June 24, 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 PICTON MAHONEY ASSET MANAGEMENT (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Picton Mahoney Fortified Active Extension Alternative Fund, Picton Mahoney Fortified Market Neutral Alternative Fund and Picton Mahoney Fortified Multi-Strategy Alternative Fund (collectively, the Existing Alternative Mutual Funds), Picton Mahoney Fortified Equity Fund, Picton Mahoney Fortified Income Fund and Picton Mahoney Fortified Multi-Asset Fund (collectively, the Existing Mutual Funds and, together with the Existing Alternative Mutual Funds, the Existing Funds), Picton Mahoney Fortified Income Alternative Fund (the New Fund) and such other mutual funds as are or may be managed by the Filer in the future that offer both ETF Securities (as defined below) and Mutual Fund Securities (as defined below) (the Future Funds, and together with the Existing Funds and the New Fund, the Funds), for a decision under the securities legislation of the Jurisdiction (the Legislation) for exemptive relief to permit the Filer and each Fund to treat the ETF Securities (as defined below) and the Mutual Fund Securities (as defined below) as if such securities were separate funds in connection with their compliance with the provisions (the Sales and Redemptions Requirements) of Parts 9, 10 and 14 of National Instrument 81-102 Investment Funds (NI 81-102) (the Exemption Sought).
Under National Policy 11-203 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 (Ml 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 NI 81-102 (as defined below) 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 (as defined below) or Designated Broker (as defined below) and that participates in the re-sale of Creation Units (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 a Fund authorizing the registered dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.
Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.
Creation Units means newly issued ETF Securities of a 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 a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund’s ETF Securities on the TSX or another Marketplace.
ETF Facts means an ETF facts document prepared, filed and delivered in accordance with Part 3B of NI 41-101.
ETF Securities means securities of an exchange-traded series of a 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.
Marketplace means a “marketplace” as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.
Mutual Fund Securities means securities of a non-exchange-traded series of a Fund that are or will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
NI 81-101 means National Instrument 81-101 Mutual Fund Prospectus Disclosure.
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.
Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the 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 of a Fund, as applicable.
TSX means the Toronto Stock Exchange.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a general partnership established under the laws of the Province of Ontario.
The head office of the Filer is located at 33 Yonge Street, Suite 830, Toronto, Ontario M5E 1G4.
The Filer is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, a portfolio manager in British Columbia, Manitoba, Ontario, Prince Edward Island, Quebec and Saskatchewan, an exempt market dealer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Newfoundland and Labrador and Prince Edward Island and a commodity trading manager in Ontario.
The Filer is, or will be, the manager, portfolio advisor, trustee and promoter of the Funds.
The Filer is not in default of securities legislation in any of the Jurisdictions.
Each of the Existing Funds is, and the New Fund will be, an investment fund established under the laws of Ontario as an open-ended mutual fund trust. Each Fund is or will be a mutual fund established under the laws of a Jurisdiction as either a trust or a corporation or a class thereof. Each Fund is, or will be, a reporting issuer in the Jurisdictions in which its securities are distributed.
Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to NI 81-102 and Securityholders will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.
The Existing Mutual Funds currently offer the following classes of Mutual Fund Securities under a simplified prospectus dated August 20, 2018: Class A Units, Class F Units, Class FT Units, Class T Units and Class I Units.
The Existing Alternative Mutual Funds currently offer the following classes of Mutual Fund Securities under a simplified prospectus dated September 21, 2018: Class A Units, Class F Units and Class I Units.
On May 14, 2019, a preliminary and pro forma simplified prospectus in respect of the Mutual Fund Securities and ETF Securities of the Existing Alternative Mutual Funds and the New Fund was filed with the securities regulatory authorities in each of the Jurisdictions.
On May 14, 2019, preliminary ETF Facts for the ETF Securities of the Existing Alternative Mutual Funds and the New Fund were filed with the securities regulatory authorities in each of the Jurisdictions.
The Filer will apply to list the ETF Securities of the Funds on the TSX or another Marketplace. The Filer will not file a final prospectus for any of the Funds in respect of the ETF Securities until the TSX or other applicable Marketplace has conditionally approved the listing of the ETF Securities.
None of the Funds is in default of securities legislation in any of the Jurisdictions.
Mutual Fund Securities may be subscribed for or purchased directly from a Fund through mutual fund dealers, investment dealers and their representatives that are registered under applicable securities legislation in the Jurisdictions.
ETF Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a simplified prospectus. ETF Securities may generally only be subscribed for or purchased directly from the Funds (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 their 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.
Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker may be contractually required to subscribe for Creation Units of a Fund for cash in an amount not to exceed a specified percentage of the net asset value of the Fund or such other amount established by the Filer.
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 a 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 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.
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 a 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.
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.
Parts 9, 10 and 14 of NI 81-102 do not contemplate both Mutual Fund Securities and ETF Securities being offered in a single fund structure. Accordingly, without the Exemption Sought Relief, the Filer and the Funds would not be able to technically comply with those parts of NI 81-102.
The Exemption Sought will permit the Filer and the Funds to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with Parts 9, 10 and 14 of NI 81-102. The Exemption Sought will enable each of the ETF Securities and Mutual Fund Securities to comply with Parts 9, 10 and 14 of NI 81-102 as appropriate for the type of security being offered.
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 is granted, provided that the Filer will be in compliance with the following conditions:
(a) with respect to its Mutual Fund Securities, each Fund complies with the provisions of Parts 9, 10 and 14 of NI 81-102 that apply to mutual funds that are not exchange-traded mutual funds; and
(b) with respect to its ETF Securities, each Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.
“Darren McKall”__________________________
Darren McKall
Manager, Investment Funds & Structured Products Branch
Ontario Securities Commission
Application No. 2019/0260
SEDAR Project No. 2917528