the Fund will be (subject to satisfying the Toronto Stock Exchange’s (the TSX) original listing requirements) listed on the TSX.


8.             The investment objective of the Fund is to seek to replicate, to the extent possible and before fees and expenses, the performance of a portfolio of Canadian bank stocks. Currently, the Fund seeks to track the Solactive Canada Bank Yield Index (the Index) (or any successor thereto).


9.             The investment strategy of the Fund is to invest in and hold the constituent securities of the Index in substantially the same proportion as they are reflected in the Index or securities intended to replicate the performance of the Index.


10.          The Fund wishes to be able to invest in a portfolio of the six largest banks in Canada (each, a Bank, and collectively, the Banks), determined by market capitalization, such that immediately after a purchase, more than 10% of the Fund’s NAV may be invested in any one Bank for the purposes of determining compliance with the Concentration Restriction. The Index methodology selects, and the Fund will invest in, Banks weighted based on their indicative annual dividend yields such that the two highest dividend yielding Banks each receive a 1/4 weight, the next two highest dividend yielding Banks each receive a 1/6 weight, and the two lowest dividend yielding Banks each receive a 1/12 weight. Initially, it is expected that the Fund will invest in common shares of Royal Bank of Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia, Bank of Montreal and National Bank of Canada.


11.          The investment objective and investment strategy of the Fund, as well as the risk factors associated therewith, including concentration risk, are and will be disclosed in the prospectus of the Fund, as may be amended from time to time.


            12.          The common shares of the Banks are listed on the TSX.


13.          The Banks are among the largest public issuers in Canada.


14.          The common shares of the Banks are some of the most liquid equity securities listed on the TSX and are less likely to be subject to liquidity concerns than the securities of other issuers.


15.          The liquidity of the common shares of the Banks is also evidenced by the markets for options in connection therewith. A liquid market for options on the common shares of the Banks is provided by the Montreal Exchange.


16.          Given the composition of the Fund’s portfolio, it would be impossible for the Fund to achieve its investment objective and pursue its investment strategy without obtaining relief from the Concentration Restriction.


17.          The units of the Fund are highly liquid securities, as designated brokers act as intermediaries between investors and the Fund, standing in the market with bid and ask prices for the units of the Fund to maintain a liquid market for the units of the Fund.


            18.          The Fund is not subject to National Instrument 81-101 – Mutual Fund Prospectus Disclosure.


             19.          The majority of trading in units of the Fund will occur in the secondary market.


20.          Neither the Filer nor the Fund is in default of securities legislation in any of the Jurisdictions. The Filer is applying for the Exemption Sought for the purposes of greater certainty with respect to the pursuit of its investment strategy.


21.          The Exemption Sought is sought to permit the Fund to purchase common shares of the Banks or enter into specified derivative transactions in connection therewith such that, immediately after the transaction more than 10% of its NAV would be invested in common shares of one or more Banks for the purposes of determining compliance with the Concentration Restriction.




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 is that the Exemption Sought is granted, provided that:


(a)           the investment in the Banks is made in accordance with the Fund’s investment objectives and investment strategies;


(b)           the Fund’s investment strategies disclose that the Fund will invest in the Banks in the stated fixed percentages described in paragraph 10 of this Decision;


            (c)           the Fund’s investment strategies disclose that the Fund’s portfolio will be rebalanced quarterly; and


(d)           the Fund includes in its final prospectus (i) disclosure regarding this decision under the heading “Exemptions and Approvals” and (ii) a risk factor regarding the concentration of the Fund’s investments in the Banks and the risks associated therewith.


“Darren McKall”

Manager, Investment Funds and Structured Products

Ontario Securities Commission