Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of paragraph 22(1)(b) of the Commodity Futures Act (Ontario) 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.

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA) AND IN THE MATTER OF RUSSELL IMPLEMENTATION SERVICES INC., RUSSELL INVESTMENT MANAGEMENT COMPANY AND RUSSELL INVESTMENTS CANADA LIMITED

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

UPON the application (the Application) of Russell Implementation Services Inc. (RIS) and Russell Investment Management Company (RIMCo and, together with RIS, the Sub-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-Advisers on June 19, 2009; and

(b) pursuant to section 80 of the CFA, that the Sub-Advisers (including their respective directors, officers, representatives and employees acting as advisers on their behalf) be exempt, for a period of five years, from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of acting as an adviser for Russell Investments Canada Limited (thePrincipal Adviser) for the benefit of Investment Accounts (as defined below) regarding commodity futures contracts and commodity futures options (collectively, 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 Principal Adviser and the Sub-Advisers having represented to the Commission that:

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

2. The Principal Adviser is currently registered as:

(a) an investment fund manager, exempt market dealer and portfolio manager in all the provinces and territories of Canada;

(b) a mutual fund dealer in Ontario and a commodity trading manager under the CFA; and

(c) an adviser in Manitoba.

3. None of the Principal Adviser or the Sub-Advisers is in default of any requirement of the CFA or the regulations under the CFA, or any requirement of the Securities Act (Ontario) (the OSA) or the regulations under the OSA.

4. RIS is a corporation organized under the laws of the State of Washington, United States with its principal place of business located in Seattle, Washington, United States. RIS is not a resident of any province or territory of Canada.

5. RIS is not currently registered in any capacity under the securities legislation of any jurisdiction of Canada. RIS currently relies on the exemptions from registration contained in sections 8.18 and 8.26 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations in all provinces of Canada. RIS currently is registered with the United States Securities and Exchange Commission (the SEC) as an investment adviser and a broker-dealer and is exempted from registration as a commodity trading adviser or commodity pool operator with the United States Commodity Futures Trading Commission (the CFTC).

6. RIMCo is a corporation organized under the laws of the State of Washington, United States with its principal place of business located in Seattle, Washington, United States. RIMCo is not a resident of any province or territory of Canada.

7. RIMCo is not currently registered in any capacity under the securities legislation of any jurisdiction in Canada. RIMCo is registered with the SEC as an investment adviser and is exempted from registration as a commodity trading adviser or commodity pool operator with the CFTC.

8. Each Sub-Adviser has entered into an arrangement with the Principal Adviser to provide sub-advisory services (the Sub-Advisory Services) to the Principal Adviser in respect of investment accounts (Investment Accounts) of managed account clients (Clients) of the Principal Adviser resident in Ontario that have retained the Principal Adviser to provide investment management and advisory services pursuant to investment management agreements (Investment Management Agreements). An Investment Management Agreement may provide for the provision of investment management or advisory services with respect to securities, Contracts and other derivative instruments traded over-the-counter.

9. Each Client is an "accredited investor" as defined in National Instrument 45-106 Prospectus and Registration Exemptions.

10. Each Sub-Adviser and the Principal Adviser have entered into a written agreement (collectively, the Sub-Advisory Agreements) with respect to the Investment Accounts, pursuant to which the Principal Adviser has retained the Sub-Adviser to provide Sub-Advisory Services to the Principal Adviser in respect of Investment Accounts.

11. The Principal Adviser delivers to each Client all reports and statements required to be delivered to such Client by the Principal Adviser or a Sub-Adviser under applicable securities, commodity futures and derivatives legislation in Ontario.

12. All direct contact with Clients is by the Principal Adviser and its directors, officers or employees, although representatives of a Sub-Adviser may participate in such communications from time to time.

13. The Sub-Advisory Services provided by the Sub-Advisers may be in respect of both securities and Contracts. Each Sub-Adviser provides the Sub-Advisory Services in respect of securities transactions in reliance on section 7.3 of OSC Rule 35-502 Non-Resident Advisers (Rule 35-502).

14. 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 partner or an officer of a registered adviser and is acting on behalf of a registered adviser. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" means Contracts.

15. By providing the Sub-Advisory Services in relation to Contracts, each Sub-Adviser is acting as an adviser with respect to Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA when the Current Relief (as defined below) expires.

16. Presently, there is 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 paragraph 25(1)(c) 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 Rule 35-502.

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

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

(b) the Principal Adviser contractually agrees with each Client to be responsible for any loss that arises out of the failure of any 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 Client; 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 is not relieved by the Client from its responsibility for any loss that arises out of the failure of the Sub-Advisers to meet the Assumed Obligations.

18. Each Sub-Adviser (including its directors, officers, representatives and employees acting as advisers on its behalf) provides the Sub-Advisory Services only while the Principal Adviser is registered under the CFA as an adviser in the category of "commodity trading manager".

19. Neither Sub-Adviser is resident of any province or territory of Canada.

20. Each Sub-Adviser is appropriately registered, or appropriately exempt from registration, to provide advice to the Principal Adviser and Clients pursuant to the applicable legislation of the Sub-Adviser's principal jurisdiction.

21. On June 19, 2009, the Commission granted to the Sub-Advisers an exemption from the requirements of paragraph 22(1)(b) of the CFA in respect of the Sub-Advisory Services (the Current Relief). The Current Relief is scheduled to expire on June 19, 2014.

22. The Principal Adviser seeks to access certain specialized advisory services provided by the Sub-Advisers as to trading in Contracts.

23. Each Sub-Adviser acts as a Sub-Adviser to the Principal Adviser in respect of trading in Contracts on terms and conditions that are analogous to the prescribed terms and conditions of section 7.3 of Rule 35-502.

AND UPON the Commission being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed;

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

IT IS FURTHER ORDERED, pursuant to section 80 of the CFA, that each Sub-Adviser (including its directors, officers, representatives and employees acting as advisers on its behalf) is exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA, in respect of the Sub-Advisory Services it provides to the Principal Adviser for Clients in respect of 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 (including its directors, officers, representatives and employees acting as advisers on its behalf) is appropriately registered or licensed, or is entitled to rely on appropriate exemptions from such registrations or licenses, to provide advice to the Principal Adviser and Clients pursuant to the applicable legislation of the Sub-Adviser's principal jurisdiction;

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

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

(e) the Principal Adviser is not relieved by any Client from its responsibility for any loss that arises out of the failure of a Sub-Adviser to meet the Assumed Obligations;

(f) where the Principal Adviser engages one or both Sub-Advisers to provide the Sub-Advisory Services for a Client, the Client received prior written disclosure of the engagement that includes the following disclosure:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of a Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against a Sub-Adviser (including its directors, officers, representatives and employees acting as advisers on its behalf) because the Sub-Adviser is a resident outside of Canada and all or substantially all of its assets are situated outside of Canada,

(the Required Disclosure);

(g) where a Client for which the Principal Adviser engages one or both Sub-Advisers to provide the Sub-Advisory Services offers its securities, any offering document of the Client includes the Required Disclosure; and

(h) where a Client for which the Principal Adviser engages one or both Sub-Advisers to provide the Sub-Advisory Services offers its securities but does not prepare an offering document, all investors of the Client who are residents of Ontario have received prior written disclosure of the engagement that includes the Required Disclosure.

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

June 17, 2014

"Wesley M. Scott"
"Anne Marie Ryan"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission