Russell Investments Canada Limited (Re), 2019 CanLII 20326

March 5, 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 RUSSELL INVESTMENTS CANADA LIMITED (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Russell Investments Global Infrastructure Pool (the Initial ETF Fund) and such other mutual funds as are managed by the Filer now or in the future and that are structured in the same manner as the Initial ETF Fund (the Future ETF Funds and, together with the Initial ETF Fund, the ETF Funds and each, individually, an ETF Fund) for a decision under the securities legislation of the Jurisdiction (the Legislation) that:

(a) exempts the Filer and each ETF Fund from the requirement to prepare and file a long form prospectus for the ETF Securities (as defined below) in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2) (the ETF Prospectus Form Requirement), other than the requirement to file an ETF facts document (ETF Facts) prepared in accordance with Form 41-101F4 Information Required in an ETF Facts Document in respect of each class or series of ETF Securities, subject to the terms of this decision and provided that the ETF Fund files a prospectus for the ETF Securities in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), other than the requirements pertaining to the filing of a fund facts document and the changes to the disclosure in such prospectus described in this decision;

(b) exempts the Filer and each ETF Fund from the requirement (the Underwriter’s Certificate Requirement) to include a certificate of an underwriter in an ETF Fund’s prospectus, in respect of each class or series of ETF Securities; and

(c) exempts a person or company purchasing ETF Securities in the normal course through the facilities of the TSX 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, MI 11-102, and National Instrument 81-102 Investment Funds (NI 81-102) have the same meaning if used in this decision, unless otherwise defined. In addition:

Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the resale 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 Fund, authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more ETF Funds on a continuous basis from time to time;

Basket of Securities means, in relation to the ETF Securities of an ETF Fund, a group of securities or assets representing the constituents of the ETF Fund;

Creation Units means newly issued ETF Securities of an ETF Fund.

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, on behalf of an ETF Fund to perform certain duties in relation to the ETF Securities of the ETF Fund, including the posting of a liquid two-way market for the trading of the ETF Fund’s ETF Securities on the TSX or another Marketplace;

ETF Securities means securities of an exchange-traded series of an ETF Fund that are listed or will be listed on the TSX or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1;

Form 81-101F1 means Form 81-101F1 Contents of Simplified Prospectus;

Form 81-101F2 means Form 81-101F2 Contents of Annual Information Form;

Marketplace means a “marketplace” as defined in National Instrument 21-101 Marketplace Operations that is located in Canada;

Mutual Fund Securities means securities of a non-exchange-traded series of an ETF Fund that are or will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1;

NI 41-101 means National Instrument 41-101 General Prospectus Requirements;

Prescribed Number of ETF Securities means, in relation to an ETF Fund, the number of ETF Securities of the ETF Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes;

Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement;

Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities, as applicable, of the ETF Fund;

Take-over Bid Requirements means the requirements of NI 62-104 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; and

TSX means the Toronto Stock Exchange.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation incorporated under the laws of the Province of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered in each Jurisdiction in the categories of investment fund manager, portfolio manager and exempt market dealer. The Filer also is registered in Ontario as a commodity trading manager and as a mutual fund dealer exempt from membership in the Mutual Funds Dealer Association of Canada. The Filer also is registered in Manitoba as an advisor (commodities).

3. The Filer is, or will be, the investment fund manager of and portfolio adviser to each ETF Fund. Other portfolio managers may be sub-advisers to the ETF Funds.

4. The Filer is not in default of securities legislation in any of the Jurisdictions.

5. Each ETF Fund:

(a) is, or will be, established either as a trust governed by the laws of Ontario or as a class of shares of a mutual fund corporation; and

(b) is, or will be, a reporting issuer in one or more Jurisdictions in which its securities are distributed.

6. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each ETF Fund is, or will be, subject to NI 81-102 and its Securityholders will have the right to vote at a meeting of Securityholders in respect of the matters prescribed by NI 81-102.

7. Each ETF Fund offers, or will offer, Mutual Fund Securities and ETF Securities.

8. The Initial ETF Fund currently offers series A, B, E, F, O and P units. These Mutual Fund Securities are currently distributed under a simplified prospectus dated June 29, 2018. On or before May 30, 2019, a preliminary prospectus in respect of the ETF Securities of the Initial ETF Fund, or an amended and restated prospectus in respect of the Mutual Fund Securities and ETF Securities of the Initial ETF Fund, will be filed with the securities regulatory authorities in each of the Jurisdictions.

9. The Filer will apply to list the ETF Securities of each ETF Fund on the TSX or another Marketplace. The Filer will not file a final prospectus for any ETF Fund in respect of its ETF Securities until the TSX or other applicable Marketplace has conditionally approved the listing of such ETF Securities.

10. Mutual Fund Securities of an ETF Fund may be subscribed for or purchased by investors directly from the ETF Fund through appropriately registered dealers.

11. ETF Securities of an ETF Fund will be distributed on a continuous basis in one or more of the Jurisdictions under a prospectus. A Prescribed Number of ETF Securities may generally only be subscribed for or purchased directly from the ETF Funds 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.

12. In addition to subscribing for and reselling 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.

13. 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, an ETF Fund 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.

14. 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 ETF 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.

15. Each ETF Fund will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for its ETF Securities for the purpose of maintaining liquidity for the ETF Securities.

16. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement under the Legislation, ETF Securities generally will not be able to be purchased directly from an ETF Fund. 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 Securityholders upon a reinvestment of distributions of income or capital gains.

17. 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.

ETF Prospectus Form Requirement

18. The Filer believes it is more efficient and expedient to include all of the series of each ETF Fund in one prospectus form instead of two different prospectus forms and that this presentation will assist in providing full, true and plain disclosure of all material facts relating to the securities of the ETF Funds by permitting disclosure relating to all series of securities to be included in one prospectus. An ETF Facts, rather than a fund facts document, will be filed in respect of each ETF Series.

19. The Filer will ensure that any additional disclosure included in the simplified prospectus and annual information form relating to the ETF Securities will not interfere with an investor’s ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.

20. The ETF Funds will comply with the provisions of NI 81-101 when filing any amendment or prospectus.

Underwriter’s Certificate Requirement

21. 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.

22. The Filer will generally conduct its own marketing, advertising and promotion of the ETF Funds to the extent permitted by its registrations.

23. Authorized Dealers and Designated Brokers will not be involved in the preparation of an ETF Fund’s prospectus, will not perform any review or any independent due diligence to the content of an ETF Fund’s prospectus, and will not incur any marketing costs or receive any underwriting fees or commissions from the ETF Funds 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

24. 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 Fund as the constating documents of each ETF Fund provide that there can be no changes made to such ETF Fund which do not have the support of the Filer;

(b) it will be difficult for the purchasers of ETF Securities of an ETF Fund 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 Fund; 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.

25. The application of the Take-over Bid Requirements to the ETF Funds 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 the 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 ETF Funds.

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.

1. The decision of the principal regulator is that the Exemption Sought from the ETF Prospectus Form Requirement is granted, provided that the Filer will be in compliance with the following conditions:

(a) the Filer files a simplified prospectus and annual information form in respect of the ETF Securities in accordance with the requirements of NI 81-101, NI 81-101F1 and Form 81-101F2, other than the requirements pertaining to the filing of a fund facts document;

(b) the Filer includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1 or Form 81-101F2) in respect of the ETF Securities, in each ETF Fund’s simplified prospectus and/or annual information form, as applicable; and

(c) the Filer includes disclosure regarding this decision under the heading “Additional Information” and “Exemptions and Approvals” in each ETF Fund’s simplified prospectus and annual information form, respectively.

2. The decision of the principal regulator is that the Exemption Sought in respect of the Underwriter’s Certificate Requirement is granted.

3. 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 ETF Prospectus Form Requirement and the Take-over Bid Requirements:

“Darren McKall”

Name: Darren McKall Title: Manager, Investment Funds & Structured Products Branch Ontario Securities Commission

As to the Exemption Sought from the Underwriter’s Certificate Requirement:

“Grant Vingoe” “Garnet Fenn”

Name: D. Grant Vingoe Title: Commissioner & Vice-Chair Ontario Securities Commission

Name: Garnet Fenn Title: Commissioner Ontario Securities Commission

Application #2019/0059