Securities Law & Instruments

Headnote

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. -- Rule 35-502 -- Non Resident Advisers.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

(the CFA)

AND

IN THE MATTER OF

UBS GLOBAL ASSET MANAGEMENT (CANADA) INC.

UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC.,

UBS GLOBAL ASSET MANAGEMENT (UK) LTD.,

UBS O'CONNOR LLC,

UBS ALTERNATIVE AND QUANTITATIVE INVESTMENTS LLC,

UBS GLOBAL ASSET MANAGEMENT (JAPAN) LTD.,

UBS GLOBAL ASSET MANAGEMENT (SINGAPORE) LTD. AND

UBS AG

 

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of UBS Global Asset Management (Americas) Inc., UBS Global Asset Management (UK) Ltd., UBS O'Connor LLC, UBS Alternative and Quantitative Investments LLC, UBS Global Asset Management (Japan) Ltd., UBS Global Asset Management (Singapore) Ltd. and UBS AG (collectively, the Sub-Advisers) and UBS Global Asset Management (Canada) Inc. (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that each of the Sub-Advisers (including their respective directors, officers, partners and employees) be exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as an adviser for the Principal Adviser in respect of the Funds (as defined below) regarding commodity futures contracts and commodity futures options traded on commodity futures exchanges (Contracts) and cleared through clearing corporations;

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

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

1. The Principal Adviser is a corporation existing under the laws of the Province of Nova Scotia with its head office located in Toronto, Ontario. The Principal Adviser is registered with the Commission under the Securities Act (Ontario) (the OSA) as a Limited Market Dealer, Investment Counsel & Portfolio Manager and under the CFA as a Commodity Trading Manager.

2. The Sub-Advisers are entities organized under the laws of a jurisdiction other than Canada or the provinces or territories thereof as follows:

(a) UBS Global Asset Management (Americas) Inc. was incorporated under the laws of Delaware, United States of America;

(b) UBS Global Asset Management (UK) Ltd. was incorporated under the laws of London, Great Britain;

(c) UBS O'Connor LLC was incorporated under the laws of Delaware, United States of America;

(d) UBS Alternative and Quantitative Investments LLC was incorporated under the laws of Delaware, United States of America;

(e) UBS Global Asset Management (Japan) Ltd. was incorporated under the laws of Tokyo, Japan;

(f) UBS Global Asset Management (Singapore) Ltd. was incorporated under the laws of Singapore, Singapore; and

(g) UBS AG was incorporated under the laws of Switzerland.

3. The Sub-Advisers are currently registered and/or hold licenses as follows:

(a) UBS Global Asset Management (Americas) Inc. is registered as an Investment Adviser with the U.S. Securities and Exchange Commission;

(b) UBS Global Asset Management (UK) Ltd. holds a financial services license with the Financial Services Authority;

(c) UBS O'Connor LLC is registered as an Exempt Commodity Pool Operator and Exempt Commodity Trading Advisor with the U.S. Commodity Futures Commission under the Commodity Exchange Act and as an Investment Adviser with the U.S. Securities and Exchange Commission;

(d) UBS Alternative and Quantitative Investments LLC is registered as an Exempt Commodity Pool Operator with the U.S. Commodity Futures Commission under the Commodity Exchange Act and as an Investment Adviser with the U.S. Securities and Exchange Commission;

(e) UBS Global Asset Management (Japan) Ltd. holds a securities business license, investment adviser's license and investment management license with the Financial Services Agency;

(f) UBS Global Asset Management (Singapore) Ltd. holds an investment adviser's license with the Financial Supervisory Service and a capital market services license with the Monetary Authority of Singapore; and

(g) UBS AG holds a financial services license with the Swiss Financial Market Supervisory Authority.

4. The Sub-Advisers are not and have no current intention of becoming, registered under the CFA.

5. The Principal Adviser acts as an adviser to clients on a variety of investment strategies, which may include the use of Contracts traded on Canadian or other organized exchanges outside of Canada. The clients of the Principal Adviser to which advice is provided may include institutions and high-net worth individuals (including through managed accounts) (the Managed Accounts) as well as investment funds or pooled funds (the Pooled Funds) (each of such clients, including Managed Accounts and Pooled Funds, is referred to individually as a Fund and collectively as the Funds).

6. The Funds may, as part of their investment program, invest in Contracts.

7. In connection with the Principal Adviser acting as an adviser to the Funds in respect of the purchase or sale of securities and Contracts, the Principal Adviser may, pursuant to a written agreement made between the Principal Adviser and one or more Sub-Advisers, retain the Sub-Adviser to act as an adviser to it (the Proposed Advisory Services) by exercising discretionary authority on behalf of the Principal Adviser in respect of the investment portfolio of the Funds, including discretionary authority to buy or sell Contracts for the Funds, provided that:

(a) in each case, the Contract must be cleared through an acceptable clearing corporation; and

(b) such investments are consistent with the investment objectives and strategies of the Funds.

8. 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.

9. By providing the Proposed Advisory Services, the Sub-Advisers will be acting as advisers with respect to Contracts, and in the absence of being granted the requested relief, would be required to be registered as advisers under the CFA.

10. There is presently no rule or other regulation 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 OSC Rule 35-502 -- Non Resident Advisers (Rule 35-502).

11. The relationship among the Principal Adviser, a Sub-Adviser and the Funds satisfies the requirements of section 7.3 of Rule 35-502.

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

(a) the duties and obligations of the Sub-Adviser will be set out in a written agreement with the Principal Adviser;

(b) the Principal Adviser will contractually agree with the Funds to be responsible for any loss that arises out of the failure of the Sub-Adviser:

(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 Funds; 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 Funds from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.

13. The Sub-Advisers are not resident of any province or territory of Canada.

14. Each Sub-Adviser is, or will be, appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of its principal jurisdiction.

15. Each Sub-Adviser will only provide the Proposed Advisory Services so long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.

16. Prior to purchasing any securities of a Fund (through a discretionary investment management agreement or directly), all investors who are Ontario residents will receive written disclosure that includes:

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

AND UPON 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 that, pursuant to section 80 of the CFA, the Sub-Advisers (including their respective directors, officers, partners and employees) are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA respect of the Proposed 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) the 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 pursuant to the applicable legislation of its principal jurisdiction;

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

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

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

(f) prior to purchasing any securities of a Fund (through a discretionary investment management agreement or directly), all investors who are Ontario residents received written disclosure that included:

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

September 2, 2009.

"Kevin J. Kelly"
Commissioner
Ontario Securities Commission
 
"Mary G. Condon"
Commissioner
Ontario Securities Commission