Natcan Investment Management Inc. and National Bank Trust Inc.

Headnote

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).

May 19, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NATCAN INVESTMENT MANAGEMENT INC.

(Natcan)

AND

NATIONAL BANK TRUST INC. (NBT)

(collectively, the Filers and individually, a Filer)

DECISION

Background

The securities regulatory authority or regulator of each of the Jurisdictions (the Decision Makers) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) providing an exemption from the requirement in section 13.5(2)(b) of National Instrument 31-103 -- Registration Requirements and Exemptions that prohibits a registered 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 a security from or to the investment portfolio of an associate of a responsible person or an investment fund for which a responsible person acts as an adviser, to permit the following purchases and sales (each purchase and sale, an Inter-Fund Trade):

(i) existing and future mutual funds of which a Filer, or an affiliate of a Filer, is the registered adviser 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) to engage in Inter-Fund Trades of securities with any existing or future investment funds of which a Filer, or an affiliate of a Filer, is the registered adviser and to which NI 81-102 does not apply (each, a Pooled Fund and, collectively, the Pooled Funds) or to a fully managed account managed by a Filer, or an affiliate of a Filer, for a client that is not a responsible person (each, a Managed Account and, collectively, the Managed Accounts);

(ii) an NI 81-102 Fund to engage in Inter-Fund Trades of exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities) with another NI 81-102 Fund 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 referred to in paragraph (e) of section 6.1(2) of National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107);

(iii) a Pooled Fund to engage in Inter-Fund Trades of securities with another Pooled Fund, an NI 81-102 Fund or a Managed Account; and

(iv) a Managed Account to engage in Inter-Fund Trades of securities with a Pooled Fund or an NI 81-102 Fund,

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Autorité des marchés financiers is the principal regulator for this application,

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador and Northwest Territories, and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in the Legislation, National Instrument 14-101 Definitions, NI 81-102 or NI 81-107 have the same meanings if used in this decision. Certain other defined terms have the meanings given to them above or below.

Representations

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

1. Natcan is a corporation governed under the laws of Quebec and is registered as a portfolio manager in each of the jurisdictions of Canada excluding the Yukon and Nunavut, as a derivatives portfolio manager in Quebec, as an exempt market dealer in Ontario and Newfoundland and Labrador, and as a commodity trading manager in Ontario.

2. NBT is a corporation governed under the laws of Quebec and is registered as a portfolio manager in each of Quebec, Ontario, Alberta, British Columbia, New Brunswick, Prince Edward Island and Saskatchewan.

3. The head office of each of the Filers is located in Montreal, Quebec.

4. Each of the NI 81-102 Funds and Pooled Funds (each, a Fund and collectively, the Funds) is or will be an investment fund established as a trust or corporation under the laws of Canada or a jurisdiction of Canada.

5. Each of the NI 81-102 Funds, other than National Bank Protected Canadian Bond Fund, National Bank Protected Retirement Balanced Fund, National Bank Protected Growth Balanced Fund, National Bank Protected Canadian Equity Fund and National Bank Protected Global Fund (collectively, the Protected Funds) is, or will be, a reporting issuer whose securities are qualified for distribution in one or more of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form prepared and filed in accordance with the Legislation. The Protected Funds are reporting issuers that are required to file an annual information form pursuant to Section 9.2 of National Instrument 81-106 Investment Fund Continuous Disclosure but whose securities are not currently qualified for distribution.

6. Each of the Pooled Funds will not be a reporting issuer. Securities of each of the Pooled Funds are, or will be, qualified for distribution pursuant to exemptions from the prospectus requirement.

7. The Filers and each of the Funds are not in default of securities legislation in any jurisdiction of Canada.

8. A Filer or an affiliate of a Filer is, or will be, the portfolio manager of each Fund and of each Managed Account.

9. Natcan Trust Company (NTC) or NBT or another affiliate of the Filers is, or may be, the trustee of the Funds that are created as trusts and therefore the Funds may be associates of a responsible person.

10. Each of NTC and NBT is an indirect wholly-owned subsidiary of National Bank of Canada (NBC), a Canadian public company whose shares are listed on the Toronto Stock Exchange and Natcan is an indirect majority-owned subsidiary of NBC.

11. The Filers wish to be able to enter into Inter-Fund Trades of securities between: (a) a NI 81-102 Fund and another NI 81-102 Fund, a Pooled Fund or a Managed Account; (b) a Pooled Fund and another Pooled Fund, an NI 81-102 Fund or a Managed Account; and (c) a Managed Account and a Pooled Fund or an NI 81-102 Fund.

12. The manager of each NI 81-102 Fund 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.

13. The manager of each Pooled Fund will establish an IRC in respect of each Pooled Fund. The mandate of the IRC of a Pooled Fund will be to approve Inter-Fund Trades between a Pooled Fund and another Fund or a Managed Account.

14. The IRC of the Pooled Funds will be composed by the manager of the Pooled Funds in accordance with section 3.7 of NI 81-107 and will be required to comply with the standard of care set out in section 3.9 of NI 81-107. The IRC of the Pooled Funds will not approve an Inter-Fund Trade involving a Pooled Fund unless it has made the determination set out in section 5.2(2) of NI 81-107.

15. Inter-Fund Trades involving an NI 81-102 Fund will be referred to the relevant IRC of the NI 81-102 Fund under section 5.2(1) of NI 81-107. The manager and the IRC of the NI 81-102 Fund will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade.

16. At the time of an Inter-Fund Trade, each Filer will have in place policies and procedures to enable the Funds to engage in Inter-Fund Trades with other Funds or Managed Accounts.

17. Each Inter-Fund Trade will be consistent with the investment objective of the relevant Fund or Managed Account.

18. Prior to engaging in Inter-Fund Trades on behalf of a Managed Account, the discretionary management agreement or other documentation in respect of the Managed Account will contain the authorization of the client for the portfolio manager of the Managed Account to engage in Inter-Fund Trades.

19. Because of the various investment objectives and investment strategies utilized by the Funds and Managed Accounts, it may be appropriate for different investment portfolios to acquire or dispose of the same securities through the same trading system. While NI 81-107 has authorized Inter-Fund Trades between two NI 81-102 Funds managed by the same manager, the Filers have determined that there are significant benefits to be achieved by expanding the potential counterparties to an Inter-Fund Trade to include Pooled Funds and Managed Accounts. These benefits include lower trading costs, reduced market disruption and quicker execution as well as simpler and more reliable compliance procedures. In the absence of the Exemption Sought, the Funds and Managed Accounts are not able to obtain these trading benefits.

20. A Filer, or an affiliate of a Filer, cannot rely on the exemption from the Legislation under Section 6.1(4) of NI 81-107 to engage in an Inter-Fund Trade, unless the parties are both NI 81-102 Funds 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.

21. When a Filer, or an affiliate of a Filer, engages in an Inter-Fund Trade of securities involving a Fund or Managed Account it will follow the following procedures:

(a) the portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund or Managed Account to a trader on a trading desk of the Filer or affiliate of the Filer;

(b) the portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a sale or a purchase of a security by the other Fund or Managed Account to a trader on a trading desk of the Filer or an affiliate of the Filer;

(c) the trader on a trading desk will request the approval of the compliance officer (the CO) of the Filer or affiliate of the Filer to execute the trade as an Inter-Fund Trade;

(d) once the approval of the CO is received, the trader on the trading desk will have the discretion to execute the trade as an Inter-Fund Trade 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, determined at the time of the receipt of the approval of the CO prior to the execution of the trade, or at the Closing Sale Price;

(e) the policies applicable to the trading desk of the Filer or affiliate of the Filer will require that all orders are to be executed on a timely basis and will remain open only for 30 days unless the portfolio manager cancels the order sooner; and

(f) the trader on a trading desk will advise the Filer or an affiliate of the Filer of the price at which the Inter-Fund Trade occurred.

22. Each of the Filers has determined that it would be in the interests of the Funds and Managed Accounts to receive the Exemption Sought for the following reasons:

(a) It will result in cost and timing efficiencies in respect of the execution of transactions for the Funds and Managed Accounts; and

(b) It will result in less complicated and more reliable compliance procedures, as well as simplified and more efficient monitoring thereof, for a Filer, or an affiliate of a Filer, in connection with the execution of transactions on behalf of Funds and Managed Accounts.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers 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) a Filer, or an affiliate of a Filer, refers the Inter-Fund Trade involving a Fund to the IRC of that Fund in the manner contemplated by section 5.1 of NI 81-107 and the manager 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 two NI 81-102 Funds:

(i) for exchange-traded securities, the Inter-Fund Trade is executed at the Last Sale Price or the Closing Sale Price of the security and the Inter-Fund Trade complies with paragraphs (a), (b), (c), (d), (f) and (g) of subsection 6.1(2) of NI 81-107; and

(ii) for all other securities, the Inter-Fund Trade complies with paragraphs (a) to (g) of subsection 6.1(2) of NI 81-107;

(d) in the case of an Inter-Fund Trade between an NI 81-102 Fund and a Pooled Fund or Managed Account:

(i) the IRC of the NI 81-102 Fund has approved the Inter-Fund Trade in respect of the NI 81-102 Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(ii) if the counterparty is a Pooled Fund, the IRC of the Pooled Fund has approved the Inter-Fund Trade in respect of the Pooled Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(iii) if the counterparty is a Managed Account, the discretionary management agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade;

(iv) for exchange-traded securities, the Inter-Fund Trade is executed at the Last Sale Price or the Closing Sale Price of the security and the Inter-Fund Trade complies with paragraphs (c), (d), (f) and (g) of subsection 6.1(2) of NI 81-107; and

(v) for all other securities, the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107;

(e) in the case of an Inter-Fund Trade between a Pooled Fund and an NI 81-102 Fund, a Managed Account or another Pooled Fund:

(i) the IRC of the Pooled Fund has approved the Inter-Fund Trade in respect of the Pooled Fund in accordance with the terms of Section 5.2(2) of NI 81-107;

(ii) if the counterparty is an NI 81-102 Fund or another Pooled Fund, the IRC of the 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;

(iii) if the counterparty is a Managed Account, the discretionary management agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade;

(iv) for exchange-traded securities, the Inter-Fund Trade is executed at the Last Sale Price or the Closing Sale Price of the security and the Inter-Fund Trade complies with paragraphs (c), (d), (f) and (g) of subsection 6.1(2) of NI 81-107; and

(v) for all other securities, the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107;

(f) in the case of an Inter-Fund Trade between a Managed Account and a Fund:

(i) the discretionary management agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade;

(ii) the IRC of the NI 81-102 Fund or the Pooled Fund, as the case may be, 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;

(iii) for exchange-traded securities, the Inter-Fund Trade is executed at the Last Sale Price or the Closing Sale Price of the security and the Inter-Fund Trade complies with paragraphs (c), (d), (f) and (g) of subsection 6.1(2) of NI 81-107; and

(iv) for all other securities, the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107.