Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement in paragraph 22(1)(b) of the CFA granted to sub-advisers 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 -- Renewal of previous relief -- 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., s. 22(1)(b) and s. 80

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

OSC Rule 35-502 Non-Resident Advisers s. 7.3

August 26, 2014

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20 AS AMENDED (the CFA) AND IN THE MATTER OF UBS GLOBAL ASSET MANAGEMENT (CANADA) INC., UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC., UBS GLOBAL ASSET MANAGEMENT (UK) LTD., UBS O'CONNOR LLC, UBS ALTERNATIVE AND QUALITATIVE INVESTMENTS LLC, UBS GLOBAL ASSET MANAGEMENT (JAPAN) LTD., UBS GLOBAL ASSET MANAGEMENT (SINGAPORE) LTD. AND UBS AG

ORDER (Section 80 of the CFA)

UPON the renewal application (the Application) of UBS Global Asset Management (Americas) Inc. (UBS Americas), UBS Global Asset Management (UK) Ltd. (UBS UK), UBS O'Connor LLC (UBS O'Connor), UBS Alternative and Qualitative Investments LLC (UBS Alternative), UBS Global Asset Management (Japan) Ltd. (UBS Japan), UBS Global Asset Management (Singapore) Ltd. (UBS Singapore), and UBS AG (collectively, the Sub-Advisers) and UBS Global Asset Management (Canada) Inc. (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that each of the Sub-Advisers (including their respective directors, officers, partners and employees engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of their respective Sub-Adviser in respect of the Advisory Services (as defined below)) be exempt, for a specified period of time, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as an adviser for the Principal Adviser in respect of the Funds (as defined below) regarding commodity futures contracts and commodity futures options traded on commodity futures exchanges (the Contracts) and cleared through clearing corporations.

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

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

Principal Adviser

1. The Principal Adviser is a corporation existing under the laws of the Province of Nova Scotia with its head office located in Toronto, Ontario.

2. The Principal Adviser is registered with the Commission under the Securities Act (Ontario) (the OSA) as a dealer in the category of exempt market dealer, as an adviser in the category of portfolio manager and as an investment fund manager and, under the CFA, as an adviser in the category of commodity trading manager.

3. The Principal Adviser is also registered as a dealer in the category of exempt market dealer and as an adviser in the category of portfolio manager in all other provinces and territories of Canada, as an investment fund manager in Quebec and Newfoundland and as an adviser under the Commodity Futures Act in Manitoba.

4. The Principal Adviser is an indirect wholly-owned subsidiary of UBS AG, a publicly-traded company listed on the New York Stock Exchange and the SIX Swiss Exchange. As such, the Principal Adviser leverages the global expertise of investment professionals at its affiliates worldwide.

5. The Principal Adviser is not in default of securities, commodity futures or derivatives legislation in any jurisdiction in Canada.

The Sub-Advisers

6. The Sub-Advisers are not resident of any province or territory of Canada and are entities organized under the laws of a jurisdiction other than Canada and the provinces and territories of Canada.

7. The Sub-Advisers are properly registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licenses, to provide advice to clients in respect of securities and in respect of Contracts pursuant to the applicable legislation of their principal jurisdictions.

The details of each Sub-Adviser, its jurisdiction of incorporation and its applicable licenses are as follows:

a. UBS Americas is incorporated under the laws of the state of Delaware, United States of America. The head office for UBS Americas is in New York, New York. UBS Americas is registered as an investment adviser with the U.S. Securities and Exchange Commission.

b. UBS UK was incorporated under the laws of England and Wales. The head office for UBS UK is in London, United Kingdom. UBS UK holds a financial services license with the Financial Conduct Authority, the agency in the UK that regulates the financial services industry.

UBS UK acts in Ontario in reliance on the exemption from registration as an investment fund manager in Multilateral Instrument 32-102 Registration Exemptions for Non-resident Investment Fund Managers (MI 32-102) in respect of non-resident investment fund managers whose investment fund securities were distributed under prospectus exemption to a permitted client.

c. UBS O'Connor was incorporated under the laws of the state of Delaware, United States of America. The head office for UBS O'Connor is in New York, New York. UBS O'Connor operates under exemptions from the commodity pool operator registration requirement and the commodity trading advisor registration requirement pursuant to the Commodity Exchange Act. UBS O'Connor is also registered as an investment adviser with the U.S. Securities and Exchange Commission.

UBS O'Connor acts in Ontario in reliance on the exemption from registration as an investment fund manager in MI 32-102 in respect of non-resident investment fund managers whose investment fund securities were distributed under prospectus exemption to a permitted client.

d. UBS Alternative was incorporated under the laws of the state of Delaware, United States of America. The head office for UBS Alternative is in Stamford, Connecticut. UBS Alternative is registered as a commodity pool operator with the U.S. Commodity Futures Commission pursuant to the Commodity Exchange Act. UBS Alternative is also registered as an investment adviser with the U.S. Securities and Exchange Commission.

e. UBS Japan was incorporated under the laws of Japan. The head office for UBS Japan is in Tokyo, Japan. UBS Japan holds an investment adviser's license and investment management license with the Financial Services Agency, an agency of the Japanese government.

f. UBS Singapore was incorporated under the laws of Singapore. The head office for UBS Singapore is in Singapore. UBS Singapore holds an investment adviser's license with the Financial Supervisory Service, South Korea's integrated financial regulator, and a capital market services license with the Monetary Authority of Singapore, the central bank of Singapore.

g. UBS AG was incorporated under the laws of Switzerland. The head office for UBS AG is in Zurich, Switzerland. UBS AG holds a financial services license with the Swiss Financial Market Supervisory Authority.

In Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Prince Edward Island, Quebec and Saskatchewan, UBS AG acts in reliance on the exemptions from the OSA's dealer and adviser registration requirements available to international dealers and to international advisers in sections 8.18 and 8.26, respectively, of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

8. The Sub-Advisers are not, and have no current intention of becoming, registered under the CFA or the OSA.

9. The Sub-Advisers are all indirect wholly-owned subsidiaries of UBS AG and are all affiliated companies of the Principal Adviser.

The Funds

10. The Principal Adviser acts as an adviser to clients on a variety of investment strategies, which may include the use of Contracts traded on Canadian or other organized exchanges outside of Canada. The Principal Adviser advises: (i) institutional clients who have entered into investment management agreements with the Principal Adviser (the Managed Accounts), (ii) 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 Mutual Funds), (iii) 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), and (iv) such other Managed Accounts, Mutual Funds and Pooled Funds as may be established in the future and for which the Principal Adviser engages one or more of the Sub-Advisers to provide Advisory Services (as defined below) (each of the Managed Accounts, Mutual Funds and Pooled Funds in (i), (ii), (iii) and (iv) is referred to individually as a Fund and collectively as the Funds).

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

12. The mandates for many of the Funds managed by the Principal Adviser are global in nature. The Principal Adviser offers the investment management services of the Sub-Advisers to the Funds in respect of capital markets in which the Sub-Advisers have the requisite experience, skills and knowledge.

13. The Mutual Funds, Pooled Funds and other Mutual Funds or Pooled Funds that may be established in the future are or will be formed in Ontario where the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager.

The Advisory Services

14. The Principal Adviser may, pursuant to a written agreement with each Fund:

(a) act as an adviser (as defined in the OSA) to the Fund in respect of securities; and

(b) act as an adviser (as defined in the CFA) to the Fund in respect of Contracts by exercising discretionary authority in respect of the investment portfolio of the Fund, with discretionary authority to purchase or sell on behalf of the Fund:

(i) securities; and

(ii) Contracts.

15. In connection with the Principal Adviser acting as an adviser to the Funds in respect of the purchase or sale of securities and Contracts, the Principal Adviser, in reliance on the Previous Order (defined below) and pursuant to a written agreement made between the Principal Adviser and each of the Sub-Advisers, has retained and continues to retain each Sub-Adviser to act as adviser for the Principal Adviser by exercising discretionary authority on behalf of the Principal Adviser, in respect of all or a portion of all of the assets of the investment portfolios of the Funds, including discretionary authority to buy or sell Contracts for the Funds (the Advisory Services), provided that:

a) In each case, the Contract must be cleared through an acceptable clearing corporation; and

b) Such investments are consistent with the investment objectives and strategies of the Funds.

16. The written agreement between the Principal Adviser and each Sub-Adviser sets 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 respective Sub-Adviser in respect of the Advisory Services.

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

18. If there is any direct contact between a Fund 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.

19. 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 commodity futures contracts and commodity futures options.

20. By providing the Advisory Services, the Sub-Advisers are engaging in, or holding themselves out as engaging in, the business of advising others with respect to Contracts, and, in the absence of being granted the requested relief, would be required to be registered as advisers under the CFA.

21. There is presently no rule or other regulation 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(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 OSC Rule 35-502 Non Resident Advisers (Rule 35-502).

22. The relationships among the Principal Adviser, the Sub-Advisers and the Funds satisfy the requirements of section 7.3 of Rule 35-502.

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

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

b) the Principal Adviser has contractually agreed with the Funds to be responsible for any loss that arises out of the failure of any or all of the Sub-Advisers;

i. to exercise the powers and discharge the duties of their offices honestly, in good faith and in the best interests of the Principal Adviser 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 Adviser cannot be relieved by the Funds from its responsibility for any loss that arises out of the failure of any or all of the Sub-Advisers to meet the Assumed Obligations.

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

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

Disclosure

26. The prospectus or similar offering document for each Mutual Fund, Pooled Fund or other Mutual Funds or Pooled Funds that may be established in the future and for which the Principal Adviser has engaged or engages one or more of the Sub-Advisers to provide the 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 any or all of the Sub-Advisers to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against any or all of the Sub-Advisers (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the respective Sub-Advisers in respect of the Advisory Services) because the Sub-Advisers are resident outside of Canada and all or substantially all of their assets are situated outside of Canada.

27. Prior to purchasing any securities of one or more of the Mutual Funds, Pooled Funds or other Mutual Funds or Pooled Funds that may be established in the future directly from the Principal Adviser or entering into an investment management agreement with the 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 any or all of the Sub-Advisers to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against any or all of the Sub-Advisers (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the respective Sub-Advisers in respect of the Advisory Services) because the Sub-Advisers are resident outside of Canada and all or substantially all of their assets are situated outside of Canada.

Previous Order

28. On September 2, 2009, the Commission granted each of the Sub-Advisers an exemption from the registration requirement in paragraph 22(1)(b) of the CFA for advisory services provided in respect of the investment portfolios of the Funds and for which the Principal Adviser engages the Sub-Advisers to provide advisory services (the Previous Order). The Previous Order is scheduled to terminate on September 2, 2014.

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-Advisers and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of a Sub-Adviser in respect of the Advisory Services are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of the Advisory Services, for a period of five years, 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) each Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of a Sub-Adviser in respect of the Advisory Services are appropriately registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licenses, to provide the Advisory Services to the Funds pursuant to the applicable legislation of their principal jurisdiction;

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

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

e) the Principal Adviser cannot be relieved by a Fund or its securityholders from its responsibility for any loss that arises out of the failure of a Sub-Adviser or Sub-Advisers to meet the Assumed Obligations;

f) the prospectus or similar offering document, if any, for each Mutual Fund or Pooled Fund or other Mutual Funds or Pooled Funds that may be established in the future and for which the Principal Adviser engages one or more Sub-Advisers to provide the 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 a Sub-Adviser or Sub-Advisers to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Advisers (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Advisers in respect of the Advisory Services) because the Sub-Advisers are resident outside of Canada and all or substantially all of their assets are situated outside of Canada; and

g) prior to purchasing any securities of one or more of the Mutual Funds, Pooled Funds or other Mutual Funds or Pooled Funds that may be established in the future directly from the Principal Adviser or entering into an investment management agreement with the Principal Adviser, 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 a Sub-Adviser or Sub-Advisers to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Advisers (or any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Advisers in respect of the Advisory Services) because the Sub-Advisers are resident outside of Canada and all or substantially all of their assets are situated outside of Canada.

IT IS FURTHER ORDERED, that this Order is effective as at September 2, 2014 (the Effective Date) and 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 Effective Date.

DATED at Toronto, Ontario this 26th day of August, 2014

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