Headnote
NP 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from prohibitions in s. 111(2)(a), 111(3), and 118(2)(a) of the Act to permit pooled funds to purchase securities of related issuer in the secondary market - trades will comply with conditions in s. 6.2(1) of National Instrument 81-107 - Independent Review Committee for Investment Funds (NI 81-107) including Independent Review Committee approval – relief also subject to alternative pricing and transparency conditions for securities that are not exchange traded.
Applicable Legislative Provisions
Securities Act (Ontario), sections 111(2)(a), 111(3), 113, 118(2)(a), and 121(2)(a)(ii).
National Instrument 81-107 – Independent Review Committee for Investment Funds.
November 28,2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO AND NEWFOUNDLAND AND LABRADOR
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
seamark asset management ltd.
(the Filer)
AND
IN THE MATTER OF
THE POOLED FUNDS REFERENCED IN SCHEDULE A
(EACH AN EXISTING POOLED FUND)
decision
Background
The securities regulatory authority or regulator in Ontario has received an application from the Filer with respect to the Existing Pooled Funds, and such other pooled funds as the Filer may establish in the future or become the manager of in the future (each a Future Pooled Fund and together with the Existing Pooled Funds, each a Pooled Fund and collectively, the Pooled Funds) for a decision under the securities legislation of the jurisdiction of the principal regulator (the Legislation) for relief from (the Passport Exemption):
(a) the prohibitions (the Substantial Securityholder Prohibitions) in paragraphs 111(2)(a) and 111(3) of the Legislation that prohibit a mutual fund from knowingly making or holding an investment in any person or company who is a substantial securityholder of the mutual fund, its management company or distribution company in order to permit a Pooled Fund that the Filer manages, to purchase securities of Manulife Financial Corporation (Manulife) in the secondary market; and
(b) the prohibition (the Related Person Securities Prohibition) in paragraph 118(2)(a) of the Legislation that prohibits a portfolio manager (or a mutual fund depending on the Jurisdiction) from knowingly causing any investment portfolio managed by it to invest in any issuer in which a responsible person or an associate of a responsible person is an officer or director unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase, in order to permit a Pooled Fund to purchase securities of Manulife in the secondary market.
The securities regulatory authority or regulator in each of Ontario and Newfoundland (the Coordinated Review Jurisdictions) (Coordinated Exemptive Relief Decision Makers) has received an application from the Filer for a decision under the securities legislation of the Coordinated Review Jurisdictions (the Coordinated Review Legislation) for relief from the Related Person Securities Prohibition in order to permit a Pooled Fund to purchase securities of Manulife in the secondary market (the Coordinated Exemptive Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):
(i) the Ontario Securities Commission is the principal regulator for this application;
(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada, except Newfoundland and Labrador;
(iii) the decision is the decision of the principal regulator; and
(iv) the decision evidences the decision of each Coordinated Exemptive Relief Decision Maker.
Interpretation
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the laws of Canada with its head office in Halifax, Nova Scotia and acts, or will act, as the manager and trustee of each Pooled Fund.
Although the head office of the Filer is located in Halifax, Nova Scotia, not all of the relief requested is required in Nova Scotia. All of the relief requested is required in Ontario and, as the Pooled Funds are governed by the laws of Ontario, pursuant to Section 4.5(2) of MI 11-102, the Ontario Securities Commission is the principal regulator for this application.
Neither the Filer, nor the Existing Pooled Funds, are in default of the securities legislation in any of the Jurisdictions.
None of the Pooled Funds are, or will be, a reporting issuer in any of the provinces and territories of Canada.
Manulife is a substantial securityholder of the Filer and is a Canadian public company whose shares are listed on the Toronto Stock Exchange. Manulife also issues non-exchange traded securities, such as debt securities.
A responsible person of the Filer, or an affiliate of the Filer, may be an officer and/or a director of Manulife in which a Pooled Fund may invest.
The Filer has established an independent review committee (an IRC) in respect of certain other mutual funds it manages that are subject to National Instrument 81-102 Mutual Funds (the SEAMARK Public Funds) in accordance with the requirements of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).
The Filer is seeking relief from the Substantial Securityholder Prohibitions and the Related Person Securities Prohibition to permit each Pooled Fund to purchase and hold both exchange-traded securities of Manulife and non-exchange-traded securities of Manulife.
Each purchase of securities of Manulife will occur in the secondary market and not under primary distributions or treasury offerings of Manulife.
Each non-exchange traded security of Manulife purchased by a Pooled Fund pursuant to the Passport Exemption or the Coordinated Exemptive Relief will be a debt security issued by Manulife that has been given and continues to have, at the time of purchase, an “approved credit rating” by an approved credit rating organization.
The Pooled Funds have, or will have, a concentration limit of a maximum of 10% in the securities of any one issuer, which includes Manulife.
The Filer has also established an IRC (which is also the IRC in respect of the SEAMARK Public Funds) in respect of each Pooled Fund. The mandate of the IRC of each Pooled Fund will be to, among other things, approve purchases by that Pooled Fund in securities of Manulife. Further, the IRC of the Pooled Funds will not approve the purchase of securities of Manulife unless it has made the determination set out in Section 5.2(2) of NI 81-107.
The Filer has determined that it would be in the interests of the Pooled Funds to receive the Passport Exemption and the Coordinated Exemptive Relief.
The Filer is unable to rely upon the exemption from the Substantial Securityholder Prohibitions and the Related Person Securities Prohibition codified under Section 6.2(2) of NI 81-107 because that exemption does not apply to purchases by the Pooled Funds and some of the purchases of securities of Manulife will not occur on an exchange.
Decision
Each of the principal regulator and the Coordinated Exemptive Relief Decision Makers is satisfied that the decision meets the test set out in the Legislation for the relevant regulator or securities regulatory authority to make the decision.
The decision of the principal regulator under the Legislation is that the Passport Exemption is granted and the decision of the Coordinated Review Decision Makers under the Coordinated Review Legislation is that the Coordinated Exemptive Relief is granted, so long as:
(a) the IRC of the Pooled Fund, as applicable, has approved the transaction in respect of the Pooled Fund on the same terms as are required under Section 5.2(2) of NI 81- 107;
(b) the transaction is consistent with, or is necessary to meet, the investment objective of the Pooled Fund; and
(c) if the security is listed and traded, the purchase is made on an exchange on which the securities are listed and traded;
(d) if the security is not listed on an exchange;
(i) the price payable for the security is not more than the ask price of the security;
(ii) the ask price of the security is determined as follows:
(A) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or
(B) if the purchase does not occur on a marketplace,
(I) the Pooled Fund may pay the price for the security, at which an independent, arm’s length seller is willing to sell the security, or
(II) if the Pooled Fund does not purchase the security from an independent arm’s length seller, the Pooled Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm’s length purchaser or seller and not pay more than that quote;
(e) the transaction complies with paragraph 6.2(1)(b) of NI 81-107; and
(f) the reporting obligation in section 4.5 of NI 81-107 applies to the Passport Exemption and Coordinated Exemptive Relief granted in this decision and the IRC of the Pooled Funds relying on the Passport Exemption and the Coordinated Exemptive Relief complies with section 4.5 of NI 81-107 in connection with any instance that it becomes aware that the Filer did not comply with any of the conditions of this decision.
“Lawrence E. Ritchie “David L. Knight”
Lawrence E. Ritchie David L. Knight
Vice-Chair Commissioner
Headnote
NP 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from prohibitions in s. 111(2)(a), 111(3), and 118(2)(a) of the Act to permit pooled funds to purchase securities of related issuer in the secondary market - trades will comply with conditions in s. 6.2(1) of National Instrument 81-107 - Independent Review Committee for Investment Funds (NI 81-107) including Independent Review Committee approval – relief also subject to alternative pricing and transparency conditions for securities that are not exchange traded.
Applicable Legislative Provisions
Securities Act (Ontario), sections 111(2)(a), 111(3), 113, 118(2)(a), and 121(2)(a)(ii).
National Instrument 81-107 – Independent Review Committee for Investment Funds.
SCHEDULE A
LIST OF EXISTING POOLED FUNDS
SEAMARK POOLED MONEY MARKET FUND
SEAMARK POOLED CANADIAN BOND FUND
SEAMARK POOLED BALANCED FUND
SEAMARK POOLED CANADIAN EQUITY FUND
SEAMARK POOLED CANADIAN SMALL CAP FUND
SEAMARK POOLED FOREIGN EQUITY FUND
SEAMARK POOLED U.S. EQUITY FUND
SEAMARK POOLED INTERNATIONAL EQUITY FUND