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Franklin Advisers, Inc. et al. – s. 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) -- Foreign advisers exempted from the adviser registration requirement in section 22(1)(b) of the CFA where such advisers act as an adviser in respect of commodity futures contracts or commodity futures options (commodities) for certain individual and institutional investors in Ontario who meet the definition of "permitted client" in NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Commodities are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada.
Terms and conditions on exemption correspond to the relevant terms and conditions on the comparable exemption from the adviser registration requirement available to international advisers in respect of securities set out in section 8.26 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Exemption also subject to a "sunset clause" condition.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am.
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 1(1), 22(1)(b), 80.
Instruments Cited
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 1.1, 8.26.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the “CFA”)
AND
IN THE MATTER OF
FRANKLIN ADVISERS, INC.,
FRANKLIN TEMPLETON INSTITUTIONAL, LLC AND
FRANKLIN MUTUAL ADVISERS, LLC
(each an “Applicant, and collectively, the “Applicants”)
ORDER
(Section 80 of the CFA)
UPON the application (the "Application") of the Applicants to the Ontario Securities Commission (the "Commission") for an order, pursuant to section 80 of the CFA, that the Applicants and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the Applicants' behalf (the "Representatives") be exempt, for a period of five years, from the adviser registration requirement in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND WHEREAS for the purposes of this Order:
"CFA Adviser Registration Requirement" means the requirement in the CFA that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under the CFA;
"CFTC" means the United States Commodity Futures Trading Commission;
"Contract" has the meaning ascribed to that term in subsection 1(1) of the CFA;
"Foreign Contract" means a Contract that is primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;
"International Adviser Exemption" means the exemption from the OSA Adviser Registration Requirement set out in section 8.26 of NI 31-103;
"NI 31-103" means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
"OSA" means the Securities Act, R.S.O. 1990, c. S.5, as amended;
"OSA Adviser Registration Requirement" means the requirement in the OSA that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under the OSA;
"Permitted Client" means a client in Ontario that is a "permitted client" as that term is defined in section 1.1 of NI 31-103, except that for purposes of the Order such definition shall exclude a person or company registered under the securities or commodities legislation of a jurisdiction of Canada as an adviser or dealer;
"SEC" means the United States Securities and Exchange Commission; and
"U.S. Advisers Act" means the United States Investment Advisers Act of 1940.
AND UPON the Applicants having represented to the Commission that:
1. Franklin Advisers, Inc. ("FAI")
(a) FAI is a corporation incorporated under the laws of California. The head office of FAI is located at One Franklin Parkway, San Mateo, California, 94403, U.S.A.
(b) FAI is an investment adviser that provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as insurance companies, other financial institutions, pension and profit sharing plans, governmental entities and colleges. FAI offers advice with respect to a broad range of securities, derivatives and other financial instruments.
(c) As at September 30, 2012, FAI had over US$ 431billion in assets under management.
(d) FAI is currently registered as an investment adviser with the SEC pursuant to the U.S. Advisers Act. FAI's registration as a commodity pool operator ("CPO"), with respect to certain U.S. and offshore investment funds, is currently pending with the CFTC.
2. Franklin Templeton Institutional, LLC ("FTI LLC")
(a) FTI LLC is a limited liability company organized and existing under the laws of the State of Delaware. The head office of FTI LLC is located at 600 Fifth Avenue, New York New York, 10020, U.S.A.
(b) FTI LLC is an investment adviser that provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered under the Investment Company Act of 1940, as amended; (2) unregistered funds and other pooled investment vehicles; and (3) institutions, such as financial institutions, pension and profit sharing plans, U.S. state and local governmental entities, endowment funds and foundations.
(c) As at September 30, 2012, FTI LLC had over US$30 billion in assets under management.
(d) FTI LLC is currently registered as an investment adviser with the SEC pursuant to the U.S. Advisers Act. FAI is currently exempt from registration with the CFTC as a CPO and commodity trading advisor ("CTA"), pursuant to U.S. Commodity Exchange Act, Section 4m and CFTC Rules 4.5, 4.6, 4.13 and 4.14, although FTI LLC may in the future rely upon other exemptions and/or register as a CPO and/or CTA. FTI LLC's business does not currently consist primarily of acting as a commodity pool operator or commodity trading advisor. It does, however, provide commodity interest trading advice incidental to its business of providing securities or other investment advice.
3. Franklin Mutual Advisers, LLC ("FMA")
(a) FMA is a limited liability company organized and existing under the laws of the State of Delaware. The head office of FMA is located at 51 John F. Kennedy Parkway, Short Hills, NJ 07078-2789.
(b) FMA is an investment adviser that provides a variety of discretionary advisory services including but not limited to: (1) certain investment companies registered in the United States under the Investment Company Act of 1940, as amended; (2) funds registered/regulated in countries outside the United States and other unregistered pooled investment vehicles; and (3) institutions, such as insurance companies, other financial institutions, pension and profit sharing plans, governmental entities and colleges.
(c) As at September 30, 2012, the assets under management of FMA were approximately US$58billion.
(d) FMA is currently registered as an investment adviser with the SEC pursuant to the U.S. Advisers Act. FMA is exempt from registration with the CFTC as a CPO and CTA, pursuant to U.S. Commodity Exchange Act, Section 4m and CFTC Rules 4.5, 4.6, 4.13 and 4.14, although FMA may in the future rely upon other exemptions and/or register as a CPO and/or CTA. FMA's business does not currently consist primarily of acting as a commodity pool operator or commodity trading advisor. It does, however, provide commodity interest trading advice incidental to its business of providing securities or other investment advice.
4. The Applicants are not registered in any capacity under the CFA or the OSA.
5. Certain investment funds in Ontario that are Permitted Clients (the Ontario Funds) seek to engage the Applicants as discretionary portfolio managers for purposes of implementing certain specialized investment strategies.
6. Franklin Templeton Investments Corp. ("FTIC") is the manager, principal distributor and transfer agent and registrar of the Ontario Funds. FTIC is registered under the OSA as an investment fund manager, portfolio manager, exempt market dealer and mutual fund dealer. The head office of FTIC is 200 King Street West, Suite 1500, Toronto, Ontario.
7. FTIC, FAI, FTI LLC and FMA are all wholly-owned subsidiaries of Franklin Resources, Inc. ("Franklin"). Franklin's principal and executive offices are at One Franklin Parkway, San Mateo, California, U.S.A. Franklin is a large, diversified financial services organization which, through its operating subsidiaries, provides a variety of management, administrative and distribution services to over 200 mutual and other investment funds.
8. The Applicants seek to act as discretionary portfolio managers on behalf of Permitted Clients. The proposed advisory services would include the use of specialized investment strategies employing Foreign Contracts.
9. Were the proposed advisory services limited to securities, the Applicants could rely on the International Adviser Exemption and carry out such activities on behalf of Permitted Clients on the basis that the Applicants would be exempt from the OSA Adviser Registration Requirement.
10. There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the International Adviser Exemption. Consequently, in order to advise Permitted Clients as to trading in Foreign Contracts, in the absence of this Order, the Applicants would need to obtain registration as an adviser under the CFA, in the category of commodity trading manager.
11. The Applicants submit that it would not be prejudicial to the public interest for the Commission to grant the requested relief because:
(a) the Applicants will only advise Permitted Clients as to trading in Foreign Contracts;
(b) Permitted Clients seek to access certain specialized portfolio management services provided by the Applicants, including advice as to trading in Foreign Contracts;
(c) each of the Applicants meet the prescribed conditions to rely on the International Adviser Exemption in connection with the provision of advice to Permitted Clients with respect to foreign securities; and
(d) each of the Applicants would provide advice to Permitted Clients as to trading in Foreign Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the International Adviser Exemption.
12. Each Applicant states that as of December 31, 2012 there were no regulatory actions of the type contemplated by the Notice of Regulatory Action attached as Appendix "B" in respect of the Applicant or any predecessor or any specified affiliates of the Applicant that are registered with the SEC.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make this Order;
IT IS ORDERED, pursuant to section 80 of the CFA, that the Applicants and their Representatives are exempt, for a period of five years, from the adviser registration requirement in paragraph 22(1)(b) of the CFA, in respect of providing advice to Permitted Clients as to trading in Foreign Contracts, provided that:
(a) the Applicants provide advice to Permitted Clients only as to trading in Foreign Contracts and do not advise Permitted Clients as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to providing advice on Foreign Contracts;
(b) the head offices or principal places of business of the Applicants remain in the U.S.A.;
(c) each of the Applicants either (i) continues to be exempt from registration as a commodity trading manager and commodity pool operator with the CFTC or (ii) registers as a CPO and/or CTA on a basis which permits it to carry on the activities in the U.S.A. that registration as an adviser under the CFA would permit it to carry on in Ontario;
(d) each of the Applicants continues to engage in the business of an adviser, as defined in the CFA, in the U.S.A.;
(e) as at the end of each Applicant's most recently completed financial year, not more than 10% of the aggregate consolidated gross revenue of such Applicant, its affiliates and its affiliated partnerships (excluding the gross revenue of an affiliate or affiliated partnership of an Applicant if the affiliate or affiliated partnership is registered under securities legislation, commodities legislation or derivatives legislation in a jurisdiction of Canada) is derived from the portfolio management activities of the Applicant, its affiliates and its affiliated partnerships in Canada (which, for greater certainty, include both securities- related and commodity futures-related activities);
(f) before advising a Permitted Client with respect to Foreign Contracts, each Applicant notifies the Permitted Client of all of the following:
(i) the Applicant is not registered in the local jurisdiction to provide the advice described under paragraph (a) of this Order;
(ii) the foreign jurisdiction in which the Applicant's head office or principal place of business is located;
(iii) all or substantially all of the Applicant's assets may be situated outside of Canada;
(iv) there may be difficulty enforcing legal rights against the Applicant because of the above; and
(v) the name and address of the Applicant's agent for service of process in Ontario;
(g) each of the Applicants has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix"A";
(h) each Applicant notifies the Commission of any regulatory action after the date of this Order in respect of the Applicant, or any predecessors or specified affiliates of the Applicant that are registered with the SEC, by completing and filing Appendix "B" within 10 days of the commencement of such action, provided that this condition shall not be required to be satisfied for so long as FTIC remains a registered firm in good standing under Ontario securities laws; and
(i) by December 1 of each year, the Applicants notify the Commission if they are relying on the exemption from registration granted pursuant to this order.
April 30, 2013.
"James Turner"
Commissioner
Ontario Securities Commission
"James D. Carnwath"
Commissioner
Ontario Securities Commission
APPENDIX "A"
SUBMISSION TO JURISDICTION AND
APPOINTMENT OF AGENT FOR SERVICE
INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION
UNDER THE COMMODITY FUTURES ACT, ONTARIO
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Name of person or company ("International Firm"): |
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If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm: |
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Jurisdiction of incorporation of the International Firm: |
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Head office address of the International Firm: |
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The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent. |
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Name: |
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E-mail address: |
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Phone: |
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Fax: |
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The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"): |
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[ ] Section 8.18 [international dealer] |
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[ ] Section 8.26 [international adviser] |
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[ ] Other [specify]: |
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Name of agent for service of process (the "Agent for Service"): |
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Address for service of process on the Agent for Service: |
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The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding. |
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The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction. |
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Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator |
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a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated; and |
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an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service. |
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This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction. |
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Dated: ____________________
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(Signature of the International Firm or authorized signatory)
____________________
(Name of signatory)
____________________
(Title of signatory)
Acceptance
The undersigned accepts the appointment as Agent for Service of ____________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.
Dated: ____________________
_____________________________________________
(Signature of the Agent for Service or authorized signatory)
____________________
(Name of signatory)
____________________
(Title of signatory)
This form is to be submitted to the following address:
Ontario Securities CommissionSuite 1903, Box 5520 Queen Street WestToronto, ON M5H 3S8Attention: Registration Supervisor, Portfolio Manager TeamTelephone: (416) 593-8164email: [email protected]
APPENDIX B
NOTICE OF REGULATORY ACTION
1. Has the firm, or any predecessors or specified affiliates{1} of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?
Yes _____ No _____
If yes, provide the following information for each settlement agreement:
Name of entity
Regulator/organization
Date of settlement (yyyy/mm/dd)
Details of settlement
Jurisdiction
2. Has any financial services regulator ,securities or derivatives exchange, SRO or similar organization:
Yes
No
(a) Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?
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(b) Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?
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(c) Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?
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(d) Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?
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(e) Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?
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(f) Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?
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(g) Issued an order (other than en exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?
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If yes, provide the following information for each action:
Name of Entity
Type of Action
Regulator/organization
Date of action (yyyy/mm/dd)
Reason for action
Jurisdiction
3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?
Yes _____ No _____
If yes, provide the following information for each investigation:
Name of entity
Reason or purpose of investigation
Regulator/organization
Date investigation commenced (yyyy/mm/dd)
Jurisdiction
Name of firm
Name of firm's authorized signing officer or partner
Title of firm's authorized signing officer or partner
Signature
Date (yyyy/mm/dd)
Witness
The witness must be a lawyer, notary public or commissioner of oaths.
Name of witness
Title of witness
Signature
Date (yyyy/mm/dd)
This form is to be submitted to the following address:
Ontario Securities CommissionSuite 1903, Box 5520 Queen Street WestToronto, ON M5H 3S8Attention: Registration Supervisor, Portfolio Manager TeamTelephone: (416) 593-8164email: [email protected]
{1} In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 -- Registration Information.