July 27, 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 BLACKROCK ASSET MANAGEMENT CANADA LIMITED
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer in respect of four new exchange-traded funds to be established by the Filer (the New Funds and each, a New Fund and together with the exchange-traded funds currently managed by the Filer and such other exchange-traded funds of which the Filer or an affiliate of the Filer acts as manager in the future, the Funds and each, a Fund), each of which will be a mutual fund subject to National Instrument 81-102 – Investment Funds (NI 81-102) and offer one or more classes of units, for a decision under the securities legislation of the principal regulator (the Legislation) that exempts the Filer and the Funds from paragraph 2.5(2)(b) of NI 81-102 in order to permit the Funds to purchase and hold shares of one or more U.S. iShares ETFs (as defined below) that may hold more than 10% of its net asset value (NAV) in securities of U.S. Money Market Funds (as defined below) (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 the application; and
(b) The Filer has provided notice that subsection 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 the Jurisdiction (together with the Jurisdiction, the Jurisdictions).
Interpretation
“Jurisdictions” means collectively, the provinces and territories of Canada.
“Unit” means, in relation to a particular Fund, as applicable, a unit of a class which represents an equal, undivided interest in the net assets of the Fund.
“U.S. iShares ETF” means a U.S. domiciled exchange-traded fund managed by BlackRock Fund Advisors (BFA) and includes AGG and MBB (each as defined below).
Terms defined in NI 81‑102 have the same meaning in this decision as in NI 81‑102, unless otherwise defined. Certain other defined terms have the meanings given to them above and below.
Representations
The Filer
The Filer is a corporation amalgamated under the laws of the Province of Ontario and is an indirect, wholly-owned subsidiary of BlackRock, Inc., with its head office located in Toronto, Ontario.
The Filer or an affiliate of the Filer acts or will act as trustee, manager and portfolio adviser of the Funds.
The Filer is registered in the categories of Portfolio Manager, Investment Fund Manager and Exempt Market Dealer in all of the Jurisdictions. The Filer is also registered as a Commodity Trading Manager in Ontario and an Adviser under the Commodity Futures Act in Manitoba.
The Funds
Each Fund is or will be an exchange-traded fund governed by the laws of the Province of Ontario.
Each Fund distributes or will distribute its Units 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 and is or will be governed by the applicable provisions of NI 81-102, subject to any exemptions therefrom that may be granted by the securities regulatory authorities.
Each Fund is or will be a reporting issuer in each of the Jurisdictions.
Units of each Fund are or will be listed on the Toronto Stock Exchange (the TSX), the NEO Exchange Inc. (the NEO Exchange) or another stock exchange recognized by the OSC.
The investment objective of each of the New Funds will be to provide income by replicating, to the extent possible, the performance, net of expenses, of an index (Index) that tracks the broad U.S. investment grade bond market or investment grade mortgage-backed securities issued and/or guaranteed by U.S. government agencies, as applicable, net of expenses, and, for two of the New Funds to the extent possible, hedge any resulting U.S. dollar currency exposure back to Canadian dollars.
In order to achieve its investment objective, each New Fund will purchase and hold up to 100% of its NAV in shares of iShares Core U.S. Aggregate Bond ETF (AGG) or iShares MBS ETF (MBB) and may engage in a currency hedging strategy by entering into currency forward contracts or other derivative instruments in order to hedge each New Fund’s exposure to U.S. dollars back to Canadian dollars.
In order to achieve its investment objective, each Fund will purchase and hold up to 100% of its NAV in shares of one or more U.S. iShares ETFs and may engage in a currency hedging strategy by entering into currency forward contracts or other derivative instruments in order to hedge each Fund’s exposure to U.S. dollars or other foreign currency back to Canadian dollars.
U.S. iShares ETFs
Each U.S. iShares ETF is a U.S. domiciled exchange-traded fund managed by BFA, an indirect wholly-owned subsidiary of BlackRock, Inc. and an affiliate of the Filer.
BFA is regulated as an investment advisor by the U.S. Securities and Exchange Commission (the SEC).
Each U.S. iShares ETF is subject to the U.S. Investment Company Act of 1940, as amended (the U.S. Investment Company Act) and is an “investment fund” within the meaning of applicable Canadian securities legislation.
The shares of each U.S. iShares ETF are or will be offered pursuant to a prospectus filed with the SEC.
The shares of each U.S. iShares ETF are or will be listed on a stock exchange in the U.S.
The investment strategies of each U.S. iShares ETF permit it to invest its assets in high quality, liquid short-term instruments, including securities of other investment funds.
Pursuant to the U.S. Investment Company Act, each U.S. iShares ETF may from time to time hold more than 10% of its NAV in securities of U.S. registered money market funds advised by BFA or an affiliate (each, a U.S. Money Market Fund).
Each U.S. iShares ETF currently holds securities of U.S. Money Market Funds, namely: (a) BlackRock Cash Funds: Institutional (BR Institutional), a series of BlackRock Funds III and (b) BlackRock Cash Funds: Treasury (BR Treasury), a series of BlackRock Funds III or of one or more other U.S. Money Market Funds managed by BFA or an affiliate.
BR Institutional
BR Institutional is a series of BlackRock Funds III, a statutory trust existing under the laws of the State of Delaware. BR Institutional is considered to be, and invests its assets in accordance with, the maturity, credit and liquidity requirements of, a U.S. money market fund under Rule 2a-7 of the U.S. Investment Company Act.
The investment objective of BR Institutional is to seek a high level of income consistent