April 26, 2021
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 NINEPOINT PARTNERS LP (the Filer)
AND
IN THE MATTER OF NINEPOINT BITCOIN ETF (the Proposed ETF)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Proposed ETF and any additional exchange-traded mutual funds (the Future ETFs, and, together with the Proposed ETF, the ETFs and individually, an ETF) established in the future for which the Filer or an affiliate may be the manager, for a decision under the securities legislation 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 all persons or companies purchasing Listed 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 Alberta, British Columbia, Quebec, Saskatchewan, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut, and Yukon (together with the Jurisdiction, 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. In addition to the terms defined throughout this decision, the following terms shall have the meanings set out below.
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.
Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the manager of an ETF to perform certain duties in relation to the ETF, including the posting of a liquid two-way market for the trading of the ETF’s Listed Securities on the TSX or another Marketplace.
ETF Facts means a prescribed summary disclosure document required in respect of one or more classes or series of Listed Securities being distributed under a prospectus.
Marketplace means a “marketplace” as defined in National Instrument 21-101 Marketplace Operations that is located in Canada.
NI 81-102 means National Instrument 81-102 Investment Funds.
Other Dealer means a registered investment dealer.
PNU means the prescribed number of Listed Securities of an ETF determined by the Filer from time to time, whereby an Authorized Dealer, Designated Broker, Affiliate Dealer or a unitholder may subscribe for, and/or redeem Listed Securities of that ETF or for such other purposes as the Filer may determine.
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 Listed 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
1. The Filer is a limited partnership formed under the laws of Ontario. The Filer’s general partner is Ninepoint Partners GP Inc., a corporation incorporated under the Business Corporations Act (Ontario). The Filer is registered as an exempt market dealer and a portfolio manager with the securities regulatory authorities in each of Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia and Saskatchewan. The Filer is registered as an “investment fund manager” in the provinces of Ontario, Newfoundland and Labrador and Québec, with its head office located in Toronto, Ontario. The Filer is also registered as a portfolio manager in the province of Québec.
2. The Filer will be the investment fund manager and trustee of the Proposed ETF. The Filer or an affiliate will be the investment fund manager of the Future ETFs and the Filer or an affiliate may be the portfolio manager of the Future ETFs.
3. The Filer is not in default of securities legislation in any of the Jurisdictions.
The ETFs
4. The Proposed ETF is currently a non-redeemable investment fund structured as a trust that is governed by the laws of the Province of Ontario.
5. The Proposed ETF received unitholder approval for the proposed conversion at a special meeting of the holders of units of the fund held on April 19, 2021 (the “Meeting”).
6. The Proposed ETF will be converted to an exchange-traded 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 or classes thereof governed by the laws of a Jurisdiction. Each ETF will be a reporting issuer in the Jurisdiction(s) in which its securities are distributed.
7. 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.
8. Each ETF may issue more than one class or series of securities, including, but not limited to a class or series of securities distributed pursuant to a long form prospectus prepared pursuant to National Instrument 41-101 General Prospectus Requirements (NI 41-101) and Form 41-101F2 Information Required in an Investment Fund Prospectus that is listed on the TSX or another Marketplace (Listed Securities).
9. The Listed Securities will be listed on the TSX or another Marketplace.
10. The Filer has filed, or will file, a long form prospectus prepared in accordance with NI 41-101 in respect of the Listed Securities of the ETFs, subject to any exemptions that may be granted by the applicable securities regulatory authorities.
11. Listed Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a prospectus. Listed 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 PNU (or an integral 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 Listed Securities on the TSX or another Marketplace.
12. 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 Listed 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 Listed 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.
13. Each ETF will appoint, at any given time, a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for Listed Securities for the purpose of maintaining liquidity for the Listed Securities.
14. 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, Listed Securities generally will not be able • to be purchased directly from an ETF. Investors are generally expected to purchase and sell Listed Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. Listed Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.
15. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their Listed Securities may generally do so by selling their Listed Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a PNU or integral multiple thereof may exchange such Listed Securities for Baskets of Securities and/or cash in the discretion of the Filer. Securityholders may also redeem Listed Securities for cash at a redemption price equal to the lesser of: (i) 95% of the closing price for the Listed Securities on the TSX or such other market on which the Listed Securities are primarily traded; and (ii) the net asset value per Listed Security,- in each case calculated as of the effective day of the redemption and in each case less any costs associated with the redemption.
Underwriter’s Certificate Requirement
16. 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.
17. The Filer will generally conduct its own marketing, advertising and promotion of the ETFs.
18. 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 Listed Securities. The Authorized Dealers and Designated Brokers generally seek to profit from their ability to create and redeem Listed Securities by engaging in arbitrage trading to capture spreads between the trading prices of Listed Securities and their underlying securities and by making markets for their clients to facilitate client trading in Listed Securities.
19. Furthermore, the Authorized Dealers will change from time to time, so it is not practical to provide an underwriters' certificate in the prospectus of the ETFs.
Take-over Bid Requirements
20. 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 Listed Securities so as to trigger the application of the Take-over Bid Requirements. However:
(a) it will be difficult for one or more Securityholders to exercise control or direction over an ETF, as the master declaration of trust of each ETF will include restrictions that will make it difficult for any changes to be made to such ETF which do not have the support of the Filer;
(b) it will be difficult for the purchasers of Listed Securities to monitor compliance with the Take-over Bid Requirements because the number of outstanding Listed Securities will always be in flux as a result of the ongoing issuance and redemption of Listed Securities by each ETF; and
(c) the way in which the Listed Securities will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium for outstanding Listed Securities because pricing for each Listed Security will generally reflect the net asset value of the Listed Securities.
21. The application of the Take-over Bid Requirements to the ETFs would have an adverse impact on the liquidity of the Listed Securities because they could cause the Designated Brokers and other large Securityholders to cease trading Listed 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 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.
1. The decision of the principal regulator is that the Exemption Sought from the Underwriter’s Certificate Requirement is granted.
2. 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:
“Mary Anne De Monte-Whelan” “Cathy Singer”
Name: Mary Anne De Monte-Whelan
Name: Cathy Singer
Title: Commissioner
Title: Commissioner
Ontario Securities Commission
Ontario Securities Commission
As to the Exemption Sought from the Take-over Bid Requirements:
“Darren McKall”
Darren McKall
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
Application No. 2021/0206