Scotia Capital Inc. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- relief from the requirement to provide a statement of policies and obtain specific and informed written consent from discretionary management clients once in each twelve-month period with respect to purchases or sales of securities of certain related issuers -- subject to conditions.

Applicable Ontario Legislation

Ontario Regulation 1015, R.R.O. 1990, ss. 227(2)(b), 233.

August 30, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO, NEW BRUNSWICK, NOVA SCOTIA

AND NEWFOUNDLAND AND LABRADOR

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SCOTIA CAPITAL INC. (the Filer)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the requirements of the Legislation that a registrant shall not act as an adviser of securities of the registrant or of a related issuer of the registrant or, in the course of a distribution, in respect of securities of a connected issuer of the registrant (the Related/Connected Issuer Prohibition) unless a statement of policy is provided to the client and the specific and informed written consent of the client to invest in related or connected issuers of the registrant has been obtained once in each twelve month period (the Annual Consent Requirement) does not apply in the case of the Filer acting as a portfolio manager where the Filer purchases or sells, under its discretionary authority, securities of the Pinnacle Funds or Portfolios (the Funds) or the Bank of Nova Scotia (the Bank) in connection with the Summit Program, subject to certain conditions;

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation incorporated under the laws of Ontario and has its head office in the City of Toronto. The Filer is registered as an investment dealer in each province of Canada.

2. The Filer carries on certain investment management activities on a discretionary basis. The Filer is exempt from registration as an adviser under the Securities Act (Ontario) pursuant to section 3.8 of National Instrument 45-106 -- Prospectus and Registration Exemptions as it is an investment dealer.

3. The Filer manages on a discretionary basis assets of those clients (each, a Client) who participate in the Summit Program by entering into an agreement with the Filer (the Managed Account Agreement).

4. Under the Summit Program, a Client who enters into a Managed Account Agreement authorizes the Filer to, among other things,:

(a) identify investment advisers (the Investment Advisers) for the mandate(s) of the Client and to change those Investment Advisers from time to time in the discretion of the Filer;

(b) monitor and supervise the Investment Advisers, including making changes to the investments where required; and

(c) manage on a segregated account basis, and where the Client directs, use mutual or pooled funds;

5. The Investment Advisers are generally parties who are not related to the Filer and its affiliates. From time to time, one or more mandates may be granted to an Investment Adviser who is affiliated to the Filer (an Affiliated Adviser).

6. Under the Summit Program, the Investment Advisers do not have any direct contact with the Clients. Each Investment Adviser is given a mandate by the Filer and requested to provide a model portfolio for such mandate and to adjust the portfolio on a continuous basis.

7. The Filer does not deviate from the model portfolio unless it is in breach of the laws or the agreement with the Investment Adviser (as described below). The Filer simply executes the trades in securities constituting the model portfolio for each Client in the particular mandate.

8. Pursuant to its agreement with each Investment Adviser (the Adviser Agreement), the Filer restricts the Investment Adviser from including in the model portfolio any securities of related or connected issuers of the Investment Adviser.

9. The Filer is a wholly owned subsidiary of the Bank.

10. The model portfolio of an Investment Adviser could include from time to time securities of the Bank.

11. Where the Filer enters into an Adviser Agreement with an Affiliated Adviser, the Adviser Agreement restricts the Affiliated Adviser from including in the model portfolio any securities of a related or connected issuer to the Affiliated Adviser. The Bank would be a related issuer of the Affiliated Adviser.

12. Without this exemption, the Filer would have to deviate from the model portfolios recommended by independent Investment Advisers to the extent such model portfolios include securities of the Bank and clients are thereby deprived of the recommendation of the relevant Investment Adviser.

13. The Filer is also the manager of the Funds. The Funds may be purchased on behalf of persons who participate in its Pinnacle mutual fund wrap account program and also by or on behalf of investors in other programs of the Filer, including the Summit Program. The Funds are reporting issuers as they are qualified for distribution under a prospectus.

14. The Funds are generally connected issuers of the Filer within the meaning of securities rules or instruments. Due to the requirements of National Instrument 81-102 -- Mutual Funds, for the manager of a fund to provide $150,000 of seed capital when starting a new fund, a new Fund may temporarily be a related issuer of the Filer for a period of time until the Filer ceases to hold more than 20% of the units of the Fund.

15. The Filer will secure the specific and informed written consent of each Client with respect to the exercise of the Filer's discretionary authority to buy and/or sell securities of the Funds and the Bank.

16. All discretionary clients of the Filer receive a statement of policies that lists the related issuers of the Filer as part of the account opening procedure in connection with the client entering into the Managed Account Agreement. In the event of a significant change in its statement of policies, the Filer will provide to each of its clients a copy of the revised version of, or amendment to, its statement of policies.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Makers with the jurisdiction to make the decision has been met.

The decision of the Decision Makers pursuant to the Legislation is that the Filer is exempt from the Annual Consent Requirement, provided that:

(a) the Filer has secured the specific and informed written consent of the Client in advance of the exercise of discretionary authority in respect of securities of the Funds and the Bank;

(b) The Filer has previously provided the Client with a statement of policies, or equivalent document, of the Filer which identifies the relationship between the Filer, the Funds and the Bank;

(c) any Affiliated Adviser of the Filer shall be prohibited from recommending securities of the Bank pursuant to the Adviser Agreement; and

(d) the Filer does not participate in, or influence, the investment recommendations of an Investment Adviser in making its recommendation.

"Carol S. Perry"
Commissioner
Ontario Securities Commission
 
"Suresh Thakrar"
Commissioner
Ontario Securities Commission