Securities Law & Instruments

Headnote

MI 11-102 -- relief granted from margin rate applicable to U.S. money market mutual funds in calculation of market risk in Form 31-103F1 -- margin rate for funds qualified for distribution in Canada is 5%, while funds qualified for distribution in U.S. is 100% -- similar regulation of money market funds -- NI 31-103.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 12.1, 15.

May 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 BARING NORTH AMERICA LLC (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief, pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), from the requirement in section 12.1 of NI 31-103 that the Filer calculate its excess working capital using Form 31-103F1 (the Form) to allow the Filer to use the same margin rate for investments in money market mutual funds qualified for sale by prospectus in the United States as is the case for money market mutual funds qualified for sale by prospectus in a province or territory of Canada when calculating market risk pursuant to Line 9 of the Form (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 (the principal regulator) for this application, and

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 in Québec (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 31-103 have the same meanings if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a limited liability company incorporated under the Massachusetts Business Corporations Act and has its head office at 470 Atlantic Avenue, Boston, Massachusetts, 02210.

2. The Filer is registered as an exempt market dealer in each of the Jurisdictions and is also registered as an investment fund manager in Ontario.

3. The Filer is a member of the Barings Group, a global investment management firm with locations, clients, and strategies spanning the world's major markets. The Barings Group consists of Baring Asset Management Limited (BAML) and its subsidiaries as well as the Filer. The Barings Group has four principal companies, which are located in London, Boston, Hong Kong, and Tokyo. These entities provide investment management/advisory services for clients. The Barings Group had U.S. $59 billion in asset under management as of March 31, 2014.

4. BAML and the Filer are both wholly owned subsidiaries of Massachusetts Mutual Life Insurance Company (MassMutual), which is headquartered in Springfield, Massachusetts. MassMutual is a leading mutual life insurance company run for the benefit of its members and participating policyholders. With whole life insurance as its foundation, MassMutual provides a range of financial products to its clients, such as life insurance, disability income insurance, long-term care insurance, retirement planning, and annuities. MassMutual had U.S. $639 billion in assets under management as of December 31, 2013.

5. The Filer is not in default of the securities legislation in any of the Jurisdictions.

6. The Filer wishes to invest from time to time its cash balances in money market mutual funds (the U.S. Funds) that are (a) qualified for sale by prospectus in the U.S. under applicable U.S. securities law, and (b) registered investment companies under the U.S. Investment Company Act of 1940, as amended, and which comply with Rule 2a-7 thereunder (Rule 2a-7).

7. For the purpose of calculating Line 9 (market risk) of the Form, Schedule 1 of the Form states that the margin rate required for a money market mutual fund qualified for sale by prospectus in any jurisdiction of Canada is 5% of the net asset value per security as determined in accordance with National Instrument 81-106Investment Fund Continuous Disclosure, as opposed to 100% of the fair value of investments in U.S. Funds, which constitute "all other securities" for purposes of Schedule 1 of the Form.

8. From a cash management perspective, it would not be prudent for the Filer to invest its cash balances directly in U.S. money market instruments instead of investing in money market mutual funds qualified for sale by prospectus in the U.S. and, therefore, be subject to a lower margin rate because of the following reasons:

a. the Filer would have to invest in a multitude of money market instruments to achieve the diversity that the U.S. Funds that it wants to invest in would provide;

b. money market instruments have varying degrees of liquidity and penalties that may be incurred if an instrument is disposed of before it matures; and

c. directly investing in money market instruments is more time consuming and most likely, more costly, than investing in the U.S. Funds, without any meaningful benefit.

9. It would also not be prudent for the Filer to invest its cash balances in money market mutual funds qualified for sale by prospectus in a province or territory of Canada for the following reasons:

a. there are only a limited number of U.S. money market mutual funds that are qualified for sale by prospectus in a province or territory of Canada;

b. the Filer is a U.S. entity and cannot access U.S. money market mutual funds that are qualified for sale by prospectus in a province or territory of Canada as directly and as easily as the U.S. Funds that are qualified for sale by prospectus in the U.S.;

c. the Filer would need to develop the necessary relationships with Canadian money market fund issuers;

d. investment in U.S. money market mutual funds that are qualified for sale by prospectus in a province or territory of Canada would be more costly than investing in the U.S. Funds that are qualified for sale by prospectus in the U.S; and

e. the Filer could be subject to cross-border tax issues if it were to invest in U.S. money market mutual funds that are qualified for sale by prospectus in a province or territory of Canada as a U.S. entity.

10. The regulatory oversight and the quality of investments held by a money market mutual fund qualified for sale by prospectus in each of the U.S. and Canada is similar. In particular, Rule 2a-7 sets out requirements dealing with portfolio maturity, quality, diversification and liquidity, which are similar to requirements under National Instrument 81-102Mutual Funds (NI 81-102).

Decision

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:

a. any U.S. Fund invested in by the Filer is qualified for sale by prospectus in the U.S. as a result of being a registered investment company under the U.S.Investment Company Act of 1940, as amended, and which complies with Rule 2a-7; and

b. the requirements for money market mutual funds under Rule 2a-7 or any successor rule or legislation are similar to the requirements for Canadian money market funds qualified for sale by prospectus under NI 81-102 or any successor rule or legislation.

"Marrianne Bridge"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission