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 RBC Global Asset Management Inc. and BBAML LLP (to be renamed BlueBay Asset Management LLP effective April 2, 2012), dated March 30, 2012, (2012) 35 OSCB 3926.

 

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

(the CFA)

 

AND

 

IN THE MATTER OF

RBC GLOBAL ASSET MANAGEMENT INC. AND

BLUEBAY ASSET MANAGEMENT LLP

 

ORDER

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

 

                UPON the application (the Application) of RBC Global Asset Management Inc. (the Principal Adviser) and BlueBay Asset Management LLP (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 March 30, 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) 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 the Sub-Adviser and the Principal Adviser having represented to the Commission that:

 

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

 

2.             The Principal Adviser is registered (i) as an adviser in the category of portfolio manager and exempt market dealer under the securities legislation in all provinces and territories of Canada; (ii) as an investment fund manager under the Securities Act (Ontario) and the securities legislation of Quebec, British Columbia and Newfoundland and Labrador; and (iii) as an adviser in the category of commodity trading manager under the CFA.

 

3.             The Sub-Adviser is a limited liability partnership formed under the laws of England and Wales. The head office of the Sub-Adviser is located in London, England.

 

4.             The Sub-Adviser is not a resident of any province or territory of Canada.

 

5.             The Sub-Adviser is authorised and regulated in the United Kingdom by the Financial Conduct Authority and in the United States the Sub-Adviser is registered with the National Futures Association as a commodity pool operator and as a commodity trading advisor.

 

6.             The Sub-Adviser engages in the business of an adviser in respect of Contracts in the United Kingdom. The Sub-Adviser is registered in a category of registration under the commodity futures or other applicable legislation of the United Kingdom that permits it to carry on the activities in the United Kingdom that registration as a commodity trading manager would permit it to carry on in Ontario. As such, the Sub-Adviser is permitted to carry on the Sub-Advisory Services (as defined below) in the United Kingdom.

 

7.             The Sub-Adviser is not registered in any capacity under the securities legislation of Ontario or any other jurisdiction of Canada or under the CFA. However, the Sub-Adviser is relying on exemptions from registration in Ontario and other jurisdictions of Canada, including relying on the international adviser exemption in section 8.26 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) in Ontario.

 

8.             The Sub-Adviser and the Principal Adviser are affiliates.

 

9.             Neither the Principal Adviser nor the Sub-Adviser is in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada. The Sub-Adviser is in compliance in all material respects with securities laws, commodity futures laws and derivatives laws in the United Kingdom and the United States.

 

10.          The Principal Adviser is, or will be, the investment fund 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 who 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 will engage 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).

 

11.          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.

 

12.          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.

 

13.          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.

 

14.          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.

 

15.          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, which is provided under section 8.26.1 of 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.          The relationship among the Principal Adviser, the Sub-Adviser and any Client will be consistent with the requirements of section 8.26.1 of NI 31-103.

 

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

 

(a)           the obligations and duties of the 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 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 (together with (i), the Assumed Obligations).

 

19.          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 Sub-Advisory Services.

 

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

 

21.          The prospectus or other offering document (in either case, the Offering Document) of each Client that is an Investment Fund or a Pooled Fund and for which the Principal Adviser engages the 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 Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

 

22.          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 Investment Funds or Pooled Funds who are Ontario residents will receive, or have received, the Required Disclosure in writing (which may be in the form of an Offering Document).

 

23.          Each Client that is a Managed Account 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.

 

24.          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.

 

25.          The anticipated expiry of the five-year period set out in the sunset clause of the Previous Order has triggered the requested relief.

 

                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 in 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 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 of 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 are Investment Funds directly from the Principal Adviser, all investors in these Investment Funds or Pooled Funds who are Ontario residents will receive, or have received, the Required Disclosure in writing (which may be in the form of an Offering Document); 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 27th day of March, 2017.

 

“Anne Marie Ryan”

Commissioner

Ontario Securities Commission

“Philip Anisman”

Commissioner

Ontario Securities Commission