Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from s. 4.2(1) of NI 81-102 to permit interfund trading between mutual funds, pooled funds and closed-end funds managed by the same manager and its affiliate – Relief subject to conditions, including IRC approval and pricing requirements – inter-fund transfers will comply with conditions in s.6.1(2) of NI 81-107.
Applicable Legislative Provisions
National Instrument 81-102 – Mutual Funds – ss.4.2(1), 4.3(1), 4.3(2), 19.1. National Instrument 81-107 – Independent Review Committee for Investment Funds – s.6.1(2)
October 31, 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)
AND IN THE MATTER OF THE FUNDS
(as defined below)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
(a) for an exemption from the prohibition in section 4.2(1) of National Instrument 81-102 - Mutual Funds (NI 81-102) to permit the NI 81-102 Funds (as defined below) to purchase debt securities from or sell debt securities to a Pooled Fund (as defined below) or a Closed-End Fund (as defined below), (each purchase or sale, an Inter-Fund Trade) (the Interfund Trading Relief); and
(b) to revoke and replace the GCIC Relief (as defined below) (the Revocation Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(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 each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 81-102 and NI 81-107 have the same meaning if used in this decision, unless otherwise defined.
Closed-End Funds means collectively, the Existing Closed-End Funds and the Future Closed-End Funds;
Existing NI 81-102 Fund means each NI 81-102 Fund being a mutual fund that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;
Existing Closed-End Fund means each existing Closed-End Fund, being an investment fund that is a reporting issuer and is not a mutual fund and not subject to NI 81-102, of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;
Existing Pooled Fund means each existing Pooled Fund, being an investment fund that is not a reporting issuer, of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;
Funds means the NI 81-102 Funds, the Closed-End Funds and the Pooled Funds;
Future Closed-End Fund means each Closed-End Fund being an investment fund that is a reporting issuer and is not a mutual fund and not subject to NI 81-102, of which the Filer or an affiliate of the Filer will act as manager and/or portfolio adviser in the future;
Future NI 81-102 Fund means each NI 81-102 Fund being a mutual fund that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer will act as manager and/or portfolio adviser in the future,;
Future Pooled Fund means each Pooled Fund being an investment fund that is not a reporting issuer, of which the Filer or an affiliate of the Filer will act as manager and/or portfolio adviser in the future,;
Inter-Fund Trading Prohibition means section 4.2(1) of NI 81-102;
NI 81-102 Funds means collectively, the Existing NI 81-102 Funds and the Future NI 81-102 Funds;
NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds;
Pooled Funds means collectively, the Existing Pooled Funds and the Future Pooled Fund;
Section 4.2(1) Relief means the exemptive relief from section 4.2(1) of NI 81-102, which prohibits an NI 81-102 Fund from engaging in Inter-Fund Trades with a Closed-End Fund and a Pooled Fund to permit NI 81-102 Funds to engage in Inter-Fund Trades with a Closed-End Fund or a Pooled Fund; and
TSX means the Toronto Stock Exchange.
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 Inc., an Ontario corporation wholly-owned directly by BNS with its head office in Ontario. The head office of the Filer is in Toronto, 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.
The Application has been submitted by the Filer 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 as a separate division of the Filer.
The Reorganization does not involve an amalgamation.
Under a decision dated September 12, 2008, the Ontario Securities Commission granted GCIC relief that is substantially the same as the Interfund Trading Relief (the GCIC Relief).
The Filer is not able to rely on the GCIC Relief following the Reorganization since the terms of that relief do not permit it to flow through to the Filer.
Each of the Closed-End Funds, the NI 81-102 Funds and the Pooled Funds is or will be established under the laws of the Province of Ontario or of Canada as investment funds that are (a) open-ended mutual fund trusts, (b) open-ended mutual fund corporations, or (c) closed-ended limited partnerships and/or closed-ended trusts.
Each of the NI 81-102 Funds are or will be subject to the provisions of NI 81-102. The securities of each of the NI 81-102 Funds and the Closed-End Funds (being the closed-ended limited partnerships and/or closed ended trusts) are or will be qualified for distribution pursuant to simplified prospectuses and annual information forms or long form prospectuses, as the case may be, that have been prepared or will be prepared and filed in accordance with the securities legislation of each of the Jurisdictions. The securities of each of the Pooled Funds are or will be qualified for distribution on a private placement basis pursuant to an offering memorandum, and will not be reporting issuers. The Closed-End Funds and the Pooled Funds are not currently subject to NI 81-102.
Each of the NI 81-102 Funds and the Closed-End Funds is or will be a reporting issuer in each of the Jurisdictions.
A Fund’s reliance on the Interfund Trading Relief will be compatible with its investment objectives and strategies.
The Filer or an affiliate of the Filer is, or will be, the manager and/or portfolio adviser of the Funds.
Certain of the Closed-End Funds, the NI 81-102 Funds and the Pooled Funds are or will be "associates" of the Filer.
The Filer and each of the Funds are not in default of securities legislation in any of the Jurisdictions.
The mandate of the independent review committee (IRC) of a Pooled Fund or a Closed-End Fund, among other things, includes approving Inter-Fund Trades between the Pooled Fund or the Closed-End Fund and an NI 81-102 Fund or between a Pooled Fund and a Closed-End Fund. The IRC of the Pooled Funds and the Closed-End Funds was composed by GCIC in accordance with the requirements of 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 and the Closed-End Funds will not approve Inter-Fund Trades between a Pooled Fund or a Closed-End Fund and a NI 81-102 Fund or between a Pooled Fund and a Closed-End Fund unless it has made the determination set out in section 5.2(2) of NI 81-107.
If the IRC of a Pooled Fund or a Closed-End Fund becomes aware of an instance where the Filer or an affiliate of the Filer, as manager of the Pooled Fund or the Closed-End 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 or the Closed-End Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Pooled Fund or Closed-End Fund is organized.
Purchases and sales of securities involving NI 81-102 Funds will be referred to the IRC of the NI 81-102 Funds under section 5.2(1) of NI 81-107 and will be subject to the requirements of section 5.2(2) of NI 81-107.
GCIC has established policies and procedures which will be adopted by the Filer following the Completion Date of the Reorganization to enable the NI 81-102 Funds, the Pooled Funds or the Closed-End Funds to engage in Inter-Fund Trades.
The Filer has determined that it would be in the interests of the NI 81-102 Funds to be able to purchase securities from or sell securities to a Closed-End Fund or to a Pooled Fund. An exemption currently exists in section 4.3(1) of NI 81-102 to permit the NI 81-102 Funds to interfund trade listed equity securities with the Closed-End Funds and/or the Pooled Funds. The NI 81-102 Funds, however, are unable to rely upon the exemption from section 4.2(1) of NI 81-102 for inter-fund trades in debt securities codified in subsection 4.3(2) of NI 81-102 because it would only apply where funds on both sides of the interfund trade are mutual funds governed by NI 81-107. The Pooled Funds are not subject to NI 81-107 and the Closed-End Funds, although subject to NI 81-107, are not mutual funds. The NI 81-102 Funds are also unable to rely on the exemption in section 4.3(1) of NI 81-102 because debt securities are typically not subject to public quotations as required by section 4.3(1) of NI 81-102.
Accordingly, as of the Completion Date, the Filer is seeking the Revocation Relief and the Interfund Trading Relief to replace the GCIC 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:
(a) the Revocation Relief is granted; and
(b) the Interfund Trading Relief is granted provided that the following conditions are satisfied for Inter-Fund Trades:
(i) the IRC of the NI 81-102 Fund has approved the transaction in respect of the NI 81-102 Fund under section 5.2 of NI 81-107;
(ii) the IRC of the Closed-End Fund or the Pooled Fund has approved the transaction in respect of the Closed-End Fund or Pooled Fund under section 5.2 of NI 81-107; and
(iii) the transaction complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107.
This decision is effective on the Completion Date.
“Raymond Chan”
Raymond Chan
Manager, Investment Funds Branch
Ontario Securities Commission
SEDAR Nos.2093282, 2093285, 2093288, 2093290,
2093302, 2093307, 2093312,2093316,
2093318, 2093324, 2093326 7 2093330