Securities Law & Instruments

Headnote

 

Section 80 of the Commodity Futures Act (Ontario) – Foreign adviser exempted from the adviser registration requirement in paragraph 22(1)(b) of the CFA where such adviser acts as an adviser in respect of commodity futures contracts or commodity futures options (Contracts) for certain investors in Ontario who meet the definition of “permitted client” in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – Contracts are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada

 

Terms and conditions of exemption correspond to the relevant terms and conditions of the comparable exemption from the adviser registration requirement available to international advisers in respect of securities set out in section 8.26 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – Exemption also subject to a “sunset clause” condition

 

Applicable Legislative Provisions

 

Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 1(1), 22(1)(b), 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, ss. 1.1, 8.26.

Ontario Securities Commission Rule 13-502 Fees.

 

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

(the CFA)

 

AND

 

IN THE MATTER OF

FRANKLIN ADVISERS, INC., (FAI),

FRANKLIN TEMPLETON INSTITUTIONAL, LLC (FTI LLC),

FRANKLIN MUTUAL ADVISERS, LLC (FMA),

TEMPLETON GLOBAL ADVISORS LIMITED (TGAL),

K2/D&S MANAGEMENT CO., LLC (K2),

FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED (FTIML),

TEMPLETON INVESTMENT COUNSEL, LLC (TIC),

AND

FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à.r.l.

(FTIS) (each an “Applicant”, and collectively, the “Applicants”)

 

ORDER

(Section 80 of the CFA)

 

UPON the application (the Application) of the Applicants to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Applicants and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the Applicants’ behalf (the Representatives) be exempt, for a specified period of time, from the adviser registration requirement in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;

 

AND UPON considering the Application and the recommendation of staff of the Commission;

 

AND WHEREAS for the purposes of this FAI Order, FTI LLC Order, FMA Order, TGAL Order, K2 Order, FTIML Order, TIC Order, and FTIS Order (Collectively, the Order):

 

“CFA Adviser Registration Requirement” means the provisions of section 22 of the CFA that prohibit a person or company from acting as an adviser with respect to trading in Contracts unless the person or company is registered in the appropriate category of registration under the CFA;

 

“CFTC” means the Commodity Futures Trading Commission of the United States;

 

“Contract” has the meaning ascribed to that term in subsection 1(1) of the CFA;

 

“Foreign Contract” means a Contract that is primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;

 

“Home Jurisdiction” means the jurisdiction in which each Applicant’s head office is located;

 

“International Adviser Exemption” means the exemption set out in section 8.26 of NI 31-103 from the OSA Adviser Registration Requirement;

 

“NI 31-103” means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, as amended from time to time;

 

“OSA” means the Securities Act, R.S.O. 1990, c. S.5, as amended from time to time;

 

“OSA Adviser Registration Requirement” means the provisions of section 25 of the OSA that prohibit a person or company from acting as an adviser with respect to investing in, buying or selling securities unless the person or company is registered in the appropriate category of registration under the OSA;

 

“Permitted Client” means a client in Ontario that is a “permitted client” as that term is defined in section 1.1 of NI 31-103, except that for purposes of this Order such definition shall exclude a person or company registered under the securities or commodities legislation of a jurisdiction of Canada as an adviser or dealer;

 

“Previous Applicants” means Franklin Advisers, Inc., Franklin Templeton Institutional, LLC, and Franklin Mutual Advisers, LLC;

 

“Previous Order” means the exemption order granted by the Commission to the Previous Applicants on April 30, 2013;

 

“SEC” means the Securities and Exchange Commission of the United States;

 

“specified affiliate” has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information;

 

“United States” means the United States of America; and

 

“United States Advisers Act” means the Investment Advisers Act of 1940 of the United States, as amended from time to time.

 

AND UPON the Applicants having represented to the Commission that:

 

1.             Franklin Advisers, Inc. (FAI) is a corporation incorporated under the laws of the State of California. FAI is resident in the United States of America, with a principal office and place of business at One Franklin Parkway, San Mateo, California, USA. FAI provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies, other financial institutions, pension and profit sharing plans, and governmental entities. FAI offers advice with respect to a broad range of securities, derivatives and other financial instruments.

 

2.             FAI is registered as an investment adviser with the SEC and as a commodity trading advisor and commodity pool operator with the CFTC. 

 

3.             Franklin Templeton Institutional, LLC (FTI LLC) is a limited liability company organized and existing under the laws of the State of Delaware. FTI LLC is resident in the United States of America, with a principal office and place of business at 600 Fifth Avenue, New York, New York, USA. FTI LLC provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies, pension and profit sharing plans, and governmental entities. FTI LLC offers advice with respect to a broad range of securities, derivatives and other financial instruments.

 

4.             FTI LLC is registered as an investment adviser with the SEC and is exempted from registration as a commodity trading adviser and commodity pool operator with the CFTC.

 

5.             Franklin Mutual Advisers, LLC (FMA) is a limited liability company organized and existing under the laws of the State of Delaware. FMA is resident in the United States of America, with a principal office and place of business at 51 John F. Kennedy Parkway, Short Hills, New Jersey, USA. FMA provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies. FMA offers advice with respect to a broad range of securities, derivatives and other financial instruments.

 

6.             FMA is registered as an investment adviser with the SEC and is exempted from registration as a commodity trading adviser and commodity pool operator with the CFTC.

 

7.             Templeton Global Advisors Limited (TGAL) is a company organized and existing under the laws of the Commonwealth of the Bahamas. TGAL is resident in the Bahamas, with a principal office and place of business at Lyford Cay, Nassau, Bahamas. TGAL provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies and charitable organizations. TGAL offers advice with respect to a broad range of securities, derivatives and other financial instruments.

 

8.             TGAL is registered as an investment fund administrator with the Securities Commission of the Bahamas, as an investment adviser with the SEC, and it is exempted from registration as a commodity trading adviser and commodity pool operator with the CFTC.

 

9.             K2/D&S Management Co. (K2) is a limited liability company organized and existing under the laws of the State of Delaware. K2 is resident in the United States of America, with a principal office and place of business at 300 Atlantic Street, 12th Floor, Stamford, Connecticut, USA. K2 provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as banking and thrift institutions, pension and profit sharing plans, and governmental entities. K2 offers advice with respect to a broad range of securities, derivatives and other financial instruments. 

 

10.          K2 is registered as an investment adviser with the SEC and is registered as a commodity trading adviser and commodity pool operator with the CFTC.

 

11.          Franklin Templeton Investment Management Limited (FTIML) is a company organized and existing under the laws of England. FTIML is resident in England with a principal office and place of business at Cannon Place, 78 Cannon Street, London, England. FTIML provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies, other financial institutions, and governmental entities. FTIML offers advice with respect to a broad range of securities, derivatives and other financial instruments.

 

12.          FTIML is an investment management company registered as an investment adviser with the SEC and is exempted from registration as a commodity trading adviser and commodity pool operator with the CFTC. FTIML is a foreign equivalent of an investment advisor in England and is regulated by the Financial Conduct Authority of the United Kingdom.

 

13.          Templeton Investment Counsel, LLC (TIC) is a limited liability company organized and existing under the laws of the State of Delaware. TIC is a resident of the United States of America, with a principal office and place of business at 300 Southeast 2nd Street, Fort Lauderdale, Florida, USA. TIC provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies, other financial institutions, pension and profit sharing plans, and governmental entities. TIC offers advice with respect to a broad range of securities, derivatives and other financial instruments.

 

14.          TIC is registered as an investment adviser with the SEC and it is exempted from registration as a commodity trading adviser and commodity pool operator with the CFTC.

 

15.          Franklin Templeton International Services S.à.r.l. (FTIS) is a limited liability company with its registered office at 8A, rue Albert Borschette, L-1246 Luxembourg, Grand-Duchy of Luxembourg.

 

16.          FTIS creates, promotes, administers and manages investment in transferable securities (UCITS) and alternative investment funds and provides services such as discretionary portfolio management, investment advice and reception and transmission of orders in relation to financial instruments.

 

17.          FTIS is exempt from registration as an investment adviser with the SEC, but pursuant to such exemption does report limited information to the SEC as an Exempt Reporting Adviser. Additionally, FTIS is exempt from registration as a commodity trading adviser and commodity pool operator with the CFTC.

 

18.          FTIS is registered with the Luxembourg Trade and Companies Register and is authorized by the Commission de Surveillance du Secteur Financier (Luxembourg) through an undertaking for UCITS management company and alternative investment fund manager.

 

19.          The Applicants are affiliates, as defined in the OSA. Each Applicant, including FTIC (defined below) is either directly or indirectly wholly-owned by its parent company, Franklin Resources, Inc.

 

20.          Franklin Templeton Investments, as a global corporate group, offers specialized investment management expertise, with various investment teams that have their own approaches and processes, which teams reside within various Franklin Templeton Investments affiliates, including the Applicants. The Canadian business of Franklin Templeton Investments is directed principally by its principal Canadian affiliate, Franklin Templeton Investments Corp. (FTIC), which is registered under the OSA as an investment fund manager, portfolio manager, mutual fund dealer and exempt market dealer. FTIC facilitates the engagement of the Applicants as needed and where appropriate to serve client needs.

 

21.          The Applicants are not registered in any capacity under the CFA or the OSA.

 

22.          The Previous Applicants relied on the Previous Order which expired on April 30, 2018. The Previous Applicants have complied with all the terms and conditions of the Previous Order. In respect of the Previous Applicants, any registrable activity, as contemplated under paragraph 22(1)(b) of the CFA and in the Previous Order, ceased on May 1, 2018.

 

23.          The Applicants are not in default of securities legislation, commodity futures legislation or derivatives legislation of any jurisdiction in Canada. The Applicants are in compliance in all material respects with securities laws, commodity futures laws and derivatives laws of their Home Jurisdiction.

 

24.          Certain investment funds in Ontario that are Permitted Clients engage, or may in the future engage, the Applicants as discretionary portfolio managers for purposes of implementing certain specialized investment strategies.

 

25.          The Applicants act, or in the future may act, as discretionary portfolio managers on behalf of Permitted Clients. The proposed advisory services would include the use of specialized investment strategies employing Foreign Contracts.

 

26.          Were the proposed advisory services limited to securities (as defined in subsection 1(1) of the OSA), the Applicants would be able to rely on the International Adviser Exemption and carry out such activities for Permitted Clients on a basis that would be exempt from the OSA Adviser Registration Requirement.

 

27.          There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the International Adviser Exemption. Consequently, in order to advise Permitted Clients as to trading in Foreign Contracts, in the absence of this Order, the Applicant would be required to satisfy the CFA Adviser Registration Requirement by applying for and obtaining registration in Ontario as an adviser under the CFA in the category of commodity trading manager.

 

28.          To the best of each Applicant’s knowledge, the Applicants confirm that there are currently no regulatory actions of the type contemplated by the Notice of Regulatory Action attached as Appendix “B,’ other than those previously filed with the Commission in respect of the Previous Applicants.

 

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make this FAI Order, FTI LLC Order, FMA Order, TGAL Order, K2 Order, FTIML Order, TIC Order, and FTIS Order;

 

IT IS ORDERED, pursuant to section 80 of the CFA, that each Applicant and its Representatives are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of providing advice to Permitted Clients as to the trading of Foreign Contracts provided that:

 

(a)           each Applicant provides advice to Permitted Clients only as to trading in Foreign Contracts and do not advise Permitted Clients as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to their providing advice on Foreign Contracts;

 

(b)           each Applicant’s head office or principal place of business of each of the Applicants is in their Home Jurisdiction;

 

(c)           each of the Applicants is registered in a category of registration, or operates under an exemption from registration, under the applicable securities or commodity futures legislation of their Home Jurisdiction that permits it to carry on the activities in their Home Jurisdiction that registration under the CFA as an adviser in the category of commodity trading manager would permit it to carry on in Ontario;

 

(d)           each of the Applicants continues to engage in the business of an adviser (as defined in the CFA) in the United States;

(e)           as at the end of each Applicant’s most recently completed financial year, not more than 10% of the aggregate consolidated gross revenue of each Applicant, its affiliates and its affiliated partnerships (excluding the gross revenue of an affiliate or affiliated partnership of an Applicant if the affiliate or affiliated partnership is registered under securities legislation, commodity futures legislation or derivatives legislation of a jurisdiction of Canada) was derived from the portfolio management activities of each Applicant, its affiliates and its affiliated partnerships in Canada (which, for greater certainty, includes both securities-related and commodity-futures-related activities);

 

(f)            before advising a Permitted Client with respect to Foreign Contracts, each Applicant notifies the Permitted Clients of all of the following:

 

(i)            the Applicant is not registered in Ontario to provide the advice described in paragraph (a) of this Order;

 

(ii)           the foreign jurisdiction in which the Applicant’s head office or principal place of business is located;

 

(iii)          all or substantially all of the Applicant’s assets may be situated outside Canada;

 

(iv)          there may be difficulty enforcing legal rights against the Applicant because of the above; and

 

(v)           the name and address of the Applicant’s agent for service of process in Ontario;

 

(g)           each of the Applicants has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached at Appendix “A”;

 

(h)           each Applicant notifies the Commission of any regulatory action after the date of this Order with respect to the Applicant, or to the best of each Applicant’s knowledge and after reasonable inquiry, any predecessors or the specified affiliates of each Applicant by filing Appendix “B” within 10 days of the commencement of each such action, provided that each Applicant may also satisfy this condition by filing with the Commission,

 

i.              within 10 days of the date of this Order, a notice making reference to and incorporating by reference the disclosure made by each Applicant pursuant to federal securities laws of the United States that is identified on the Investment Adviser Public Disclosure Website, and

 

ii.             Promptly, a notification of any Form ADV amendment and/or filing with the SEC that relates to legal and/or regulatory actions; and

 

(i)            if each Applicant is not subject to the requirement to pay a participation fee in Ontario because it is not registered under the OSA and does not rely on the International Adviser Exemption, by December 31st of each year, each Applicant pays a participation fee based on its specified Ontario revenues for its previous financial year in compliance with the requirements of Part 3 and section 6.4 of Ontario Securities Commission Rule 13-502 Fees as if each Applicant relied on the International Adviser Exemption; and

 

IT IS FURTHER ORDERED that each of the FAI Order, FTI LLC Order, FMA Order, TGAL Order, K2 Order, FTIML Order, TIC Order, and FTIS 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 an Applicant to act as an adviser to a Permitted Client; and

 

(c)           five years after the date of the FAI Order, FTI LLC Order, FMA Order, TGAL Order, K2 Order, FTIML Order, TIC Order, and FTIS Order.

 

DATED at Toronto, Ontario, this 11th day of October, 2018.

 

“Deborah Leckman”

Commissioner

“Lawrence Haber”

Commissioner

 


APPENDIX “A”

 

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

 

INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO

 

1.             Name of person or company ("International Firm"):

 

2.             If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

 

3.             Jurisdiction of incorporation of the International Firm:

 

4.             Head office address of the International Firm:

 

5.             The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

 

Name:

E-mail address:

Phone:

Fax:

 

6.             The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"):

 

  Section 8.18 [international dealer]

 

  Section 8.26 [international adviser]

 

  Other [specify]:

 

7.             Name of agent for service of process (the "Agent for Service"):

 

8.             Address for service of process on the Agent for Service:

 

9.             The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

 

10.          The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.

 

11.          Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

 

a.             a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;

 

b.             an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service;

 

c.             a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.

 

12.          This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

 

Dated: _______________

 

________________________________________________

(Signature of the International Firm or authorized signatory)

 

________________________________________________

(Name of signatory)

 

________________________________________________

(Title of signatory)

 


 

Acceptance

 

The undersigned accepts the appointment as Agent for Service of _______________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

 

Dated: ____________________

 

________________________________________________

(Signature of the Agent for Service or authorized signatory)

 

________________________________________________

(Name of signatory)

 

________________________________________________

(Title of signatory)

 

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

 

https://www.osc.gov.on.ca/filings

 


APPENDIX “B”

 

NOTICE OF REGULATORY ACTION

 

1.             Settlement agreements

 

Has the firm, or any predecessors or specified affiliates[1] of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

 

Yes _____ No _____

 

If yes, provide the following information for each settlement agreement:

 

Name of entity

Regulator/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

 

2.             Disciplinary history

 

Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

 

 

Yes

No

(a)           Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

___

___

(b)           Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

___

___

(c)           Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

___

___

(d)           Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

___

___

(e)           Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

___

___

(f)            Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

___

___

(g)           Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?

___

___

If yes, provide the following information for each action:

 

Name of entity

Type of action

Regulator/organization

Date of action (yyyy/mm/dd)

Reason for action

Jurisdiction

3.             Ongoing investigations

 

Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliates is the subject?

 

Yes _____ No _____

 

If yes, provide the following information for each investigation:

 

Name of entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

 

Name of firm:

Name of firm’s authorized signing officer or partner

Title of firm’s authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

 

Witness

 

The witness must be a lawyer, notary public or commissioner of oaths.

 

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

 

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

 

https://www.osc.gov.on.ca/filings

 

 

 

 

 

 

 

 


 



[1]       In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information.