Under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual acts as an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned firm. The firms require relief in order to permit a registered representative of one firm to also act as a partner of another registered firm. The individual will have sufficient time to adequately serve both firms. In practice, as the registered representative is essentially serving as a shareholder as opposed to a partner of the other registered firm, conflicts of interest are unlikely to arise. The firms have policies in place to handle potential conflicts of interest. The firms are exempted from the prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
March 26, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF ELM PARK CAPITAL MANAGEMENT, LLC (Elm Park or the Filer) AND CHARLES MARTIN WINOGRAD
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), pursuant to section 15.1 of NI 31-103, to permit Charles Martin Winograd (Mr. Winograd) to act as a dealing representative and an advising representative of Elm Park and also hold a partnership interest in RP Investment Advisors (RPIA) through Winograd Capital Inc. (Winograd Capital), a company in which Mr. Winograd is the sole officer, director, and shareholder (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,
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer in Alberta, British Columbia, Manitoba, Nova Scotia, and Quebec (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filer:
1. Elm Park is a limited liability company organized under the laws of the State of Delaware, United States of America (United States). The head office of Elm Park is located in Dallas, Texas in the United States.
2. Elm Park is registered as an investment adviser with the United States Securities and Exchange Commission.
3. Elm Park is registered as an exempt market dealer in Alberta, British Columbia, Ontario, Manitoba, Nova Scotia, and Quebec. Elm Park is also registered as an investment fund manager and portfolio manager in Ontario.
4. Elm Park is a private investment firm that focuses on investing in lower middle market debt securities, and manages two investment funds which invest in private credit opportunities.
5. RPIA is a partnership composed of corporate partners and its head office is located in Toronto, Ontario.
6. RPIA is registered as an exempt market dealer in Alberta, British Columbia, Ontario, Manitoba, Nova Scotia, Quebec, and Saskatchewan. RPIA is also registered as an investment fund manager in Ontario and Quebec. In addition, RPIA is registered as a commodity trading manager and portfolio manager in Ontario.
7. RPIA is an alternative fixed income asset manager that specialises in active investment grade credit funds and interest rate management. RPIA manages five investment funds utilizing three different strategies.
8. Elm Park and RPIA are not affiliates.
9. Mr. Winograd is a resident of Ontario and is a senior managing partner of Elm Park. He owns a 50% voting interest in Elm Park through a holding company.
10. Mr. Winograd is registered as a dealing representative of Elm Park in Alberta, British Columbia, Ontario, Manitoba, Nova Scotia, and Quebec. Mr. Winograd is registered as an advising representative of Elm Park in Ontario.
11. The Filer is not in default of any requirement of securities legislation in any of the Jurisdictions, except in respect of allowing Winograd Capital (a firm whose sole officer, director, and shareholder is Mr. Winograd, an Elm Park dealing representative and advising representative) to also be a partner of RPIA since August 15, 2012 contrary to the restriction under paragraph 4.1(1)(a) of NI 31-103. The Filer understands that the Exemption Sought is only effective from the date of this decision.
12. Winograd Capital holds a 4.5% partnership interest in RPIA. Although Winograd Capital is the partner of RPIA, Mr. Winograd could be considered to be acting as a partner of RPIA as he is the sole officer, director, and shareholder of Winograd Capital. Accordingly, Mr. Winograd would be in contravention of paragraph 4.1(1)(a) of NI 31-103.
13. The partnership interest does not allow Winograd Capital or Mr. Winograd to be involved in the business, operations or affairs of RPIA like an officer, director or an active partner. Winograd Capital has no voting rights on the day-to-day business, operations or affairs of RPIA. Winograd Capital is only entitled to vote on extraordinary matters involving RPIA, such as a sale of all or substantially all of the business or its assets.
14. Mr. Winograd does not personally act as an officer, partner, or director of RPIA. He is not registered as a dealing representative or an advising representative with RPIA. Mr. Winograd has no individual decision-making authority and has not been given individual authority by the corporate partners to bind RPIA.
15. Mr. Winograd has acted as a management advisor to RPIA since October 2009. In that capacity, he serves in a limited advisory and consultative role. He reviews and discusses firm strategy, financial plans and results, and policies including risk policies. Mr. Winograd is not involved in any investment decisions or other day to day decisions made for RPIA. He does not advise on specific investments.
16. Mr. Winograd estimates that he spends around one to two hours per week on RPIA duties. He has always had, and will continue to have, sufficient time and resources to adequately meet his obligations to each firm (specifically, Elm Park and RPIA).
17. The potential for conflicts of interest between Elm Park and RPIA is mitigated by the fact that the investment funds they manage invest in different types of securities. Elm Park's investments are solely focused on private market investments that are not publicly issued securities traded on any exchange, unlike investments made by RPIA.
18. Although it is not expected that there will be any conflicts of interest between Elm Park and RPIA as they each have different products, both have policies and procedures in place to address conflicts of interest that may arise as a result of Mr. Winograd acting as a dealing and advising representative of Elm Park and holding a partnership interest in RPIA through Winograd Capital.
19. Elm Park has compliance and supervisory policies and procedures in place to monitor the conduct and outside business activities of its registered representatives (including Mr. Winograd) and to ensure that Elm Park can deal appropriately with any conflict of interest that may arise.
20. Each of Elm Park and RPIA are subject to the restrictions and requirements in Part 13 of NI 31-103 regarding conflict of interest matters.
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 the Exemption Sought shall cease to be effective when:
(i) Winograd Capital is no longer a partner of RPIA; or
(ii) Mr. Winograd is no longer registered in any of the Jurisdictions as a dealing representative or an advising representative of Elm Park.