Headnote National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions – Plan Sponsors, CAP Members, and a named service provider exempted from the dealer registration and prospectus requirements in the Legislation in respect of trades in securities of mutual funds to tax-assisted capital accumulation plans, subject to certain terms and conditions. Statutes Cited Securities Act, R.S.O. 1990, c.S.5, as amended s. 25, 53, 74(1). Rules Cited National Instrument 81-102 – Mutual Funds National Instrument 45-106 – Prospectus and Registration Exemptions Published Documents Cited Amendments to NI 45-106 – Registration and Prospectus Exemption for Certain Capital Accumulation Plans, October 21, 2005 (2005), 25 OSCB 8681
June 29, 2010
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
Solium Capital Inc. (the Filer)
Decision
Background
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer for a decision, on behalf of the Filer, (including its respective directors, officers, representatives and employees acting on its behalf), any plan sponsor (a Plan Sponsor) of a CAP (as defined below) that uses the services of the Filer in respect of its CAP and any Fund (as defined below) under the securities legislation of the Jurisdiction (the Legislation) for a ruling that the dealer registration and prospectus requirements contained in the Legislation shall not apply to the Filer (including its respective directors, officers, representatives and employees acting on its behalf) or any Plan Sponsor that uses the services of the Filer in respect of its CAP in respect of trades in the securities of any mutual funds selected for the CAPs sponsored by the Plan Sponsors (each, a Fund, collectively, the Funds), subject to certain terms and conditions (collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for а passport application):
(a) the Ontario Securities Commission is the principal regulator for this 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 Quebec, Newfoundland and Labrador, Yukon Territory and Nunavut (the Passport 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.
"Dealer Registration Relief" means the relief requested from the dealer registration requirements the Legislation; and
"Prospectus Relief" means the relief requested from the prospectus requirements in the Legislation.
Representations
This decision is based upon the following facts represented by the Filer:
The Filer was incorporated under the laws of Alberta on September 16, 1999.
The head and principal office of the Filer is 205, 805 - 8th Avenue S.W., Calgary Alberta T2P 1H7.
The Filer is a reporting issuer listed on the TSX with the trading symbol "SUM".
The Filer is not in default of the securities legislation of any jurisdiction of Canada.
The Filer's principal business is acting as a service provider providing web based record-keeping and administrative services to issuers in connection with equity based incentive plans sponsored by such issuers. The Filer currently administers the following equity based incentive plans:
(a) grant based plans such as employee stock option plans, performance share plans, restricted share unit plans and other types of grant based awards; and
(b) tax assisted investment or savings plans, such as employee profit sharing plans, registered retirement savings plans, deferred profit sharing plans, non-registered savings plans and employee benefit plans; and
(c) other types of non-tax assisted contributory savings plans that enable employees and other plan participants to allocate a portion of their employment income into the issuer's sponsored plan, whereby the issuer at its discretion, and guided by the terms and conditions of the plan text, may match a portion of the employee's contribution based on a predefined formula.
The sole investment alternative under the plans currently administered by the Filer is securities of the applicable plan sponsor for such plans which consist of common shares of such plan sponsor and securities that are exercisable, exchangeable or convertible into common shares of such plan sponsor.
One of the services provided by the Filer in administering plans is assistance in executing trade orders placed by plan participants (Operational Services). Orders for the purchase or sale of securities by participants in existing plans administered by the Filer are provided by plan participants either online through the Filer's proprietary "Shareworks" platform or by telephone through the Filer's call centre. The instructions received are transmitted electronically by the Shareworks platform to a plan broker appointed by the Plan Sponsor (a Plan Broker) for execution on the applicable market. The Plan Broker executes the trade and provides details of the execution of the transaction to the Filer who enters the details in the Shareworks platform. Plan participants have online access to their accounts on a 24/7 basis.
In providing Operational Services, neither the Filer nor its officers or staff nor the Plan Broker provide investment advice to plan participants.
The Filer has received significant interest from its existing and potential customers to expand the investment alternatives available to plan participants under investment or savings plans it administers to include investment alternatives other than securities of the plan sponsors. Customers have requested this expanded service offering because limiting participants to investing in only the plan sponsor's securities does not provide participants with a diversified savings portfolio.
A CAP or Capital Accumulation Plan is a tax-assisted investment or savings plans, including a defined contribution registered pension plan, a group registered retirement savings plan, a group registered education savings plan, or a deferred profit sharing plan, established by a Plan Sponsor that permits a member to make investment decisions among two or more investment options offered within the plan and in Quebec and Manitoba, includes a simplified pension plan.
Plan Sponsors to which the Filer provides or will provide Operational Services may be employers, trustees, trade unions, associations or a combinations of these that establish a CAP.
A Plan Sponsor establishes a CAP for the benefit of individual members of a CAP (each, a CAP Member). CAP Members may include current or former employees, or a person who belongs, or did belong to a trade union or association, or
(a) his or her spouse;
(b) a trustee, custodian or administrator who is acting on his or her behalf, or for his or her benefit, or on behalf of, of for the benefit of, his or her spouse; or
(c) his or her holding entity, or a holding entity of his or her spouse,
that have assets in a Capital Accumulation Plan, and includes a person that is eligible to participate in a Capital Accumulation Plan.
The Filer seeks to include mutual funds as additional investment alternatives for CAP Members so that CAP Members will have the alternative to invest in either securities of the Plan Sponsor or mutual funds.
The Filer, the Plan Sponsors and the Funds intend to trade within CAPs or to CAP Members in accordance with the conditions set out in proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions related to CAPs, which were published by the Canadian Securities Administrators (the CSA) on October 21, 2005 (the CSA Notice) and adopted in the form of a blanket exemption by the securities regulatory authorities in all provinces and territories of Canada, other than the Passport Jurisdictions (the CAP Blanket Orders). The CSA Notice and the CAP Blanket Orders contemplate both dealer registration and prospectus exemptions in respect of the distribution of, and trading in, securities of mutual funds pursuant to CAPs subject to certain terms and conditions.
The securities regulatory authorities in the Passport Jurisdictions have not granted blanket exemptions from the prospectus and dealer registration requirements of the applicable securities legislation in respect of certain CAPs, however, the CSA Notice states that these jurisdictions will use the terms set out in the CSA Notice as a template of standard conditions and terms of relief for applicants who apply for an exemption in respect of certain CAPs from the dealer registration requirement and/or prospectus requirement in the legislation of such jurisdictions.
As a service provider to CAPs (a Service Provider), the Filer may provide services to Plan Sponsors with respect to the design, establishment or operation of a CAP. These services include Operational Services, providing investment education and communication to CAP Members and providing administration and reporting as required. The Filer may also carry out responsibilities of a Plan Sponsor that are delegated to it (all of the above services, including the Operational Services, are collectively, the Administrative Services).
The Filer wishes to provide Administrative Services to Plan Sponsors with respect to the establishment and operation of Capital Accumulation Plans, in accordance with the CAP Guidelines and in accordance with the terms and conditions contemplated by the CSA Notice. Accordingly, the Filer is seeking an exemption on behalf of the Filer, the Plan Sponsors and the Funds as applicable, from the prospectus and registration requirements of the securities legislation of the Passport Jurisdictions in respect of the distribution of or trading in mutual fund securities to Capital Accumulation Plans or CAP Members.
Each Plan Broker in respect of a CAP will be appointed by a Plan Sponsor to process orders for the purchase and sale of securities pursuant to a CAP. Each Plan Broker is or will be a registered dealer in all provinces and territories of Canada in which CAPs administered by the Filer exist and CAP Members are resident, and each Plan Broker is or will be a member of the Investment Industry Regulatory Organization of Canada (IIROC).
The Filer will not recommend, select or advise on the selection of mutual funds to be made available to CAP Members of any Capital Accumulation Plan or provide investment advice to CAP Members on which investment alternatives to invest in. The Filer anticipates that a small number of mutual funds will be made available to CAP Members as investment alternatives under any CAP. The mutual funds to be included in any Capital Accumulation Plan will be selected by the Plan Sponsor in its sole discretion.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:
- for the Dealer Registration Relief:
(a) the Plan Sponsor selects the mutual funds that CAP Members will be able to invest in under the CAP;
(b) the Plan Sponsor establishes a policy, and provides CAP Members with a copy of the policy and any amendments to it, describing what happens if a CAP Member does not make an investment decision;
(c) in addition to any other information that the Plan Sponsor believes is reasonably necessary for a CAP Member to make an investment decision within the CAP, and unless that information has previously been provided, the Plan Sponsor provides the CAP Member with the following information about each mutual fund the CAP Member may invest in:
(i) the name of the mutual fund;
(ii) the name of the manager of the mutual fund and its portfolio adviser;
(iii) the fundamental investment objective of the mutual fund;
(iv) the investment strategies of the mutual fund or the types of investments the mutual fund may hold;
(v) a description of the risks associated with investing in the mutual fund;
(vi) where a CAP Member can obtain more information about each mutual fund's portfolio holdings; and
(vii) where a CAP Member can obtain more information generally about each mutual fund, including any continuous disclosure;
(d) the Plan Sponsor provides CAP Members with a description and amount of any fees, expenses and penalties relating to the CAP that are borne by the CAP Members, including:
(i) any costs that must be paid when the mutual fund is bought or sold;
(ii) the costs associated with accessing or using any of the investment information, decision-making tools or investment advice provided by the Plan Sponsor;
(iii) mutual fund management fees;
(iv) mutual fund operating expenses;
(v) record keeping fees;
(vi) any costs of transferring among investment options, including penalties, book and market value adjustments and tax consequences;
(vii) account fees; and
(viii) fees for services provided by Service Providers,
provided that the Plan Sponsor may disclose the fees, penalties and expenses on an aggregate basis, if the Plan Sponsor discloses the nature of the fees, expenses and penalties, and the aggregated fees do not include fees that arise because of a choice that is specific to a particular CAP Member;
(e) the Plan Sponsor has, within the past year, provided the CAP Members with performance information about each mutual fund the CAP Members may invest in, including:
(i) the name of the mutual fund for which the performance is being reported;
(ii) the performance of the mutual fund, including historical performance for one, three, five and ten years if available;
(iii) a performance calculation that is net of investment management fees and mutual fund expenses;
(iv) the method used to calculate the mutual fund's performance return calculation, and information about where a CAP Member could obtain a more detailed explanation of that method;
(v) the name and description of a broad-based securities market index, selected in accordance with National Instrument 81-106 - Investment Fund Continuous Disclosure, for the mutual fund, and corresponding performance information for that index; and
(vi) a statement that past performance of the mutual fund is not necessarily an indication of future performance;
(f) the Plan Sponsor has, within the past year, informed CAP Members whether there were any changes in the choice of mutual funds that CAP Members could invest in and where there was a change, provided information about what CAP Members needed to do to change their investment decision, or make a new investment;
(g) the Plan Sponsor provides CAP Members with investment decision-making tools that the Plan Sponsor reasonably believes are sufficient to assist them in making an investment decision within the CAP;
(h) the Plan Sponsor must provide the information required by paragraphs (b), (c), (d) and (g) prior to the CAP Member making an investment decision under the Capital Accumulation Plan;
(i) if the Plan Sponsor makes investment advice from a registrant available to CAP Members, the Plan Sponsor must provide CAP Members with information about how they can contact the registrant;
- for the Prospectus Relief
(a) the conditions set forth in paragraph 1 above are met;
(b) the Funds comply with Part 2 of National Instrument 81-102 Mutual Funds;
this Decision, as it relates to the jurisdiction of a Decision Maker with respect to the Dealer Registration Relief will terminate upon the coming into force in securities rules of a registration exemption for trades in a security of a mutual fund to a CAP or 90 days after the Decision Maker publishes in its Bulletin a notice or statement to the effect that it does not propose to make such a rule; and
this Decision, as it relates to the jurisdiction of a Decision Maker with respect to the Prospectus Relief will terminate upon the coming into force in securities rules of a prospectus exemption for the distribution of a security of a mutual fund to a CAP or 90 days after the Decision Maker publishes in its Bulletin a notice or statement to the effect that it does not propose to make such a rule.
“Paulette L. Kennedy” “Mary G. Condon”
Commissioner Commissioner
ONTARIO SECURITIES COMMISSION ONTARIO SECURITIES COMMISSION
Headnote
National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions – Plan Sponsors, CAP Members, and a named service provider exempted from the dealer registration and prospectus requirements in the Legislation in respect of trades in securities of mutual funds to tax-assisted capital accumulation plans, subject to certain terms and conditions.
Statutes Cited
Securities Act, R.S.O. 1990, c.S.5, as amended s. 25, 53, 74(1).
Rules Cited
National Instrument 81-102 – Mutual Funds
National Instrument 45-106 – Prospectus and Registration Exemptions
Published Documents Cited
Amendments to NI 45-106 – Registration and Prospectus Exemption for Certain Capital Accumulation Plans, October 21, 2005 (2005), 25 OSCB 8681.