Securities Law & Instruments

Headnote

Subsection 78(1) of the Commodity Futures Act (Ontario) -- Revocation of the previous order granting relief from the adviser registration requirements of subsection 22(1)(b) of the CFA to sub-adviser not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options.

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to sub-advisers not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions. Relief mirrors exemption available in section 7.3 of OSC Rule 35-502 Non-Resident Advisers (Rule 35-502) made under the Securities Act (Ontario).

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 78, 80.

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25.

OSC Rules Cited

Rule 35-502 Non Resident Advisers, s. 7.3.

IN THE MATTER OF

THE COMMODITY FUTURES ACT

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

(the CFA)

AND

IN THE MATTER OF

FRANK RUSSELL COMPANY,

RUSSELL IMPLEMENTATION SERVICES INC.

AND

RUSSELL INVESTMENT MANAGEMENT COMPANY

 

ORDER

(Section 80 and Subsection 78(1) of the CFA)

UPON the application (the Application) of Frank Russell Company (FRC), Russell Implementation Services Inc. (RIS) and Russell Investment Management Company (RIMC and, together with FRC and RIS, the Sub-Advisers) to the Ontario Securities Commission (the Commission) for an order:

(a) pursuant to subsection 78(1) of the CFA, revoking the exemption order granted by the Commission to FRC and RIS (then called Frank Russell Securities, Inc.), on June 21, 2006; and

(b) pursuant to section 80 of the CFA, that the Sub-Advisers (including their respective directors, officers, representatives and employees acting as advisers on their behalf) be exempt, for a period of five years, from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of acting as an adviser for Russell Investments Canada Limited (the Principal Adviser) for the benefit of Investment Accounts (as defined below) regarding commodity futures contracts and commodity futures options (collectively, Contracts) traded on commodity futures exchanges and cleared through clearing corporations;

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

AND UPON the Sub-Advisers having represented to the Commission that:

1. The Principal Adviser is a corporation incorporated under the laws of Canada and its principal business office is located in Toronto, Ontario.

2. The Principal Adviser is currently registered as:

(a) a dealer in the categories of mutual fund dealer and limited market dealer and an adviser in the categories of investment counsel and portfolio manager under the Securities Act (Ontario) (the OSA), as well as an adviser in the category of portfolio manager (securities) in Manitoba; and

(b) an adviser in the category of commodity trading manager under the CFA, as well as an adviser in the category of commodity trading manager in Manitoba.

3. FRC is a corporation organized under the laws of the State of Washington, United States of America (U.S.), with its principal place of business located in Tacoma, Washington, U.S. FRC is not a resident of any province or territory of Canada.

4. FRC is not currently registered in any capacity under the securities legislation of any jurisdiction in Canada. FRC is currently registered with the U.S. Securities and Exchange Commission (the SEC) as an investment adviser under the Investment Advisers Act of 1940 (U.S.), as amended, and is exempted from registration as a commodity trading adviser or commodity pool operator with the U.S. Commodity Futures Trading Commission (the CFTC).

5. FRC is the direct parent corporation of:

(a) the Principal Adviser (formerly called Frank Russell Canada Limited);

(b) RIS (formerly called Frank Russell Securities, Inc.); and

(c) RIMC.

6. RIS is a corporation organized under the laws of the State of Washington, with its principal place of business located in Tacoma, Washington, U.S. RIS is not a resident of any province or territory of Canada.

7. RIS is currently registered as a dealer in the category of international dealer under the OSA and is not registered in any capacity under the securities legislation of any other jurisdiction in Canada. RIS is registered with the SEC as an investment adviser and a broker-dealer and is exempted from registration as a commodity trading adviser or commodity pool operator with the CFTC.

8. RIMC is a corporation organized under the laws of the State of Washington, with its principal place of business located in Tacoma, Washington, U.S. RIMC is not a resident of any province or territory of Canada.

9. RIMC is not currently registered in any capacity under the securities legislation of any jurisdiction in Canada. RIMC is registered with the SEC as an investment adviser and is exempted from registration as a commodity trading adviser or commodity pool operator with the CFTC.

10. The Sub-Advisers have entered into arrangements with the Principal Adviser to provide sub-advisory services (the Sub-Advisory Services) to the Principal Adviser in respect of investment accounts of clients located in Ontario that have retained the Principal Adviser to provide investment management and advisory services (Investment Accounts) pursuant to investment management agreements (Investment Management Agreements). An Investment Management Agreement may provide for the provision of investment management or advisory services with respect to securities, Contracts and other derivative instruments traded over-the-counter.

11. The Ontario clients referred to in the preceding paragraph are "accredited investors," as defined in National Instrument 45-106 Prospectus and Registration Exemptions.

12. The Sub-Advisers and the Principal Adviser have entered into written agreements (the Sub-Advisory Agreements) with respect to the Investment Accounts, pursuant to which the Principal Adviser has retained the Sub-Advisers to provide Sub-Advisory Services to the Principal Adviser in respect of Investment Accounts. The Principal Adviser is responsible for providing all client reports and statements required under the CFA. All direct contact with clients will be by the Principal Adviser and its directors, officers or employees, although representatives of a Sub-Adviser may participate in such communications from time to time.

13. The Sub-Advisory Services to be provided by the Sub-Adviser may be in respect of both securities and Contracts. The Sub-Adviser will provide the Sub-Advisory Services in respect of securities transactions in reliance on section 7.3 of OSC Rule 35-502 Non Resident Advisers (Rule 35-502).

14. 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 partner or an officer of a registered adviser and is acting on behalf of a registered adviser. 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" means commodity futures contracts and commodity futures options.

15. By providing the Sub-Advisory Services in relation to Contracts, the Sub-Advisers are acting as advisers with respect to Contracts and, in the absence of being granted the requested relief, would be required to register as advisers under the CFA when the Previous Order (as defined below) expires.

16. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA for a person or company acting as an adviser in respect of Contracts that is similar to the exemption from the adviser registration requirement in section 25(1)(c) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.3 of Rule 35-502.

17. As would be required under section 7.3 of Rule 35-502:

(a) the duties and obligations of each of the Sub-Advisers in connection with the Sub-Advisory Services are set out in written agreements with the Principal Adviser;

(b) the Principal Adviser contractually agrees with the Investment Account to be responsible for any loss that arises out of the failure of any of the Sub-Advisers:

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and the Investment Account; or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations); and

(c) the Principal Adviser cannot be relieved by the Investment Account from its responsibility for any loss that arises out of the failure of the Sub-Advisers to meet the Assumed Obligations.

18. The Sub-Advisers are not residents of any province or territory of Canada.

19. The Sub-Advisers are, or will be, appropriately registered or appropriately exempt from registration to provide advice to the Principal Adviser and Investment Account pursuant to the applicable legislation of its principal jurisdiction.

20. On June 21, 2006, the Commission granted FRC and RIS (then called Frank Russell Securities, Inc.) an exemption from the requirements of paragraph 22(1)(b) of the CFA in respect of the Sub-Advisory Services (the Previous Order). The Previous Order is scheduled to expire on June 21, 2009.

AND UPON the Commission being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed;

IT IS ORDERED, pursuant to subsection 78(1) of the CFA, that the Previous Order is revoked; and

IT IS FURTHER ORDERED, pursuant to section 80 of the CFA, that the Sub-Advisers (including their respective directors, officers, representatives and employees acting as advisers on their behalf) are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA, in respect of the Sub-Advisory Services provided to the Principal Adviser, for a period of five years, provided that at the relevant time that such activities are engaged in:

(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) each Sub-Adviser is appropriately registered or licensed, or is entitled to rely on appropriate exemptions from such registrations or licences, to provide advice to the Principal Adviser and Investment Account pursuant to the applicable legislation of its principal jurisdiction;

(c) the duties and obligations of each Sub-Adviser are set out in a written agreement with the Principal Adviser;

(d) the Principal Adviser has contractually agreed with the Investment Account to be responsible for any loss that arises out of any failure of a Sub-Adviser to meet the Assumed Obligations; and

(e) the Principal Adviser cannot be relieved by the Investment Account from its responsibility for any loss that arises out of the failure of a Sub-Adviser to meet the Assumed Obligations.

June 19, 2009

"Margot C. Howard"
Commissioner
Ontario Securities Commission
 
"Paulette L. Kennedy"
Commissioner
Ontario Securities Commission