In the Matter of Polar Asset Management Partners Inc., 2026 CanLII 39132

April 16, 2026

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 Polar Asset Management Partners Inc.

(the Filer)

and

In the matter of

Polar Multi-Strategy Alternative Fund

(the Fund)

DECISION

Background

The principal regulator in the Jurisdiction (the Principal Regulator) has received an application from the Filer for a decision under the securities legislation of the Principal Regulator (the Legislation) to grant the relief from the following provisions:

(a) The requirements of:

(i) Section 2.9.1 of National Instrument 81‑102 – Investment Funds (NI 81‑102), which limits an alternative mutual fund’s aggregate exposure to cash borrowing, short selling and specified derivatives transactions to no more than 300% of the fund’s net asset value (NAV) (the Leverage Limit); and

(ii) Section 2.1 of National Instrument 81-101 – Mutual Fund Prospectus Disclosure (NI 81-101) with respect to disclosure required by Item 4, Instruction (4) of Part B of Form 81‑101F1 – Contents of Simplified Prospectus (Form 81-101F1) and Item 3 of Part 1 of Form 81-101F3 – Contents of Fund Facts Document (Form 81-101F3), to the extent that they require an alternative mutual fund to disclose its maximum aggregate exposure to sources of leverage (e.g., cash borrowing, short selling and use of derivatives) as calculated pursuant to Section 2.9.1 of NI 81‑102 (collectively, the Aggregate Exposure Limit Relief);

(b) The requirements (the Cash Borrowing and Short Selling Limits) of:

(i) Subparagraph 2.6(2)(c) of NI 81‑102, which restricts an alternative mutual fund from borrowing cash if the value of cash borrowed, when aggregated with the value of all outstanding borrowing by the fund, exceeds 50% of the fund’s NAV;

(ii) Subparagraph 2.6.1(1)(c)(v) of NI 81‑102, which restricts an alternative mutual fund from selling a security short if, at the time, the aggregate market value of the securities sold short by the fund exceeds 50% of the fund’s NAV; and

(iii) Section 2.6.2 of NI 81-102, which restricts an alternative mutual fund from borrowing cash or selling securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the fund would exceed 50% of the fund’s NAV,

((i), (ii) and (iii) together, the Cash Borrowing and Short Selling Relief); and

(c) The requirements of subsection 6.1(1) of NI 81-102 that, except as provided, all portfolio assets of the Fund be held under the custodianship of one qualified custodian:

(i) to permit the Fund to deposit portfolio assets with a borrowing agent that is not the Fund’s custodian or sub-custodian in connection with a short sale of securities, if the aggregate market value of the portfolio assets held by the borrowing agent after such deposit, excluding the aggregate market value of the proceeds from outstanding short sales of securities held by the borrowing agent, in the case of a Fund that is an alternative mutual fund, does not exceed 25% of the Fund’s NAV at the time of deposit (the Short Sale Collateral Relief); and also

(ii) to permit the Fund to appoint more than one custodian, each of which is qualified to be a custodian under Section 6.2 of NI 81-102 and each of which is subject to all of the other requirements in NI 81-102 Part 6 – Custodianship of Portfolio Assets other than the prohibition against the Fund appointing more than one custodian in subsection 6.1(1) of NI 81-102 (the Custodian Relief).

The Aggregate Exposure Limit Relief, the Cash Borrowing and Short Selling Relief, the Short Sale Collateral Relief and the Custodian Relief are referred to collectively as the Exemption Sought.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the Principal Regulator for this application (the OSC);

(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 each jurisdiction of Canada, other than Ontario.

Interpretation

Unless expressly defined herein, terms used herein have the respective meanings given to them in National Instrument 14-101 – Definitions, MI 11‑102 and NI 81‑102, and the following terms have the meanings indicated below:

Custodian means the custodian of the Fund, other than an Additional Custodian (as defined herein) appointed in reliance upon the Exemption Sought;

Prime Broker means any entity that acts as a lender or borrowing agent to investment funds; and

Short Sale Collateral Limits means the limits specified in subparagraphs 6.8.1(1)(b) of NI 81-102 on the deposit of portfolio assets by the Fund with a borrowing agent (that is not the custodian or a sub-custodian of the Fund) as security in connection with a short sale of securities.

Representations

This decision is based on the following information provided by the Filer:

The Filer

1The Filer is a corporation existing under the laws of Ontario with its head office located in Toronto, Ontario. The Filer is registered as:

(i) an exempt market dealer in Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Québec and Saskatchewan;

(ii) a portfolio manager in Ontario and Alberta;

(iii) a commodity trading manager in Ontario; and

(iv) an investment fund manager in Ontario, Québec and Newfoundland and Labrador.

2The Filer is a global alternative asset manager which, as of January 31, 2026, managed approximately C$7.6 billion of assets and employed 66 investment professionals comprising 26 different portfolio management teams.

3The Filer is not in default of securities legislation in any jurisdiction of Canada.

The Master Fund and the Private Fund

4The Filer manages assets across four primary offerings including its flagship multi-strategy fund, which it currently offers to its clients through a “master-feeder” structure.

5Polar Multi-Strategy Master Fund (the Master Fund) is a Cayman Islands exempted company incorporated on December 13, 2001 under the Companies Act (as amended) of the Cayman Islands and a registered mutual fund under the Mutual Funds Act (as amended) of the Cayman Islands. The Filer is the investment advisor of the Master Fund.

6The Master Fund’s investment objective is to achieve stable, superior rates of return while minimizing investment risk.

7The Master Fund seeks to achieve its investment objective through the use of strategies that include, but are not limited to, arbitrage-oriented strategies, fixed income, credit, equity arbitrage, event driven, fundamental equity long/short, fundamental long-only equity, structured credit and private investments.

8In addition, the Master Fund’s use of leverage is an integral part of the Master Fund’s overall investment strategy and is also part of some of the individual investment strategies that it employs. Overall, leverage is an important aspect of how the Master Fund executes on and seeks to achieve its investment objective in reliance on a diversified set of investment strategies without significantly increasing overall financial risk.

9The Master Fund also strives to identify, develop and adopt new strategies it believes are consistent with the objective of achieving stable, superior rates of return while trying to minimize investment risk. Execution of the Master Fund’s investment strategies and exposure to certain investment instruments includes transactions made through securities exchanges and over-the-counter markets, and through derivative and privately negotiated transactions.

10The Master Fund’s securities are offered to investors primarily through a master-feeder structure.

11Polar Multi-Strategy Fund (Canada) (the Private Fund) is an open-ended investment trust created under the laws of Ontario by way of a trust agreement dated as of January 31, 2014. The Filer is the manager of the Private Fund.

12The Private Fund has the same investment objectives and strategies as the Master Fund which it pursues by investing substantially all of its assets indirectly in the Master Fund.

13Neither the Private Fund nor the Master Fund is a reporting issuer. Since its inception, securities of the Private Fund have only been distributed in Canada to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 – Prospectus Exemptions. The Master Fund has not distributed any securities to Canadian persons other than indirectly through the Private Fund or another feeder fund.

The Fund

14The Filer plans to launch the Fund, which will be organized as a mutual fund trust established under the laws of the Province of Ontario, and intends to distribute its units in each province and territory of Canada pursuant to a simplified prospectus and Fund Facts that will be prepared and filed in accordance with NI 81-101. The Filer will act as the investment fund manager and portfolio manager of the Fund.

15The Filer intends that the Fund will be a reporting issuer in each province and territory of Canada and will be an “alternative mutual fund” within the meaning of NI 81-102 that, with the exception of the Exemption Sought, will comply with the requirements of NI 81‑102 and all other applicable securities legislation, including NI 81-101, National Instrument 81‑105 – Mutual Fund Sales Practices, NI 81‑106 and National Instrument 81‑107 – Independent Review Committee for Investment Funds.

16The investment objective of the Fund will be substantially similar to that of the Master Fund and the Filer intends that the Fund, once launched, will be managed in a similar manner as the Master Fund by generally utilizing similar investment strategies as the Master Fund to the extent permitted by NI 81-102 and other applicable laws.

17Similar to the Master Fund, the Fund’s the investment objective will be to achieve stable, superior rates of return while minimizing investment risk. The Fund will seek to achieve this objective through the use of strategies that may include, but will not be limited to, arbitrage-oriented strategies, fixed income, credit, equity arbitrage, event driven, fundamental equity long/short, fundamental long-only equity, structured credit and private investments. The Fund will strive to identify, develop and adopt new strategies it believes are consistent with the objective of achieving stable, superior rates of return while trying to minimize investment risk. Execution of the Fund’s investment strategies and exposure to certain investment instruments may include transactions made through securities exchanges and over-the-counter markets, and through derivative and privately negotiated transactions.

18The Fund is expected to invest and hold its investments directly and not through a master-feeder structure.

Necessity for Relief:

Aggregate Exposure Limit Relief

19The investment objective of the Fund is to achieve stable, superior rates of return while minimizing investment risk.

20The Fund will be primarily managed according to the investment strategies and processes that the Filer has deployed as investment advisor of the Master Fund, as described above.

21The Master Fund has been in existence since December 13, 2001 and, prior to that, the Filer managed and advised multi-strategy funds and employed a multi-strategy approach for its clients since being established in 1991. The Filer’s multi-strategy investment approach has evolved and adjusted over the years to reflect changing market conditions as well as new investment strategies, opportunities and products while maintaining and executing on its investment objective to achieve stable, superior returns while minimizing investment risk.

22The Master Fund uses a mix of many individual strategies to navigate different market cycles and strives to deliver strong risk-adjusted returns by managing the Master Fund’s overall risk profile including through the use of various hedging tools to manage and reduce risk.

23The Filer manages leverage as part of its overall investment risk by employing a diversified group of investment strategies and monitoring risks including leverage on an ongoing basis and also by employing a number of strategies which are individually designed to limit volatility. Leverage, when employed within a diversified, risk-managed framework, can function as both an investment and portfolio construction tool – supporting liquidity management, facilitating efficient hedging, and enhancing return potential – rather than introducing or contributing to incremental risk.

24For example, the Master Fund’s convertible arbitrage strategy utilizes hedging to create a market-neutral, relative-value strategy that seeks to generate stable, risk-adjusted returns by exploiting pricing inefficiencies between a company’s convertible bonds and its underlying equity. The Master Fund seeks to isolate and monetize these inefficiencies and to neutralize unwanted equity market exposure through disciplined short selling, which reduces portfolio risk (the Convertible Bond Arbitrage Strategy). The Master Fund’s Convertible Bond Arbitrage Strategy is non-directional, hedged, and focused on risk-controlled convergence, not directional equity views.

25As a result of the structure of the Convertible Bond Arbitrage Strategy and the use of hedging, investors can expect low correlation to traditional asset classes due to market-neutral construction, stable returns driven by pricing convergence rather than equity direction and reduced equity market risk due to systematic short selling hedges.

26However, If the Master Fund were required to measure its exposure to leverage in accordance with the Leverage Limit calculation under Section 2.9.1 of NI 81-102, the hedging used by the Master Fund within the Convertible Bond Arbitrage Strategy, which is a risk-mitigation tool designed to neutralize the convertible’s inherent equity exposure and therefore risk, would be included in the calculation of the Leverage Limit.

27As such, if the Master Fund were required to measure its exposure to leverage in accordance with the Leverage Limit calculation under Section 2.9.1 of NI 81-102, the Master Fund would have consistently exceeded 300% of its NAV notwithstanding that the strategies used by the Master Fund, including the Convertible Bond Arbitrage Strategy, are used by the Master Fund to manage and reduce risk.

28Since the Fund’s investment strategies will be based on and similar to the Master Fund, the Filer anticipates that the Fund’s exposure to cash borrowing, short selling and specified derivatives transactions as measured using the Leverage Limit calculation set out in Section 2.9.1(2) of NI 81-102 would be similar to the level applicable for the Master Fund and would therefore regularly exceed the 300% NAV limit.

29The Fund’s overall risk will be managed similarly to and at a level that is consistent with the Master Fund and, as such, in executing its investment strategy, the Fund’s aggregate notional exposure to leverage will vary significantly and will likely regularly exceed the Leverage Limit. Nevertheless, as the Filer will employ an overarching approach to the management of risk of the multiple investment strategies of the Fund, including to the various types and forms of leverage and its utilization and use in such strategies, the Filer submits that the Leverage Limit is not the most appropriate or accurate measure of the Fund’s leverage risk.

30The Filer submits that notwithstanding the foregoing, the Master Fund had a standard deviation of 3.84% and a Sharpe ratio of 1.43 over the ten year period ending January 31, 2026 compared to 15.01% and 0.90 for the S&P 500 Total Return Index for the same period, which highlights the effectiveness of the Master Fund’s investment management strategies, which are designed to achieve stable, superior returns while minimizing risk.

31The above figures represent how the Filer is able to manage risk at the Master Fund. The Filer submits that this low level of volatility in the Master Fund demonstrates that there is no direct relationship between the aggregate notional exposure and the volatility of the Master Fund’s portfolio returns. The Filer submits therefore that the current regulatory framework for measuring the Leverage Limit does not appropriately or adequately reflect the actual risks underlying the Master Fund’s investment strategies and its portfolio.

32The Filer proposes instead that the Fund be permitted to use a value-at-risk (VaR) methodology to measure its leverage risk, as described herein, as it believes that VaR is a better means of measuring and managing risk. This is because, unlike a simple tallying of notional leverage amounts which do not measure risk or volatility, VaR enables risk to be measured in a reasonably comparable and consistent manner which reflects a reasonable estimate of potential losses from an investment portfolio. In addition, leverage and associated risk will be managed by the Filer at the overall Fund level as well as separately in respect of the various strategies that the Fund will employ. For this reason, the Filer considers that it is appropriate to adopt the VaR methodology, which is a widely used risk measure and has been adopted in other jurisdictions for their respective risk frameworks for certain retail-based funds.

33The European Union approved a regulation of mutual funds in 2010 known as the fourth European Directive covering Undertakings for Collective Investment in Transferable Securities (UCITS IV), which introduced a VaR based approach to regulatory risk management for investment funds that extensively use derivatives.

34This approach allows for two methods of VaR limits – “relative” and “absolute” methods – which in general terms can be summarized as follows:

(a) Relative: This approach uses a ratio of up to 200% between the VaR of the mutual fund’s portfolio and the VaR of an unlevered reference portfolio (Relative VaR).

(b) Absolute: This approach is generally used when there is no reference portfolio or benchmark and allows the one-month VaR to be up to 20% of the NAV of the portfolio (Absolute VaR).

The specific definition of “VaR” and of the “Absolute VaR Test” that are referred to herein and which the Filer proposes to observe, which are aligned with the definitions of such terms under UCITS IV and the SEC VaR Rule (as defined below), are set out in Schedule A - Additional Leverage Condition attached hereto.

35UCITS IV also includes rules for the computation of VaR and requires regular stress- and back-testing to complement the VaR estimation.

36On October 28, 2020, the SEC adopted Rule 18f‑4 under the Investment Company Act of 1940 (the SEC VaR Rule), which modernized the regulatory framework for derivatives use by registered funds and included a regime for using VaR to measure leverage risk that is substantially the same as the regime under UCITS IV including the use of Relative VaR and Absolute VaR.

37In addition to complying with the VaR limits, the UCITS IV and SEC VaR Rule also require that a fund adopt a risk management policy, which includes risk guidelines, stress testing, back tests, internal reporting and escalation, and periodic review thereof. The risk management policy must address concerns about fund leverage for investment portfolios that utilize derivatives and deploy leverage.

Use of VaR by the Fund

38The Filer is familiar and has experience with value-at-risk approaches as it has used a range of distributional risk metrics for the Master Fund, including volatility-based risk measures such as VaR and Conditional Value at Risk frameworks.

39The Filer has determined that application of the Absolute VaR test to the Fund will be the most suitable approach for the Fund as the Filer has not identified a reference portfolio that would be appropriate for the purposes of the methodology.

40The Fund will comply with all the material aspects of the Absolute VaR methodology as outlined in the SEC VaR Rule and described in this decision.

41The Filer will use a historical simulation VaR model with respect to the Fund. In addition, Filer will upload the Fund's investment portfolio each business day to a risk analytics system that is appropriate for the Fund's applicable VaR methodology, and which is provided by one of the following vendors: Bloomberg, S&P Global or MSCI (the Risk Service Provider). The Risk Service Provider will provide the Filer with the data necessary to enable daily confirmation of the Filer’s VaR calculation and that the Fund is in compliance with the applicable VaR limits as set out in Schedule A on each business day.

42The Filer has a dedicated risk management team and has adopted a “Risk Management Program” (the RMP) that is consistent with and adheres to the conditions set out in Schedule A, which are generally based on the SEC VaR Rule. A copy of the RMP will be available to the OSC promptly upon request.

43The Filer’s RMP incorporates policies and procedures for risk monitoring, risk management and risk reporting of a fund’s VaR methodology including derivative and non-derivative exposure.

44By combining an ensemble of investment approaches, the portfolio strategies to be employed in the Fund are managed to have a greater likelihood of achieving better returns with reduced risk and improved diversification while maintaining a lower volatility expectation.

45Using the Absolute VaR methodology is also a simple single metric to measure risk and is in line with the approaches the European Union and the United States have adopted. It has also been accepted by Canadian securities regulators under exemptive relief orders previously granted.

46When dealing with a fund that uses derivatives and is managed using a multi-asset approach similar to the Fund, a VaR-based approach is a better means of measuring and managing risk in a reliable, simple to understand and consistent manner as compared to tallying of derivatives notional amounts.

47The risk-based approach in UCITS IV and the SEC VaR Rule, which relies on VaR, stress testing, and overall risk management, addresses concerns about fund leverage, while allowing such portfolios to continue to use leverage through derivatives for a variety of purposes.

48Allowing the Filer to use a VaR-based risk management framework for the Fund is a more appropriate risk framework for multi-strategy portfolios and would give Canadian retail investors access to an investment product that seeks non-correlated returns and will allow them to diversify their portfolios.

49The Filer further submits that it is not appropriate for the Fund to be required to disclose the maximum aggregate exposure to sources of leverage in its simplified prospectus and fund facts, as calculated in accordance with section 2.9.1 of NI 81-102 since, as a result of the relief from the Leverage Limit, the Fund will not be managing its portfolio in accordance with that requirement. The Fund’s simplified prospectus and fund facts will instead include the appropriate disclosure regarding its use of VaR.

Cash Borrowing and Short Selling Relief

50As described, the Fund intends to use a mix of many individual strategies to navigate different market cycles and strive to deliver risk-adjusted returns by managing the Fund’s overall risk profile through the use of various hedging tools, which involve cash borrow and physical short selling, to manage and reduce risk within its investment strategies.

51In addition to the Convertible Bond Arbitrage Strategy described above, the Fund is expected to employ credit strategies which generate residual interest rate risk that the Fund will seek to mitigate through hedging (such strategies, collectively, Interest Rate Risk Hedging Strategies). In order to hedge against the inherent interest rate risk associated with the government and corporate fixed income securities that the Fund would be expected to invest in, the Fund would enter into short selling arrangements relating to government securities at the same time that the Fund invests in long positions in government and corporate fixed income securities.

52For example, the average levels of cash borrowing and physical short selling by the Master Fund since April 2022 were 105% and 100%, respectively, which would consistently exceed the Cash Borrowing and Short Selling Limits.

53The Fund’s proposed core strategies, including the Convertible Bond Arbitrage Strategy and Interest Rate Risk Hedging Strategies which are currently utilized by the Master Fund and rely on physical hedges to remove directional market exposure, would result in the Fund being consistently above the Cash Borrowing and Short Selling Limits however the Fund could execute those strategies through the use of derivatives instead of physical hedges and cash borrow.

54While the Fund could obtain economically equivalent positions through derivatives in order to execute on such strategies, use of derivatives instead of physical short selling is generally expected to increase counterparty risk, reduce execution flexibility, increase costs and introduce operational complexity and as a result have a negative effect on the Fund.

55As the Fund is proposing to use a VaR measure for its leverage risk, as described above, the Filer submits that it is appropriate for the Fund to be exempt from the Cash Borrowing and Short Selling Limits as VaR provides the single most relevant metric that measures the overall risk of a fund, the potential loss for a portfolio and the probability that the defined loss will occur and as a result the Cash Borrowing and Short Selling Limits are repetitive and not necessary.

56The rationale for including borrowing and shorting strategies in the VaR calculation, instead of applying the Cash Borrowing and Short Selling Limits separately, is consistent with the nature of a VaR methodology, which is intended to measure overall portfolio risk, regardless of strategy. Regardless of whether or not a long or short position is obtained through physical transactions (i.e., outright purchases of securities using borrowed cash or the borrowing and shorting securities) or through economically equivalent derivatives positions (i.e., typically through taking positions under total return swaps, forwards or similar derivatives transactions), the VaR calculation will duly reflect the market risk factors associated with such investment positions and consequently the Fund’s cash borrowing and physical short selling will be included in the calculation of the Fund’s Absolute VaR and subject to the Absolute VaR Test. The Filer submits that it is therefore unnecessary to also submit cash borrowing and short selling activities to a separate investment limit other than the Absolute VaR Test.

57The Fund’s ability to execute its proposed strategies effectively, and in a manner that reduces risk and benefits investors, depends on a flexible, risk-controlled framework for using cash borrowing and short selling within the VaR framework. Permitting the Fund to have greater flexibility to directly borrow cash or securities in order to “physically” execute cash transactions (instead of requiring the Fund to use derivatives transactions to obtain economically equivalent positions) will significantly improve the portfolio manager’s ability to more efficiently and effectively execute trading strategies without introducing any additional risks for investors.

Short Sale Collateral Relief

58As part of its investment strategies, the Fund will engage in short sales of securities and is permitted to grant a security interest in favour of, and to deposit pledged portfolio assets with, its Prime Broker. If the Fund engages an entity as its prime broker that is not its custodian or sub-custodian, then the Fund may only deliver to its Prime Broker portfolio assets having a market value, in the aggregate, of not more than, in the case of the Fund as it will be an alternative mutual fund, 25% of the Fund’s NAV at the time of deposit.

59A Prime Broker may not wish to act as a borrowing agent for the Fund’s short selling activities, if the Prime Broker was required to include the value of any short selling proceeds received by the Fund and held by the Prime Broker, as part of the overall restriction on holding portfolio assets of the Fund that have an aggregate market value that does not exceed 25%of the Fund’s NAV.

60Prime Brokers that are qualified to act as a custodian or sub-custodian under NI 81-102 are not widely appointed as custodian or sub-custodian under NI 81-102 as it can be both operationally challenging and costly to appoint them to act in such capacity.

61Given the typical collateral requirements that Prime Brokers impose on their customers who engage in the short sale of securities, if the Short Sale Collateral Limits were to apply, the Fund would need to retain multiple Prime Brokers in order to sell short securities to the extent permitted under Section 2.6.1 of NI 81-102 and the Cash Borrowing and Short Selling Relief described above. Managing and overseeing relationships with multiple Prime Brokers introduces unnecessary operational and administrative complexities and additional costs of operation for the Fund.

Custodian Relief

62The Filer would like the flexibility for the Fund to engage an additional custodian that is qualified to act as a custodian under subsection 6.2(3) of NI 81-102, which may include engaging Prime Brokers that satisfy such requirements (each, an Additional Custodian). The ability to appoint more than one qualified custodian, including a Prime Broker, to act as an Additional Custodian is important for efficient execution and safeguarding of assets. Without this flexibility, the Fund would incur unnecessary transfers of collateral between custodians, increasing cost and operational risk. The Filer and any Additional Custodians would be subject to all requirements applicable to custodians under Part 6 of NI 81-102, other than the requirement in subsection 6.1(1) of NI 81-102 that there only be one custodian.

63If the Custodian Relief is granted, an Additional Custodian’s responsibility for custody of the Fund’s assets will apply only to the assets held on behalf of the Fund by the Additional Custodian in its capacity as an additional custodian (the Relevant Assets). The custodian arrangements between the Fund and an Additional Custodian in respect of the Relevant Assets will comply with the requirements of Part 6 of NI 81-102 other than subsection 6.1(1).

64Any Additional Custodian will meet the requirements of NI 81-102 to act as a custodian for an investment fund and will have experience acting as custodian of the assets of public investment funds governed by NI 81-102. As custodian of the Relevant Assets, an Additional Custodian will comply with the standard of care applicable to qualified custodians under Section 6.6 of NI 81-102, will hold the Relevant Assets in the name of the applicable Fund in accordance with Section 6.5 of NI 81-102 and will include the provisions prescribed in Section 6.4 of NI 81-102 in its custody agreement with the Filer and the Fund. Each Additional Custodian will complete the review and provide compliance reports to the Filer as contemplated in Section 6.7 of NI 81-102.

65The ability to terminate an Additional Custodian as custodian of the Relevant Assets of the Fund at any time without cause on written notice will ensure that the Filer maintains ultimate control over all of the portfolio assets of the Fund if the Filer considers it to be in the best interests of the Fund and its securityholders to do so.

66The appointment of an Additional Custodian should not have an impact on the safety of the portfolio assets of the Fund while also enhancing the Fund’s abilities to engage in the efficient short selling of securities under Section 6.8.1 of NI 81-102.

67Disclosure regarding the particulars of the appointment of any Additional Custodian of the Fund with respect to the Relevant Assets will be included in the Fund’s simplified prospectus.

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:

1. In respect of the Aggregate Exposure Limit Relief:

(a) The Fund will comply with the Absolute VaR test, as defined in Schedule A, and will comply with all of the additional leverage conditions for funds set out in Schedule A;

(b) The Fund’s prospectus disclosure concerning its use of VaR will include the maximum VaR that the Fund is permitted to incur, and the Fund will disclose in its annual and interim MRFP the maximum amount of VaR incurred by the Fund over the applicable period;

(c) The Filer will not change the VaR model that is being used with respect to the Fund;

(d) The Filer will notify the Principal Regulator promptly of any material changes to its RMP;

(e) The Filer will upload the investment portfolio on each business day to the Risk Service Provider in order to have the Risk Service Provider provide data to Filer, which data will be used to confirm that the Fund is compliant on each business day with the Absolute VaR test as set out in Schedule A. The Filer will maintain such reports and make them available to the Principal Regulator promptly upon request;

(f) The Filer will prepare and retain a monthly portfolio investment report containing the elements set out in its RMP, and no later than 60 days after the end of each fiscal quarter, upon request, will file with the Principal Regulator the monthly portfolio investment reports for that quarter;

(g) The Filer will notify the Principal Regulator within one business day if the Fund is offside the Absolute VaR test for more than five consecutive business days, providing the information set out in the VaR Breach Memo, as defined in the RMP; and

(h) The Filer will promptly provide the Principal Regulator with any other information that the Principal Regulator may request regarding the calculations and risk metrics that the Filer is using for its VaR calculations.

2. In respect of the Cash Borrowing and Short Selling Relief

(a) In the case of a short sale, the short sale:

(i) otherwise complies with all of the short sale requirements applicable to alternative mutual funds under Sections 2.6.1 and 2.6.2 of NI 81-102, as modified by any exemptive relief granted to the Fund; and

(ii) is consistent with the Fund’s investment objectives and strategies.

(b) In the case of a cash borrowing transaction, the transaction:

(i) otherwise complies with all of the cash borrowing requirements applicable to alternative mutual funds under Sections 2.6 and 2.6.2 of NI 81-102, as modified by any exemptive relief granted to the Fund; and

(ii) is consistent with the Fund’s investment objectives and strategies.

(c) The Fund also complies with all of the conditions of the Aggregate Exposure Limit Relief with respect to short sales and cash borrowing; and

(d) The simplified prospectus under which units of the Fund are offered will disclose that the Fund can sell securities short or borrow cash in accordance with the terms of the Exemption Sought.

3. In respect of the Short Sale Collateral Relief, the Fund otherwise complies with subsections 6.8.1(2) and (3) of NI 81-102.

4. In respect of the Custodian Relief, the Fund may appoint one or more Additional Custodians provided that:

(a) A single entity reconciles all the portfolio assets of the Fund and provides the Fund with valuation and securityholder recordkeeping services and will complete daily reconciliations amongst the Custodians before calculating a daily NAV;

(b) The Filer maintains such operational systems and processes, as between two or more Custodians and the single entity referred to in (a) above, in order to keep a proper reconciliation of all the portfolio assets that will move amongst the Custodians, as appropriate; and

(c) The Additional Custodian will act as custodian, securities lending agent and/or prime broker only for the portion of portfolio assets of the Fund transferred to it.

5. The Aggregate Exposure Limit Relief and the Cash Borrowing and Short Relief expires on April 16, 2030.

Darren McKall

Associate Vice President, Investment Management Division

Ontario Securities Commission

SEDAR Project# 6341688

Application # 2025/0571

SCHEDULE A

ADDITIONAL LEVERAGE CONDITIONS

In these conditions,

“absolute VaR test” means that the VaR of a fund’s portfolio does not exceed 20% of the value of the fund’s net assets;

“board”, with respect to a fund, means the fund manager’s board of directors;

“derivatives-related risks” means the risks associated with a fund’s derivatives transactions, any cash borrowings or its use of derivatives transactions, including leverage, market, counterparty, liquidity, operational, and legal risks and any other risks the risk manager deems material;

“derivatives transaction” means:

(a) any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar instrument, under which a fund is or may be required to make any payment or delivery of cash or other assets during the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; and

(b) any short sale borrowing.

“independent director” means a director who would be independent within the meaning of Section 1.4 of National Instrument 52-110 – Audit Committees;

“value-at-risk” or “VaR” means an estimate of potential losses on an instrument or portfolio, expressed as a percentage of the value of the portfolio’s assets (or net assets when computing a fund’s VaR), over a specified time horizon and at a given confidence level, provided that the VaR model to be used by the fund for purposes of determining the fund’s compliance with the absolute VaR test must:

(a) take into account and incorporate all significant, identifiable market risk factors associated with a fund’s investments, including, as applicable:

(i) equity price risk, interest rate risk, credit spread risk, foreign currency risk and commodity price risk;

(ii) material risks arising from the nonlinear price characteristics of a fund’s investments, including options and positions with embedded optionality; and

(iii) the sensitivity of the market value of the fund’s investments to changes in volatility;

(b) use a 99% confidence level and a time horizon of 20 trading days; and

(c) be based on at least three years of historical market data.

Conditions

1. Risk management program. The fund must adopt and implement a written risk management program (program), which must include policies and procedures that are reasonably designed to manage the fund’s derivatives-related risks (which includes derivative and non-derivative exposure) and to reasonably segregate the functions associated with the program from the portfolio management of the fund. The program must include the following elements:

(a) Risk identification and assessment. The program must provide for the identification and assessment of the fund’s derivatives-related risks. This assessment must take into account the fund’s derivatives transactions, any cash borrowings and other investments.

(b) Risk guidelines. The program must provide for the establishment, maintenance, and enforcement of investment, risk management, or related guidelines that provide for quantitative or otherwise measurable criteria, metrics, or thresholds of the fund’s derivatives-related risks. These guidelines must specify levels of the given criterion, metric, or threshold that the fund does not normally expect to exceed, and measures to be taken if they are exceeded.

(c) Stress testing. The program must provide for stress testing to evaluate potential losses to the fund’s portfolio in response to extreme but plausible market changes or changes in market risk factors that would have a significant adverse effect on the fund’s portfolio, taking into account correlations of market risk factors and resulting payments to derivatives counterparties. The frequency with which the stress testing under this paragraph is conducted must take into account the fund’s strategy and investments and current market conditions, provided that these stress tests must be conducted no less frequently than weekly.

(d) Backtesting. The program must provide for backtesting to be conducted no less frequently than weekly, of the results of the VaR calculation model used by the fund in connection with the absolute VaR test by comparing the fund’s gain or loss that occurred on each business day during the backtesting period with the corresponding VaR calculation for that day, estimated over a one-trading day time horizon, and identifying as an exception any instance in which the fund experiences a loss exceeding the corresponding VaR calculation’s estimated loss.

(e) Internal reporting and escalation.

(i) Internal reporting. The program must identify the circumstances under which persons responsible for portfolio management will be informed regarding the operation of the program, including exceedances of the guidelines specified in paragraph 1(b) of these conditions and the results of the stress tests specified in paragraph 1(c) of these conditions.

(ii) Escalation of material risks. The person responsible for overseeing the fund’s risk program must inform in a timely manner persons responsible for portfolio management of the fund, and also directly inform the board as appropriate, of material risks arising from the fund’s derivatives transactions, including risks identified by the fund’s exceedance of a criterion, metric, or threshold provided for in the fund’s risk guidelines established under paragraph 1(b) of these conditions or by the stress testing described in paragraph 1(c) of these conditions.

(f) Periodic review of the program. Senior management of the manager must review the program at least annually to evaluate the program’s effectiveness and to reflect changes in risk over time. The periodic review must include a review of the VaR calculation model used by the fund under condition 2 below (including the backtesting required by paragraph 1(d) of these conditions).

2. Limit on fund leverage risk.

(a) The fund must comply with the absolute VaR test.

(b) The fund must determine its compliance with the absolute VaR test at least once each business day. If the fund determines that it is not in compliance with the absolute VaR test, the fund must come back into compliance promptly after such determination, in a manner that is in the best interests of the fund and its securityholders.

(c) If the fund is not in compliance with the absolute VaR test within five business days,

(i) The manager must provide a written report to the board and explain how and by when (i.e., number of business days) the manager reasonably expects that the fund will come back into compliance;

(ii) The risk manager must analyze the circumstances that caused the fund to be out of compliance for more than five business days and update any program elements as appropriate to address those circumstances; and

(iii) The risk manager must provide a written report within thirty calendar days of the exceedance to the board explaining how the fund came back into compliance and the results of the analysis and updates required under paragraph 2(c)(ii) of these conditions. If the fund remains out of compliance with the absolute VaR test at that time, the risk manager’s written report must update the report previously provided under paragraph 2(c)(i) of these conditions and the risk manager must update the board on the fund’s progress in coming back into compliance at regularly scheduled intervals at a frequency determined by the board.

3. Board oversight and reporting.

(a) Reporting on program implementation and effectiveness. On or before the implementation of the program, and at least annually thereafter, the manager must provide to the board a written report providing a representation that the program is reasonably designed to manage the fund’s derivatives-related risks and to incorporate the elements provided in paragraphs 1(a) through (f) of these conditions. The representation may be based on the persons’ responsible for the program reasonable belief after due inquiry. The written report must include the basis for the representation along with such information as may be reasonably necessary to evaluate the adequacy of the fund’s program and, for reports following the program’s initial implementation, the effectiveness of its implementation.

(b) Regular board reporting. The manager must provide to the board, annually or at such other frequency determined by the board, a written report regarding the manager’s analysis of exceedances described in paragraph 1(b) of these conditions, the results of the stress testing conducted under paragraph 1(c) of these conditions, and the results of the backtesting conducted under paragraph (1)(d) of these conditions since the last report to the board. Each report under this paragraph must include such information as may be reasonably necessary for the board to evaluate the fund’s response to exceedances and the results of the fund’s stress testing.

4. Recordkeeping.

(a) Records to be maintained. A fund must maintain a written record documenting the following, as applicable:

(i) The fund’s written policies and procedures required by paragraph 1 of these conditions, along with

(a) The results of the fund’s stress tests under paragraph 1(c) of these conditions;

(b) The results of the backtesting conducted under paragraph 1(d) of these conditions;

(c) Records documenting any internal reporting or escalation of material risks under paragraph 1(e)(ii) of these conditions; and

(d) Records documenting the reviews conducted under paragraph 1(f) of these conditions.

(ii) Any determination and/or action the fund made under paragraph 2(a) of these conditions, including a fund’s determination of: the VaR of its portfolio; the VaR of the fund’s designated reference portfolio, as applicable; the fund’s VaR ratio (the value of the VaR of the fund’s portfolio divided by the VaR of the designated reference portfolio), as applicable; and any updates to any VaR calculation models used by the fund and the basis for any material changes thereto.

(b) Retention periods.

(i) A fund must maintain a copy of the written policies and procedures that the fund adopted under condition 1 that are in effect, or at any time within the past seven years were in effect, in an easily accessible place.

(ii) A fund must maintain all records and materials that paragraphs 6(a)(i)(A) through (D) and 6(a)(ii) and (iii) of these conditions describe for a period of not less than seven years (the first two years in an easily accessible place) following each determination, action, or review that these paragraphs describe.