Brompton Funds Limited, 2025 CanLII 100933

October 6, 2025

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 BROMPTON FUNDS LIMITED (the Filer)

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of all current and future investment funds that are, or will be, managed by the Filer or an affiliate of the Filer and to which National Instrument 81-102 Investment Funds (NI 81-102) applies (collectively, the Funds) for a decision under the securities legislation of the Jurisdiction (the Legislation) that grants exemptive relief from:

(a) the restrictions that apply to purchasing or holding illiquid assets under section 2.4 of NI 81-102 (the Illiquid Asset Restrictions) to permit a Fund’s purchases and holdings of 144A Securities (as defined below) to be excluded from consideration as an “illiquid asset” for the purpose of the Fund’s compliance with the Illiquid Asset Restrictions:(the 144A Relief); and

(b) the restrictions in paragraphs 2.5(2)(a), 2.5(2)(a.1) and 2.5(2)(c) of NI 81-102 to permit a Fund to invest in securities of existing and future exchange-traded funds (ETFs) that are not index participation units (IPUs) and whose securities are, or will be, listed for trading on a stock exchange in the United States (collectively, the Underlying U.S. ETFs) even though an Underlying U.S. ETF is not subject to NI 81-102 and is not a reporting issuer in any province or territory of Canada (the Underlying U.S. ETF Relief, together with the 144A Relief, 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 section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the other provinces and territories of Canada (together with the Jurisdiction, the Jurisdictions).

INTERPRETATION

Unless expressly defined herein, terms in this decision have the respective meanings given to them in MI 11-102, National Instrument 14-101 Definitions and NI 81-102. In addition to the defined terms used in this decision, capitalized terms used in this decision have the following meanings:

144A Securities means restricted, unregistered debt securities issued under a private placement that are resold to Qualified Institutional Buyers in the U.S. and to Reg. S Purchasers (as defined below) outside the U.S. on a basis that is exempt from the registration requirements of the US Securities Act.

IRC means the independent review committee of the Funds.

Qualified Institutional Buyers has the same meaning as is given to such term in §230.144A of the US Securities Act and Qualified Institutional Buyer means any one of them.

Rule 144A means Rule 144A under the US Securities Act.

US Securities Act means the Securities Act of 1933, as amended.

Representations

This decision is based on the following facts represented by the Filer on behalf of itself and the Funds:

The Filer

1. The Filer is a corporation incorporated under the laws of the Province of Ontario, with its head office located at Suite 2930, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Toronto, Ontario, M5J 2T3.

2. The Filer is registered with the Ontario Securities Commission as an investment fund manager, exempt market dealer, portfolio manager and commodity trading manager.

3. The Filer or an affiliate of the Filer is, or will be, the investment fund manager and the portfolio manager of the Funds. The portfolio manager of a Fund may also engage one or more sub-adviser(s) in respect of the investments of such Fund.

4. The Filer is not in default of applicable securities legislation in any of the Jurisdictions.

The Funds

5. Each Fund is, or will be, an open-ended investment fund organized and governed by the laws of the Province of Ontario or the laws of Canada.

6. Each Fund is, or will be, governed by the provisions of NI 81-102, subject to any exemption therefrom that has been, or may be, granted by the securities regulatory authorities.

7. Each Fund is, or will be, a reporting issuer in the Jurisdictions.

8. No existing Fund is in default of securities legislation in any of the Jurisdictions.

9. Each Fund is, or will be, subject to National Instrument 81-107 – Independent Review Committee for Investment Funds.

10. The Funds may, from time to time, wish to invest in 144A Securities and/or Underlying U.S. ETFs in accordance with their investment strategy.

Definition of Illiquid Assets in NI 81-102 and 144A Securities

11. Pursuant to section 1.1 of NI 81-102, an “illiquid asset” is defined as:

(a) a portfolio asset that cannot be readily disposed of through market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating the net asset value per security of the investment fund, or

(b) a restricted security held by an investment fund.

12. Rule 144A provides an exemption from the registration requirements of the US Securities Act for resales of unregistered securities to Qualified Institutional Buyers. Rule 144A also requires that there must be adequate current public information about the issuing company before the sale can be made.

13. The definition of a Qualified Institutional Buyer under §230.144A of the US Securities Act includes entities that in the aggregate, own and invest on a discretionary basis at least US$100 million in securities of issuers that are not affiliated with such entity.

14. While issuers themselves cannot rely on Rule 144A, as Rule 144A provides an exemption for resales of unregistered securities, the existence of Rule 144A allows financial intermediaries to purchase unregistered securities from issuers and resell the securities to Qualified Institutional Buyers in transactions that comply with Rule 144A without registering such securities.

15. A Rule 144A distribution may often be structured in two tranches: one intended for purchasers in the U.S that qualify as Qualified Institutional Buyers in reliance on Rule 144A, and another intended for purchasers outside the U.S. (Reg. S Purchasers) in reliance on Regulation S under the US Securities Act (Regulation S). The securities sold under Regulation S are represented by a separate global note (the Reg. S Global Note) from the global note representing securities sold under the Rule 144A exemption (the 144A Global Note). The securities represented by the Reg. S Global Note and the 144A Global Note are fungible and of equal value; at any time, any holder of such securities may transfer such securities to a U.S. Qualified Institutional Buyer or to a non-U.S. Reg. S Purchaser. All such securities are referred to as “144A Securities” in this decision and the Filer confirms that these 144A Securities have the same liquidity in the hands of a Fund or of any other holder regardless of whether they are represented by the Reg. S Global Note or the 144A Global Note.

16. Pursuant to the provisions of the US Securities Act, public resales of 144A Securities (including securities represented by a 144A Global Note or a Reg. S Global Note) to non-Qualified Institutional Buyers must be conducted in reliance upon other available exemptions, such as Rule 144 or Regulation S. Rule 144 allows a seller to sell 144A Securities to a purchaser who does not qualify as a Qualified Institutional Buyer after a prescribed period of time (ranging from six months to one year after issuance), if certain other reporting requirements of the issuer are satisfied.

17. Despite the foregoing, 144A Securities are immediately freely tradable among Qualified Institutional Buyers and non-U.S. Reg. S. Purchasers in accordance with Rule 144A and Regulation S without any holding periods. 144A Securities may also be sold to and purchased by non-Qualified Institutional Buyers at any time after registration of the securities, or pursuant to another exemption from registration under the US Securities Act, if any exemption is available at that time.

18. Because Rule 144A and Regulation S restrict resales of 144A Securities to investors that are not Qualified Institutional Buyers and investors that are U.S. persons for a period of time or until certain conditions are satisfied, they are restricted securities for the purposes of part (b) of the definition of an illiquid asset under section 1.1 of NI 81-102, and, absent the 144A Relief, each Fund’s holdings of 144A Securities would be subject to the Illiquid Asset Restrictions.

Reasons for the 144A Relief

19. The Filer is of the view that certain 144A Securities provide an attractive investment opportunity for the Funds and that, from time to time, it will be desirable for the Funds to hold 144A Securities in excess of the Illiquid Asset Restrictions. As 144A Securities are illiquid assets under section 1.1 of NI 81-102, the Funds are unable to pursue these investment opportunities without breaching the Illiquid Asset Restrictions.

20. The ability to freely trade 144A Securities pursuant to Rule 144A has substantially reduced the discounts and illiquidity that were present in unregistered offerings historically. The market for 144A Securities consists of a very deep pool of Qualified Institutional Buyers (as well as non-U.S. persons if the relevant note indenture permits sales under Regulation S).

21. The most liquid 144A Securities have traded with comparable volumes to the most liquid corporate debt registered securities over the past few years. The segment of the U.S. investment grade corporate bond market that is made up of 144A Securities has grown substantially over the past 15 years. The segment of the U.S. high-yield corporate bond market that is made up of 144A Securities has also grown significantly over the past decade.

22. Daily market quotations are obtained in the same way through fixed income market platforms for 144A Securities as they are for registered securities. Real-time price quotes and market trade data are available for 144A Securities. Many fixed income trades including 144A Securities, are reported within minutes into the Trade Reporting and Compliance Engine, a program initially developed by the National Association of Securities Dealers, Inc. (now the Financial Industry Regulatory Authority, Inc.) that provides for the reporting of over-the-counter transactions pertaining to eligible fixed income securities, including 144A Securities, thus meeting market integrity requirements.

23. A Fund that purchases 144A Securities (including as a Reg. S Purchaser of a security that is represented by a Reg. S Global Note) may trade those 144A Securities to any Qualified Institutional Buyer without further restriction (i.e. not subject to any holding period). Typically, a Fund would sell 144A Securities to other brokers or dealers that are Qualified Institutional Buyers themselves, who would then on-sell the securities to other Qualified Institutional Buyers.

24. A Fund is not required, at any time, to have or to maintain Qualified Institutional Buyer status in order to be able to resell its holdings of 144A Securities to Qualified Institutional Buyers at any time.

25. In the course of determining the potential liquidity of a security, the Filer or the sub-adviser of a Fund may use several factors, including, but not limited to, market volatility, trending credit quality, current valuation, maturity, size of the tranche or offering, the applicable underwriters, the status of well-covered credit or first-time issuer, index eligibility, and in the case of 144A Securities, whether the security falls under “144A for life” status (i.e. an offering that is not registered with the U.S. Securities and Exchange Commission (SEC) and may, therefore, be considered less liquid than a 144A offering with registration rights). As a result, the Filer is of the view that it or its sub-advisor can determine whether a given 144A Security would have sufficient liquidity and market transparency such that it would not qualify as an illiquid asset under part (a) of the section 1.1 definition.

26. The Filer is of the view that it has, or if applicable, the sub-adviser of a Fund has or will have, the tools, resources and expertise necessary to assess issuances of 144A Securities and to evaluate the creditworthiness of corporations on a per issuance basis. The Filer, or if applicable the sub-adviser of a Fund has or will have, the ability to conduct sufficient analysis and should be permitted to cause the Fund to invest in 144A Securities in excess of the thresholds set out in the Illiquid Asset Restrictions.

27. The purpose of the Illiquid Asset Restrictions is to govern a core investment fund principle: investors should be able to redeem mutual fund securities and, where applicable, non-redeemable investment fund securities, on demand. Considering that 144A Securities trade in an active institutional market, the Filer is of the view that 144A Securities can be liquid relative to a Fund’s need to satisfy redemptions. The result of the current part (b) of the definition of an “illiquid asset” in NI 81-102 is that all 144A Securities may be deemed illiquid assets, whereas 144A Securities may be more liquid than other types of securities that meet the liquidity criteria set out in NI 81-102.

28. The Filer is of the view that granting the 144A Relief will not result in a Fund being unable to satisfy redemption requests. Investing in 144A Securities may actually be more beneficial to a Fund than various other securities in which a Fund may invest, and the liquidity determination regarding any such 144A Securities should be made on the actual trading liquidity of the security and any restrictions on the security and not simply based on the manner in which the security was offered into the market.

29. The Filer or its sub-advisor maintains policies and procedures that address liquidity risk, and uses a combination of risk management tools, including (a) IRC approved governance that has been adopted to protect investors in the Funds, (b) internal portfolio manager notification requirements of significant cash flows into the Funds, (c) ongoing liquidity monitoring of each Fund’s portfolio, and (d) the consideration of factors set out in paragraph 25 above in order to assess the potential liquidity of a security.

30. If a Fund is not permitted to freely resell 144A Securities to Qualified Institutional Buyers, then the Filer will arrange to immediately restrict any further purchases of 144A Securities until such time as the Fund regains its ability to freely resell 144A Securities to a Qualified Institutional Buyer.

31. If the Filer determines that a 144A Security qualifies as an illiquid asset under part (a) of the section 1.1 definition in NI 81-102, then the Filer will restrict any further purchases of illiquid assets (including such 144A Security that meets the definition under part (a) of section 1.1 definition of NI 81-102) that are in excess of the thresholds set out in the Illiquid Asset Restrictions.

32. The Filer is of the view that if a Fund continues to be unable to trade 144A Securities that are illiquid assets under part (b) of the definition but not under part (a), the Fund and its investors would lose out on potential investment opportunities in the fixed income space and investors would not be able to benefit from an expanded investment universe.

The Underlying U.S. ETFs

33. The securities of an Underlying U.S. ETF will not meet the definition of an IPU in NI 81-102 because the purpose of the Underlying U.S. ETF will not be to:

(a) hold the securities that are included in a specified widely quoted market index in substantially the same proportion as those securities are reflected in that index; or

(b) invest in a manner that causes the Underlying U.S. ETF to replicate the performance of that index.

34. An Underlying U.S. ETF’s investment objectives and strategies will be consistent with the investment restrictions in NI 81-102 and, as such, a Fund’s investment in securities of an Underlying U.S. ETF will not cause the Fund to indirectly invest in assets or have access to investment strategies that it would not be permitted to have directly.

35. Each Underlying U.S. ETF is, or will be, an “investment fund” within the meaning of applicable Canadian securities legislation.

36. The securities of an Underlying U.S. ETF are, or will be, listed on a recognized exchange in the United States and the market for them is, or will be, liquid because it is, or will be, supported by authorized participants (similar to designated brokers or dealers). As a result, the Filer expects a Fund to be able to dispose of such securities through market facilities in order to raise cash, including to fund the redemption requests of its securityholders.

37. An Underlying U.S. ETF may be managed by the Filer or an affiliate or associate of the Filer, or by a third-party investment fund manager.

38. An investment in an Underlying U.S. ETF by a Fund will otherwise comply with section 2.5 of NI 81-102, including that:

(a) no Underlying U.S. ETF will hold more than 10% of its net asset value in securities of another investment fund (at the time of purchase) unless the Underlying U.S. ETF (i) is a clone fund, as defined in NI 81-102, or (ii) in accordance with NI 81-102, purchases or holds securities: (A) of a money market fund, as defined in NI 81-102, or (B) that are IPUs issued by an investment fund; and

(b) no Fund will pay management or incentive fees which to a reasonable person would duplicate a fee payable by an Underlying U.S. ETF for the same service.

Reasons for the Underlying U.S. ETF Relief

39. Absent the Underlying U.S. ETF Relief, an investment by a Fund in an Underlying U.S. ETF would:

(a) be prohibited by paragraphs 2.5(2)(a) or (a.1) of NI 81-102 because such Underlying U.S. ETF may not be subject to NI 81-102; and

(b) be prohibited by paragraph 2.5(2)(c) of NI 81-102 because such Underlying U.S. ETF may not be a reporting issuer in any Jurisdiction,

and would not qualify for the exemption in paragraph 2.5(3)(a) of NI 81-102 because securities of the Underlying U.S. ETFs are not IPUs.

40. The key benefits of a Fund investing in the Underlying U.S. ETFs are greater choices, lower fees and expenses and potentially enhanced returns. For example:

(a) an investment in an Underlying U.S. ETF may lead to efficiencies that result from lower operating expenses and overall management fees than investing directly in securities;

(b) an investment in an Underlying U.S. ETF will provide the Fund with access to specialized knowledge, expertise and/or analytical resources of the investment to the Underlying U.S. ETF;

(c) investing through an Underlying U.S. ETF provides a potentially better risk profile, diversification and improved liquidity / tradability than direct holdings of asset classes to which the Underlying U.S. ETF provides exposure; and

(d) the investment strategies of the Underlying U.S. ETFs offer significantly broader exposure to certain asset classes, sectors and markets than those available in the existing Canadian market.

41. The Filer submits that having the option to allocate a portion of a Fund’s assets to one or more Underlying U.S. ETFs will increase diversification opportunities and may improve the Fund’s overall risk/reward profile.

42. An investment in an Underlying U.S. ETF by a Fund is an efficient and cost-effective alternative to obtaining exposure to securities held by or strategies of the Underlying U.S. ETF rather than purchasing those securities directly or investing through a Canadian exchange-traded fund.

43. An investment in an Underlying U.S. ETF by a Fund should pose limited investment risk to the Fund because each Underlying U.S. ETF will be a reporting issuer in the United States and as such subject to applicable laws.

44. It would not be detrimental to the protection of investors to grant the Underlying U.S. ETF Relief.

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:

(a) with respect to the 144A Relief:

(i) the 144A Securities purchased pursuant to the 144A Relief are not illiquid assets under part (a) of the definition of “illiquid asset” in section 1.1 of NI 81-102;

(ii) the 144A Securities purchased pursuant to the 144A Relief are traded on a mature and liquid market; and

(iii) the prospectus of each Fund relying on the 144A Relief discloses, or will disclose at the next renewal of its prospectus following the date of this decision, the fact that the Fund has obtained the 144A Relief;

(b) with respect to the Underlying U.S. ETF Relief:

(i) the investment by a Fund in securities of an Underlying U.S. ETF is in accordance with the investment objectives of the Fund;

(ii) a Fund does not purchase securities of an Underlying U.S. ETF if, immediately after the purchase, more than 10% of the net asset value of the Fund, in aggregate, taken at market value at the time of the purchase, would consist of securities of Underlying U.S. ETFs;

(iii) the securities of each Underlying U.S. ETF are listed on a recognized exchange in the United States;

(iv) each Underlying U.S. ETF is, immediately before the purchase by a Fund of securities of that Underlying U.S. ETF:

(A) an “investment company” subject to the U.S. Investment Company Act of 1940 and in good standing with the SEC; or

(B) regulated by the SEC as a reporting issuer under the US Securities Act and in good standing with the SEC;

(v) the prospectus of each Fund relying on the Underlying U.S. ETF Relief discloses, or will disclose at the next renewal of its prospectus following the date of this decision, in the investment strategy section, the fact that the Fund has obtained the Underlying U.S. ETF Relief to permit investments in Underlying U.S. ETFs on the terms described in this decision.

“Darren McKall”

Darren McKall AVP, Investment Management Division Ontario Securities Commission

App. No. 2025/0296; SEDAR #6280096