NP 11-203 -- Exemptive relief granted to ETF offered in continuous distribution from certain mutual fund requirements and restrictions on: transmission of purchase or redemption orders, issuing units for cash or securities, calculation and payment of redemptions, and date of record for payment of distributions -- National Instrument 81-102 Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 9.1, 9.4(2), 10.2, 10.3, 14.1, and 19.1.
May 12, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
JONES HEWARD INVESTMENT COUNSEL INC.
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) for exemptive relief from the following provisions of National Instrument 81-102 -- Mutual Funds (NI 81-102) (the Exemption Sought):
1. Sections 9.1 and 10.2 to permit purchases and sales of units (Units) of BMO Canadian Government Bond Index ETF, BMO Dow Jones Canada Titans 60 Index ETF, BMO US Equity Index ETF, BMO International Equity Index ETF, BMO Emerging Markets Equity Index ETF, BMO Global Infrastructure Index ETF and BMO Dow Jones Diamonds Index ETF (the Existing Funds) and any additional exchange-traded funds of which the Filer, or an affiliate of the Filer, may be the trustee and/or manager and which operate on a similar basis as the Existing Funds (the Future Funds, which together with the Existing Funds are collectively referred to as the Funds) on the Toronto Stock Exchange (TSX);
2. Section 9.4(2) to permit the Funds to accept a combination of cash and securities as subscription proceeds for Units;
3. Section 10.3 to permit the Funds to redeem less than the Prescribed Number of Units (as defined below) at a discount to their market price, instead of at their net asset value; and
4. Section 14.1 to permit the Funds to establish a record date for distributions in accordance with the rules of the TSX .
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
1. the OSC is the principal regulator for this application; and
2. the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.
Basket of Securities means a group of securities determined by the Filer from time to time representing the constituents of the investment portfolio then held by the Funds.
Designated Brokers means registered brokers and dealers that enter into agreements with the Funds to perform certain duties in relation to the Funds.
Prescribed Number of Units means the number of Units of a Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Underwriters means registered brokers and dealers that have entered into underwriting agreements with the Funds and that subscribe for and purchase Units from the Funds, and Underwriter means any one of them.
Unitholders means beneficial and registered holders of Units.
Section references set out in this decision are references to NI 81-102, unless otherwise indicated.
Terms defined in National Instrument 14-101 -- Definitions, Multilateral Instrument 11-102 -- Passport System and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Funds are or will be mutual fund trusts governed by the laws of Ontario and will be reporting issuers under the Legislation.
2. The Filer has applied to list the Units on the TSX and the TSX has conditionally approved the listing of the Units. The Filer will file a final prospectus for the Funds to qualify the distribution of the Units.
3. The Units issued by the Existing Funds will be index participation units within the meaning of NI 81-102. The Funds will be generally described as exchange-traded funds.
4. The Filer, a registered investment counsel and portfolio manager and limited market dealer in Ontario and Newfoundland and Labrador, is the trustee and manager of the Funds and is responsible for the administration of the Funds.
5. Each of the Existing Funds will seek investment results that correspond generally to the price and yield performance of an index (the Index) by replicating generally the portfolio of securities which constitutes such Index, net of fees and expenses.
6. Units may only be subscribed for or purchased directly from the Funds by Underwriters or Designated Brokers and orders may only be placed for Units in the Prescribed Number of Units (or an integral multiple thereof) on any day when there is a regular trading session on the TSX.
7. The Funds will appoint Designated Brokers to perform certain functions which include standing in the market with a bid and ask price for Units of the Funds for the purpose of maintaining liquidity for the Units.
8. Each Underwriter or Designated Broker that subscribes for Units must deliver, in respect of each Prescribed Number of Units to be issued, a Basket of Securities and cash in an amount sufficient so that the value of the Basket of Securities and cash delivered is equal to the net asset value of the Units subscribed for next determined following the receipt of the subscription order. In the discretion of the Filer, the Funds may also accept subscriptions for Units in cash only, in an amount equal to the net asset value of the Units next determined following the receipt of the subscription order.
9. The net asset value per Unit of the Funds will be calculated and published daily on www.bmo.com/etfs.
10. Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker will subscribe for Units in cash in an amount not to exceed 0.3% of the net asset value of the Funds, or such other amount established by the Filer and disclosed in the prospectus of the Funds, next determined following delivery of the notice of subscription to that Designated Broker.
11. Neither the Underwriters nor the Designated Brokers will receive any fees or commissions in connection with the issuance of Units to them. The Filer may, at its discretion, charge an administration fee on the issuance of Units to the Designated Brokers or Underwriters.
12. Except as described in paragraphs 6 through 10 above, Units may not be purchased directly from the Funds. Investors are generally expected to purchase Units through the facilities of the TSX. However, Units may be issued directly to Unitholders upon the reinvestment of distributions of income or capital gains.
13. Unitholders that wish to dispose of their Units may generally do so by selling their Units on the TSX through a registered broker or dealer, subject only to customary brokerage commissions. A Unitholder that holds a Prescribed Number of Units or an integral multiple thereof may exchange such Units for Baskets of Securities and cash. Unitholders may also redeem their Units for cash at a redemption price equal to 95% of the closing price of the Units on the TSX on the date of redemption.
14. As manager, the Filer receives a fixed annual fee from the Funds. Such annual fee is calculated as a fixed percentage of the net asset value of the Funds.
15. Unitholders will have the right to vote at a meeting of Unitholders in respect of the Funds in certain circumstances, including prior to any change in the fundamental investment objective of the Funds, any change to their voting rights, the introduction of a fee or expense to be charged to the Funds or to Unitholders or a change in the basis of the calculation of a fee or expense charged to the Funds or Unitholders, where such change could result in an increase in the amount of fees or expenses payable by the Funds or Unitholders.
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 as follows:
1. Sections 9.1 and 10.2 -- to enable the purchase and sale of Units on the TSX, which precludes the transmission of purchase or redemption orders to the order receipt offices of the Funds.
2. Section 9.4(2) -- to permit payment for the issuance of Units to be made partially in cash and partially in securities, provided that the acceptance of securities as payment is made in accordance with Sections 9.4(2)(b)(i) and 9.4(2)(b)(ii).
3. Section 10.3 -- to permit the redemption of less than the Prescribed Number of Units at a price equal to 95% of the closing price of the Units on the TSX; and
4. Section 14.1 -- to relieve the Funds from the requirement relating to the record date for the payment of distributions, provided that the Funds comply with applicable TSX requirements.
Sedar No. 1376726