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GrowthWorks Enterprises Ltd. (formerly SEAMARK Asset Management Ltd.) -- s. 147
Headnote
Relief for non-SRO mutual fund dealer from the requirement that every registered dealer, other than an exempt market dealer as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, participate in a compensation fund or contingency trust fund that has been approved by the Commission and satisfies certain other requirements set out in that subsection -- Relief required in connection with the transfer of management contracts -- Relief on conditions similar to that which was granted to GrowthWorks Capital Ltd. in an order and decision dated June 21, 2013 in accordance with terms set out in Ontario Securities Commission Staff Notice 33-379 Termination of the Ontario Contingency Trust Fund.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am., s. 147.
Regulation made under the Securities Act, R.R.O. 1990, Reg, 1015, as am., Schedule 1, . 110(1).
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
(the “Act”),
REGULATION 1015
R.R.O. 1990, AS AMENDED, MADE UNDER THE ACT (the “Regulation”)
AND
GROWTHWORKS ENTERPRISES LTD.
(formerly SEAMARK Asset Management Ltd.)
(the “Filer”)
ORDER
(Section 147 of the Act)
Background
1. Subsection 110(1) of the Regulation requires every registered dealer, other than an exempt market dealer as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registration Obligations (NI 31-103), to participate in a compensation fund or contingency trust fund that has been approved by the Commission and satisfies certain other requirements set out in that subsection (the compensation fund participation requirement).
2. The Ontario Contingency Trust Fund (the OCTF or Plan) is one of three compensation funds or contingency trust funds that have been approved by the Commission for the purposes of subsection 110(1) of the Regulation.
3. The terms of the OCTF are set out in a form of trust agreement (the Trust Agreement) that has been entered into by each participant in the Plan with the trustee (the Trustee) of the Plan.
4. Previously, registered dealers (OCTF Dealers) that were not members of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) participated in the OCTF, and as such did not participate in the corresponding approved compensation fund for members of these self-regulatory organizations.
5. OCTF Dealers comprise scholarship plan dealers and mutual fund dealers that obtained an exemption from the requirement in Ontario securities law to be a member of the MFDA.
6. As indicated in Ontario Securities Commission Staff Notice 33-739 Termination of the Ontario Contingency Trust Fund (the Notice), the continued operation of the Plan was not financially sustainable. The Trustee proposed that the OCTF be wound up in accordance with advice and direction from the court and the Commission advised the Trustee that it does not object to the Trustee pursuing such a wind-up.
Application
The Filer has applied to the Commission for an order, under section 147 of the Act, exempting the Filer from the compensation fund participation requirement on the terms set out in this Order.
Representations of the Filer
The Filer has represented to the Commission that:
a. The Filer is a subsidiary of Matrix Asset Management Inc. (Matrix), a reporting issuer. The common shares of Matrix are listed on The Toronto Stock Exchange. GrowthWorks Capital Ltd. (GWC) is also a subsidiary of Matrix.
b. The head office of the Filer is in Vancouver, British Columbia.
c. GWC's working capital is currently below the level required under Part 12 of NI 31-103.
d. Currently, GWC and its affiliates and related companies have two fund management operating divisions -- (i) general investment fund management, which may include mutual funds, specialty funds, flow through investments and exempt market products (the Matrix Funds Management Division) and (ii) venture capital management, which manages a number of regionally focused venture capital funds across Canada (the Venture Capital Management Division).
e. Under management contracts (the Management Contracts and each a Management Contract) the Matrix Funds Management Division provides management services to the Matrix group of investment funds (the Matrix Funds).
f. It is proposed that GWC transfer the Management Contracts to the Filer (the Transfers) to ensure that the investment fund manager for the Matrix Funds has sufficient working capital. It is anticipated that the Transfers will occur on or about July 16, 2013.
g. GWC was previously exempt from the requirement to be a member of the MFDA in connection with its mutual fund dealer registration. GWC was granted relief from the compensation fund participation requirement in a decision dated June 21, 2013 (the GWC Order and Decision). The requested relief is on conditions similar to the GWC Order and Decision.
h. In order to complete the Transfers, the Filer is required to register as a mutual fund dealer. The Filer has applied for registration as a mutual fund dealer. The Filer was granted an exemption from section 9.2 of NI 31-103 which provides that a mutual fund dealer must not act as a mutual fund dealer unless it is a member of the MFDA and, accordingly, it is not required by Ontario securities law to become a member of the MFDA.
i. Upon the Transfers, the Filer's only clients will be the Matrix Funds and the Filer will not hold for those clients any funds, securities or other property (Client Assets).
j. So long as the Filer relies upon the exemption from the compensation fund participation requirement set out in this Order, the Filer will not hold any Client Assets.
k. Before any person or company that is not a client of the Filer on the Effective Date (defined below) becomes a client of the Filer, the Filer will provide to that person or company prominent written notice of the following:
The Filer has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.
It is a condition of the exemption that the Filer not hold any client assets.
l. On the Effective Date, the Filer will have provided to any person or company that is an existing client of the Filer prominent written notice of the following:
The Filer has obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients.
It is a condition of the exemption that the Filer not hold any client assets.
m. The Filer will not rely upon the passport provisions of Canadian securities legislation to passport this Ontario Order into any other jurisdiction of Canada without the prior written consent of that other jurisdiction.
Commission Order
In the opinion of the Commission it is not prejudicial to the public interest to make this Order.
It is ordered by the Commission pursuant to section 147 of the Act that:
(i) beginning on the Effective Date (as defined below), the Filer is exempt from subsection 110(1) of the Regulation, but only so long as, in the case of that Filer:
A. the Filer is not required by Ontario securities law to be a member of the MFDA;
B. the Filer does not hold any Client Assets; and
C. the Filer provides the disclosure to its clients referred to in paragraph (k) above and has provided the disclosure to its clients referred to in the paragraph (l) above; and
(ii) this Order shall be effective on the day indicated below (the Effective Date).
DATED at Toronto, Ontario this 15th day of July, 2013.
"Edwin P. Kerwin"
Commissioner
Ontario Securities Commission
"James D. Carnwath"
Commissioner
Ontario Securities Commission