Headnote National Policy 11-203 - Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from paragraph 13.5(2)(b) of NI 31-103 to permit inter-fund trades between public closed end funds and pooled funds – inter-fund trades will comply with conditions in subsection 6.1(2) of NI 81-107 including IRC approval – trades involving exchange-traded securities are permitted to occur at last sale price as defined in the Universal Market Integrity Rules – relief also subject to pricing and transparency conditions.
Applicable Legislative Provisions
National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations – ss. 13.5(2)(b), 15.1. National Instrument 81-107 – Independent Review Committee for Investment Funds – ss. 6.1(2), 6.1(4).
February 15, 2012
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 DUNDEE SECURITIES LTD. (the “Filer”)
AND
IN THE MATTER OF the EXISTING PUBLIC FUNDS, the FUTURE PUBLIC FUNDS
and the FUTURE POOLED FUNDS (all as defined below)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds (defined below) of which the Filer or an affiliate of the Filer is or will be the manager, for a decision under the securities legislation of the Jurisdiction of the principal regulator (“Legislation”) for relief from the prohibition contained in paragraph 13.5(2)(b) of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”) prohibiting a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as adviser, to purchase or sell securities of any issuer from or to the investment portfolio of an associate of a responsible person or an investment fund for which a responsible person acts as an adviser to permit (the “Requested Relief”):
(a) purchases and sales of portfolio securities (each purchase and sale, an “Inter-Fund Trade”) between Existing Public Funds, Future Public Funds and Future Pooled Funds (collectively, the “Funds”); and
(b) a Fund to engage in Inter-Fund Trades of exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities) with another Fund at the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the “Last Sale Price”) or at the closing sale price contemplated by the definition of “current market price of the security” referred to in subparagraph 6.1(1)(a)(i) of National Instrument 81-107 – Independent Review Committee for Investment Funds (“NI 81-107”) on that trading day (the “Closing Sale Price”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a 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 is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the “Jurisdictions”).
Interpretation
Terms defined in National Instrument 14-101 – Definitions have the same meaning if used in this decision, unless otherwise defined.
“Existing Public Funds” means the existing public non-redeemable investment funds for which the Filer acts as manager and an affiliate of the Filer acts as portfolio adviser.
“Future Funds” means, collectively, the Future Pooled Funds and the Future Public Funds.
“Future Pooled Funds” means the future mutual funds to which National Instrument 81-102 – Mutual Funds does not apply, for which the Filer or an affiliate of the Filer will act as manager and/or portfolio adviser.
“Future Public Funds” means the future public non-redeemable investment funds for which the Filer or an affiliate of the Filer will act as manager and/or portfolio adviser.
“Public Funds” means, collectively, the Existing Public Funds and the Future Public Funds.
Representations
The Filer is a corporation existing under the laws of the Province of Ontario, is registered in the categories of investment dealer and investment fund manager with the Ontario Securities Commission, as an investment dealer and derivatives dealer with the Quebec Autorité des Marchés Financiers, as an investment dealer with the securities commissions of each of the other provinces of Canada and as a dealer member of the Investment Industry Regulatory Organization of Canada. The Filer is not in default of securities legislation in any of the Jurisdictions. The head office of the Filer is located in Ontario.
The Filer believes that because of the various investment objectives and investment strategies utilized by the Funds, it may be appropriate for different investment portfolios to acquire or dispose of the same securities through the same trading system. While NI 81-107 has authorized certain Inter-Fund Trades between Public Funds managed by the same manager, the Filer has determined that there are significant benefits to be achieved by the Public Funds by (i) expanding the potential counterparties to include Future Pooled Funds and (ii) permitting exchange-traded securities to be Inter-Fund Traded at the Last Sale Price in the appropriate circumstances.
Each Existing Public Fund is currently advised by Ned Goodman Investment Counsel Limited (“NGICL”), an affiliate of the Filer that is registered in the categories of exempt market dealer and portfolio manager in each of the Jurisdictions and in the category of investment fund manager with the Ontario Securities Commission. NGICL is not in default of securities legislation in any of the Jurisdictions.
Each Public Fund:
(a) that is an Existing Public Fund is a limited partnership formed under the laws of Ontario and for which the Filer acts as manager;
(b) that is a Future Public Fund will be a trust, limited partnership or a corporation established under the laws of Canada or one of the provinces or territories of Canada, as applicable, for which the Filer or an affiliate of the Filer will act as manager;
(c) issues or will issue securities that are or will be qualified for distribution in each of the Jurisdictions pursuant to a prospectus and filed in accordance with the securities legislation of the Jurisdictions;
(d) is or will be advised by the Filer or NGICL or another affiliate; and
(e) has established, for the Existing Public Funds, and will establish, for the Future Public Funds, an independent review committee (“IRC”) in accordance with the provisions of NI 81-107.
- Each Pooled Fund:
(a) will offer securities in one or more of the Jurisdictions that are exempt from prospectus requirements in such Jurisdictions;
(b) will not be a reporting issuer;
(c) will have the Filer or an affiliate of the Filer act as its manager;
(d) will be advised by the Filer or NGICL or another affiliate; and
(e) will establish an IRC in accordance with the requirements of NI 81-107, the mandate of which will include the approval of Inter-Fund Trades.
The Funds are not in default of securities legislation in any Jurisdiction.
At the time of an Inter-Fund Trade, the Filer (or its affiliate) will have in place policies and procedures applicable to Inter-Fund Trades between Funds.
When a Filer, or an affiliate of a Filer, engages in an Inter-Fund Trade which involves the purchase and sale of securities between Funds, it will generally follow the following procedures or other procedures approved by the applicable IRC:
(a) the Filer (or affiliate of the Filer), as portfolio manager, will deliver the trade instructions in respect of a purchase or sale of a portfolio security by a Fund (Portfolio A) to a trader on a trading desk with a registered dealer;
(b) the Filer (or affiliate of the Filer), as portfolio manager, will deliver the trade instructions in respect of a purchase or sale of a portfolio security by another Fund (Portfolio B) to a trader on a trading desk with a registered dealer;
(c) the trader on the trading desk will be required to execute the trade on a timely basis as an Inter-Fund Trade between Portfolio A of the relevant Fund on the one hand, and Portfolio B of the other Fund on the other hand, at the Last Sale Price of the security prior to execution of the trade or at the Closing Sale Price, as instructed by the portfolio manager, as the case may be; and
(d) the trader on the trading desk will advise the portfolio manager for Portfolio A and Portfolio B of the price at which the Inter-Fund Trade occurred.
The Filer cannot rely on the exemptions in subsection 6.1(4) of NI 81-107 to engage in Inter-Fund Trades unless the parties to the Inter-Fund Trade are both reporting issuers and the Inter-Fund Trade occurs at the current market price which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.
The Filer has determined that it would be in the best interests of the Funds to receive the Requested Relief.
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 Requested Relief is granted provided that:
(a) the Inter-Fund Trade is consistent with the investment objectives of the Funds;
(b) the Filer refers the Inter-Fund Trade to the IRC of the Funds in the manner contemplated by section 5.1 of NI 81-107 and the Filer complies with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;
(c) the IRC of each Fund has approved the Inter-Fund Trade in accordance with the terms of subsection 5.2(2) of NI 81-107; and
(d) for exchange-traded securities, the Inter-Fund Trade is executed at the Last Sale Price or the Closing Sale Price of the security and the Inter-Fund Trade complies with paragraphs (c), (d), (f) and (g) of subsection 6.1(2) of NI 81-107; and
(e) for all other securities, the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107.
“Sonny Randhawa”
Sonny Randhawa
Manager, Investment Funds Branch
Ontario Securities Commission