Headnote
National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions - Relief granted to permit pooled funds managed by the same manager, to purchase certain related debt securities in the primary market and to purchase related exchange-traded securities in the secondary market – debt securities purchased by the pooled funds in the primary market must be non-exchange traded debt securities, other than asset-backed commercial paper securities, with a term to maturity of 365 days or more, the issuer of which has been given and continues to have, at the time of purchase, an approved credit rating by an approved credit rating organization and will be purchased in a Primary Offering where the terms, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.
Applicable Legislative Provisions
Securities Act (Ontario), sections 111(2)(a), 111(2)(c)(ii), 113, 118(2)(a) and 121(2)(a)(ii)
National Instrument 81-107 – Independent Review Committee for Investment Funds, sections 6.1, 6.2
September 2, 2009
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
CIBC ASSET MANAGEMENT INC. AND
CIBC GLOBAL ASSET MANAGEMENT INC.
(the Filers)
AND THE POOLED FUNDS (as defined below)
DECISION DOCUMENT
Background
A. The securities regulatory authority or regulator in Ontario has received an application (the Application) from the Filers under the securities legislation of the principal regulator (the Legislation) for
(i) a decision (the First Related Issuer Securities Exemption Sought) providing an exemption (the First Passport Exemption) from the requirements (the First Related Issuer Securities Prohibition) that prohibit a mutual fund from making or holding an investment in any person or company who is a substantial security holder of the mutual fund, its management company or distribution company or in any issuer in which any person or company who is a substantial security holder of the mutual fund, its management company or its distribution company has a significant interest, in order to permit existing mutual funds and future mutual funds to which National Instrument 81-102 – Mutual Funds (NI 81-102) does not apply (each, a Pooled Fund and, collectively the Pooled Funds) managed by a Filer, or an affiliate of a Filer, to:
A. make and hold an investment in the debt securities of the Canadian Imperial Bank of Commerce (CIBC) which is or may be a substantial security holder of the Pooled Fund, its management company or its distribution company in a primary distribution or treasury offering (a Primary Offering);
B. make and hold an investment in an issuer (a Related Issuer) in which CIBC has a significant interest, in the case of exchange traded securities, in the secondary market and, in the case of debt securities, in the secondary market or in a Primary Offering; and
(ii) a decision (the Second Related Issuer Securities Exemption Sought) providing an exemption (the Second Passport Exemption) from the requirement (the Second Related Issuer Securities Prohibition) that prohibits a portfolio manager from 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, or where his or her own interest might distort his or her judgment, unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained, in order to permit the portfolio manager on behalf of a Pooled Fund to invest in the debt securities of CIBC or another issuer (also, a Related Issuer) in which a responsible person or an associate of a responsible person is an officer or director, or where his or her own interest might distort his or her judgment, in a Primary Offering.
B. The securities regulatory authority or regulator (the Coordinated Exemptive Relief Decision Makers) in each of Ontario and Newfoundland and Labrador (the Coordinated Jurisdictions) have received an application from the Filers for a decision (the Coordinated Exemptive Relief) under the securities legislation of the Coordinated Jurisdictions (also, the Legislation) for the Second Related Issuer Securities Exemption Sought to permit the transactions described in paragraph A(ii) above.
The First Passport Exemption, the Second Passport Exemption and the Coordinated Exemptive Relief, together, are the Exemptions Sought.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for the Application;
(b) the Filers have provided notice that Section 4.7 of Multilateral Instrument 11-102 – Passport System (MI 11-102) is intended to be relied upon in respect of the First Related Issuer Securities Exemption Sought in Alberta and in respect of the Second Related Issuer Securities Exemption Sought in Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia (the Passport Jurisdictions);
(c) the decision is the decision of the principal regulator;
(d) the decision evidences the decision of each Coordinated Exemptive Relief Decision Maker.
Interpretation
Terms defined in the securities legislation of Ontario and the Passport Jurisdictions (the Jurisdictions), MI 11-102, National Instrument 14-101 – Definitions, NI 81-102 or in National Instrument 81-107 – Independent Review Committee for Investment Funds (NI 81-107), have the same meaning in this Decision. Certain other defined terms have the meanings given to them above or below under “Representations”.
Representations
The head office of each of the Filers is in Ontario.
None of the Filers nor the Pooled Funds is in default of securities legislation in any of the Jurisdictions.
Each of the Pooled Funds is, or will be, an open-ended mutual fund trust or mutual fund corporation that is a mutual fund in Ontario because it is established under the laws of the Province of Ontario.
A Filer, or an affiliate of a Filer, is, or will be, the manager and/or portfolio adviser of each of the Pooled Funds.
A responsible person, or an associate of a responsible person, of a Filer, or an affiliate of a Filer, may be an officer or a director of CIBC or another Related Issuer.
CIBC is a substantial securityholder of each Filer and may be a substantial securityholder of an affiliate of a Filer.
CIBC and Related Issuers are significant issuers of securities.
A Filer, or an affiliate of a Filer, has established or will establish an independent review committee (IRC) in respect of a Pooled Fund seeking to rely on the Exemptions Sought. The mandate of the IRC of a Pooled Fund includes or will include the approval of purchases by a Pooled Fund of securities of CIBC or a Related Issuer. The IRC of the Pooled Funds will be composed by a Filer, or an affiliate of a Filer, in accordance with section 3.7 of NI 81-107 and will be expected to comply with the standard of care set out in section 3.9 of NI 81-107. Further, the IRC of the Pooled Funds will not approve purchases unless it has made the determination set out in section 5.2(2) of NI 81-107.
If the IRC of a Pooled Fund becomes aware of an instance where a Filer or an affiliate a Filer, as manager of the Pooled Fund, did not comply with the terms of this Decision or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Pooled Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Pooled Fund is organized.
The Filers received relief from the prohibition in the securities legislation of the Jurisdictions which prohibits a mutual fund from making or holding an investment in any person or company who is a substantial security holder of the mutual fund, its management company or distribution company on July 8, 2008 in respect of the Pooled Funds to purchase and hold securities of CIBC in the secondary market.
The Filers received relief from the Second Related Issuer Securities Prohibition on July 8, 2008 in respect of the Pooled Funds, to permit the Pooled Funds to purchase securities of CIBC or another Related Issuer in the secondary market.
Section 6.2(2) of NI 81-107 provides relief from the First Related Issuer Securities Prohibition and from the Second Related Issuer Securities Prohibition in respect of existing mutual funds and future mutual funds to which NI 81-102 applies, managed by the Filers or any affiliates of the Filers, (the NI 81-102 Funds), to purchase exchange-traded securities of CIBC or another Related Issuer in the secondary market.
The Filers received relief from the First Related Issuer Securities Prohibition and from the Second Related Issuer Securities Prohibition in respect of the NI 81-102 Funds on May 22, 2008 to permit the NI 81-102 Funds to purchase debt securities of CIBC or another Related Issuer in the secondary market..
The Filers received relief from the First Related Issuer Securities Prohibition and from the Second Related Issuer Securities Prohibition in respect of the NI 81-102 Funds on December 23, 2008 to permit the NI 81-102 Funds to purchase certain debt securities of CIBC or another Related Issuer in a Primary Offering.
The Exemptions Sought will result in the Pooled Funds and the NI 81-102 Funds having the same relief in respect of the purchase of debt and equity securities of CIBC and other Related Issuers in the secondary market and in respect of the purchase of certain debt securities in a Primary Offering.
The debt securities of CIBC or another Related Issuer that are purchased by a Pooled Fund in a Primary Offering will be non-exchange traded debt securities, other than asset backed commercial paper securities, with a term to maturity of 365 days or more, the issuer of which has been given and continues to have, at the time of purchase, an approved credit rating by an approved credit rating organization and will be purchased in a Primary Offering where the terms, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.
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 First Passport Exemption is granted:
- to permit a Pooled Fund to make and hold an investment in the securities of a Related Issuer in the secondary market on the following conditions:
(i) the IRC of the Pooled Fund 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;
(ii) the transaction is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;
(iii) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(iv) if the security is listed and traded, the purchase is made on an exchange on which the securities are listed and traded;
(v) if the security is not listed on an exchange:
A. the security is a debt security that has been given, and continues to have, at the time of the purchase, an “approved credit rating” by an “approved credit rating organization”, within the meaning of those terms in NI 81-102;
B. the price payable for the security is not more than the ask price of the security;
C. the ask price of the security is determined as follows:
(1) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or
(2) 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;
(vi) the transaction complies with any applicable “market integrity requirements” as defined in NI 81-107;
(vii) a Filer, or an affiliate of a Filer, as manager of the Pooled Fund, files with the OSC particulars of any transactions, annually, on or before the 90th day after the financial year end of the Pooled Fund;
- to permit a Pooled Fund to make and hold an investment in the debt securities of CIBC or a Related Issuer in a Primary Offering on the following conditions:
(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;
(b) at the time of the purchase, the IRC of the Pooled Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(c) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(d) the size of the Primary Offering is at least $100 million;
(e) at least 2 purchasers who are independent, arm's-length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 – Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;
(f) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund would have more than 5% of its net assets invested in non-exchange traded debt securities of CIBC or the Related Issuer, as the case may be;
(g) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund together with related Pooled Funds will hold more than 20% of the securities issued in the Primary Offering;
(h) the price paid for the securities by a Pooled Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's-length purchasers who participate in the Primary Offering; and
(i) no later than the 90th day after the financial year-end of the Pooled Fund, a Filer, or an affiliate of a Filer, as manager of the Pooled Fund, files with the securities regulatory authority or regulator the particulars of any such investments.
The decision of the principal regulator and the Coordinated Exemptive Relief Decision Makers under the Legislation is that the Coordinated Exemptive Relief is granted to permit a Pooled Fund to make and hold an investment in the debt securities of CIBC or a Related Issuer in a Primary Offering on the following conditions:
(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;
(b) at the time of the purchase, the IRC of the Pooled Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(c) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(d) the size of the Primary Offering is at least $100 million;
(e) at least 2 purchasers who are independent, arm's-length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 – Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;
(f) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund would have more than 5% of its net assets invested in non-exchange traded debt securities of CIBC or the Related Issuer, as the case may be;
(g) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund together with related Pooled Funds will hold more than 20% of the securities issued in the Primary Offering;
(h) the price paid for the securities by a Pooled Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's-length purchasers who participate in the Primary Offering; and
(i) no later than the 90th day after the financial year-end of the Pooled Fund, a Filer, or an affiliate of a Filer, as manager of the Pooled Fund, files with the securities regulatory authority or regulator the particulars of any such investments.
“David L. Knight”
“Mary G. Condon”
Commissioner
Commissioner
Ontario Securities Commission Ontario Securities Commission
Headnote
National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions - Relief granted to permit pooled funds managed by the same manager, to purchase certain related debt securities in the primary market and to purchase related exchange-traded securities in the secondary market – debt securities purchased by the pooled funds in the primary market must be non-exchange traded debt securities, other than asset-backed commercial paper securities, with a term to maturity of 365 days or more, the issuer of which has been given and continues to have, at the time of purchase, an approved credit rating by an approved credit rating organization and will be purchased in a Primary Offering where the terms, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.
Applicable Legislative Provisions
Securities Act (Ontario), sections 111(2)(a), 111(2)(c)(ii), 113, 118(2)(a) and 121(2)(a)(ii)
National Instrument 81-107 – Independent Review Committee for Investment Funds, sections 6.1, 6.2