February 25, 2020
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
(each a Horizons Corporate Class ETF, collectively, the Horizons Corporate Class ETFs)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Horizons Corporate Class ETFs, for a decision under the securities legislation of the Jurisdiction (the Legislation) granting an exemption to the Horizons Corporate Class ETFs from the following provisions of National Instrument 81-102 Investment Funds (NI 81-102):
i. paragraph 2.2(1)(a) of NI 81-102 to permit each Horizons Corporate Class ETF to continue to hold securities of its corresponding Horizons Private Trust (as defined below and identified in Appendix “A” hereto) such that, a Horizons Corporate Class ETF would continue to hold securities representing 100% of:
a. the votes attaching to the outstanding voting securities of the corresponding Horizons Private Trust; or
b. the outstanding equity securities of the corresponding Horizons Private Trust (the Control Relief); and
ii. paragraph 2.5(2)(a) of NI 81-102 (in respect of each Horizons Corporate Class ETF that is a mutual fund, other than an alternative mutual fund), paragraph 2.5(2)(a.1) of NI 81-102 (in respect of each Horizons Corporate Class ETF that is an alternative mutual fund) and paragraph 2.5(2)(c) of NI 81-102 to permit each Horizons Corporate Class ETF to continue to hold the securities of its corresponding Horizons Private Trust after the Horizons Private Trust ceases to be a reporting issuer (the Fund of Fund Restriction Relief).
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) 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
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 investment fund manager of the Horizons Corporate Class ETFs, and is the manager and trustee of certain private investment trusts (each a Horizons Private Trust, collectively, the Horizons Private Trusts) identified in Appendix “A” hereto.
The Filer’s primary business is to act as manager and investment manager for the Horizons Corporate Class ETFs and other exchange traded funds in Canada.
The Horizons Corporate Class ETFs
Each of the Horizons Corporate Class ETFs is an exchange traded mutual fund or alternative mutual fund structured as a separate class of shares of Horizons ETF Corp., a mutual fund corporation established under the federal laws of Canada (Horizons MFC).
Each Horizons Corporate Class ETF currently consists of a single series of a class of exchange traded fund shares of Horizons MFC. Each Horizons Corporate Class ETF is a separate investment fund having specific investment objectives and is specifically referable to a separate portfolio of investments.
Securities of the Horizons Corporate Class ETFs 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 General Prospectus Requirements (NI 41-101), Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2) and NI 81-102, as applicable, and subject to any exemptions obtained therefrom.
Each Horizons Corporate Class ETF is a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.
The Horizons Corporate Class ETFs are subject to, among other laws and regulations, NI 81-102, National Instrument 81-106 Investment Fund Continuous Disclosure, National Instrument 81-107 Independent Review Committee for Investment Funds and any exemptions therefrom that have been granted by the securities regulatory authorities.
The Horizons Corporate Class ETFs are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
As a result of the Reorganization (as defined below) and for the reasons described below, each Horizons Corporate Class ETF became the holder of 100% of the outstanding voting units of its corresponding Horizons Private Trust.
Each Horizons Corporate Class ETF wishes to have the ability to continue to hold 100% of the outstanding voting units of its corresponding Horizons Private Trust once the Horizons Private Trusts cease to be reporting issuers.
Each Horizons Corporate Class ETF does not hold more than 10% of its net asset value in a Horizons Private Trust, and the Filer does not anticipate that any Horizons Corporate Class ETF will hold more than 10% of its net asset value in securities of a Horizons Private Trust.
The holding by each Horizons Corporate Class ETF of securities of the corresponding Horizons Private Trust was the result of the implementation of the Reorganization (as described below) that was approved by unitholders, and the continued holding by each Horizons Corporate Class ETF in securities of the corresponding Horizons Private Trust represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Horizons Corporate Class ETFs and its securityholders.
The Reorganization and the Horizons Private Trusts
On November 27, 2019 and November 29, 2019, the Filer announced the reorganization of twenty-nine exchange traded funds and fifteen exchange traded funds, respectively, into Horizons MFC, a single multi-class corporate class structure managed by the Filer (the Reorganization). As a result of the Reorganization, these exchange traded funds structured as trusts were delisted, and became trusts solely held by Horizons MFC (on behalf of the corresponding Horizons Corporate Class ETF and its shareholders).
Pursuant to a decision of the OSC approving the Reorganization under paragraph 5.5(1)(b) of NI 81-102, the OSC approved the continued existence of the Horizons Private Trusts following the Reorganization, in part, because leaving the Horizons Private Trusts and their assets in place was represented by the Filer to be necessary to defer the unnecessary realization of taxable income or gains that might otherwise occur on a wind-up of such Horizons Private Trust, and/or it would otherwise be beneficial to the unitholders of the Horizons Corporate Class ETFs not to wind them up.
Prior to implementing the Reorganization, the independent review committee of the Horizons exchange traded funds reviewed the conflicts of interest matters associated with the Reorganization, including the process to be followed in connection with the Reorganization and the preservation of the Horizons Private Trusts for the benefit of holders of the Horizons Corporate Class ETFs, and after reasonable inquiry, advised the Filer that, in its determination, the Reorganization would achieve a fair and reasonable result for each of the Horizons exchange traded funds.
The Reorganization and all related matters, including (i) the intention of the Filer to preserve the Horizons Private Trusts following the implementation of the Reorganization (subject to regulatory approval) for the benefit of the applicable corresponding Horizons Corporate Class ETFs, and (ii) the intention to apply on behalf of each Horizons Private Trust following the Reorganization to securities regulatory authorities to permit such Horizons Private Trusts to cease to be reporting issuers under Canadian securities laws, were described in a management information circular dated October 4, 2019. The unitholder special resolutions approving the Reorganization and all related matters, as described in the management information circular, were approved at meetings of unitholders of each of the current Horizons Private Trusts held on November 12, 2019 and November 13, 2019.
Additional details regarding the Reorganization are also set forth in the decision of the OSC dated October 24, 2019 approving the Reorganization and a decision of the OSC dated November 8, 2019 granting relief for the Horizons Corporate Class ETFs to continue to use certain financial information relating to the Horizons Private Trusts in its offering documents, continuous disclosure documents and sales communications.
In connection with the implementation of the Reorganization, substantially all of the assets of each Horizons Private Trust were transferred to Horizons MFC for the benefit of the corresponding Horizons Corporate Class ETF, or were left in the Horizons Private Trust for the exclusive benefit of the corresponding Horizons Corporate Class ETF.
Each Horizons Private Trust is an investment trust established under the laws of Ontario.
Prior to the Reorganization, each Horizons Private Trust was an exchange traded mutual fund or alternative mutual fund subject to NI 81-102, subject to any exemption therefrom that was granted by the securities regulatory authorities.
Prior to the Reorganization, each Horizons Private Trust offered units to the public pursuant to a long form prospectus prepared pursuant to NI 41-101, Form 41-101F2, and had a listing on a Canadian stock exchange.
As a result of the Reorganization, the Horizons Private Trusts ceased to offer units to the public, holders of units of the Filer’s exchange traded funds structured as trusts became holders of shares of the corresponding Horizons Corporate Class ETFs, and Horizons MFC (on behalf of the corresponding Horizons Corporate Class ETF) became the sole unitholder of each Horizons Private Trust.
The Horizons Private Trusts do not, and will not, carry on any active business.
Although units of the Horizons Private Trusts are not listed or quoted on any public exchange or market, units of the Horizons Private Trusts continue to be liquid as they are redeemable daily on demand by the Horizons Corporate Class ETFs.
Units of the Horizons Private Trusts are not available for purchase or issuance and it is currently anticipated that no additional units of the Horizons Private Trusts shall be issued in the future.
The Horizons Private Trusts are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
As the Horizons Private Trusts do not, and will not, carry on any business, the Horizons Private Trusts will remain in compliance with NI 81-102, with the exception of Part 12 – Compliance Reports, and will not make any new investments.
As the Horizons Private Trusts do not charge any management fees or incentive fees, no Horizons Corporate Class ETF will pay any management or incentive fees which to a reasonable person would duplicate a fee payable by the corresponding Horizons Private Trust for the same service.
If a Horizons Corporate Class ETF trades in securities of a Horizons Private Trust with or through the Filer acting as dealer, the Filer will comply with its obligations under NI 81-107 in respect of any proposed related party transactions. These related party transactions will be disclosed to securityholders of the applicable Horizons Corporate Class ETF in its management report of fund performance.
In connection with the Reorganization, and as disclosed in the management information circular dated October 4, 2019, the Filer has applied to the Canadian securities administrators for the Horizons Private Trusts to cease being reporting issuers to avoid the unnecessary costs associated with meeting certain continuous disclosure obligations.
The Control Relief and Fund of Fund Restriction Relief
Absent the Control Relief, once the Horizons Private Trusts cease to be reporting issuers, the Horizons Corporate Class ETFs would be prohibited under paragraph 2.2(1)(a) of NI 81-102 from maintaining their current holdings in the Horizons Private Trusts, because Horizons MFC (on behalf of each Horizons Corporate Class ETF) holds, as a result of the Reorganization, 100% of the voting units of the Horizons Private Trusts, and would not qualify for the exemption contained in paragraph 2.2(1.1)(a) of NI 81-102, as not all of the requirements for a Horizons Corporate Class ETF to invest in a Horizons Private Trust pursuant to section 2.5 of NI 81-102 will be met, as described above.
Absent the Fund of Fund Restriction Relief, the Horizons Private Trusts cannot cease to be reporting issuers because the continued investment by Horizons MFC, on behalf of the Horizons Corporate Class ETFs, in 100% of the outstanding voting securities of the Horizons Private Trusts would be prohibited under paragraph 2.5(2)(a) of NI 81-102 (in respect of each Horizons Corporate Class ETF that is a mutual fund, other than an alternative mutual fund), paragraph 2.5(2)(a.1) (in respect of each Horizons Corporate Class ETF that is an alternative mutual fund) and under paragraph 2.5(2)(c) of NI 81-102 (in respect of each Horizons Private Trust), since the Horizons Private Trusts would no longer be subject to NI 81-102 and the Horizons Private Trusts would no longer be reporting issuers.
As disclosed in the management information circular dated October 4, 2019, preserving the existence of the Horizons Private Trusts is beneficial to investors in the Horizons Corporate Class ETFs by deferring an unnecessary realization of taxable income or gains that may arise on a wind-up of a Horizons Private Trust and a distribution of its assets to the corresponding Horizons Corporate Class ETF, and/or by potentially preserving value in the Horizons Private Trust for the benefit of the shareholders of the corresponding Horizons Corporate Class ETF.
The Filer does not, and will not, obtain any direct benefit from the continued existence of the Horizons Private Trusts, or from the continued investment by Horizons MFC in the Horizons Private Trusts.
Any value that may ultimately be realized through the Horizons Private Trusts shall be for the benefit of the Horizons Corporate Class ETFs and their respective shareholders.
There is limited or no downside risk to shareholders of the Horizons Corporate Class ETFs in permitting the Horizons Corporate Class ETFs to remain invested in the Horizons Private Trusts, because the Horizons Corporate Class ETFs will remain the sole holder of voting units of the Horizons Private Trusts and the Horizons Private Trusts do not, and will not, carry on any business. Furthermore, in managing the affairs of the Horizons Private Trusts, the Filer will only be taking actions in accordance with its fiduciary obligations to the holder of units of the Horizons Private Trusts, being the Horizons Corporate Class ETFs.
Each Horizons Corporate Class ETF is currently unable to divest itself, in a commercially reasonable manner, of the securities of its corresponding Horizons Private Trust held in excess of the limits described in paragraph 2.2(1)(a) of NI 81-102 in a manner that would preserve the deferral of any unnecessary realization of taxable income or gains that would arise on a disposition of those units, and/or otherwise preserve value in the Horizons Private Trust for the benefit of the shareholders of the corresponding Horizons Corporate Class ETF. As the Horizons Private Trusts (i) carry on no other business, (ii) have a single unitholder, and (iii) are no longer issuing any units, there is no market for the units of the Horizons Private Trusts held by Horizons MFC.
While the Filer could maintain the reporting issuer status of each Horizons Private Trust if required to do so, doing so would not be beneficial to investors and would require the Filer to incur significant costs to satisfy the regulatory obligations associated with maintaining reporting issuer status.
The only material differences between a Horizons Private Trust and other types of mutual funds governed by NI 81-102 is that the Horizons Private Trusts (i) are not in continuous distribution, as they will not issue additional securities, (ii) do not invest their portfolios in any securities and (iii) intend not to be reporting issuers.
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:
(i) the Horizons Private Trusts does not issue any new securities;
(ii) the investment of the Horizons Corporate Class ETFs in securities of the corresponding Horizons Private Trust otherwise complies with section 2.5 of NI 81-102, with the exception of paragraphs 2.5(2)(a), 2.5(2)(a.1) and 2.5(2)(c) of NI 81-102;
(iii) the Horizons Private Trusts will remain in compliance with NI 81-102, with the exception of Part 12 – Compliance Reports, and will not make any new investments; and
(iv) the prospectus of each Horizons Corporate Class ETF discloses, or will disclose at the time of its next renewal, the fact that a Horizons Corporate Class ETF has obtained the Exemption Sought to permit the relevant transactions on the terms described in this decision.
“Darren McKall”
Darren McKall
Investment Funds and Structured Products Branch
Ontario Securities Commission
App.#2020/0029
SEDAR #3007429
Appendix A
Horizons Corporate Class ETFs and Horizons Private Trusts1
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