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 a sub-adviser 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 made under the Securities Act (Ontario).

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 1(1), 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).

Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.3.

IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the CFA)

AND

IN THE MATTER OF
BNY MELLON ASSET MANAGEMENT CANADA LTD. AND
STANDISH MELLON ASSET MANAGEMENT COMPANY LLC

ORDER
(Section 80 of the CFA)

UPON the application (the Application) of BNY Mellon Asset Management Canada Ltd. (thePrincipal Adviser) and Standish Mellon Asset Management Company LLC (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in commodity futures contracts and commodity futures options (collectively, Contracts as defined in subsection 1(1) of the CFA) when acting on behalf of the Sub-Adviser in respect of the Advisory Services (as defined below) (the Representatives) be exempt, for a specified period of time, from the adviser registration requirement in paragraph 22(1)(b) of the CFA when acting as an adviser for the Principal Adviser in respect of the Clients (as defined below) with regard to trades in Contracts traded on commodity futures exchanges and cleared through clearing corporations;

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

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

Principal Adviser

1. The Principal Adviser is a corporation incorporated under the laws of the Province of Ontario and its principal business office is in Toronto, Ontario.

2. The Principal Adviser is currently registered (i) in each jurisdiction of Canada as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under securities legislation, (ii) in Ontario as an investment fund manager under securities legislation, and (iii) in Ontario as an adviser in the category of commodity trading manager under the CFA.

3. The Principal Adviser is an indirect wholly-owned subsidiary of The Bank of New York Mellon Corporation, a global financial services company providing a full-spectrum of banking and related services including asset management, wealth management, custody, treasury, and clearing services. As such, the Principal Adviser leverages the global expertise of investment professionals at its affiliates worldwide.

Sub-Adviser

4. The Sub-Adviser is a limited liability company organized under the laws of the State of Delaware, United States of America. The head office of the Sub-Adviser is located in Boston, Massachusetts in the United States of America. The Sub-Adviser is currently registered as an investment adviser with the U.S. Securities and Exchange Commission (the SEC) and is a registered commodity trading advisor with the U.S. Commodity Futures Trading Commission (the CFTC).

5. The Sub-Adviser is appropriately registered or licensed to provide advice to the Clients pursuant to the applicable legislation of its principal jurisdiction.

6. The Sub-Adviser is not a resident of any province or territory of Canada.

7. The Sub-Adviser is not registered in any capacity under the CFA or the Securities Act (Ontario) (the OSA).

8. The Sub-Adviser is an affiliate of the Principal Adviser; for this purpose, an "affiliate" means any entity that is controlled by The Bank of New York Mellon Corporation or other ultimate parent company of the Principal Adviser, as the case may be, and "control" and any derivation thereof, means the possession, directly or indirectly, of the power to direct or significantly influence the management and policies/business or affairs of an entity whether through ownership of voting securities or otherwise.

The Clients

9. The Principal Adviser is the investment adviser of (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds), (ii) pooled funds, the securities of which are sold on a private placement basis in all the provinces of Canada to accredited investors pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions (the Pooled Funds), (iii) managed accounts of institutional clients who have entered into investment management agreements with the Principal Adviser (the Managed Accounts) and (iv) other Investment Funds, Pooled Funds and Managed Accounts that may be established in the future for which the Principal Adviser may engage the Sub-Adviser to provide advisory services (the Future Clients) (each of the Investment Funds, Pooled Funds, Managed Accounts and Future Clients are referred to individually as a Client and collectively as the Clients).

10. Certain of the Clients may, as part of their investment program, invest in Contracts.

11. The Principal Adviser offers the portfolio management services of the Sub-Adviser to the respective Clients that choose to have exposure to capital markets and Contracts in which the Sub-Adviser has experience and expertise.

12. The Investment Funds and Pooled Funds are or will be formed in Ontario where the Principal Adviser is registered as an adviser in the category of commodity trading manager.

Advisory Services

13. The Principal Adviser may, pursuant to a written investment management agreement with each Client:

(a) act as an adviser (as defined in the OSA) to that Client in respect of securities (as defined in the OSA), and

(b) act as an adviser to that Client in respect of trading in Contracts,

by exercising discretionary authority to purchase or sell securities (as defined in the OSA) and Contracts on behalf of the Clients in respect of the investment portfolio of the Clients.

14. In connection with the Principal Adviser acting as an adviser to the Clients in respect of the purchase or sale of Contracts, the Principal Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, has retained the Sub-Adviser to act as an adviser for the Principal Adviser in respect of the Clients (the Advisory Services) by exercising discretionary authority on behalf of the Principal Adviser, in respect of all or a portion of all of the assets of the respective investment portfolio of the Clients, including discretionary authority to buy or sell Contracts for the Clients, provided that:

(a) in each case, the Contracts must be cleared through an "acceptable clearing corporation" (as defined in National Instrument 81-102 Mutual Funds, or any successor thereto (NI 81-102); and

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

15. The written agreement between the Principal Adviser and the Sub-Adviser shall set out the obligations and duties of each party in connection with the Advisory Services and permits the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Sub-Adviser in respect of the Advisory Services.

16. The Principal Adviser delivers, and will continue to deliver, to the Clients all applicable reports and statements required under applicable securities, commodity futures, and derivatives legislation.

17. If there is any direct contact between a Client and a Sub-Adviser in connection with the Advisory Services, a representative of the Principal Adviser, duly registered in accordance with Ontario commodity futures law, will be present at all times either in person or by telephone.

18. 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 representative, a partner or an officer of a registered adviser and is acting on behalf of a registered adviser.

19. By providing the Advisory Services, the Sub-Adviser and its Representatives will be engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts and, in the absence of being granted the requested relief, would be required to register in the appropriate category of registration under the CFA.

20. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in section 25(3) of the OSA which is provided under section 7.3 of Ontario Securities Commission Rule 35-502 Non-Resident Advisers (OSC Rule 35-502).

21. The relationship between the Principal Adviser, the Sub-Adviser and each Client satisfies the applicable requirements of section 7.3 of OSC Rule 35-502, namely that:

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

(b) the Principal Adviser has contractually agreed with the Clients 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 Clients; 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 Clients from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.

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

Disclosure

23. The prospectus or similar offering document for each Investment Fund or Pooled Fund or other Investment Funds or Pooled Funds that may be established in the future and for which the Principal Adviser engages the Sub-Adviser to provide the Advisory Services (each a Future Fund) will include the following disclosure:

(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 any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

24. Where an Investment Fund, Pooled Fund or Future Fund does not prepare a prospectus or similar offering document or where a Client enters into an investment management agreement with the Principal Adviser for a Managed Account or other Managed Accounts that may be established in the future (each a Future Managed Account), all investors of these Clients or the Client itself, as applicable, who are Ontario residents will receive prior written disclosure of the engagement 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 any of its Representatives) because the Sub-Adviser 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;

IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of acting as a sub-adviser for the Principal Adviser in respect of the Clients with regard to trades in Contracts, 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 and its Representatives are appropriately registered or licensed to provide the Advisory Services to the Clients pursuant to the applicable legislation of the principal jurisdiction of the Sub-Adviser;

(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 Client 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 a Client or the Client's securityholders, as applicable, from the Principal Adviser's responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations;

(f) the prospectus or similar offering document for each Investment Fund, Pooled Fund or Future Fund will include the following disclosure:

(i) 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

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and

(g) where an Investment Fund, Pooled Fund or Future Fund does not prepare a prospectus or similar offering document or where a Client enters into an investment management agreement with the Principal Adviser for a Managed Account or Future Managed Account, all investors of these Clients or the Client itself, as applicable, who are Ontario residents will receive prior written disclosure of the engagement that includes:

(i) 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

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

IT IS FURTHER ORDERED, that this Order will terminate on the earlier of (i) the coming into force of any amendments to section 7.3 of OSC Rule 35-502, (ii) the effective date of the repeal of section 7.3 of OSC Rule 35-502, and (iii) five years from the date hereof.

DATED at Toronto, Ontario this 20th day of December, 2013.

"Edward P. Kerwin"
Commissioner
Ontario Securities Commission
 
"Christopher Portner"
Commissioner
Ontario Securities Commission