Subsection 38(1) of the Commodity Futures Act(Ontario) (the CFA) - relief from the registration requirementsof paragraph 22(1)(b) of the CFA granted to an extra-provincialadviser in respect of the provision of investment advisory servicesrelating to commodity futures activities to a Fund in Ontario,subject to certain terms and conditions in which DB CapitalAdvisers Inc. accepts legal responsibility for the advisoryservices provided under such exemption.
Applicable Ontario Statutory Provisions
Commodity Futures Act, R.S.O. 1990. c. C.20,as am., ss. 22(1)(b) and 38(1).
Applicable Ontario Securities CommissionRule
Rule 35-502 -- Non-Resident Advisors.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C. 20,AS AMENDED (the "CFA")
REGULATION 90 UNDER THE COMMODITYFUTURES ACT,
R.R.O. 1990, AS AMENDED (THE"REGULATION")
R.S.O. 1990 CHAPTER S.5, ASAMENDED (the "Act")
IN THE MATTER OF
DB CAPITAL ADVISERS INC.
(Subsection 38(1) of the CFA)
UPON the application of DB Capital AdvisersInc. ("DBCA") to the Ontario Securities Commission(the "Commission") for an order pursuant tosubsection 38(1) of the CFA that DBCA and its officers are exempt,for a period of three years effective as of the date of thisorder, from the requirements of paragraph 22(1)(b) of the CFAin respect of advising certain mutual funds and non-redeemableinvestment funds in Ontario in respect of trades in commodityfutures contracts traded on commodity futures exchanges outsideCanada and cleared through clearing corporations outside Canada,subject to certain terms and conditions set forth below;
AND UPON considering the applicationand the recommendation of staff of the Commission:
AND UPON DBCA having represented to theCommission that:
1. DBCA is a Delaware corporation that isa wholly owned, indirect subsidiary of Deutsche Bank AG, afinancial services group with operations worldwide whose sharesare widely held and are traded on German stock exchanges.
2. DBCA is registered with the U.S. CommoditiesFutures Trading Commission (the "CFTC") asa commodity trading adviser and is a member of the U.S. NationalFutures Association (the "NFA").
3. DBCA is proposing to advise mutual fundsand non-redeemable investment funds in Ontario, describedin paragraph 14 of the definition of "permitted client"in section 1.1 of Ontario Securities Commission Rule 35-502,Non Resident Advisers ("OSC Rule 35-502")(a "Permitted Fund"), in respect of investmentsin or the use of commodity futures contracts traded on commodityfutures exchanges outside Canada and cleared through clearingcorporations outside Canada (the "Proposed AdvisoryBusiness").
4. In the absence of the order, DBCA wouldbe required to apply for registration as a commodity tradingmanager which would require, among other things, that: (a)DBCA's counselling officers comply with the proficiency requirementsunder the CFA and the Regulation in addition to the comparableproficiency requirements to which such officers are subjectin the United States and where compliance with the proficiencyrequirements under the CFA would not be directly relevantto the Proposed Advisory Business; (b) DBCA prepare and deliverto the Commission audited financial statements notwithstandingthat DBCA is not required to file audited financial statementswith the CFTC or the NFA; (c) DBCA and its officers complywith the residency requirement under the CFA where compliancewith such requirement would be unduly onerous given the natureand scope of the Proposed Advisory Business; and (d) DBCAcomply with insurance and other requirements ordinarily applicablefor full registration in the category of commodity tradingmanager in addition to the requirements to which it is subjectin the United States.
5. DBCA and its counselling officers, as thecase may be, have submitted to the Commission (i) a completedFreedom of Information Consent Form, (ii) a completed Appointmentof Agent for Service of Process Form, and (iii) a statementof Acknowledgment of Non-Resident Requirements incorporatingparagraphs 11(a), (b) and (c) of the Commission's current"List of Requirements for Registration as Adviser forPersons and Companies Currently Members of the National FuturesAssociation and Registered with the Commodity Futures TradingCommission".
6. DBCA and its counselling officers, as thecase may be, will comply with the terms and conditions setforth in the "Conditions of Order" attached as Exhibit"A" for the duration of the Order.
7. DBCA and its counselling officers, as thecase may be, will comply with all of the provisions of theCFA and the Regulation which would be applicable if DBCA wereregistered as a commodity trading manager under the CFA, otherthan sections 18, 21.4 and 22 of the CFA and sections 14(4),15, 16, 17, 20, 21, 22, 26, 33, 37, 40 and 41 of the Regulation,for the duration of the Order.
8. The requirements with which DBCA and itscounselling officers have complied and will comply as setout above are substantively equivalent to the requirementsimposed on international advisers registered with the Commissionpursuant to OSC Rule 35-502.
AND UPON being satisfied that it wouldnot be prejudicial to public interest for the Commission togrant the exemptions requested on the basis of the terms andconditions proposed,
IT IS ORDERED pursuant to subsection38(1) that DBCA and its officers are not subject to the requirementsof paragraph 22(1)(b) of the CFA in respect of the ProposedAdvisory Business, for a period of three years effective asof the date of this order, provided that:
(a) DBCA and its counselling officers, asthe case may be, submit to the Commission (i) a completedFreedom of Information Consent Form, (ii) a completed Appointmentof Agent for Service of Process Form, and (iii) a Statementof Acknowledgment of Non-Resident Requirements incorporatingparagraphs 11(a), (b) and (c) of the Commission's current"List of Requirements for Registration as Adviser forPersons and Companies Currently Members of the National FuturesAssociation and Registered with the Commodity Futures TradingCommission;
(b) DBCA and its counselling officers, asthe case may be, comply with the terms and conditions setforth in the Conditions of Order attached as Exhibit "A"for the duration of the Order;
(c) DBCA and its counselling officers, asthe case may be, comply with all of the provisions of theCFA and the Regulation which would be applicable if DBCA wereregistered as a commodity trading manager under the CFA, otherthan sections 18, 21.4 and 22 of the CFA and sections 14(4),15, 16, 17, 20, 21, 22, 26, 33, 37, 40 and 41 of the Regulation,for the duration of the Order.
August 8, 2003.
"Paul M. Moore"
"Robert L. Shirriff"
CONDITIONS OF ORDER FOR DBCAPITAL ADVISERS INC. PURSUANT TO SUBSECTION 38(1) OF THE COMMODITY
FUTURES ACT (ONTARIO)
1. For the purposes of these Conditions, thefollowing terms have the following meanings:
"Act" means the CommodityFutures Act (Ontario);
"adviser" means an adviserregistered under the Act in the category of commodity tradingmanager;
"CFTC" means the U.S. CommoditiesFutures Trading Commission;
"Commission" means theOntario Securities Commission;
"NFA" means the U.S. NationalFutures Association;
"OSC Rule 35-502" meansOntario Securities Commission Rule 35-502, Non ResidentAdvisers;
"Permitted Fund" means:a mutual fund or a non-redeemable investment fund that distributesits securities in Ontario, if the manager of the fund (a)is ordinarily resident in a Canadian jurisdiction and isregistered under the Securities Act (Ontario) asa portfolio manager, broker, investment dealer or mutualfund dealer, or is registered under Canadian securitieslegislation other than the Securities Act (Ontario)in an equivalent category of registration, and (b) is aparty to the contract under which the international adviserprovides investment advice or portfolio management servicesto the fund;
"mutual fund" has the meaningset forth in paragraph 1 of section 1 of the SecuritiesAct (Ontario);
"non-redeemable investment fund"has the meaning set forth in Ontario Securities CommissionRule 14-501, Definitions;
"Regulation" means Regulation90 under the Act.
2. DBCA shall engage only in the businessof adviser in the category of commodity trading manager inOntario solely for Permitted Funds.
3. DBCA may act as an adviser to PermittedFunds only in respect of investments in, or the use of, commodityfutures contracts traded on commodity futures exchanges outsideCanada and cleared through clearing corporations outside Canada.
4. DBCA shall maintain its registration asa commodity trading adviser with the CFTC and its membershipwith the NFA in good standing for so long as it shall carryon any advisory activities in Ontario or for residents ofOntario; officers of DBCA responsible for advisory activitiesof DBCA in Ontario or for residents of Ontario shall similarlymaintain their registration and/or membership with the CFTCand the NFA in good standing for so long as they shall beresponsible for advisory activities of DBCA in Ontario orfor residents of Ontario and shall have submitted to the Commissiona completed Freedom of Information Consent Form and a completedAppointment of Agent for Service of Process Form.
5. Not more than 25% of the aggregate consolidatedgross revenues from advisory activities of DBCA and its affiliateswith respect to commodity futures, in any financial year ofDBCA, shall arise from their acting as advisers with respectto commodity futures for Permitted Funds in Canada.
6. DBCA shall comply with the following requirementsof the Regulation:
(a) DBCA shall maintain such books and recordsas are required under sections 24 and 25 of the Regulation,it being understood that DBCA shall not be required to prepareand file with the Commission audited financial statements.
(b) DBCA shall maintain standards directedto ensuring fairness in the allocation of trading opportunitiesamong DBCA 's customers.
(c) DBCA shall charge clients directly forservices and such charge shall be based upon the dollarvalue of the client's portfolio, but not on the value orvolume of the transactions initiated for the client, andexcept with the written agreement of the client, shall notbe contingent upon profits or performance (subsection 29(3)of the Regulation).
7. In addition to the other requirements setforth in these Conditions, DBCA and its counselling officers,as the case may be, shall comply with all of the provisionsof the CFA and the Regulation which would be applicable ifDBCA were registered as commodity trading manager under theCFA, including, in particular but without limitation sections50, 51 and 53 of the CFA and Schedule 1 of the Regulation(Fees). DBCA shall not be required to comply with sections18, 21.4 and 22 of the CFA and sections 14(4), 15, 16, 17,20, 21, 22, 26, 33, 37, 40 and 41 of the Regulation.
(a) Subject to subparagraphs (b) and (c),DBCA shall ensure that the securities and money of an Ontarioclient be held:
(i) by the Ontario client; or
(ii) by a custodian or sub-custodian:
(A) that meets the requirements prescribedfor acting as a custodian or sub-custodian of a mutualfund in National Instrument 81-102, and
(B) that is subject to the agreementannounced by the Bank for International Settlementson July 1, 1988 concerning international convergenceof capital measurement and capital standards.
(b) DBCA or an affiliate of DBCA that holdsthe securities or money of an Ontario client as custodianor sub-custodian shall hold the securities and money incompliance with sections 116, 117, 118 and 119 of the regulationunder the Securities Act (Ontario).
(c) The securities of an Ontario clientmay be deposited with or delivered to a depository or clearingagency that is authorized to operate a book-based system.
(a) At the request of the Director, theCommission or a person appointed by the Commission to makean investigation under the Act relating to DBCA's activitiesin Ontario, DBCA shall:
(i) immediately produce in Ontario, atDBCA's expense, appropriate persons in its employ as witnessesto give evidence on oath or otherwise;
(ii) if the appropriate persons referredto in clause (i) above are not in its employ, use itsbest efforts immediately to produce in Ontario, at DBCA'sexpense, the persons to give evidence on oath or otherwise,subject to the laws of the foreign jurisdiction that areotherwise applicable to the giving of evidence; and
(iii) if the laws of a foreign jurisdictionthat are otherwise applicable to the giving of evidenceprohibit DBCA or the persons referred to in clause (i)above from giving the evidence without the consent ofthe relevant client:
(A) so advise the Commission or theperson making the request, and
(B) use its best efforts to obtain theclient's counsel to the giving of the evidence.
(b) If the laws of the foreign jurisdictionin which the books, records or documents referred to insubsection 14(3) of the Act of DBCA are located prohibitproduction of the books, records or documents in Ontariowithout the consent of the relevant client, DBCA shall,upon a request by the Commission under subsection 14(3)of the Act:
(i) so advise the Commission; and
(ii) use its best efforts to obtain theclient's consent to the production of the books, recordsor documents.
10. DBCA shall deliver to an Ontario client,before acting as an adviser to the Ontario client, a statementin writing disclosing:
(a) to the extent applicable, that theremay be difficulty enforcing any legal rights the Ontarioclient may have against DBCA because:
(i) DBCA is ordinarily resident outsideCanada and all or a substantial portion of its assetsare situated outside Canada, and
(ii) if applicable, that the laws of theforeign jurisdiction in which the books, records and documentsreferred to in subsection 14(3) of the Act of DBCA arelocated prevent the production of those books, recordsand documents in Ontario; and
(b) DBCA is not fully subject to the requirementsof the Act and the Regulations concerning proficiency, capital,insurance, record keeping, segregation of funds and securitiesand statements of account and portfolio.
11. A prospectus or other offering documentfor a Permitted Fund in respect of which advice is providedby the adviser, either directly to the fund or to the portfoliomanager of the fund, shall disclose the matters referred toin paragraph 10 above.
12. DBCA and each of its counselling officersirrevocably and unconditionally submit to the non-exclusivejurisdiction of the judicial, quasi-judicial and administrativetribunals of Ontario and any administrative proceeding inOntario, in any proceeding arising out of or related to orconcerning its registration under the Act or its activitiesin Ontario as a registrant.
13. DBCA has appointed an agent for serviceof process in Ontario and shall provide to each PermittedFund in Ontario for whom it acts as an adviser, prior to sodoing, a statement in writing disclosing the name and addressof the agent for service of process of DBCA in Ontario ordisclosing that this information is available from the Commission.
14. DBCA shall not change its agent for serviceof process in Ontario without giving the Commission 30 daysprior notice of such change by filing a new Submission toJurisdiction and Appointment of Agent for Service of processin the prescribed form.
15. Where, by supervisory terms or conditionsimposed in respect of a partner, officer or salesperson ofDBCA, DBCA is required to supervise the actions of that partner,officer or salesperson and DBCA has been so notified by letterto the attention of its compliance officer, DBCA must complywith those terms and conditions.