November 8, 2019
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
HORIZONS ETFS MANAGEMENT (CANADA) INC.
(the Filer)
AND
HORIZONS S&P/TSX 60™ INDEX ETF
HORIZONS S&P 500® INDEX ETF
HORIZONS S&P 500 CAD HEDGED INDEX ETF
HORIZONS S&P/TSX CAPPED ENERGY INDEX ETF
HORIZONS S&P/TSX CAPPED FINANCIALS INDEX ETF
HORIZONS CDN SELECT UNIVERSE BOND ETF
HORIZONS NASDAQ-100® INDEX ETF
HORIZONS EURO STOXX 50® INDEX ETF
HORIZONS CDN HIGH DIVIDEND INDEX ETF
HORIZONS US 7-10 YEAR TREASURY BOND ETF
HORIZONS US 7-10 YEAR TREASURY BOND CAD HEDGED ETF
HORIZONS LADDERED CANADIAN PREFERRED SHARE INDEX ETF
HORIZONS INTL DEVELOPED MARKETS EQUITY INDEX ETF
HORIZONS EQUAL WEIGHT CANADA REIT INDEX ETF
HORIZONS EQUAL WEIGHT CANADA BANKS INDEX ETF
HORIZONS GOLD ETF
HORIZONS SILVER ETF
HORIZONS CRUDE OIL ETF
HORIZONS NATURAL GAS ETF
BETAPRO GOLD BULLION 2X DAILY BULL ETF
BETAPRO GOLD BULLION -2X DAILY BEAR ETF
BETAPRO CRUDE OIL 2X DAILY BULL ETF
BETAPRO CRUDE OIL -2X DAILY BEAR ETF
BETAPRO NATURAL GAS 2X DAILY BULL ETF
BETAPRO NATURAL GAS -2X DAILY BEAR ETF
BETAPRO SILVER 2X DAILY BULL ETF
BETAPRO SILVER -2X DAILY BEAR ETF
BETAPRO S&P/TSX 60™ 2X DAILY BULL ETF
BETAPRO S&P/TSX 60™ -2X DAILY BEAR ETF
BETAPRO S&P/TSX CAPPED FINANCIALS™ 2X DAILY BULL ETF
BETAPRO S&P/TSX CAPPED FINANCIALS ™ -2X DAILY BEAR ETF
BETAPRO S&P/TSX CAPPED ENERGY™ 2X DAILY BULL ETF
BETAPRO S&P/TSX CAPPED ENERGY ™ -2X DAILY BEAR ETF
BETAPRO NASDAQ-100® 2X DAILY BULL ETF
BETAPRO NASDAQ-100® -2X DAILY BEAR ETF
BETAPRO S&P 500® 2X DAILY BULL ETF
BETAPRO S&P 500® -2X DAILY BEAR ETF
BETAPRO CANADIAN GOLD MINERS 2X DAILY BULL ETF
BETAPRO CANADIAN GOLD MINERS -2X DAILY BEAR ETF
BETAPRO MARIJUANA COMPANIES 2X DAILY BULL ETF
BETAPRO MARIJUANA COMPANIES INVERSE ETF
BETAPRO S&P/TSX 60™ DAILY INVERSE ETF
BETAPRO S&P 500® DAILY INVERSE ETF
BETAPRO S&P 500 VIX SHORT-TERM FUTURES™ ETF
(the Horizons ETFs or the Continuing Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Horizons ETFs, for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption from:
(a) item 17.2 of Form 41-101F2 Information Required in an Investment Fund Prospectus to permit the Horizons ETFs to disclose the trading price and volume information required thereunder of the respective Terminating Funds (as defined below) as their trading price and volume information (the Prior Sales Data);
(b) section 3B.2 of National Instrument 41-101 General Prospectus Requirements (NI 41-101) for the purposes of the relief requested herein from Form 41-101F4 Information Required in an ETF Facts Document (Form 41-101F4);
(c) item 2 of Part 1 of Form 41-101F4 to permit the Continuing Funds to disclose the Quick Facts, Trading Information and Pricing Information of the respective Terminating Funds as their Quick Facts, Trading Information and Pricing Information in the ETF facts document;
(d) item 5 of Part 1 of Form 41-101F4 to permit the Continuing Funds to use performance data of the respective Terminating Funds in the Year-by-year returns, Best and worst 3-month returns and Average return in the ETF facts document;
(e) items 1.3 and 1.4 of Part 2 of Form 41-101F4 to permit the Continuing Funds to use the information about the expenses and fees of the respective Terminating Funds in the ETF facts document;
(f) sections 15.6(1)(a)(i), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Continuing Funds to use performance data of the Terminating Funds in sales communications and reports to securityholders (collectively, the Fund Communications);
(g) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of the relief requested herein from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) for the Continuing Funds;
(h) sections 2.1 and 2.3 of NI 81-106 to permit the Continuing Funds to use the information required to be included in the financial statements of the Terminating Funds in the Continuing Funds’ annual and interim financial statements; and
(i) items 3.1(1), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.9(2)(d) of NI 81-102, 4.1(2), 4.2(1), 4.2(2) and 4.3(1)(a) of Part B of Form 81-106F1 and items 3(1) and 4 of Part C of Form 81-106F1 to permit the Continuing Funds to include in their annual and interim management reports of fund performance the performance data and information derived from the financial statements, or otherwise derived, as applicable (collectively, the Financial Data) of their respective Terminating Funds,
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the Commission) is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1)(c) 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 (together with the Jurisdiction, the Canadian Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions (NI 14-101), MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation existing under the laws of Canada, with its head office located in Toronto, Ontario. The Filer is a wholly-owned subsidiary of Mirae Asset Global Investments Co., Ltd.
The Filer is registered as (a) an investment fund manager in Newfoundland and Labrador, Ontario and Québec, (b) a portfolio manager in Alberta, British Columbia, Ontario and Québec (c) a dealer in the category of exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, (d) a commodity trading adviser in Ontario and (e) a commodity trading manager in Ontario.
The Filer is not in default of applicable securities legislation in any of the Canadian Jurisdictions.
The Filer is the manager and trustee of certain exchange traded funds (the Terminating Funds), currently structured as trusts, and is the manager and investment manager of the Continuing Funds.
The Filer’s primary business is to act as manager and investment manager for the Terminating Funds, the Continuing Funds and other exchange traded funds in Canada.
Each of the Terminating Funds is an exchange traded mutual fund or alternative mutual fund established under the laws of the Province of Ontario.
Securities of the Terminating Funds are distributed in each of the Canadian Jurisdictions under long form prospectuses and ETF facts documents prepared in accordance with the requirements of NI 41-101 and NI 81-102, as applicable.
Each Terminating Fund is a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.
The Terminating Funds are subject to, among other laws and regulations, NI 81-102, NI 81-106 and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).
The Terminating Funds are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
Horizons ETF Corp. is a mutual fund corporation established under the laws of Canada. The authorized capital of the Company includes an unlimited number of non-cumulative, redeemable, non-voting classes of shares (each, a Corporate Class), issuable in an unlimited number of series, and one class of voting shares designated as “Class J Shares”.
Each Horizons ETF will be a separate Corporate Class and initially consists of a single series of exchange traded fund shares (ETF Shares).
Securities of the Horizons ETFs will be distributed in each of the Canadian Jurisdictions under long form prospectuses and ETF facts documents prepared in accordance with the requirements of NI 41-101 and NI 81-102, as applicable.
Each Horizons ETF will be a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.
The Horizons ETFs will be subject to, among other laws and regulations, NI 81-102, NI 81-106 and NI 81-107.
The Horizons ETFs are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
The Filer has proposed to reorganize the Terminating Funds into the Continuing Funds before the end of 2019, subject to the approval of the securityholders of the Terminating Funds, at a special meeting to be held for that purpose.
The Filer separately filed an application on September 9, 2019 for pre-approval of the proposed merger (the Mergers) of the Terminating Funds into the Horizons ETFs. The Commission granted approval of the Mergers on October 24, 2019, provided that before implementing a Merger in respect of a particular Terminating Fund, the Filer obtains the prior approval of the securityholders of that Terminating Fund at a special meeting held for that purpose.
The Continuing Funds are being created for purposes of implementing the Mergers, and therefore:
a) the unitholders of Terminating Funds will have rights as shareholders of the Continuing Funds that are substantially similar in all respects to the rights they had as unitholders of the Terminating Funds;
b) the unitholders of the Terminating Funds will become holders of a corresponding class of ETF Shares of the relevant Continuing Fund, with the same aggregate net asset value as they held before the Mergers as unitholders of the relevant Terminating Fund;
c) the Continuing Funds will have fundamental investment objectives, as well as investment strategies, that are substantially similar in all material respects to the fundamental investment objectives and investment strategies of the corresponding Terminating Funds; and
d) the Continuing Funds will have fee structures and valuation procedures that are substantially similar to the fee structures and valuation procedures of the corresponding Terminating Fund.
As a result, notwithstanding the Mergers, the Continuing Funds will be managed in a manner which is substantially similar in all material respects to the manner in which the Terminating Funds have been managed.
The Terminating Funds’ Independent Review Committee has reviewed the conflicts of interests matters associated with the Mergers, including the process to be followed in connection with such Mergers and the preservation of some or all of the Terminating Funds for the benefit of the holders of the Continuing Funds, and after reasonable inquiry has advised the Filer that, in its determination, if implemented, the Mergers achieve a fair and reasonable result for each of the Terminating Funds.
The Filer filed preliminary prospectuses and preliminary ETF facts documents dated October 11, 2019 with respect to the Continuing Funds.
The Continuing Funds will operate in accordance with NI 81-102, except for any exemptive relief that has been previously obtained.
As the Continuing Funds are new, the funds will not have their own past performance, price or trading data on the date the Mergers are implemented.
The Filer will not begin distribution of ETF Shares of the Continuing Funds prior to the completion of the Mergers.
As the Filer intends to cease distribution of the Terminating Funds following the Mergers, it does not intend to renew the Terminating Funds’ prospectus under subsection 62(2) of the Securities Act (Ontario).
The Continuing Funds will be new funds. However, while the Continuing Funds will each have the same underlying assets and liabilities as the corresponding Terminating Funds, as new funds, they will not have their own Financial Data or Prior Sales Data as at the effective date of the Mergers. In order for the Mergers to be as seamless as possible for unitholders of the Terminating Funds, the Filer proposes that:
(a) the Continuing Funds will prepare annual management reports of fund performance commencing with the year ended December 31, 2019 and interim management reports of fund performance commencing with the six-month period ended June 30, 2020 using the relevant Terminating Funds’ historical Financial Data; and
(b) the Continuing Funds will prepare comparative annual financial statements commencing with the year ended December 31, 2019 under section 2.1 of NI 81-106 using the relevant Terminating Funds’ historical Financial Data.
The Financial Data and Prior Sales Data of the Terminating Funds is significant information which can assist investors in determining whether to purchase shares of the Continuing Funds. In the absence of the relief requested herein, investors will have no financial information (such as past performance) on which to base such an investment decision.
The Filer proposes to include the Prior Sales Data of the Terminating Funds in the applicable final prospectuses for the Continuing Funds.
The Filer proposes to include the performance data of each of the Terminating Funds in the corresponding Continuing Funds’ Fund Communications and ETF facts document because the investment objectives and investment strategies employed by the Terminating Funds prior to the Mergers and the Continuing Funds after the Mergers are the same.
The Filer proposes to state that the Quick Facts, Trading Information and Pricing Information in the ETF facts document for each of the Continuing Funds is based upon the Quick Facts, Trading Information and Pricing Information of the corresponding Terminating Fund.
The Filer proposes to use information of the Terminating Funds for the purposes of performance data in the Year-by-year returns, Best and worst 3-month returns and Average return in the ETF facts document for each of the Continuing Funds.
The Filer proposes to use the information about the expenses and fees of the Terminating Funds in the ETF facts document for each of the Continuing Funds.
Each Continuing Fund will be indistinguishable from its corresponding Terminating Fund since the investment objectives, investment strategies and management fees attached to each continuing series of each Continuing Fund will be substantially similar in all material respects as the corresponding Terminating Fund.
The Filer is seeking to make the Mergers as seamless as possible for unitholders of the Terminating Funds. Accordingly, the Filer submits that treating each Continuing Fund as a continuation of the Terminating Fund for purposes of the above-mentioned information would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the differences between the Terminating Funds and the Continuing Funds. Any such disclosure would note that the performance includes information from the time that the Continuing Fund operated as a trust prior to the Mergers.
The Filer submits that investors will not be misled if the above mentioned information of each Continuing Fund reflects the information of the corresponding Terminating Fund.
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 in respect of the Exemption Sought:
(a) the Continuing Funds’ Fund Communications include the applicable performance data of the Terminating Funds prepared in accordance with Part 15 of NI 81-102;
(b) the Continuing Funds’ prospectuses disclose that the Prior Sales Data is the Prior Sales Data of the corresponding Terminating Fund;
(c) the ETF facts document of each Continuing Fund:
(i) states that the Quick Facts, Trading Information and Pricing Information of the Continuing Fund is the Quick Facts, Trading Information and Pricing Information of the corresponding Terminating Fund and discloses the applicable Merger;
(ii) includes the performance data of the respective Terminating Fund in the Year-by-year returns, Best and worst 3-month returns and Average return prepared in accordance with Part 15 of NI 81-102;
(iii) includes the information about fees and expenses required by Form 41-101F4 of the respective Terminating Fund; and
(d) the management reports of fund performance for each Continuing Fund include the Financial Data of the Terminating Funds, pertaining to the corresponding class of the Terminating Funds, and disclose the Mergers for the relevant time periods.
“Darren McKall”
Darren McKall
Investment Funds and Structured Products
Ontario Securities Commission
Se
SEDAR Project #2977002
App. No. #2019/0513