TD Asset Management Inc., 2011 CanLII 82767

Ontario Securities Commission

Headnote National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from conflict of interest trading prohibition in paragraph 13.5(2)(b) of NI 31-103 to permit in specie subscriptions and redemptions by separately managed accounts and mutual funds in mutual funds – Portfolio manager of managed accounts is also portfolio manager of mutual funds and is, therefore, a “responsible person” – Relief subject to certain conditions. Applicable Legislative Provisions National Instrument 31-103 – Registration Requirements and Exemptions – ss. 13.5 and 15.1.

December 28, 2011

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 TD ASSET MANAGEMENT INC.

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the Application) from TD Asset Management Inc. and any affiliate of TD Asset Management Inc. (collectively, the Filer) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption from Section 13.5(2)(b) of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) that prohibits an adviser from knowingly causing an investment portfolio managed by it (including an investment fund for which it acts as an adviser) to purchase or sell the securities of any issuer from or to the investment portfolio of a responsible person, an associate of a responsible person, or any investment fund for which a responsible person acts as an adviser, to permit the following purchases and redemptions (each purchase and redemption, an In Specie Transaction):

(i) the purchase by a fully managed account managed by the Filer (each, a Managed Account and, collectively, the Managed Accounts) of securities of any existing or future mutual funds managed by the Filer, to which National Instrument 81-102 Mutual Funds (NI 81-102) applies, for which the Filer has not previously received an exemption in respect of In Specie Transactions; existing TD Private Funds; or any future TD Private Funds (each, a Fund and, collectively, the Funds) and the redemption of securities held by a Managed Account in a Fund, and as payment:

(A) for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the Fund; and

(B) for such redemption, in whole or in part, by the Fund making good delivery of portfolio securities to the Managed Account

(collectively, the Exemption Sought).

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 all of the provinces and territories of Canada other than the Jurisdiction (the Passport Jurisdictions).

Interpretation

Terms defined in NI 31-103, National Instrument 14-101 Definitions, NI 81-102, National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) or the securities legislation of the Jurisdiction or the Passport Jurisdictions have the same meaning in this Decision Document.

Representations

This decision is based on the following representations by the Filer:

The Filer

1The Filer is, or will be, registered as a portfolio manager in Ontario and each of the Passport Jurisdictions.

2The Filer is, or will be, registered as an investment fund manager, in respect of any Fund managed by it, in Ontario and in any other Passport Jurisdiction where such registration is required.

3The Filer is, or will be, the investment fund manager and/or portfolio manager of each of the Funds.

4The Filer is, or will be, the portfolio manager of each of the Managed Accounts.

The Funds

5Each of the Funds is, or will be, an open-end mutual fund trust or mutual fund corporation to which NI 81-102 applies.

6Each of the Funds is, or will be, a reporting issuer in Ontario and in each of the Passport Jurisdictions. Each of the Funds is, or will be, initially, qualified for distribution pursuant to a simplified prospectus and annual information form prepared and filed in accordance with securities legislation. However, following its initial qualification, a Fund may offer its securities only pursuant to a prospectus exemption.

7A Fund may be an associate of the Filer that is a responsible person in respect of a Managed Account, or an investment fund for which the Filer acts as an adviser.

8The Emerald Pooled Funds and the Emerald Treasury Management Pooled Funds received an exemption in respect of In Specie Transactions in a decision document dated May 28, 2008.

Managed Accounts

9Each client of the Filer has executed, or will execute, an investment management agreement for a fully managed account (the Client) with the Filer whereby the Filer has been appointed, or will be appointed, as portfolio manager for the investment portfolio of the Client with full discretionary authority. The investment management agreement or other documentation contains, or will contain, the authorization of the Client, on behalf of the Managed Account, to engage in In Specie Transaction with the Funds.

In Specie Transactions

10The Filer wishes to be able to enter into In Specie Transactions in accordance with the investment objectives of the applicable Managed Accounts. Absent the Exemption Sought, the Filer would be prohibited by subsection 13.5(2)(b) of NI 31-103 from engaging in In Specie Transactions.

11In all In Specie Transactions, the Filer will value the portfolio securities to be delivered using the same values that are used to calculate the net asset value for the purpose of the issue price or redemption price of the securities of the Fund.

12The Filer has established, or will establish, an independent review committee (IRC) in respect of each Fund in accordance with the requirements of NI 81-107.

13In Specie Transactions involving a Fund will be referred to the IRC of the Fund under Section 5.1 of NI 81-107 for approval on behalf of the Fund.

14The IRC will not provide its approval in respect of In Specie Transactions unless it has made the determination set out in Section 5.2(2) of NI 81-107.

15If the IRC of a Fund becomes aware of an instance where the Filer, as investment fund manager or portfolio manager of the Fund, did not comply with the terms of the Exemption Sought or a condition imposed by the IRC in its approval, the IRC will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction in which the Fund is organized.

16At the time of an In Specie Transaction, the Filer will have in place policies and procedures to enable the Funds to engage in In Specie Transactions with Managed Accounts.

17The Filer considers that effecting In Specie Transactions will be beneficial to the Funds and Managed Accounts in that they will reduce transaction costs on the acquisition or disposition of securities for the applicable Fund or Managed Account and there will be reduced market disruption associated with the transactions.

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 Exemption Sought is granted provided that:

(a) in connection with an In Specie Transaction where a Managed Account acquires securities of a Fund:

(i) the Filer obtains the prior written consent of the Client before it engages in any In Specie Transactions and such consent has not been revoked;

(ii) the securities delivered by the Managed Account to the Fund are acceptable to the Filer as portfolio manager of the Fund and consistent with the investment objective of the Fund;

(iii) the value of the securities delivered by the Managed Account to the Fund is at least equal to the issue price of the securities of the Fund for which they are payment, valued as if the securities were portfolio assets of that Fund;

(iv) the account statement next prepared for the Managed Account will include a note describing the securities delivered by the Managed Account to the Fund and the value assigned to such securities; and

(v) the Fund will keep written records of an In Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered by the Managed Account to the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(b) in connection with an In Specie Transaction where a Managed Account redeems securities of a Fund:

(i) the Filer obtains the prior written consent of the Client before it engages in any In Specie Transactions and such consent has not been revoked;

(ii) the securities delivered by the Fund to the Managed Account are acceptable to the Filer as portfolio manager of the Managed Account, and are consistent with the Managed Account’s investment objective;

(iii) the value of the securities delivered by the Fund to the Managed Account is equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price;

(iv) the holder of the Managed Account has not provided notice to terminate its Managed Account with the Filer;

(v) the account statement next prepared for the Managed Account will include a note describing the securities delivered by the Fund to the Managed Account and the value assigned to such securities; and

(vi) the Fund will keep written records of an In Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered by the Fund to the Managed Account and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and

(c) the Filer does not receive any compensation in respect of any In Specie Transaction and, in respect of any delivery of securities further to an In Specie Transaction, the only charges paid by the Managed Account are the commission charged by the dealer executing the trade and/or any administrative charges levied by the custodian.