Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario)(CFA) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to non-resident adviser in respect of advising a de minimus number of permitted clients in Ontario in connection with advising certain non-Canadian investment funds and similar investment vehicles primarily offered outside of Canada in respect of trades in commodity futures contracts and commodity futures options primarily traded on commodity futures exchanges outside Canada and primarily cleared through clearing corporations outside Canada, subject to certain terms and conditions. Relief mirrors exemption available in section 7.1 of Ontario Securities Commission Rule 35-502 -- Non Resident Advisers.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1), 38(1).

Securities Act, R.S.O. 1990, c. S.5, as am. -- Rule 35-502 Non Resident Advisers.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

AEGON USA INVESTMENT MANAGEMENT, LLC

 

ORDER

(Section 80 of the CFA)

UPON the application (the Application) to the Ontario Securities Commission (the Commission) by AEGON USA Investment Management, LLC (the Applicant) for an order of the Commission, pursuant to section 80 of the CFA, that the Applicant (including its directors, partners, officers, employees or other individual representatives, acting on its behalf), is exempt from the adviser registration requirement in the CFA (as defined below) in connection with the Applicant acting as an adviser to one or more Related Clients (as defined below), in respect of trades in commodity futures contracts and related products trading on commodity futures exchanges (the Futures Advisory Services);

AND UPON considering the Application and the recommendation of staff of the Commission;

AND WHEREAS for the purposes of this Order;

(i) the following terms shall have the following meanings:

"adviser registration requirement in the CFA" means the requirement set out in paragraph 22(1)(b) of the CFA that prohibits a person or company from acting as an adviser, as defined in the CFA, unless the person or company satisfies the applicable provisions of section 22 of the CFA;

"adviser registration requirement in the OSA" means the requirement set out in paragraph 25(1)(c) of the OSA that prohibits a person or company from acting as an adviser, as defined in the OSA, unless the person or company satisfies the applicable provisions of section 25 of the OSA;

"OSA" means the Securities Act (Ontario);

"OSC Rule 35-502" means Ontario Securities Commission Rule 35-502 -- Non Resident Advisers, made under the OSA; and

(ii) terms used in this Order that are defined in the OSA, and not otherwise defined in this Order or in the CFA, shall have the same meaning as in the OSA, unless the context otherwise requires;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Applicant having represented to the Commission that:

1. The Applicant is a corporation existing under the laws of the State of Iowa and is registered as an investment adviser under the U.S. Investment Advisers Act of 1940, as amended.

2. The Applicant is not ordinarily resident in Ontario and is not registered in any capacity under the CFA or the OSA.

3. The Applicant advises institutional investors and as at December 31, 2007 had in excess of U.S. $98.8 billion in assets under management

4. The Applicant is part of a corporate group of financial companies headquartered in Europe known as AEGON N.V. (AEGON). The Applicant is a sister company of (i) AEGON Capital Management Inc., a registered adviser in Ontario under the OSA in the categories of investment counsel, portfolio manager, limited market dealer and as a commodities futures manager (ACM) under the CFA, and (ii) Transamerica Life Canada, a federally licensed and regulated life insurance company (TLC). Both ACM and TLC have their head offices in Toronto, Ontario. Accordingly, both ACM and TLC are affiliates, as defined in the OSA, of the Applicant.

5. ACM will be surrendering its registration as a commodity futures manager under the CFA as of December 31, 2008. ACM's business as a commodity futures manager is no longer active.

6. The Applicant currently provides advice to ACM (and indirectly through ACM to TLC) as a Sub-Adviser to ACM and received relief from registration pursuant to In the Matter of the Commodities Futures Act and in the Matter of AEGON Capital Management Inc., an order dated January 5, 2007 (the ACM Order).

7. There is no requirement for a federally licensed life insurance company, nor employees of a federally licensed life insurance company, to be registered as advisers under the OSA or the CFA if trading and advice is confined to the assets of such federally licensed life insurance company. TLC does not currently employ, nor does it wish to hire, individuals to provide investment advice with respect to the portfolio assets of TLC or the use of derivatives, including futures. Instead, TLC has decided to outsource investment management and advisory functions to certain affiliates. Previously, all investment management and advisory services were outsourced to ACM (which, in the case of some mandates, in turn has sub-advisory relationships with other firms), but with the pending surrender of ACM's registration under the CFA, TLC has decided to outsource investment management and advisory services relating to the use of futures to the Applicant. Outsourcing the investment management and advisory functions is expressly permitted under the Insurance Companies Act (Canada) and the Office of the Superintendent of Financial Institutions' Guideline B-10 - Outsourcing of Business Functions, Activities and Processes.

8. Each of TLC and ACM (the Related Clients) are resident in Ontario and qualify as a "permitted client" (as such term is defined in OSC Rule 35-502).

9. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser, and otherwise satisfies the applicable requirements specified in section 22 of the CFA. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" is defined in subsection 1(1) of the CFA to mean "commodity futures contracts" and "commodity futures options" (with these latter terms also defined in subsection 1(1) of the CFA).

10. There is currently no rule or other regulation under the CFA that provides an exemption from the adviser registration requirement in the CFA for a person or company acting as an adviser, in respect of commodity futures options or commodity futures contracts, that corresponds to the exemption from the adviser registration requirement in the OSA for acting as an adviser, as defined in the OSA, in respect of securities, that is contained in section 7.1 of OSC Rule 35-502.

11. Section 7.1 of OSC Rule 35-502 provides that the adviser registration requirement in the OSA does not apply to a person or company, not ordinarily resident in Ontario, if

(a) it, and its affiliates or affiliated partnerships that are not ordinarily resident in Ontario, did not act as an adviser during the preceding 12 months for more than five clients in Canada;

(b) it acts as an adviser in Ontario in reliance upon the exemption provided by section 7.1 of OSC Rule 35-502 solely for permitted clients (as defined in OSC Rule 35-502), other than a fund (as defined in OSC Rule 35-502);

(c) it does not solicit clients in Ontario;

(d) its acting as an adviser in Ontario for Canadian securities is incidental to its acting as an adviser in Ontario for foreign securities (as defined in OSC Rule 35-502);

(e) before advising an Ontario client, it notifies the Ontario client that it is not registered as an adviser in Ontario; and

(f) all assets of its Ontario clients are held by persons or companies that meet the requirements of paragraph 3.7(1) or are referred to in subsection 3.7(3) of OSC Rule 35-502.

12. The Applicant, where required, is or will be appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registration or licensing requirements to provide advice to the Related Clients pursuant to the applicable legislation of its principal jurisdiction.

13. The Applicant is exempt from registration as a Commodity Trading Adviser (CTA) under the U.S. Commodity Exchange Act (CEA) pursuant to, inter alia, CEA Section 4(m)(1) and corresponding Rule 4.14(a)(10), which exempts a person from registering as a CTA if, during the course of the preceding 12 months, such person has not furnished commodity trading advice to more than 15 persons and does not hold itself out generally to the public as a CTA.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 80 of the CFA, that the Applicant (including its directors, partners, officers, employees or other individual representatives, acting on its behalf) is exempted from the adviser registration requirement in the CFA, for a period of five years, in connection with the Applicant acting as an adviser to one or more Related Clients in respect of the Futures Advisory Services, provided that, at the time the Applicant so acts as an adviser to one or more Related Clients:

(a) the Applicant is not ordinarily resident of Ontario;

(b) the Applicant is appropriately registered or licensed, or entitled to rely upon appropriate exemptions from registration or licensing requirements, in order to provide the Futures Advisory Services to the Related Clients pursuant to the applicable legislation of the Applicant's principal jurisdiction;

(c) the Applicant, and its affiliates or affiliated partnerships that are not ordinarily resident in Ontario, did not act as an adviser during the preceding 12 month period for more than five clients in Canada;

(d) each of the Related Clients in Ontario qualifies as a "permitted client" (as defined in OSC Rule 35-502), other than a fund (as defined in OSC Rule 35-502);

(e) the Applicant does not solicit clients in Ontario;

(f) the Applicant's acting as an adviser in Ontario for Canadian securities is incidental to its acting as an adviser in Ontario for foreign securities (as defined in OSC Rule 35-502);

(g) before advising an Ontario client, the Applicant notifies the Ontario client that it is not registered as an adviser in Ontario and: i) there may be difficulty in enforcing any legal rights against the Applicant because the Applicant is resident outside of Canada and, to the extent applicable, all of its assets are situated outside of Canada; and ii) the Applicant will not be registered under the CFA or the OSA and as a result investor protections that might otherwise be available to clients of a registered adviser under the CFA or OSA may not be available;

(h) all assets of the Ontario clients are held by persons or companies that meet the requirements of section 3.7(1) or section 3.7(3) of OSC Rule 35-502.

December 16, 2008

"Margot C. Howard"
Commissioner
Ontario Securities Commission
 
"Mary G. Condon"
Commissioner
Ontario Securities Commission