December 14, 2018
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
CIBC ASSET MANAGEMENT INC. (the Filer) and
CIBC ACTIVE INVESTMENT GRADE FLOATING RATE BOND ETF
CIBC ACTIVE INVESTMENT GRADE CORPROATE BOND ETF
CIBC MULTIFACTOR CANADIAN EQUITY ETF
CIBC MULTIFACTOR U.S. EQUITY ETF
(the Proposed ETFs)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Proposed ETFs and any additional exchange-traded mutual funds (the Future ETFs, and together with the Proposed ETFs, the ETFs, each an ETF) established in the future for which the Filer is the manager, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
(a) exempts the Filer and each ETF from the requirement to include a certificate of an underwriter in an ETF’s prospectus (the Underwriter’s Certificate Requirement); and
(b) exempts a person or company purchasing ETF Securities (as defined below) in the normal course through the facilities of the TSX (as defined below) or another Marketplace (as defined below) from the Take-Over Bid Requirements (as defined below).
(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 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 all of the provinces and territories of Canada other than Ontario (together with Ontario, the 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.
Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units (as defined below) from time to time.
Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of an ETF authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more ETFs on a continuous basis from time to time.
Basket of Securities means, in relation to an ETF, a group of securities or assets representing the constituents of the ETF.
Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer, to perform certain duties in relation to the ETF Securities, including the posting of a liquid two-way market for the trading of the ETF Securities on the TSX or another Marketplace.
ETF Facts means a prescribed summary disclosure document required pursuant to NI 41-101 in respect of one or more classes or series of ETF Securities being distributed under a prospectus.
ETF Securities means securities of an ETF that are listed or will be listed on the TSX or another Marketplace and that will be distributed pursuant to a prospectus prepared in accordance with NI 41-101 and Form 41-101F2.
Form 41-101F2 means Form 41-101F2 Information Required in an Investment Fund Prospectus.
Marketplace means a “marketplace” as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.
NI 41-101 means National Instrument 41-101 General Prospectus Requirements.
NI 81-102 means National Instrument 81-102 Investment Funds.
Other Dealer means a registered dealer that acts as authorized dealer or designated broker to exchange traded funds that are not managed by the Filer and that has received relief under a Prospectus Delivery Decision.
Prescribed Number of ETF Securities means, in relation to an ETF, the number of ETF Securities of the ETF determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Securityholders means beneficial and registered holders of ETF Securities.
Take-Over Bid Requirements means the requirements of National Instrument 62-104 Take-Over Bids and Issuer Bids relating to take-over bids, including the requirement to file a report of a take-over bid and to pay the accompanying fee, in each Jurisdiction.
TSX means the Toronto Stock Exchange.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation established under the laws of Canada, which is a wholly-owned subsidiary of Canadian Imperial Bank of Commerce, with its head office located in Toronto, Ontario.
The Filer is registered as: (i) a portfolio manager in all of the provinces and territories of Canada; (ii) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (iii) a derivatives portfolio manager in Québec; and (iv) a commodity trading manager in Ontario.
The Filer is, or will be, the investment fund manager of the ETFs.
The Filer is not in default of securities legislation in any of the Jurisdictions.
The ETFs
Each Proposed ETF will be a mutual fund structured as a trust that is governed by the laws of the Province of Ontario. The Future ETFs will be either trusts or corporations governed by the laws of a Jurisdiction. Each ETF will be a reporting issuer in the Jurisdictions in which its securities are distributed.
Subject to any exemptions that have been, or may be, granted by the applicable securities regulatory authorities, each ETF will be an open-ended mutual fund subject to NI 81-102 and Securityholders of each ETF will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.
The Filer will apply to list the ETF Securities of the ETFs on the TSX or another Marketplace. The Filer will not file a final prospectus for any of the ETFs in respect of the ETF Securities until the TSX or other applicable Marketplace has conditionally approved the listing of the ETF Securities.
The Filer has prepared and filed a long form preliminary prospectus dated November 13, 2018 in respect of the Proposed ETFs, and will prepare and file a final long form prospectus in respect of the Proposed ETFs, in accordance with NI 41-101, subject to any exemptions that may be granted by the applicable securities regulatory authorities.
ETF Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a prospectus. ETF Securities may generally only be subscribed for or purchased directly from the ETFs (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the TSX or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.
In addition to subscribing for and re-selling Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer, Designated Broker or Affiliate Dealer.
Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, a Basket of Securities and/or cash in an amount sufficient so that the value of the Basket of Securities and/or cash delivered is equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order. In the discretion of the Filer, the Funds may also accept subscriptions for Creation Units in cash only, in securities other than Baskets of Securities and/or in a combination of cash and securities other than Baskets of Securities, in an amount equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order.
The Designated Brokers and Authorized Dealers will not receive any fees or commissions in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or the Fund may, in the Filer’s discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.
Each ETF will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for ETF Securities for the purpose of maintaining liquidity for the ETF Securities.
Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, ETF Securities generally will not be able to be purchased directly from an ETF. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. ETF Securities may also be issued directly to ETF Securityholders upon a reinvestment of distributions of income or capital gains.
Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or multiple thereof may exchange such ETF Securities for Baskets of Securities and/or cash in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.
Underwriter’s Certificate Requirement
The Authorized Dealers and Designated Brokers will not provide the same services in connection with a distribution of Creation Units as would typically be provided by an underwriter in a conventional underwriting.
The Filer will generally conduct its own marketing, advertising and promotion of the ETFs, to the extent permitted by its registrations.
The Authorized Dealers and Designated Brokers will not be involved in the preparation of an ETF’s prospectus, will not perform any review or any independent due diligence as to the content of an ETF’s prospectus, and will not incur any marketing costs or receive any underwriting fees or commissions from the ETFs or the Filer in connection with the distribution of ETF Securities. The Authorized Dealers and Designated Brokers generally seek to profit from their ability to create and redeem ETF Securities by engaging in arbitrage trading to capture spreads between the trading prices of ETF Securities and their underlying securities and by making markets for their clients to facilitate client trading in ETF Securities.
Take-Over Bid Requirements
- As equity securities that will trade on the TSX or another Marketplace, it is possible for a person or company to acquire such number of ETF Securities so as to trigger the application of the Take-Over Bid Requirements. However:
(a) it will not be possible for one or more Securityholders to exercise control or direction over an ETF, as the constating documents of each ETF will provide that there can be no changes made to the ETF which do not have the support of the Filer;
(b) it will be difficult for the purchasers of ETF Securities to monitor compliance with the Take-Over Bid Requirements because the number of outstanding ETF Securities will always be in flux as a result of the ongoing issuance and redemption of ETF Securities by each ETF; and
(c) the way in which ETF Securities will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium for outstanding ETF Securities because pricing for each ETF Security will generally reflect the net asset value of the ETF Securities.
- The application of the Take-Over Bid Requirements to the ETFs would have an adverse impact on the liquidity of the ETF Securities because they could cause the Designated Brokers and other large Securityholders to cease trading ETF Securities once a Securityholder has reached the prescribed threshold at which the Take-Over Bid Requirements would apply. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the ETFs.
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 is that the Exemption Sought in respect of the Underwriter’s Certificate Requirement is granted.
The decision of the principal regulator is that the Exemption Sought from the Take-Over Bid Requirements is granted.
As to the Exemption Sought from the Underwriter’s Certificate Requirement:
“Anne Marie Ryan”
“J.A. Leiper”
Name:
Anne Marie Ryan
Name:
J.A. Leiper
Title:
Commissioner Ontario Securities Commission
Title:
Commissioner Ontario Securities Commission
As to the Exemption Sought from the Take-Over Bid Requirements:
“Darren McKall”
Name:
Darren McKall
Title:
Manager, Investment Funds & Structured Products Branch Ontario Securities Commission
Application No. 2018/0648