Ontario Securities Commission
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
IN THE MATTER OF THE FUNDS LISTED IN SCHEDULE A (each a Fund, collectively the Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) that the respective time limits for the renewal of the long form prospectus of the Active ETFs (as defined in Schedule A) dated February 11, 2022 (the Active Prospectus), the long form prospectus of the Index ETFs (as defined in Schedule A) dated May 9, 2022 (the Index Prospectus) and the long form prospectus of the Thematics Plus ETFs (as defined in Schedule A) dated June 27, 2022 (the Thematics Plus Prospectus and, together with the Active Prospectus and the Index Prospectus, the Prospectuses) be extended to those time limits that would apply if the lapse dates of the Prospectuses were April 28, 2023 (in the case of the Active Prospectus) and July 31, 2023 (in the case of the Index Prospectus and the Thematics Plus Prospectus) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) 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 each of the other provinces and territories of Canada (together with Ontario, 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.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the laws of Canada. The Filer’s head office is located in Toronto, Ontario.
The Filer is registered as a portfolio manager in Alberta, British Columbia, Ontario and Québec, an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, a commodity trading manager and a commodity trading adviser in Ontario and an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador.
The Filer is the investment fund manager of the Funds.
Each of the Funds is an exchange-traded mutual fund (ETF) established under the laws of Ontario, and is a reporting issuer as defined in the securities legislation of each of the Jurisdictions.
Neither the Filer nor any of the Funds are in default of securities legislation in any of the Jurisdictions.
The Funds currently distribute securities in the Jurisdictions under the Prospectuses. Securities of each of the Funds trade on the Toronto Stock Exchange.
Pursuant to subsection 62(1) of the Securities Act (Ontario) (the Act), the lapse dates of the Active Prospectus, the Index Prospectus and the Thematics Plus Prospectus are February 11, 2023, May 9, 2023 and June 27, 2023, respectively (each a Lapse Date, and collectively, the Lapse Dates). Accordingly, under subsection 62(2) of the Act, the distribution of securities of each of the Funds would have to cease on the applicable Lapse Date unless: (i) each of the Funds files a pro forma prospectus at least 30 days prior to the applicable Lapse Date; (ii) the final prospectus is filed no later than 10 days after the applicable Lapse Date; and (iii) a receipt for the final prospectus is obtained within 20 days of the applicable Lapse Date.
The fiscal year-end of each of the Active ETFs is December 31 and, pursuant to section 2.2 of National Instrument 81-106 Investment Fund Continuous Disclosure, the annual financial statements and auditor’s report are required to be filed on or before the 90^th^ day after each Active ETF’s most recently completed financial year, which for each of the Active ETFs will be its financial year-end of December 31, 2022 (the 2022 Fiscal Year-End).
It is expected each Active ETF will receive the written consent of its auditor at the same time that the financial statements and auditor’s report for the 2022 Fiscal Year-End are issued, which is expected to occur on or about March 30, 2023.
As audited financial statements will not be ready by the Lapse Date of the Active Prospectus, the Active ETFs will be required to incorporate by reference unaudited interim financial information into their renewal prospectus. In accordance with subsection 4.3(1) of National Instrument 41-101 General Prospectus Requirements (NI 41-101), the Active ETFs’ auditor will be required to review each of the Active ETFs’ interim financial statements in accordance with the relevant standards set out in the Handbook of the Canadian Institute of Chartered Accountants for a review of financial statements. In doing so, additional costs will be incurred by the Active ETFs and these costs will recur annually. This is not in the best interest of the Active ETFs’ investors.
In addition, in the absence of audited financial statements, key data such as each Active ETF’s updated management expense ratio will not be available at the time of renewal, so the renewal documents will not contain all the updated information that will be available after the audit.
Rather than facing this audit challenge each year and placing an unnecessary financial burden on the Active ETFs and indirectly onto the Active ETFs’ investors, it would be more efficient and cost effective to extend the Lapse Date of the Active Prospectus to April 28, 2023. This extension will provide the time necessary for the auditor to complete the audit of each of the Active ETFs’ financial statements for the 2022 Fiscal Year-End, and file the final prospectus and ETF facts, along with the written consent of the auditor, as required by NI 41-101.
The Filer wishes to combine the Index Prospectus with the Thematics Plus Prospectus, as well as extend the Lapse Date of the Thematics Plus Prospectus from June 27, 2023 to July 31, 2023, in order to reduce renewal, service provider, printing and related costs of the Index ETFs and the Thematics Plus ETFs.
Offering the Index ETFs and the Thematics Plus ETFs under one prospectus would facilitate the distribution of the Index ETFs in the Jurisdictions under the same prospectus and enable the Filer to streamline disclosure across the Filer’s fund platform. As the Index ETFs and the Thematics Plus ETFs are all managed by the Filer and have similar features, offering them under one prospectus (as opposed to two) will allow investors to more easily compare their features. In addition, extending the Lapse Date of the Thematics Plus Prospectus to July 31, 2023 will better align the renewal of that Prospectus with the availability of quarterly portfolio disclosure produced by the Funds’ service providers and avoid costs that may be charged by those service providers for any data requests made outside of 60 days after the end of a quarter.
It would be unreasonable to incur the costs and expenses associated with preparing two separate renewal prospectuses given how close in proximity the Lapse Dates are to one another.
There have been no material changes in the affairs of each Fund since the date of the applicable Prospectus, other than those for which amendments have been filed, as applicable. Accordingly, the Prospectus and current ETF facts document of each Fund represent current information regarding such Fund.
Given the disclosure obligations of the Funds, should a material change in the affairs of any of the Funds occur, the Prospectus and current ETF facts document(s) of the applicable Fund(s) will be amended as required under the Legislation.
New investors in the Funds will receive the most recently filed ETF facts document(s) of the applicable Fund(s). The Prospectuses will still be available upon request.
The Exemption Sought will not affect the accuracy of the information contained in the Prospectus and ETF facts document(s) of each Fund and will therefore not be prejudicial to the public interest.
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.
"Darren McKall"
Darren McKall
Manager, Investment Funds and Structured Products
Ontario Securities Commission
App. No. 2022/0487
Schedule "A"
The Active ETFs
Horizons Active Cdn Dividend ETF
Horizons Active Global Dividend ETF
Horizons Active Corporate Bond ETF
Horizons Active Ultra-Short Term US Investment Grade Bond ETF
Horizons Active Preferred Share ETF
Horizons Active Ultra-Short Term Investment Grade Bond ETF
Horizons Active High Yield Bond ETF
Horizons Active Cdn Bond ETF
Horizons Active Hybrid Bond and Preferred Share ETF
Horizons Active Global Fixed Income ETF
Horizons Active Cdn Municipal Bond ETF
Horizons Active Floating Rate Senior Loan ETF
Horizons Emerging Markets Leaders ETF
Horizons Active ESG Corporate Bond ETF
(each, an "Active ETF" and collectively, the "Active ETFs")
The Index ETFs
Horizons Copper Producers Index ETF
Horizons Canadian Utility Services High Dividend Index ETF
(each, an "Index ETF" and collectively, the "Index ETFs")
The Thematics Plus ETFs
Horizons US Dollar Currency ETF
Horizons Pipelines & Energy Services Index ETF
Horizons Marijuana Life Sciences Index ETF
Horizons Inovestor Canadian Equity Index ETF
Horizons Robotics and Automation Index ETF
Horizons Big Data & Hardware Index ETF
Global Sustainability Leaders Index ETF
Horizons Industry 4.0 Index ETF
Horizons Global BBIG Technology ETF
Horizons High Interest Savings ETF
Horizons S&P Green Bond Index ETF
Horizons Global Lithium Producers Index ETF
Horizons Global Hydrogen Index ETF
Horizons Global Semiconductor Index ETF
Horizons North American Infrastructure Development Index ETF
Horizons Global Vaccines and Infectious Diseases Index ETF
Horizons GX Telemedicine and Digital Health Index ETF
Horizons GX Cybersecurity Index ETF
Horizons Global Metaverse Index ETF
Horizons Seasonal Rotation ETF
Horizons Global Uranium Index ETF
Horizons Gold Yield ETF
Horizons Canadian Large Cap Equity Covered Call ETF
Horizons Canadian Oil and Gas Equity Covered Call ETF
Horizons Equal Weight Canadian Bank Covered Call ETF
Horizons Gold Producer Equity Covered Call ETF
Horizons US Large Cap Equity Covered Call ETF
Horizons NASDAQ-100 Covered Call ETF
(each, a "Thematics Plus ETF" and collectively, the "Thematics Plus ETFs")