Securities Law & Instruments



National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – application by pension fund administrator and related entities for relief from dealer registration and prospectus requirements that may be applicable to certain trades in over-the-counter (OTC) derivatives with “permitted counterparties” – permitted counterparties will consist exclusively of persons or companies who are non-individual “permitted clients” as defined in Section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – relief sought in Ontario and certain other jurisdictions as interim response to current regulatory uncertainty associated with OTC derivatives in Canada – filers intend to rely on comparable exemptions in orders or rules of general application in certain jurisdictions for trades with “qualified parties” and, in Quebec, the exemption under Quebec derivatives legislation for trades with “accredited counterparties” – relief granted subject to certain terms and conditions, including sunset provision of up to four years.


Applicable Legislative Provisions


Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 53(1), 74(1).

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 1.1 (“permitted client”).


















(OIM, and, together with OAC, the Filers)






The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for:


(i)            an exemption from the prospectus requirement for OAC, OIM and special purpose vehicles established by OIM (the Special Purpose Vehicles and, together with OAC and OIM, OMERS), and


(ii)           an exemption from the dealer registration requirement for OAC, the Special Purpose Vehicles and their respective directors, officers and employees,


in connection with trades in Derivative Contracts (as defined below) with Permitted Counterparties (as defined below), as are permitted by and as are carried out in accordance with the Ontario Municipal Employees Retirement System Act, 2006, R.S.O. 2006, c. 2, as amended from time to time (the OMERS Act) (the Requested Relief), subject to certain terms and conditions.


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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Manitoba, New Brunswick (to the extent Local Rule 91-501 Derivatives does not apply), Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.



Terms defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined.


The term Permitted Counterparty means a person or company that:


(a)           is a "permitted client", as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations; and


(b)           is not an individual.




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


The Filers


1.             OAC (previously the Ontario Municipal Employees Retirement Board) is the administrator of the OMERS pension plans, which includes the OMERS Primary Pension Plan (the Plan). OAC was continued as a corporation without share capital under the OMERS Act. Its head office is in Toronto, Ontario. OAC is not registered in any capacity under the securities legislation of any jurisdiction.


2.             OIM is an authorized subsidiary of OAC under subsection 35.1(3) of the OMERS Act. It was incorporated under Ontario law in 2009. Its head office is in Toronto, Ontario. OIM is registered as an exempt market dealer in British Columbia, Alberta, Manitoba, Ontario, Québec, and Newfoundland and Labrador.


3.             OAC and the Plan are regulated by the OMERS Act, the Pension Benefits Act (Ontario) (the PBA) and the Income Tax Act (Canada) (the ITA), and are subject to supervision by the Financial Services Commission of Ontario (FSCO) as well as the Registered Plans Division of the Canada Revenue Agency (CRA). The regulatory oversight and supervision by FSCO is pursuant to the PBA and the regulatory supervision by the CRA is pursuant to the ITA. Pursuant to the PBA, the Plan pension fund investments are subject to a codified prudent person standard of care (section 22 of the PBA) and various quantitative and related party investment restrictions which are set out in the federal Pension Benefits Standards Regulations, 1985 (the federal investment regulations). The federal investment regulations are incorporated into the PBA and are fully applicable to OAC and the Plan. The PBA also requires that OAC (as administrator of the Plan) establish and adhere to a written statement of investment policies and procedures (SIP&P). FSCO has under the PBA general authority to supervise and monitor the investment activities of a pension plan that is registered under the PBA including the Plan. Under the PBA, OAC (in its capacity as administrator of the Plan) is required, among other things, to certify annually its compliance with the PBA including the investment regulations thereunder. OAC and the Plan are also subject to various investment limitations imposed under the ITA including prohibitions against various types of investments relating to employers which participate in the Plan (Income Tax Regulation 8514) and strict limitations on borrowing money (Income Tax Regulation 8502(i)). Such limitations are enforced by the CRA and if not complied with would (like any other registered pension plan) jeopardize the registration of the Plan under the ITA.


4.             The Plan was established in 1962 as the pension plan for employees of local governments (and various agencies of local governments) in Ontario. As of December 31, 2016 there were approximately 990 employers participating in the Plan. As an administrator of the Plan, OAC manages as part of the Plan a diversified portfolio of stocks and bonds, as well as real estate, infrastructure and private equity investments, holding more than $85.2 billion in net assets as of December 31, 2016.


5.             The Ontario Municipal Employees Retirement System was created by the Ontario Government for the purpose of aggregating investment assets held in pension plans for the benefit of local government employees in order that they may be managed with a high level of investment expertise in a cost-effective manner. As administrator of those assets, OAC is not subject to registration under the Legislation for this purpose, but is subject to supervision and regulation under the PBA and the ITA. The investment by OAC of the Plan is also subject to common law fiduciary duties.


OMERS Services


6.             There are two categories of investment powers provided under the OMERS Act; namely (i) the authority given to OAC to administer and invest the OMERS pension plans under sections 34(1) and 35(2)(a) (the administrator powers), and (ii) the provision of eligible services by authorized subsidiaries to enumerated categories of clients under sections 34(3) and 35.1 of the OMERS Act and the provision of services by OAC pursuant to section 35.2 of the OMERS Act (the third party services powers). Former legislation governing OAC included the administrator powers and a limited third party services power (former section 29). Expanded third party services powers, including those that would permit OMERS to enter into the proposed Derivative Contracts (as defined below), were added through an amendment to the OMERS Act in 2009.


7.             Under subsection 35.1(1) of the OMERS Act, in order to exercise the third party services powers OAC "may incorporate or cause to be incorporated and may make and maintain an investment in one or more corporations that, after the investment is made, are authorized subsidiaries of" OAC. Under subsection (3), "a corporation is an authorized subsidiary of OAC if:


(a)           the corporation carries on business with a view to profit;


(b)           the business of the corporation is limited to providing one or more eligible services to one or more persons or entities described in subsection (6); and


(c)           [OAC] has beneficial ownership of shares of the corporation representing more than 50 per cent of the shareholders' equity of the corporation."


Subsection (5) provides that "each of the following is an eligible service if it is carried out in compliance with all applicable laws:


1.             Providing advice to an administrator of a pension plan regarding the administration of the pension plan or the investment policies for the pension fund maintained to provide benefits in respect of that pension plan.


2.             Providing advice to a client on investing in, holding, buying or selling securities or other assets.


3.             Buying, selling, holding and managing investments for a client, with or without discretionary authority granted by the client to manage the client's investment portfolio.


4.             Activities and services ancillary to the services listed in paragraphs 1 to 3, including,


i.              activities relating to the distribution or sale to clients of securities issued by an investment entity [incorporated, established, managed or operated by an authorized subsidiary of OAC for the purpose of providing eligible services], and


ii.             entering into derivative contracts in which the return is based in whole or in part of the performance of all or part of the pension fund maintained to provide benefits in respect of any of the OMERS pension plans or of any of pension fund's investments.


5.             Providing administrative services to an administrator of a pension plan.


Clients to which eligible services may be provided, as specified in subsection (6) are:


1.             OAC.


2.             The administrator of a pension plan other than the OMERS pension plans, whether the pension plan is in or outside Canada.


3.             The Government of Canada or the government of a province or territory of Canada or,


i.              a Crown corporation, Crown agency or wholly-owned entity of the Government of Canada or of the government of a province or territory of Canada, or


ii.             a corporation established by federal or provincial statute.


4.             A municipal corporation or a municipal or public body performing a function of government in Canada.


5.             A board, within the meaning of the Education Act (Ontario), or a school board or similar authority that operates under comparable legislation in another province of Canada.


6.             A college of applied arts and technology established under the Ontario Colleges of Applied Arts and Technology Act, 2002 (Ontario), a university that receives regular and ongoing operating funding from Ontario for purposes of post-secondary education or an educational institution in another province in Canada that receives regular and ongoing operating funding from the province.


7.             An educational institution outside Canada.


8.             An endowment fund for a university, college or educational institution referred to in paragraph 6 or 7.


9.             A registered charity within the meaning of the Income Tax Act (Canada).


10.          A national, federal, state, provincial, territorial or municipal government of or in any jurisdiction outside Canada or any entity owned or controlled by that government.


11.          An investment entity authorized by the OMERS Act.


12.          A client or class of clients prescribed by the regulations or that satisfies conditions prescribed by the regulations.


No regulations have been promulgated under the OMERS Act.


8.             In furtherance of the third party services powers, subsection 35.2(2) of the OMERS Act authorizes OAC to "enter into agreements under which [its authorized subsidiaries] provide eligible services to clients".


Proposed Derivative Contracts


9.             As permitted by the OMERS Act, OIM proposes, either directly or through a Special Purpose Vehicle (which it is permitted to establish under subsection 35.1(4) of the OMERS Act), to enter into derivative contracts with third party pension plan funds or other clients specified in subsection 35.1(6) of the OMERS Act (the Derivative Contract Clients), all of which will be Permitted Counterparties. In turn, OIM or the Special Purpose Vehicle, as applicable, will enter into derivative contracts with OAC that mirror the derivative contracts entered into with the Derivative Contract Clients (collectively, all derivative contracts in the proposed structure are referred to as the Derivative Contracts). The net result of the Derivative Contracts will be to provide Derivative Contract Clients with an annual return based on the reported performance of the Plan's total portfolio or on the performance of a particular subset of assets of the Plan. Paragraph 35.1(5)4.ii of the OMERS Act, as amended in 2009, expressly authorizes "entering into derivatives contracts in which the return is based in whole or in part on the performance of all or part of the pension fund maintained to provide benefits in respect of any of the OMERS pension plans or of any of the pension fund's investments".


10.          Where a Special Purpose Vehicle is the counterparty to the Derivative Contracts, Derivative Contract Clients will purchase units of, or acquire interests in, the Special Purpose Vehicle. Paragraph 35.1(5)4.i of the OMERS Act authorizes the authorized subsidiary to engage in "activities relating to the distribution or sale to clients of securities issued by" a Special Purpose Vehicle.


11.          OAC will provide a guarantee to Derivative Contract Clients in respect of any payment obligations of OIM or a Special Purpose Vehicle under the Derivative Contracts to Derivative Contract Clients.


12.          OMERS will not offer or provide credit or margin to any of the Derivative Contract Clients.


13.          Each Derivative Contract Client will acknowledge in the applicable Derivative Contract (or ancillary documentation) that it has not relied on any communications of OMERS as investment advice or as a recommendation to enter into the Derivative Contract.


14.          Representatives of OAC and entities that manage OAC's private investment assets will participate in presentations to Derivative Contract Clients and prospective Derivative Contract Clients to provide information on the assets held by OAC and the investment processes used to manage those assets.


15.          The Ontario government has facilitated these arrangements with Derivative Contract Clients that are Ontario pension funds by amending the Regulation under the PBA in 2011 to clarify that a Derivative Contract Client that is a pension fund is able to enter into such an arrangement for more than 10% of its assets without violating the diversification limitation imposed under the PBA on pension plans investing more than 10% of their assets in any one investment so long as not more than 10% of the total book value of the Derivative Contract Client is directly or indirectly invested in any one underlying asset, business or investment. This change to the Regulation under the PBA was in recognition of the fact that the Plan itself is a regulated pension fund subject to the requirements of the PBA, including the diversification limitation imposed under the PBA.


Dealer Registration and Prospectus Exemptions


16.          Under the Legislation a person or company that engages in or holds himself, herself or itself out as engaging in the business of trading in securities is subject to a requirement to register as a dealer. No person or company may trade in a security if the trade would be a distribution unless a preliminary prospectus and prospectus have been filed and receipts obtained.


17.          It is unclear whether the dealer registration and prospectus requirements would apply in respect of the Derivative Contracts in provinces and territories other than those that have provided exemptive relief as referenced in the following paragraph due to the uncertainty of the extent to which over-the-counter derivative (OTC Derivative) transactions involve securities. In particular, OSC Staff Notice 91-702 Offerings of Contracts for Difference and Foreign Exchange Contracts in Ontario (Notice 91-702) characterizes certain contracts for difference, foreign exchange contracts and "similar" OTC Derivatives as securities as a result of being "investment contracts". Notice 91-702 states that it is not intended to address direct or intermediated trading between institutions and accordingly does not provide specific guidance with respect to the characterization of OTC Derivative transactions between OIM or a Special Purpose Vehicle and its counterparties.


18.          The securities regulatory authority in each of British Columbia, Alberta, Saskatchewan, Nova Scotia and New Brunswick has made an order or rule of general application exempting OTC Derivative transactions that involve negotiated, bilateral contracts between sophisticated non-retail parties from the dealer registration and prospectus or other disclosure requirements. Such transactions similarly are exempt from the registration requirements of the Derivatives Act (Quebec).


19.          The Filers seek the Requested Relief as an interim, harmonized solution to the uncertainty and fragmentation that currently characterizes the regulation of OTC Derivatives across Canada, pending the development of a uniform framework for the regulation of OTC Derivative transactions in all provinces and territories of Canada. Similar relief from the dealer registration and prospectus requirements in respect of trading in OTC Derivatives with Permitted Counterparties was granted to the Filers in Re OMERS Administration Corporation and OMERS Investment Management Inc. (2013) 36 OSCB 1424 and to Deutsche Bank AG, a bank listed in Schedule III to the Bank Act (Canada) and exempt from registration pursuant to subsection 35.1(1) of the Legislation, and DB Commodities Canada Ltd., an unregistered entity, in Re Deutsche Bank AG and DB Commodities Canada Ltd. (2011) 34 OSCB 10743. The Filers acknowledge that registration and prospectus requirements may be triggered for any or all of OAC, OIM and the Special Purpose Vehicles in connection with the Derivative Contracts under any such uniform framework to be developed for the regulation of OTC Derivative transactions.


20.          Each of OIM and OAC is "market participant", and any Special Purpose Vehicle would become a "market participant" as a consequence of the making of this decision. For the purposes of the Securities Act (Ontario) (the Act), and as a market participant each of OAC and OIM and any Special Purpose Vehicle will be required by subsection 19(1) of the Act to: (i) keep such books, records and other documents as are necessary for the proper recording of its business transactions and financial affairs, and the transactions that it executes on behalf of others; and (ii) keep such books, records and documents as may otherwise be required under Ontario securities law.


21.          For the purposes of their compliance with subsection 19(1) of the Act, the books and records that OAC, OIM and any Special Purpose Vehicle will keep in connection with the Derivative Contracts will include books and records that


(a)           demonstrate the extent of their compliance with applicable requirements of securities legislation;


(b)           demonstrate compliance with their policies and procedures for establishing a system of controls and supervision sufficient to provide reasonable assurance that OAC, OIM and any Special Purpose Vehicle, and each individual acting on their behalf, comply with applicable securities legislation;


(c)           identify all Derivative Contracts conducted on their behalf and each of the Derivative Contract Clients, including the name and address of all parties to the transaction and its terms; and


(d)           for each Derivative Contract entered into, set out information corresponding to that which would be required to be included in an exempt distribution report for the transaction, if the transaction were entered into by OAC, OIM and any Special Purpose Vehicle in reliance upon the "accredited investor" prospectus exemption in section 2.3 of National Instrument 45-106 Prospectus Exempt Distributions.




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 Requested Relief is granted, provided that:


(a)           each Derivative Contract Client is a Permitted Counterparty;


(b)           OMERS does not offer or provide any credit or margin to the Derivative Contract Clients; and


(c)           the Requested Relief shall terminate on the date that is the earlier of:


(i)            the date that is four years after the date of this decision; and


(ii)           the coming into force in the Jurisdiction of legislation or a rule that specifically governs dealer, adviser or other registration and/or market conduct requirements applicable to market participants in connection with OTC Derivative transactions.


DATED at Toronto, Ontario, this 3rd day of April, 2017.


“Monica Kowal”

Vice Chair or Commissioner

Ontario Securities Commission

“Grant Vingoe”

Vice Chair or Commissioner

Ontario Securities Commission