Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions - relief granted from related party transaction reporting requirements in s. 117 of the Securities Act to replace existing relief– Filer is “management company” to certain mutual funds – following an internal reorganization, filer will also become “management company” to other funds managed by an affiliate – Funds permitted to engage in certain related party transactions that trigger reporting requirements under the Act – existing relief for certain funds will not flow through to filer following reorganization – funds already provide substantially similar reporting in management reports on fund performance – relief will consolidate existing relief under the filer after the reorganization.
Applicable Legislative Provisions Securities Act, R.S.O. 1990, c.S.5, as am., paras. 117(1)(a), (c) and (d) and s. 117(2).
October 29, 2013
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 1832 ASSET MANAGEMENT L.P.
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer from the management company reporting requirements in the Legislation (the Mutual Fund Conflict of Interest Reporting Requirements) which require the Filer, or an affiliate to:
(a) file a report of every transaction of purchase or sale of securities between the mutual fund and any related person or company;
(b) file a report of every transaction of purchase and sale effected by the mutual fund through any related person or company with respect to which the related person or company receives a fee either from the mutual fund or from the other party to the transaction or from both; and
(c) file a report of every transaction, other than an arrangement relating to insider trading in portfolio securities, in which the mutual fund is a joint participant with one or more of its related persons or companies;
in respect of the Funds (as defined below) (collectively, the Conflict of Interest Reporting Relief).
The Filer also seeks to revoke and replace the Current Relief (as defined below) and the GCIC Relief (as defined below) (the Revocation Relief) (the Mutual Fund Conflict of Interest Reporting Relief and the Revocation Relief are collectively, the Requested Relief).
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 (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Nova Scotia, New Brunswick and Newfoundland and Labrador (together with Ontario, the Jurisdictions).
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.
For purposes of paragraphs 6, 7, 8, 10, 11, 13, references to “Filer” includes the Filer and its affiliates.
Funds means mutual funds which are reporting issuers and for which the Filer or an affiliate acts as portfolio manager from time to time.
Nl 31-103 means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Nl 81-102 means National Instrument 81-102 Mutual Funds.
Nl 81-106 means National Instrument 81-106 Investment Fund Continuous Disclosure.
Nl 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds.
Related Party means Scotia Capital Inc. or other brokers or dealers that are subsidiaries or affiliates of The Bank of Nova Scotia from time to time.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is an Ontario limited partnership, which is wholly-owned, indirectly, by The Bank of Nova Scotia (BNS). The general partner of the Filer is 1832 Asset Management G.P. Inc., an Ontario corporation wholly-owned directly by BNS with its head office in Ontario.
The Filer is registered as (i) a portfolio manager in all of the provinces of Canada, and in the Yukon; (ii) an exempt market dealer in all of the provinces of Canada (except Prince Edward Island and Saskatchewan); (iii) an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador; and (iv) a commodity trading manager in Ontario.
Neither the Filer nor any of the Funds is in default under the securities legislation of any of the Jurisdictions.
The Funds are or will be mutual funds that are reporting issuers in each of the Jurisdictions.
Each Related Party is a "related person or company" to the Funds within the meaning of the Legislation because each Related Party is a subsidiary or affiliate of BNS, the parent company of the Filer.
The Filer is or will be the portfolio manager of the Funds and accordingly is a "management company" or equivalent under the Legislation.
A Fund is or will be a "related person or company" in respect of another Fund and in respect of other investment funds and managed accounts managed by the Filer, as such term is defined in section 106 of the Legislation.
Pursuant to section 6.1 of NI 81-10, as well as exemptive relief granted to the Funds from time to time, a Fund is permitted to purchase or sell securities with another Fund.
The Filer has discretion to allocate the brokerage transactions of the Funds in any manner that it believes to be in the Funds' best interests. The Filer may from time to time allocate brokerage business of the Funds to a Related Party for which it may receive a fee. The Filer uses the same criteria in selecting all brokers, regardless of whether the broker is a Related Party.
The Filer, as portfolio manager to the Funds may from time to time cause a Fund to participate as a joint participant with one or more other Funds in the purchase of securities under a distribution, including where a Related Party may act as an underwriter in connection with such offering.
In the absence of relief therefrom, the Mutual Fund Conflict of Interest Reporting Requirements would require the Filer to file, within 30 days of the end of the month in which each transaction occurs, a report of (i) any purchase or sale of securities between a Fund and another Fund or other Related Party (ii) any purchase or sale of securities by a Fund that is effected through a Related Party, in which that Related Party received a Fee for such services, either from the Fund or another party to the transaction, and (iii) every transaction in which, by arrangement, a Fund, with one or more Funds or Related Parties, acts as a joint participant. The report in each case, would have to disclose the issuer of the securities purchased or sold, the class or designation of the securities, the amount or number of securities, the consideration, the name of the related person or company receiving a fee, the name of the person or company that paid the fee to the related person or company and the amount of the fee received by the related person or company.
Pursuant to NI 81-106, the Funds prepare and file interim and annual management reports of fund performance (MRFPs) that disclose any transactions involving a Related Party, including the identity of that Related Party, the relationship to the Fund, the purpose of the transaction, the measurement basis used to determine the recorded amount, and any ongoing commitments to the related party.
It is costly and time consuming for the Filer to also provide the reports required by the Mutual Fund Conflict of Interest Reporting Requirements, which are substantially similar to the information required by NI 81-106 to be disclosed in the MRFPs, on a monthly and segregated basis for each Fund.
The Filer is seeking the Revocation Relief in connection with a proposed internal reorganization of BNS’s asset management business (the Reorganization).
The Reorganization is structured as an internal consolidation of the asset management business currently conducted by certain affiliated BNS entities, namely, GCIC Ltd. (GCIC), WaterStreet Family Capital Counsel Inc. and CPA Securities Inc. – each of which is wholly-owned directly or indirectly by BNS – into the Filer. Under the Reorganization, the asset management business conducted by GCIC at the time of the Reorganization will be transferred to the Filer. The closing date of the Reorganization is November 1, 2013 (the Completion Date).
If the Reorganization is completed as contemplated, GCIC will cease to carry on registrable business and will have its various registrations under the Legislation revoked. Thereafter, the business of GCIC will be carried on by the Filer which includes becoming manager and/or portfolio advisor of Funds for which GCIC provided such services prior to the Reorganization.
The Reorganization does not involve an amalgamation.
Under an Order dated July 27, 2009, the securities regulatory authority or regulator in each of Ontario and Newfoundland and Labrador - as Coordinated Exemptive Relief Decision Makers - granted GCIC relief that is substantially the same as the Conflict of Interest Reporting Relief (the GCIC Relief).
Under an Order dated October 27, 2009, the Principal Regulator granted the Filer relief from the provisions of the Legislation requiring a management company to file a reporting within thirty days after each month end relating to every purchase or sale effected by a mutual fund through any related person or company with respect to which the related person or company received a fee either from the mutual fund or from the other party to the transaction or both (the Current Relief).
The Current Relief is not as broad as the GCIC Relief, as the Current Relief does not give relief from the requirement of the Legislation that (i) a report be filed of every transaction of purchase or sale of securities between the mutual fund and any related person or company and that (ii) a report be filed of every transaction, other than an arrangement relating to insider trading in portfolio securities, in which the mutual fund is a joint participant with one or more of its related persons or companies, which reports are required because the Funds may engage in transactions of securities with a Related Party and a Fund may be a joint participant in a transaction with a Related Party.
Filer is not able to rely on the GCIC Relief following the Reorganization as the terms of the GCIC Relief do not permit that relief to flow through to the Filer.
Accordingly, as of the Completion Date, the Filer is seeking the Revocation Relief and to replace the Current Relief and the GCIC Relief with the Mutual Fund Conflict of Interest Reporting 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:
(c) the Revocation Relief is granted; and
(d) the Conflict of Interest Reporting Relief is granted provided that:
(i) the annual and interim MRFP for each Fund disclose:
(A) the name of the related person or company;
(B) the amount of fees paid to each related person or company;
(C) the person or company who paid the fees, if they were not paid by the Fund; and
(ii) the records of portfolio transactions maintained by each Fund include, separately, for every portfolio transaction effected by the Fund through a related person or company:
(A) the name of the related person or company;
(B) the amount of fees paid to the related person or company; and
the person or company who paid the fees.
This decision is effective on the Completion Date.
“James E. A. Turner”
“Judith N. Robertson”
James E.A. Turner Vice-Chair
Judith N. Robertson Commissioner
ONTARIO SECURITIES COMMISSION