February 14, 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 BMO ASSET MANAGEMENT INC. CIBC ASSET MANAGEMENT INC. RBC GLOBAL ASSET MANAGEMENT INC. TD ASSET MANAGEMENT INC. and 1832 ASSET MANAGEMENT L.P. (together, the Filers and, individually, a Filer) and the FUNDS (as defined below)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from each Filer on behalf of each existing and future investment fund of which the Filer, or an affiliate of the Filer or of the general partner of the Filer, is or becomes the manager or the portfolio adviser and to which National Instrument 81-102 Investment Funds (NI 81-102) applies (each a Fund and collectively, the Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) (A) for an exemption (the Exemption Sought) under section 19.1 of NI 81-102 from the prohibition set out in subsection 4.1(1) of NI 81-102 (the Underwriting Conflict Restriction) which provides that the Fund must not knowingly make an investment in Non-RI Debt Securities (as hereinafter defined) during the period in which the dealer manager of the Fund, or an associate or affiliate of the dealer manager of the Fund, acts as an underwriter in the distribution of such Non-RI Debt Securities except as a member of the selling group distributing five percent or less of the Non-RI Debt Securities underwritten (the Distribution), or during the 60 days after the Distribution (the 60 Day Period), and (B) to revoke the relief previously granted to the Funds described in Appendix A (the Prior Relief).
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) each 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, MI 11-102 and NI 81-102 have the same meanings if used in this decision, unless otherwise defined. In addition:
January 2022 Amendment means the amendments made to subsection 4.1(4) of NI 81-102 on January 6, 2022;
Non-RI Debt Securities means debt securities issued by an issuer that is not a reporting issuer in a Jurisdiction; and
RI Debt Securities means debt securities issued by an issuer that is a reporting issuer in a Jurisdiction.
Representations
This decision is based on the following facts represented by each Filer:
The Filer is a corporation or limited partnership existing under the laws of its governing legislation and has its head office in the Jurisdiction.
The Filer currently is registered in the category of investment fund manager under the securities legislation of the Jurisdiction, as well as under the securities legislation of other Jurisdictions and in other categories.
The Filer is not in default of the securities legislation in any Jurisdiction.
Each Fund is, or will be, an investment fund that is a reporting issuer under the laws of one or more Jurisdictions and subject to the requirements of NI 81-102. Each Fund is, or in the future may be, a dealer managed investment fund.
To the best of the Filer’s knowledge, each existing Fund for which the Filer, or an affiliate of the Filer or of the general partner of the Filer, is the investment fund manager, is not in default of the securities legislation in any Jurisdiction.
The investment objectives and strategies of each Fund permit it to invest in both RI Debt Securities and Non-RI Debt Securities.
Unless an exemption is available therefrom, each Fund is, or in the future may be, prohibited by the Underwriting Conflict Restriction from knowingly making an investment in Non-RI Debt Securities. The Underwriting Conflict Restriction does not apply to investments in debt securities issued or fully and unconditionally guaranteed by the government of Canada or the government of a Jurisdiction (Government Debt Securities).
Following the January 2022 Amendment, the exemption in subsection 4.1(4) of NI 81-102 from the Underwriting Conflict Restriction is available only in respect of RI Debt Securities and no longer available in respect of Non-RI Debt Securities. Prior to the January 2022 Amendment, the Funds were permitted to invest in both RI Debt Securities and Non-RI Debt Securities pursuant to the exemption that had been codified in subsection 4.1(4) of NI 81-102 since 2006. In addition, the Prior Relief in which the January 2022 Amendment was, in part, intended to codify, applied equally to RI Debt Securities and Non-RI Debt Securities. As such, the Exemption Sought is requested by the Filers to restore the ability of the Funds to invest in Non-RI Debt Securities.
The amount of Government Debt Securities available for investment in Canada is limited. As a result, investors in debt securities must rely increasingly on non-Government Debt Securities. However, because of the limited supply of non-Government Debt Securities in the primary market, holders of outstanding non-Government Debt Securities tend not to sell their holdings prior to the maturity date of their non-Government Debt Securities. This, in turn, results in limited availability of non-Government Debt Securities in the secondary market. Moreover, because of their limited availability, the non-Government Debt Securities that are available in the secondary market are usually sold at prices that are higher than if they were purchased in the primary market, assuming no change in the markets and in the status of the issuer. The excess demand for the limited supply of non-Government Debt Securities in both the primary and secondary markets makes it difficult for all prospective investors (including mutual funds) to acquire non-Government Debt Securities for investment purposes.
RI Debt Securities form a very small portion of the global universe of non-Government Debt Securities that have been permissible investments for the Funds since 2006. For this reason, it is critical, that the Funds continue to be permitted to purchase in the primary market Non-RI Debt Securities of issuers that are not reporting issuers, including non-public Canadian issuers and both public and non-public non-Canadian issuers.
For purposes of the Underwriting Conflict Restriction, an investment by a Fund in Non-RI Debt Securities does not create a conflict of interest different from investing in RI Debt Securities. As a result, the Filer’s approach to mitigating conflicts of interest arising from an investment by a Fund in Non-RI Debt Securities addresses the same issues as the Filer addresses when considering an investment by a Fund in RI Debt Securities. Accordingly, the approach used by the Filer to mitigate conflicts arising from a decision to invest a Fund in Non-RI Debt Securities should be no less stringent than the approach used by the Filer to mitigate conflicts arising from a decision to invest a Fund in RI Debt Securities.
As part of its responsibility under National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) to mitigate conflicts of interest of a Fund, when considering conflicts of interest arising from an investment by a Fund in Non-RI Debt Securities, the Filer normally considers a range of factors, including, at a minimum, the presence or absence of other purchasers of the Non-RI Debt Securities, the pricing of the Non-RI Debt Securities in the particular offering, and the participation of non-related underwriters in the Distribution of the Non-RI Debt Securities. The Filer’s approach to mitigating conflicts of interest arising from investments in Non-RI Debt Securities has been presented to the Funds’ Independent Review Committee for its consideration pursuant to subsection 5.2(2) of NI 81-107.
In certain cases, Non-RI Debt Securities may be appropriate investments for a Fund and consistent with its investment objectives. A Filer’s decision to cause its Funds to participate in a Distribution will be made in the best interests of the Funds.
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) in accordance with section 2.2 of NI 81-107, the Filer, as the investment fund manager of a Fund, has a written policy and procedure (a Policy) concerning the transactions contemplated by the Exemption Sought that specifies how conflicts of interest arising from the transactions will be mitigated;
(b) the Policy requires that, subject to the exceptions described in paragraph (d) below, for each Distribution in which a Fund(s) seeks to participate, at least the following key substantive elements be present:
(i) The Presence of Other Purchasers in the Offering: At least one arm’s length purchaser purchases or has agreed to purchase Non-RI Debt Securities in the Distribution in addition to the Fund(s);
(ii) Pricing: At least one arm’s length purchaser of a specified percentage of the Distribution of the Non-RI Debt Security purchases the Non-RI Debt Security at the same price as the price applicable to the purchase by the Fund(s); and
(iii) Composition of the Dealer Syndicate: At least one non-related underwriter is participating in the Distribution of Non-RI Debt Securities in the Distribution,
(the Substantive Elements),
(c) in complying with sections 5.1 and 5.4 of NI 81-107, the Policy is referred to the Funds’ IRC;
(d) with reference to sections 5.1 and 5.4 of NI 81-107, for any Distribution in which a Fund(s) seeks to participate in reliance on the Exemption Sought that does not contain all of the Substantive Elements and as such, does not comply with the Policy:
(i) the Filer, as the investment fund manager of a Fund(s), provides a rationale for such approach together with a written explanation to the IRC describing why, in the absence of one or more Substantive Elements, the Fund’s participation in the offering is still in the best interest of the Fund;
(ii) the IRC’s acceptance of that rationale is documented; and
(iii) the IRC has approved the transaction in compliance with subsection 5.2(2) of NI 81-107;
(e) the Policy, and any exceptions to the Policy pursuant to paragraph (d), are reviewed annually by the IRC;
(f) at the time of the investment:
(i) the IRC of the Fund has approved the transaction under subsection 5.2(2) of NI 81-107; and
(ii) the distribution of the Non-RI Debt Security is made under an exemption from the prospectus requirement;
(g) for an investment made during the 60-Day Period, any of the following apply:
(i) the investment is made on an exchange on which the Non-RI Debt Security is listed and traded; or
(ii) if the Non-RI Debt Security does not trade on an exchange, the ask price is readily available, as provided in Commentary 7 to section 6.1 of NI 81-107, and the price paid is not higher than the available ask price of the Non-RI Debt Security at the time of the investment;
(h) at the time of each investment, the purchase is consistent with, or is necessary to meet, the investment objectives of the Fund and represents the business judgment of the portfolio adviser of the Fund uninfluenced by considerations other than the best interests of the Fund or in fact is in the best interests of the Fund;
(i) no later than the time the Fund files its annual financial statements, it files the particulars of each investment made by the Fund in reliance on the Exemption Sought during its most recently completed financial year; and
- the Prior Relief is revoked.
“Stephen Paglia”
Stephen Paglia
Manager, Investment Management Division
Ontario Securities Commission
SEDAR Project # 3423553, 3423549, 3423550, 3423551, 3423582, 3423587, 3423588, 3423589, 3423590, 3423593, 3423594, 3423608, 3423609, 3423611, 3423613 and
3423552, 3423614, 3423615, 3423616, 3423617, 3423618, 3423619, 3423620, 3423621, 3423622, 3423623
Application #2022/0399 and 2022/0400
Appendix A
Prior Relief
In the Matter of CIBC Asset Management Inc., CIBC Global Asset Management Inc., National Bank Securities Inc., Phillips, Hager & North Investment Management Ltd., RBC Asset Management Inc. and TD Asset Management Inc. (July 30, 2010). Ontario Securities Commission as the principal regulator.
In the Matter of BMO Investments Inc. (December 17, 2013). Ontario Securities Commission as the principal regulator.
In the Matter of RBC Global Asset Management Inc. (November 16, 2018). Ontario Securities Commission as the principal regulator.