Securities Law & Instruments

Headnote

Relief from the adviser registration requirementof paragraph 22(1)(b) of the Commodity Futures Act (Ontario)(CFA) granted to a non-resident adviser in connection with theproposed advisory services to be provided to a registered commoditytrading manager under the CFA for a term of 3 years, subjectto certain terms and conditions, pursuant subsection 38(1) ofthe CFA.

Statutes Cited

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

Securities Act, R.S.O. 1990, c. S.5 (as am.)- OSC Rule 35-502 -- Non-Resident Advisers, s. 7.3.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER S.20,AS AMENDED (the CFA)

AND

IN THE MATTER OF

CORNERSTONE TRADING COMPANY,INC.

 

ORDER

(Subsection 38(1) of the Act)

UPON the application of Cornerstone TradingCompany, Inc. (Cornerstone) to the Ontario Securities Commission(the Commission) for a ruling under subsection 38(1) of theCFA that Cornerstone, its officers, directors and representativesare not subject to the requirements of subsection 22(1)(b) ofthe CFA;

AND UPON considering the applicationand the recommendation of staff of the Commission;

AND UPON Cornerstone having representedto the Commission as follows.

1. Cornerstone is a corporation incorporatedunder the laws of the State of New York.

2. Cornerstone is registered with the UnitedStates Commodity Futures Trading Commission (the CFTC) asa commodity trading adviser/commodity pool operator and isa member of the U.S. National Futures Association (the NFA).

3. Cornerstone is proposing to enter intoa sub-advisory agreement with Toron Capital Markets Inc. (Toron)and the Horizons Tactical Hedge Fund (the Fund) whereby Toronwould act as the portfolio adviser to the Fund in respectof purchases and sales of commodity futures contracts or relatedproducts traded on commodity futures exchanges and clearedthrough acceptable clearing corporations outside of Canada,such as standard futures contracts based on currency, bondsand short-term fixed income securities, and Cornerstone wouldact as sub-adviser to Toron (the Proposed Advisory Services).

4. Toron is currently registered under theSecurities Act (Ontario) (the Act) as an adviser (investmentcounsel and portfolio manager) and limited market dealer.Toron is also currently registered with the Commission asan adviser in the category of commodity trading manager underthe Act. Toron will be responsible for the investment adviceprovided by Cornerstone. As portfolio adviser to the Fund,Toron manages the assets of the Fund by selecting, retaining,removing, replacing and adding sub-advisers to manage theassets of the Fund and re-allocating the assets of the Fundamong such sub-advisers in accordance with the investmentobjectives of the Fund.

5. In connection with the Proposed AdvisoryServices, Cornerstone will enter into a written agreementwith Toron and the Fund setting out the obligations and dutiesof Cornerstone. Under this agreement, Toron will assume responsibilityto the Fund for all advice provided by Cornerstone.

6. Cornerstone will only provide advice toToron where Toron has represented that it has contractuallyagreed with the Fund to be responsible for any loss that arisesout of the failure of Cornerstone to:

(a) exercise its powers and discharge theduties of its office honestly, in good faith and in thebest interests of the Fund; or

(b) exercise the degree of care, diligenceand skill that a reasonably prudent person would exercisein the circumstances (the Standard of Care); and that thisresponsibility cannot be waived.

7. Cornerstone will only provide advice toToron in connection with the Fund. The Fund has advised Cornerstonethat the offering documents will disclose that:

(a) Toron has responsibility for the investmentadvice or portfolio management services provided by Cornerstone;and

(b) to the extent applicable, there maybe difficulty in enforcing any legal rights against Cornerstonebecause it is resident outside of Canada and all or a substantialportion of its assets are situated outside of Canada.

8. Cornerstone will only provide advice toToron so long as Toron remains a registrant under the Actwhile the Proposed Advisory Services are provided by Cornerstone.

AND UPON being satisfied that it wouldnot be prejudicial to the public interest for the Commissionto grant the exemptions requested;

IT IS ORDERED pursuant to subsection38(1) of the Act that Cornerstone, its officers, directors andrepresentatives are not subject to the requirements of subsection22(1)(b) of the CFA in respect of the Proposed Advisory Services,provided that:

(a) the obligations and duties of Cornerstoneare set out in a written agreement with Toron;

(b) Cornerstone will only provide advice toToron where Toron has represented that it has contractuallyagreed with the Fund to be responsible for any loss that arisesout of the failure of Cornerstone to meet the Standard ofCare and such responsibility cannot be waived;

(c) Cornerstone will only provide advice toToron where the offering documents for the Fund disclose thatToron is responsible for any loss that arises out of the failureof Cornerstone to meet the Standard of Care, and that:

(i) Toron has responsibility for the investmentadvice or portfolio management services provided by Cornerstone,and

(ii) there may be difficulty in enforcingany legal rights against Cornerstone because it is residentoutside of Canada and all or a substantial portion of itsassets are situated outside of Canada;

(d) Cornerstone continues to be registeredwith the CFTC as a commodity trading adviser/commodity pooloperator;

(e) Cornerstone will only provide advice toToron so long as Toron remains a registrant under the Actwhile the Proposed Advisory Services are provided by Cornerstone;and

(f) this order shall terminate three yearsfrom the date of the order.

May 2, 2003.

"Theresa McLeod"
"Paul M. Moore"