Securities Law & Instruments

Headnote

Subsection 78(1) and Section 80 of the Commodity Futures Act (Ontario) -- Revocation of previous order and 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. 22(1)(b), 78(1), 80.

Securities Act, R.S.O. 1990, c.S.5, as am.

Rule 35-502 Non-Resident Advisers.

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

AND

IN THE MATTER OF
PYRAMIS GLOBAL ADVISORS, LLC,
PYRAMIS GLOBAL ADVISORS TRUST COMPANY,
FIDELITY INVESTMENTS CANADA ULC AND
PYRAMIS GLOBAL ADVISORS (CANADA) ULC

ORDER
(Section 80 and Subsection 78(1) of the CFA)

UPON the application (the Application) of Pyramis Global Advisors, LLC (Pyramis), Pyramis Global Advisors Trust Company (the Sub-Adviser), Fidelity Investments Canada ULC (Fidelity) and Pyramis Global Advisors (Canada) ULC (Pyramis Canada and, together with Pyramis and Fidelity, the Principal Advisers) to the Ontario Securities Commission (the Commission) for an order:

(a) pursuant to subsection 78(1) of the CFA, revoking the exemption order granted by the Commission to the Sub-Adviser dated December 19, 2008 (the Previous Order, as described below); and

(b) pursuant to section 80 of the CFA, that the Sub-Adviser (including its directors, officers and employees) be exempt from the requirements of paragraph 22(1)(b) of the CFA in respect of acting as an adviser to Funds (as defined below) in respect of trades in commodity futures contracts and commodity futures options traded on commodity futures exchanges (the Contracts, as defined in subsection 1(1) of the CFA) 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 Advisers having represented to the Commission that:

Principal Advisers

1. Pyramis is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Pyramis is registered as an investment adviser with the United States Securities and Exchange Commission.

2. Pyramis is registered as a portfolio manager under the Securities Act (Ontario) (the OSA) and commodity trading manager under the CFA in the province of Ontario. Pyramis is also registered in the category of international (other) under the relevant securities legislation of the provinces of Ontario and Quebec.

3. Fidelity was incorporated under the laws of Canada and has subsequently been continued under the laws of Alberta. Fidelity is resident in Ontario.

4. Fidelity is registered as a mutual fund dealer and portfolio manager under the relevant securities legislation of each of the provinces and territories of Canada. Fidelity is also registered as a commodity trading manager under the CFA in the province of Ontario. Further, Fidelity is registered as an investment fund manager under the relevant securities legislation of the provinces of Ontario, Quebec and Newfoundland and Labrador.

5. Pyramis Canada was incorporated under the laws of Alberta and is resident in Canada.

6. Pyramis Canada is registered as a portfolio manager under the relevant securities legislation of the provinces of Ontario and Quebec and as a commodity trading manager under the CFA in the province of Ontario.

Sub-Adviser

7. The Sub-Adviser is a non-depository trust company chartered under the laws of the State of New Hampshire and is resident in the United States. The Sub-Adviser is not required under applicable commodity futures legislation in the United States of America to be registered as a commodity trading adviser with the U.S. Commodity Futures Trading Commission nor is the Sub-Adviser required to be a member of the National Futures Association, in order to provide the Sub-Advisory Services (as defined below) to the relevant Principal Adviser.

8. The Sub-Adviser is appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registrations or licences to provide advice to the Funds pursuant to the applicable legislation of its principal jurisdiction.

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

10. The Sub-Adviser is not registered in any capacity under the CFA or the OSA.

The Funds

11. The Principal Advisers act as advisers to (a) certain mutual funds offered from time to time to the public in Canada that are governed by National Instrument 81-102 -- Mutual Funds (the Mutual Funds), (b) certain pooled funds offered from time to time to pension plans and other institutional investors (Private Clients) pursuant to exemptions from the prospectus and registration requirements of securities legislation pursuant to National Instrument 45-106 -- Prospectus and Registration Exemptions (the Pooled Funds), and (c) other Mutual Funds and Pooled Funds that may be established in the future in respect of which a Principal Adviser engages the Sub-Adviser to provide portfolio advisory services (the Future Funds, and each of the Mutual Funds, Pooled Funds and Future Funds are referred to individually as a Fund and collectively as the Funds).

12. The Funds may, as a part of their investment program, invest in Contracts.

Sub-Advisory Services

13. Each Principal Adviser may, pursuant to a written between the Principal Adviser and a Fund or Private Client:

(a) act as an adviser (as defined in the Securities Act (Ontario) (the OSA)) to the Fund or Private Client, in respect of securities, and

(b) act as an adviser to the Fund or Private Client, in respect of trading Contracts,

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

14. In connection with a Principal Adviser acting as an adviser to a Fund or Private Client, in respect of the purchase or sale of Contracts, that Principal Adviser may, from time to time, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, retain the Sub-Adviser to act as an adviser to it (the Sub-Advisory Services), by exercising discretionary authority on behalf of the Principal Adviser, in respect of the investment portfolio of the Fund, with discretionary authority to buy or sell Contracts for the Fund, provided that:

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

(b) such investment are consistent with the investment objectives and strategies of the Funds; and

(c) in no case will any trading in Contracts constitute the primary focus or investment objective of the Fund.

15. If there is any direct contact between a Fund or Private Client and a Sub-Adviser in connection with the Sub-Advisory Services, a representative of the applicable Principal Adviser, duly registered in accordance with the CFA, will be present at all times either in person or by telephone.

16. 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.

17. By providing the Sub-Advisory Services, the Sub-Adviser or any individuals acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services, will be engaging in, or holding themselves out as engaging in, the business of advising others in respect of the Contracts and, in the absence of being granted the required relief, would be required to register as an adviser, or a representative of an adviser, as the case may be, under the CFA.

18. 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 for a person or company acting as an adviser in respect of Contracts that is similar to the exemption from the adviser registration requirement in section 25(3) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.3 of OSC Rule 35-502 Non-Resident Advisers (OSC Rule 35-502).

19. The relationship among the Principal Advisers, the Sub-Adviser and the Funds satisfies the requirements of section 7.3 of OSC Rule 35-502.

20. The Sub-Adviser will only provide the Sub-Advisory Services as long as the Principal Advisers are, and remain, registered under the CFA as advisers in the category of commodity trading manager.

21. The Principal Advisers will deliver to the Funds all applicable reports and statements under applicable securities and derivatives legislation.

22. As would be required under section 7.3 of OSC Rule 35-502:

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

(b) the Principal Advisers have contractually agreed with the Funds 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 Advisers and the Funds; 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 Advisers cannot be relieved by the Funds from their responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.

Disclosure

23. The prospectus or similar offering document for each Fund and for which the Principal Advisers engage the Sub-Adviser to provide the Sub-Advisory Services 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

24. Prior to purchasing any securities of one or more of the Funds directly from a Principal Adviser, all investors who are Ontario residents will receive written disclosure 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

Previous Order

25. On December 19, 2008, the Commission granted the Sub-Adviser an exemption from the requirements of paragraph 22(1)(b) of the CFA in respect of the Sub-Advisory Services (the Previous Order). The Previous Order is scheduled to expire on December 19, 2013.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the relief requested;

IT IS ORDERED, pursuant to subsection 78(1) of the CFA, that the Previous Order is revoked; and

IT IS FURTHER ORDERED, 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 when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services, are exempt from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Advisers in respect of the Funds in respect of the Contracts, provided that at the relevant time that such activities are engaged in:

(a) each Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services are appropriately registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of their principal jurisdiction;

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

(d) each Principal Adviser has contractually agreed with the respective Fund to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(e) the Principal Advisers cannot be relieved by a Fund or their securityholders (including Private Clients) from their 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 Fund for which the Principal Advisers engage the Sub-Adviser to provide the Sub-Advisory Services 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others on behalf of the Sub-Adviser in respect of the Sub-Advisory Services) because Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and

(g) prior to purchasing any securities of one or more of the Funds directly from the Principal Advisers, all investors who are Ontario residents will receive written disclosure 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others on behalf of the Sub-Adviser in respect of the Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and

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 17 day of December, 2013.

"Annemarie Ryan"
Commissioner
Ontario Securities Commission
 
"Vern Krishna"
Commissioner
Ontario Securities Commission