Securities Law & Instruments

Headnote

 

National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from the requirement in s.3.2.01, NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to automatic rebalancing services, subject to certain conditions.

 

Applicable Legislative Provisions

 

National Instrument 81-101 Mutual Fund Prospectus Disclosure, sections 3.2.01 and 6.1.

 

August 13, 2018

 

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

 

AND

 

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS

IN MULTIPLE JURISDICTIONS

 

AND

 

IN THE MATTER OF

AGF INVESTMENTS INC.

CI INVESTMENTS INC.

COUNSEL PORTFOLIO SERVICES INC.

FIDELITY INVESTMENTS CANADA ULC

FRANKLIN TEMPLETON INVESTMENTS CORP.

INVESCO CANADA LTD.

MACKENZIE FINANCIAL CORPORATION

MANULIFE ASSET MANAGEMENT LIMITED

NATIXIS INVESTMENT MANAGERS CANADA LP

SENTRY INVESTMENTS INC.

SUN LIFE GLOBAL INVESTMENTS (CANADA) INC.

(each a Filer, and collectively, the Filers)

 

AND

 

IN THE MATTER OF

ASSANTE CAPITAL MANAGEMENT LTD.

(the Representative Dealer)

 

DECISION

 

Background

 

The principal regulator in the Jurisdiction has received an application (the Application) from the Filers on behalf of the mutual funds that are or will be managed from time to time by the Filers or by a successor of such Filers (the Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator exempting the Representative Dealer and all other registered dealers who trade in securities of the Funds with purchasers, from the fund facts delivery requirement (the Fund Facts Delivery Requirement) set out in section 3.2.01 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), where the Fund Facts Delivery Requirement arises in respect of purchases of securities of the Funds made pursuant to the Automatic Rebalancing Services (as defined and described below) that are offered and administered by the Filers (the Requested Relief).

 

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

 

(a)           the Ontario Securities Commission is the principal regulator for the 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 of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon Territory and Nunavut (together with Ontario, the Jurisdictions).

 

Interpretation

 

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

 

Representations

 

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

 

The Filers

 

1.             The head office of each Filer is set out in Schedule “A”.

 

2.             The Jurisdictions in which each Filer is registered and the specific categories of registration for each Filer are provided in Schedule “A”.

 

3.             The Funds are, or will be, managed by the Filers or by a successor of the Filers.

 

4.             None of the Filers are in default of any of the requirements of securities legislation of the Jurisdictions.

 

The Funds

 

5.             Each Fund is, or will be, an open-end mutual fund trust or an open-end mutual fund that is a class of shares of a mutual fund corporation.

 

6.             Each Fund is, or will be, a reporting issuer in some or all of the provinces and territories of Canada and subject to National Instrument 81-102 Investment Funds. The securities of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus (Prospectus), fund facts document (Fund Facts) and annual information form that have been, or will be, prepared and filed in accordance with NI 81-101.

 

7.             None of the existing Funds are in default of any of the requirements of securities legislation of the Jurisdictions.

 

The Representative Dealer

 

8.             Securities of each Fund are, or will be, distributed through dealers which may or may not be affiliated with the applicable Filer that is the manager of the Fund (individually, each dealer that distributes securities of a Fund is a Dealer and collectively, the Dealers).

 

9.             The Representative Dealer is a member of the Investment Industry Regulatory Organization of Canada and is registered in the category of investment dealer in the Jurisdictions.

 

10.          Each Dealer is, or will be, registered as a dealer in one or more of the provinces and territories of Canada. The Dealers are, or will be, members of either the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada, or registered as a mutual fund dealer with the Autorité des marchés financiers in Québec, if such Dealer is only registered in Québec.

 

11.          The Representative Dealer is not in default of securities legislation in any of the Jurisdictions, other than with respect to the matters described in the Application.

 

Automatic Rebalancing Services

 

12.          Each of the Filers offers, or may in the future offer, an automatic rebalancing service (Automatic Rebalancing Service), the particulars of which are, or will be, set out in each applicable Fund’s Prospectus. Each Automatic Rebalancing Service allows a Dealer to recommend that a purchaser invest in two or more Funds, and the purchaser may, with the recommendations of the Dealer, decide to use the Automatic Rebalancing Service and so agree on specific target allocations, frequency of rebalancing and a rebalancing range for each of those Funds, as the same may be applicable, through the Automatic Rebalancing Service (Purchaser Instructions).

 

13.          Dealers presently provide and will continue to provide the Fund Facts for each of the Funds invested in by purchasers under the Automatic Rebalancing Service as required by the Fund Facts Delivery Requirement when the purchaser first agrees to invest in the Funds and use the Automatic Rebalancing Service.

 

14.          Under the Automatic Rebalancing Service, the Filers automatically rebalance the holdings in the Funds, from time to time, based on the Purchaser Instructions to ensure that the purchaser’s investments in the Funds are allocated in line with the Purchaser Instructions. The Filers exercise no discretion in carrying out the Automatic Rebalancing Service and act only according to the Purchaser Instructions and according to the terms of the Automatic Rebalancing Service.

 

15.          The Filers do not change, add to or remove any of the Funds invested in under the Automatic Rebalancing Service, unless the purchaser provides modified Purchaser Instructions to his or her Dealer, where applicable and the Dealer provides a Fund Facts for any new Funds in accordance with the Fund Facts Delivery Requirement, or the change, addition or removal is done in accordance with securities law obligations (for instance, in connection with a merger of the Funds) or the parameters of the Filer’s Automatic Rebalancing Service agreed to by the purchaser. 

 

16.          The Purchaser Instructions are provided when the purchaser agrees with the Dealer to invest in the Funds and to use the Automatic Rebalancing Service. A purchaser may terminate the instructions, or give amended instructions, at any time to his or her Dealer.

 

17.          Each Filer describes, or will describe the Automatic Rebalancing Service in the Prospectus of the Funds.

 

18.          Rebalancing is achieved by switching investments among the Funds that were selected in accordance with the Purchaser Instructions.  Each switch entails a redemption of securities from one Fund or Funds, immediately followed by a purchase of securities of another Fund or Funds. Each purchase of securities of a Fund that is completed as part of the Automatic Rebalancing Service triggers the Fund Facts Delivery Requirement.

 

19.          It is not practical or possible for the Dealer to deliver the Fund Facts upon each purchase of securities of a Fund or Funds completed as part of the Automatic Rebalancing Service.  This is because the rebalancing inherent in each Filer’s Automatic Rebalancing Service is carried out systematically and automatically by the Filer.  It is not possible for Dealers to develop a program to monitor the potential rebalancing so that the Fund Facts Delivery Requirement can be satisfied in advance of any rebalancing, nor is it practical or possible for the Filers to undertake to deliver the Fund Facts for the applicable Funds in advance of the rebalancing made pursuant to the Automatic Rebalancing Services. For these reasons, to date, neither the Filers nor the Dealers have not provided Fund Facts, in advance of each rebalancing made pursuant to the Automatic Rebalancing Service, because to do so would have necessitated material changes to the systems operated by the Filers that allow the Automatic Rebalancing Service to operate. 

 

20.          In the absence of the Requested Relief, the Dealer would be required to deliver the most recently filed Fund Facts in accordance with the Fund Facts Delivery Requirement in advance of the purchases of securities of the Funds that are made upon the automatic rebalancing inherent with the Automatic Rebalancing Service.

 

Decision

 

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 in respect of each Automatic Rebalancing Service offered by a Filer provided that:

 

1.             a purchase of a Fund made under the Automatic Rebalancing Service is not the first purchase of that Fund under the Automatic Rebalancing Service;

 

2.             each new purchaser who establishes a rebalancing program under the Automatic Rebalancing Service after the date of the decision, receives written information that states,

 

a.             subject to condition 4, the purchaser will not receive the Fund Facts after the date of the notice, unless the purchaser specifically requests it,

 

b.             the purchaser is entitled to receive upon request, at no cost to the purchaser, the most recently filed Fund Facts by calling a specified toll-free number, or by sending a request by mail or e-mail to a specified address or e-mail address,

 

c.             how to access the Fund Facts electronically,

 

d.             the purchaser will not have a right of withdrawal under securities legislation for subsequent purchases of a security of any Funds under the Automatic Rebalancing Service, but will continue to have a right of action if there is a misrepresentation in the Prospectus or any document incorporated by reference into the Prospectus, and

 

e.             the purchaser may terminate the Automatic Rebalancing Service at any time;

 

3.             each purchaser who participates in the Automatic Rebalancing Service as of the date of the decision, will be sent a notice that provides the information in condition 2, by an applicable Dealer as soon as practicable and in any event, not later than a Filer’s next scheduled annual communication;

 

4.             at least annually while the purchaser subscribes to the Automatic Rebalancing Service, an applicable Dealer notifies the purchaser in writing of how the purchaser can request the most recently filed Fund Facts;

 

5.             an applicable Dealer delivers or sends the most recently filed Fund Facts to the purchaser if the purchaser requests it;

 

6.             the Filers provide to the principal regulator, on an annual basis, beginning 60 days after the date upon which the Requested Relief is first relied upon by a Dealer, either:

 

a.             a current list of all such Dealers that are relying on the Requested Relief; or

 

b.             an update to the list of such Dealers or confirmation that there has been no change to such list; and

 

7.             prior to a Dealer relying on the Requested Relief, the Filers provide to the Dealer a disclosure statement informing the Dealer of the implications of this decision.

 

“Stephen Paglia”

Manager, Investment Funds & Structured Products Branch

Ontario Securities Commission


Schedule “A”

 

List of Fund Managers and Related Relevant Information

 

 

Name of Fund Manager (Filer)

 

Location of Head Office

Category of Registration

Jurisdiction of Registration

1.      

AGF Investments Inc.

Toronto, Ontario

Investment Fund Manager

Ontario, Alberta, British Columbia, Newfoundland and Labrador, Quebec

Mutual Fund Dealer

Ontario, British Columbia, Quebec

Exempt Market Dealer

Ontario, Alberta, British Columbia, Manitoba, Quebec, Saskatchewan

Portfolio Manager

All provinces and territories of Canada

Commodity Trading Manager

Ontario

2.      

CI Investments Inc.

Toronto, Ontario

Investment Fund Manager

Ontario, Newfoundland and Labrador, Quebec

Exempt Market Dealer

All provinces and territories of Canada

Portfolio Manager

All provinces and territories of Canada

Commodity Trading Counsel

Ontario

Commodity Trading Manager

Ontario

3.      

Counsel Portfolio Services Inc.

Mississauga, Ontario

Investment Fund Manager

Ontario, Quebec and Newfoundland and Labrador

Portfolio Manager

Ontario

Commodity Trading Manager

Ontario

4.      

Fidelity Investments Canada ULC

Toronto, Ontario

Investment Fund Manager

Ontario, Quebec and

Newfoundland and Labrador

Portfolio Manager

All provinces and territories

of Canada

Mutual Fund Dealer

All provinces and territories

of Canada

Commodity Trading Manager

Ontario

5.      

Franklin Templeton Investments Corp.

 

Toronto, Ontario

Exempt Market Dealer

All provinces of Canada and Yukon

Investment Fund Manager

Alberta, British Columbia,

Manitoba, Newfoundland

and Labrador, Nova Scotia,

Ontario, and Quebec

Mutual Fund Dealer

All provinces of Canada and

Yukon

Portfolio Manager

All provinces of Canada and

Yukon

Commodity Trading Manager

Ontario

6.      

Invesco Canada Ltd.

Toronto, Ontario

Mutual Fund Dealer

 

 

Quebec, Prince Edward

Island, Ontario, Nova Scotia,

Alberta, British Columbia

Exempt Market Dealer

All provinces of Canada

Portfolio Manager

All provinces of Canada

Investment Fund Manager

Ontario, Quebec and Newfoundland and Labrador

Commodity Trading Manager

Ontario

7.      

Mackenzie Financial Corporation

Toronto, Ontario

Investment Fund Manager

Ontario, Newfoundland and Labrador and Quebec

Exempt Market Dealer

All provinces and territories of Canada

Portfolio Manager

All provinces and territories of Canada

Commodity Trading Manager

Ontario

Adviser

Manitoba

8.      

Manulife Asset Management Limited

Toronto, Ontario

Investment Fund Manager

Ontario, Newfoundland and Labrador and Quebec

Portfolio Manager

All provinces and territories of Canada

Derivatives Portfolio Manager

Quebec

Commodity Trading Manager

Ontario

9.      

Natixis Investment Managers Canada LP

Toronto, Ontario

Investment Fund Manager

Quebec, Ontario, and Newfoundland and Labrador

Exempt Market Dealer

All provinces and territories of Canada

Mutual Fund Dealer

Ontario

Portfolio Manager

Ontario

10.    

Sentry Investments Inc.

Toronto, Ontario

Investment Fund Manager

Ontario, Quebec and Newfoundland and Labrador

Mutual Fund Dealer

All provinces of Canada

Exempt Market Dealer

All provinces of Canada

Portfolio Manager

Alberta and Ontario

Commodity Trading Manager

Ontario

11.    

Sun Life Global Investments (Canada) Inc.

Toronto, Ontario

Mutual Fund Dealer

All provinces and territories

of Canada

Investment Fund Manager

Newfoundland and Labrador,

Ontario, and Quebec

Commodity Trading Manager

Ontario

Portfolio Manager

Ontario