NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from s. 13.5(2)(b) of NI 31-103 to permit inter-fund trades between public mutual funds, pooled funds and managed accounts -- inter-fund trades will comply with conditions in s. 6.1(2) of NI 81-107 including IRC approval or client consent -- trades involving exchange-traded securities are permitted to occur at last sale price as defined in the Universal Market Integrity Rules -- relief also subject to pricing and transparency conditions.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5, 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1(2), 6.1(4).
April 15, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
INVESCO TRIMARK LTD.
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a decision providing an exemption from the requirement in section 13.5(2)(b) of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) (the Trading Prohibition) that prohibits an adviser from knowingly causing an investment portfolio managed by it (including an investment fund for which it acts as an adviser) to purchase or sell the securities of any issuer from or to the investment portfolio of a responsible person, any associate of a responsible person or any investment fund for which a responsible person acts as an adviser, such that the following purchases and sales (each purchase or sale, an Inter-Fund Trade) are permitted:
(i) existing mutual funds and future mutual funds of which the Filer is the manager and to which National Instrument 81-102 -- Mutual Funds (NI 81-102) applies (each, an NI 81-102 Fund and collectively, the NI 81-102 Funds) are permitted to enter into Inter-Fund Trades of securities with any NI 81-102 Fund or any existing Canadian mutual funds and future Canadian mutual funds managed by the Filer to which NI 81-102 does not apply (each, a Pooled Fund and, collectively, the Pooled Funds);
(ii) a Pooled Fund is permitted to enter into Inter-Fund Trades of securities with another Pooled Fund or an NI 81-102 Fund; and
(iii) a fully managed account managed by the Filer (each, a Managed Account and, collectively, the Managed Accounts) is permitted to enter into Inter-Fund Trades of securities with a Pooled Fund or an NI 81-102 Fund; and
(iv) the transactions listed in (i) to (iii) are permitted to be executed at the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) on that trading day where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities),
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in the all of the provinces and territories of Canada other than Ontario (the Passport Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions, NI 81-102, NI 81-107 and NI 31-103 have the same meaning if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filer:
1. The head office of the Filer is located in Toronto, Ontario.
2. The Filer is registered as an adviser in the category of portfolio manager in Ontario and in each of the Passport Jurisdictions.
3. Each of the NI 81-102 Funds and Pooled Funds (each, a Fund and collectively, the Funds) is, or will be, an open-ended mutual fund trust or mutual fund corporation that is established under the laws of the Province of Ontario.
4. The securities of each of the NI 81-102 Funds are, or will be, qualified for distribution pursuant to simplified prospectuses and annual information forms that have been, or will be, prepared and filed in accordance with the securities legislation of each of Ontario and the Passport Jurisdictions.
5. Each of the NI 81-102 Funds is, or will be, a reporting issuer in one or more of Ontario and the Passport Jurisdictions.
6. The securities of the Pooled Funds are, or will be, qualified for distribution on a private placement basis pursuant to the Legislation and will not be reporting issuers.
7. The Filer is, or will be, the manager and/or adviser of each of the Funds.
8. The Filer is, or will be, the adviser of a Managed Account.
9. A Fund may be an associate of the Filer that is a responsible person in respect of another Fund or a Managed Account.
10. The Filer and each of the Funds are not in default of securities legislation in any jurisdiction of Canada.
11. The Filer has established, or will establish, an independent review committee (IRC) in respect of each NI 81-102 Fund in accordance with the requirements of NI 81-107.
12. The Filer has established, or will establish, an IRC (which may also be the IRC in respect of the NI 81-102 Funds) in respect of each Pooled Fund. The mandate of the IRC of a Pooled Fund will include the approval of Inter-Fund Trades.
13. The IRC of the Pooled Funds was, or will be, composed by the Filer in accordance with section 3.7 of NI 81-107 and the IRC complies, or will comply, with the standard of care set out in section 3.9 of NI 81-107. Further, the IRC of the Pooled Funds will not approve Inter-Fund Trades unless it has made the determination set out in section 5.2(2) of NI 81-107. Inter-Fund Trades involving an NI 81-102 Fund will be referred to the relevant IRC of such NI 81-102 Fund under section 5.2(1) of NI 81-107.
14. The investment management agreement or other documentation in respect of a Managed Account will contain the authorization of the client for the Filer on behalf of the Managed Account to engage in Inter-Fund Trades with the Funds.
15. At the time of an Inter-Fund Trade, the Filer will have in place policies and procedures to enable the Funds to engage in Inter-Fund Trades with other Funds and Managed Accounts.
16. The Filer will comply with the following procedures when entering into Inter-Fund Trades between Funds and between Managed Accounts and Funds:
(a) The portfolio manager will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund or a Managed Account (Fund A) to a trader on the trading desk of the Filer;
(b) The portfolio manager will deliver the trade instructions in respect of a sale or purchase of a security by a Fund (Fund B) to a trader on the trading desk of the Filer;
(c) The trader on the trading desk will execute the trade as an Inter-Fund Trade between Fund A and Fund B in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 provided that for exchange-traded securities the Inter-Fund Trade may be executed at the Last Sale Price of the security, prior to the execution of the trade;
(d) The policies applicable to the trading desk will require that all orders are to be executed on a timely basis; and
(e) The trader on the trading desk will advise the portfolio manager of Fund A and Fund B of the price at which the Inter-Fund Trade occurs.
17. The Filer cannot rely on the exemption from the Trading Prohibition in subsection 6.1(4) of NI 81-107 unless the parties to the Inter-Fund Trade are both reporting issuers and the Inter-Fund Trade occurs at the current market price which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.
18. The Filer has determined that it would be in the best interests of the Funds and the Managed Accounts to receive the Exemption Sought.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) the Inter-Fund Trade is consistent with the investment objective of the Fund or the Managed Account;
(b) the Filer refers the Inter-Fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;
(c) in the case of an Inter-Fund Trade between Funds:
(i) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of section 5.2(2) of NI 81-107; and
(ii) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.
(d) in the case of an Inter-Fund Trade between a Managed Account and a Fund:
(i) the IRC of the Fund has approved the Inter-Fund Trade in respect of such Fund in accordance with the terms of section 5.2(2) of NI 81-107;
(ii) the investment management agreement or other documentation in respect of the Managed Account authorizes the transaction; and
(iii) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.