National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the Securities Act to permit a dealer who uses proprietary technology, provided by Broadridge, to send or deliver the Fund Facts instead of the simplified prospectus to satisfy current prospectus delivery requirements subject to conditions -- the right of withdrawal and right of rescission under securities legislation apply to the sending and delivery of the Fund Facts -- sunset clause on relief -- terms and conditions consistent with CSA Staff Notice 81-321 Early Use of the Fund Facts to Satisfy Prospectus Delivery Requirements.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 71, 147.
December 18, 2013
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
TD WATERHOUSE CANADA INC.
IN THE MATTER OF
BROADRIDGE INVESTOR COMMUNICATIONS CORPORATION
The principal regulator in the Jurisdiction (the Principal Regulator) has received an application from TDWCI and Broadridge (together with TDWCI, the Filers) for a decision under the securities legislation of the Principal Regulator (Legislation) for exemptive relief to permit a Dealer (as defined below) to send or deliver the most recently filed fund facts document (Fund Facts) to satisfy the requirement contained in the Legislation that obligates a dealer to send or deliver, within a specified time period and in a specified manner, the prospectus, and any amendment to the prospectus (Delivery Requirement), in respect of an order or subscription to purchase securities of a Fund (as defined below) (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 Filers have provided notice that subsection 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, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions, and MI 11-102 have the same meanings if used in this decision (the Decision), unless otherwise defined.
Dealers means all registered dealers, including TDWCI, who have entered into, or who may wish to enter into, a written agreement with Broadridge to use Smart Document Fulfillment Services pursuant to which Broadridge will deliver, on behalf of such dealers, electronically and/or in paper form, the Fund Facts to clients of such dealers in the manner described herein.
Right of Withdrawal means the right, given to a purchaser under the Legislation, to withdraw from a purchase order for a security of a mutual fund if the dealer from whom the purchaser purchases the security receives written notice evidencing the intention of the purchaser not to be bound by the purchase order within two days of receipt of the latest prospectus sent or delivered in compliance with the Delivery Requirement. In Québec, this right is called the right to rescind. Collectively, these rights are referred to as the Rights of Withdrawal.
Right of Rescission means the right of action, under the Legislation, for rescission or damages against a dealer for failure of the dealer to send or deliver the prospectus to a purchaser of a security to whom a prospectus was required to be sent or delivered but was not sent or delivered in compliance with the Delivery Requirement. In Québec, such a purchaser may apply to have the transaction rescinded or the price revised, at the purchaser's option, without prejudice to the purchaser's claim for damages. Collectively, these rights are referred to as the Rights of Rescission.
This Decision is based on the following facts represented by the Filers:
1. Broadridge is a corporation incorporated under the laws of Nova Scotia with its head office located in Mississauga, Ontario.
2. Broadridge is in the business of investor communications and provides services to investment fund managers and dealers who distribute mutual fund securities to facilitate the composition, production and delivery of investor communications and disclosure documents.
3. Broadridge offers a suite of services that are capable of on-demand processing and delivering of Fund Facts and other disclosure documents, as follows:
(a) Smart Document FulfillmentTM -- an electronic delivery and print-on-demand fulfillment process for delivering transaction confirmations and related documents to investors;
(b) e-SP LiteTM -- an electronic delivery of disclosure documents to investors;
(c) Smart Prospectus® -- a transaction-driven data processing and print-on-demand fulfillment service for delivering transaction confirmations and related documents to investors; and
(d) Smart AdvisorTM -- a communication platform for on-demand delivery of multiple media types through various communication channels to investors
(collectively known as Smart Document Fulfillment Services).
4. Smart Document Fulfillment Services effects delivery of Fund Facts in accordance with the Delivery Requirement, to investors on behalf of the Dealers who have entered into, or may wish to enter into, contracts with Broadridge.
5. TDWCI is registered as an investment dealer in each of the provinces and territories of Canada and is a member of the Investment Industry Regulatory Organization of Canada. Its head office is located in Toronto, Ontario.
6. TDWCI is not in default of securities legislation in any Jurisdiction.
7. In accordance with the terms and conditions of exemptive relief granted by the Ontario Securities Commission to certain investment fund managers on August 26, 2011 (the Past Decision), TDWCI is delivering Fund Facts in paper format using Smart Document Fulfillment Services. The Exemption Sought will allow TDWCI to also deliver Fund Facts for funds managed by those investment fund managers who did not receive exemptive relief in the Past Decision.
8. Each Dealer is, or will be, registered as a dealer in one or more of the Jurisdictions. A Dealer is, or will be, a member of either (i) the Investment Industry Regulatory Organization of Canada, or (ii) the Mutual Fund Dealers Association of Canada, or their successors.
9. The Dealers distribute a range of mutual funds (each, a Fund, or collectively, the Funds) which are offered for sale on a continuous basis, in one or more of the Jurisdictions, pursuant to a simplified prospectus (each, a Prospectus) prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101).
10. Pursuant to the Delivery Requirement, the Dealers have the obligation to send or deliver a Prospectus to a purchaser of a security of a Fund within two days of the purchase of the security.
Point of Sale Project
11. Pursuant to the Canadian Securities Administrators' (the CSA) point of sale disclosure project for Funds (the Project), the CSA has determined that it is desirable to create a summary disclosure document called the fund facts document (defined above as Fund Facts).
12. CSA Staff Notice 81-319 Status Report on the Implementation of Point of Sale Disclosure for Mutual Funds dated June 18, 2010, outlines the CSA's decision to implement the Project in stages.
13. Stage 1 of the Project became effective on January 1, 2011, by amending NI 81-101 and related instruments mandating a Fund to prepare and file a Fund Facts on SEDAR for each relevant class or series of the Fund, and having the Fund Facts posted to the Fund's or its manager's website and delivered to any person upon request, at no cost.
14. Stage 2 of the Project requires delivery of the Fund Facts instead of the Prospectus to satisfy the Delivery Requirement. On June 13, 2013, the CSA published final amendments to implement Stage 2 of the Project (the Stage 2 Amendments). The Stage 2 Amendments contain a transition period requiring dealers to send or deliver the Fund Facts instead of the Prospectus to satisfy the Delivery Requirement as of June 13, 2014 (the Effective Date).
15. CSA Staff Notice 81-321 Early Use of the Fund Facts to Satisfy Prospectus Delivery Requirements dated February 24, 2011 (CSA Notice 81-321) encourages the filing of applications for exemptive relief to allow the early use of the Fund Facts to satisfy the Delivery Requirement.
Early Use of Fund Facts
16. The Filers have determined that it would be desirable to apply for exemptive relief consistent with the Stage 2 Amendments prior to the Effective Date and, accordingly, require an exemption to use the Fund Facts to satisfy the Delivery Requirement, as contemplated by CSA Notice 81-321.
17. The Dealers have entered into, or may wish to enter into, contracts with Broadridge to use Smart Document Fulfillment Services for the electronic and/or paper delivery of the Fund Facts to satisfy the Delivery Requirement.
18. Smart Document Fulfillment Services, proprietary technology of Broadridge, contains a document repository that catalogues and maintains the Fund Facts which have been filed with securities regulators. The Fund Facts are obtained through a near-real-time feed from the System for Electronic Document Analysis and Retrieval (SEDAR). Smart Document Fulfillment Services enables electronic and/or paper delivery of the most recently filed Fund Facts corresponding to a client's purchase of Funds.
19. Smart Document Fulfillment Services offer the Dealers a record of the date, time and manner of delivery (i.e., electronically or by mail) of the Fund Facts, as well as a record of the version of the Fund Facts delivered, enabling compliance reporting and record-keeping for audit purposes.
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:
1. A Fund Facts that is being sent or delivered in accordance with this Decision will not be attached to, or bound with another Fund Facts or with any other document except in a manner contemplated and permitted in the Stage 2 Amendments.
2. Any Dealer relying on the ability to send or deliver Fund Facts in lieu of the Prospectus grants to an investor purchasing the securities of a Fund a right equivalent to the Rights of Withdrawal upon the sending or delivery of the Fund Facts. The Rights of Withdrawal and the Rights of Rescission will no longer apply if the Fund Facts is sent or delivered to an investor in accordance with the time period and in the manner specified for the Prospectus under the Delivery Requirement.
3. The clients of a Dealer relying on this Decision will receive notice (the Notice), at or before the time they receive the Fund Facts, indicating that they will have rights equivalent to the Rights of Withdrawal and Rights of Rescission for the sending or delivery of the Fund Facts, which includes wording substantially similar to the following:
The Fund Facts for the securities you purchased is being sent or delivered to you instead of the simplified prospectus. You will continue to have the equivalent rights and protections otherwise applicable under securities law as if you were sent or delivered the simplified prospectus. Depending on your province or territory, you may have the right to:
• withdraw from an agreement to buy securities of mutual funds within two business days after you receive a fund facts document; or
• cancel your purchase within 48 hours after you receive confirmation of the purchase.
For more information, see the securities law of your province or territory or ask a lawyer.
4. Prior to a Dealer relying on the ability to send or deliver Fund Facts in lieu of the Prospectus, Broadridge or an agent of Broadridge provides to the Dealer
(a) a copy of this Decision;
(b) a disclosure statement informing the Dealer of the implications of this Decision; and
(c) a form of acknowledgment of the matters referred to in paragraph 5 below, to be signed and returned by the Dealer to Broadridge or its agent.
5. A Dealer seeking to rely on this Decision to send or deliver the Fund Facts in lieu of the Prospectus will, prior to doing so:
(a) acknowledge receipt of a copy of this Decision providing the Exemption Sought;
(b) appoint Broadridge as its service provider for the delivery, in electronic and/or paper form, of the Fund Facts through a Smart Document Fulfillment service as described in this Decision;
(c) confirm that it will provide a right equivalent to the Rights of Withdrawal attached to the sending or delivery of the Fund Facts;
(d) instruct Broadridge to provide the Notice referred to in paragraph 3 above to the Dealer's clients, in a document other than the Fund Facts, but delivered prior to or contemporaneously with the Fund Facts;
(e) confirm that clients of the Dealer will continue to be able to request a copy of the Prospectus at no cost by contacting the Dealer;
(f) confirm that the Dealer has in place written policies and procedures to ensure that there is compliance with the conditions of this Decision;
(g) consent to Broadridge providing to staff of the Principal Regulator the name of the Dealer, and identifying the Dealer as having entered into an agreement with Broadridge and providing such information regarding the Dealer's reliance on the Exemption Sought as staff of the Principal Regulator may request, including providing staff of the Principal Regulator with a copy of the acknowledgment and agreement referred to in subparagraph (h) below; and
(h) deliver to Broadridge a signed acknowledgment and agreement binding the Dealer to the foregoing.
6. In the event a Fund Facts is not sent or delivered in accordance with this Decision, a Dealer will send or deliver a Prospectus, and the Rights of Rescission will continue to apply to the failure to send or deliver the Prospectus.
7. Broadridge will maintain records of all Dealers who have entered into agreements on the terms specified herein and will notify staff of the Principal Regulator within 10 business days of the end of each month of the names of such Dealers and provide such other information regarding the Dealer's reliance on this Decision as staff of the Principal Regulator may request, including providing staff of the Principal Regulator with a copy of the acknowledgment and agreement referred to in paragraph 5 hereof.
8. The Exemption Sought terminates on the Effective Date.