Securities Law & Instruments

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Related issuer relief conditional on IRC approval, compliance with independent pricing and transparency requirements -- Investment restrictions for primary offerings.

Applicable Legislative Provisions

Securities Act (Ontario), ss. 111(2)(a), 111(2)(c)(i), 111(2)(c)(ii), 111(3), 113.

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5(2)(a), 15.1.

September 23, 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 CIBC ASSET MANAGEMENT INC., RBC GLOBAL ASSET MANAGEMENT INC., BMO INVESTMENTS INC., 1832 ASSET MANAGEMENT L.P. AND TD ASSET MANAGEMENT INC. (collectively, the Filers) AND IN THE MATTER OF THE FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers, on behalf of each Filer, and any affiliate of a Filer, which acts as the manager and/or portfolio manager for each existing mutual fund or future mutual fund to which National Instrument 81-102 Mutual Funds (NI 81-102) applies or will apply (each an NI 81-102 Fund, or collectively, the NI 81-102 Funds) and each existing mutual fund or future mutual fund to which NI 81-102 does not apply (each a Pooled Fund, or collectively, the Pooled Funds), for a decision under the securities legislation of the Jurisdiction of the Principal Regulator (the Legislation):

1. exempting the Fund (as defined below) from the requirements (Related Securityholder Requirements) of the securities legislation that prohibit an investment fund from making an investment, or holding an investment, in:

(a) any person or company who is a substantial securityholder of an investment fund, its management company or distribution company (each a Related Securityholder), or

(b) an issuer in which any officer or director of an investment fund, its management company or distribution company or an associate of any of them, or a Related Securityholder (each, a Related Person), has a significant interest;

(the Requested Related Securityholder Relief);

2. exempting the registered adviser from the requirements (the Related Issuer Requirements) in the securities legislation that prohibit a registered adviser of an investment portfolio, including an investment portfolio of an investment fund, from causing the investment portfolio managed by it to invest in any issuer in which a responsible person or an associate of a responsible person is a partner, officer or director, unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained;

(the Requested Related Issuer Relief);

to enable the Funds (as defined below) to invest in non-exchange-traded debt securities of Related Issuers in a Primary Offering and in the secondary market having a "designated rating" within the meaning of that term in NI 44-101, and to enable the Pooled Funds to invest in exchange-traded securities of Related Issuers in the secondary market, in conjunction with the replacement of the Original Decisions which included such exchange-traded security relief.

3. revoking the Original Decisions (as defined below), insofar as the Original Decisions pertain to prior relief granted to the Filers, including their relevant affiliated and predecessor entities, and the Funds (as defined below), from the Related Securityholder Requirements and Related Issuer Requirements (the Revocation Relief)

The proposed transactions outlined in 1 and 2 above are referred to in this decision as the Related Issuer Transactions.

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 (the Principal Jurisdiction); and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied on in Alberta, British Columbia, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, Yukon Territory, Northwest Territories and Nunavut Territory (the Non-Principal Jurisdictions and collectively with the Principal Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in the Legislation, MI 11-102, National Instrument 14-101 Definitions, NI 81-102 and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meaning if used in this decision, unless otherwise defined.

In addition, in this decision the following terms have the following meanings:

Fund means a Pooled Fund and/or NI 81-102 Fund, or collectively, the Funds;

NI 44-101 means National Instrument 44-101 Short Form Prospectus Distribution;

Primary Offering means a primary distribution or treasury offering of non-exchange- traded debt securities of a Related Issuer;

Related Bank means CIBC, RBC, BMO, BNS or TD (each as defined below), as the case may be, related to the relevant Filer;

Related Issuer means a Related Securityholder, a Related Person or an issuer of the type described under the Requested Related Issuer Relief (as defined above) and includes a Related Bank; and

Related Funds includes one or more other Funds under common management with the relevant Fund.

FACTS

A. The Filers

1. CIBC Asset Management Inc.is a company amalgamated under the laws of Canada, wholly-owned by Canadian Imperial Bank of Commerce (CIBC) and with its head office in Toronto, Ontario.

2. RBC Global Asset Management Inc. is a company organized under the laws of Canada, wholly-owned by Royal Bank of Canada (RBC) and with its head office in Toronto, Ontario.

3. BMO Investments Inc. is a company organized under the laws of Canada, wholly-owned by Bank of Montreal (BMO) and with its head office in Toronto, Ontario.

4. 1832 Asset Management L.P. is an Ontario limited partnership, wholly-owned by The Bank of Nova Scotia (BNS) and with its head office in Toronto, Ontario.

5. TD Asset Management Inc. is a company amalgamated under the laws of Ontario, wholly-owned by The Toronto-Dominion Bank (TD) and with its head office in Toronto, Ontario.

6. Each of the Filers is registered as an investment fund manager and a portfolio manager in the Principal Jurisdiction and may be registered in one or more other Non-Principal Jurisdictions. A Filer may also be registered in other categories of registration.

B. The Funds

7. Each of the NI 81-102 Funds and the Pooled Funds is, or will be, a mutual fund established under the laws of Ontario or the laws of one of the other Non-Principal Jurisdictions.

8. The securities of each of the NI 81-102 Funds are, or will be, qualified for distribution pursuant to prospectuses and annual information forms that have been, or will be, prepared and filed in accordance with the securities legislation of each of the Jurisdictions. The NI 81-102 Funds will include conventional mutual funds subject to NI 81-102 and exchange-traded funds that meet the definition of 'mutual fund' in securities legislation and are subject to NI 81-102.

9. Each of the NI 81-102 Funds is, or will be, a reporting issuer in the Principal Jurisdiction and one or more of the Non-Principal Jurisdictions.

10. The securities of each of the Pooled Funds are, or will be, distributed on a private placement basis pursuant to available prospectus exemptions in the Jurisdictions. The Pooled Funds are not, or will not be, reporting issuers.

11. A Filer, or an affiliate of a Filer, is, or will be, the manager and/or portfolio manager of each of the Funds.

12. None of the Filers or the Funds are in default of securities legislation.

C. Substantial Securityholders, Significant Issuers and Common Officers/Directors

13. Each Related Bank is a substantial securityholder of its related Filer that acts as the manager of a Fund or Funds.

14. A director, officer or employee of a Filer that acts as the portfolio manager of a Fund, or an associate of a director, officer or employee of a Filer that acts as a portfolio manager of a Fund, may also be a director or officer of a Related Issuer of the Filer.

D. The Independent Review Committees of the Funds

15. Each NI 81-102 Fund has, or will have, an independent review committee (an IRC) in accordance with the requirements of NI 81-107. The mandate of the IRC of each NI 81-102 Fund will include approving Related Issuer Transactions involving an NI 81-102 Fund. The IRC of an NI 81-102 Fund will not approve a Related Issuer Transaction subject to its mandate unless the IRC has made the determination set out in subsection 5.2(2) of NI 81-107 and the manager and the IRC of the NI 81-102 Fund, as applicable, will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Related Issuer Transaction.

16 Though the Pooled Funds are not, or will not be, subject to the requirements of NI 81-107, each Pooled Fund has, or will have, an IRC at the time the Pooled Fund conducts a Related Issuer Transaction. All existing Pooled Funds have already established an IRC in order to comply with the conditions of previously granted exemptive relief. The mandate of the IRC of each Pooled Fund will include approving Related Issuer Transactions involving a Pooled Fund.

17. The IRC of a Pooled Fund will be composed in accordance with section 3.7 of NI 81-107 and will comply with the standard of care set out in section 3.9 of NI 81-107. The IRC of a Pooled Fund will not approve a Related Issuer Transaction subject to its mandate unless the IRC has made the determination set out in subsection 5.2(2) of NI 81-107.

18. If the IRC of a Fund becomes aware of an instance where the Filer or an affiliate of the Filer, as manager of the Fund, did not comply with the terms of this decision or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Fund is organized.

E. Investment in Securities of Related Issuers

19. The Related Issuers are or may be significant issuers of investment grade quality fixed income securities in the debt market. The Filers consider that it would be in the best interest of the Funds to have access, on the terms and conditions described herein, to non-exchange-traded debt securities of the Related Issuers with a "designated rating" by a "designated rating organization" within the meaning of those terms in NI 44-101, for the reasons set out below:

(a) there is a limited supply of debt securities issued by an issuer other than the federal or a provincial government which have a "designated rating" by a "designated rating organization" within the meaning of those terms in NI 81-102;

(b) diversification is reduced to the extent that a Fund is limited with respect to investment opportunities; and

(c) investing in debt securities of Related Issuers is a fundamentally distinct investment and cannot simply be replicated by investing in other securities of similarly situated issuers. A Fund may be prejudiced if it cannot purchase, in either a Primary Offering or the secondary market, non-exchange-traded debt securities of a Related Issuer that are consistent with the Fund's objective.

20. Section 6.2 of NI 81-107 provides the NI 81-102 Funds with an exemption from Related Securityholder Requirements and the Related Issuer Requirements in respect of purchasing exchange-traded securities, such as common shares, in the secondary market. It does not permit an NI 81-102 Fund, or the Filer on behalf of an NI 81-102 Fund, to purchase non-exchange-traded securities issued by Related Issuers.

21. NI 81-107 does not apply to the Pooled Funds as they are not reporting issuers. Accordingly, it does not permit the Pooled Funds to purchase exchange-traded securities such as common shares of Related Issuers in the secondary market, or non-exchange-traded securities issued by Related Issuers.

22. The Filers and the Funds (as defined, including the Pooled Funds) previously received relief in the Original Decisions from the Related Issuer Requirements and Related Securityholder Requirements which allow them to make and hold an investment in non-exchange trade debt securities of one or more Related Issuers provided such debt securities have a "designated rating" within the meaning of that term in NI 81-102.

23. The Revocation Relief, the Requested Related Issuer Relief and the Requested Related Securityholder Relief will enable the Funds to invest in non-exchange-traded debt securities of Related Issuers in a Primary Offering and in the secondary market having a "designated rating" within the meaning of that term in NI 44-101.

24. Most of the Filers and the Pooled Funds previously received relief in the Original Decisions from the Related Issuer Requirements and Related Securityholder Requirements which allow them to purchase, in the secondary market, and hold an investment in exchange-traded securities of a Related Issuer. BMO Investments Inc. and the Pooled Funds it, or its affiliates, manage and/or advise, however, did not obtain relief previously to allow its Pooled Funds to purchase, in the secondary market, and hold an investment in exchange-traded securities of a Related Issuer.

25. The Revocation Relief, Requested Related Issuer Relief and the Requested Related Securityholder Relief will enable the Pooled Funds to invest in exchange-traded securities of Related Issuers in the secondary market, in conjunction with the replacement of the Original Decisions which included such exchange-traded security relief.

26. The debt securities of Related Issuers that are purchased by a Fund in a Primary Offering pursuant to the Requested Related Securityholder Relief and Requested Related Issuer Relief will be non-exchange-traded debt securities, other than asset backed commercial paper securities, with a term to maturity of 365 days or more, that have been given and continue to have, at the time of purchase, a "designated rating" by a "designated rating organization" within the meaning of those terms in NI 44-101, and will be purchased in a Primary Offering where the terms, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.

27. Each non-exchange-traded debt security of a Related Issuer purchased by a Fund in the secondary market pursuant to the Requested Related Securityholder Relief and Requested Related Issuer Relief, will have been given, and continue to have, at the time of purchase, a "designated rating" by a "designated rating organization" within the meaning of those terms in NI 44-101.

28. Each exchange-traded security of a Related Issuer purchased by a Pooled Fund in the secondary market pursuant to the Requested Related Securityholder Relief and Requested Related Issuer Relief, will be purchased on an exchange where the securities are listed.

29. Each Related Issuer Transaction conducted by a Fund will represent the business judgement of 'responsible persons' uninfluenced by considerations other than the best interests of the Funds.

Original Decisions

30. Subject to the terms and conditions described therein, the Filers, including certain of their affiliates and predecessor entities, obtained orders on the dates set forth below (the Original Decisions), which permit, among other things, a Fund, as a result of a Related Issuer Transaction, to make and hold an investment in non-exchange-traded debt securities of one or more Related Issuers in a Primary Offering or the secondary market. The dates of the orders are:

(a) NI 81-102 Funds -- May 22, 2008, December 23, 2008, and October 29, 2013; and

(b) Pooled Funds -- April 28, 2008, July 2, 2009, September 2, 2009, and October 29, 2013.

31. As of the date of this decision, the Original Decisions will no longer be relied upon by the Filers or the Funds in respect of the Related Issuer Transactions.

Decision

The principal regulator is satisfied that the decisions meet the test set out in the Legislation for the principal regulator to make the decisions.

The Revocation Relief is granted.

The decision of the principal regulator under the Legislation is that the Requested Related Securityholder Relief and the Requested Related Issuer Relief are granted:

1. to permit a Fund to make and hold an investment in non-exchange-traded debt securities of a Related Issuer in the secondary market on the following conditions:

(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Fund;

(b) at the time of the purchase, the IRC of the Fund has approved the transaction on behalf of the Fund in accordance with subsection 5.2(2) of NI 81-107;

(c) the manager of the Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the investment;

(d) the security has been given and continues, at the time of the purchase, to have a "designated rating" by a "designated rating organization" within the meaning of those terms in NI 44-101;

(e) the price payable for the security is not more than the ask price of the security;

(f) the ask price of the security is determined as follows:

(i) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or

(ii) if the purchase does not occur on a marketplace,

(A) the Fund may pay the price for the security at which an independent, arm's-length seller is willing to sell the security; or

(B) if the Fund does not purchase the security from an independent arm's-length seller, the Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm's-length purchaser or seller and not pay more than that quote;

(g) the transaction complies with any applicable "market integrity requirements" as defined in NI 81-107; and

(h) no later than the time the Fund files its annual financial statements, and no later than the 90th day after each financial year-end, the Filer, or an affiliate of the Filer, as manager of the Fund, files with the securities regulatory authority or regulator the particulars of any such investments;

2. to permit a Fund to make and hold an investment in non-exchange-traded debt securities of a Related Issuer in a Primary Offering on the following conditions:

(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Fund;

(b) at the time of the purchase, the IRC of the Fund has approved the investment in accordance with subsection 5.2(2) of NI 81-107;

(c) the manager of the Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the investment;

(d) the security has been given and continues, at the time of the purchase, to have a "designated rating" by a "designated rating organization" within the meaning of those terms in NI 44-101;

(e) the size of the Primary Offering is at least $100 million;

(f) at least two purchasers who are independent, arm's-length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;

(g) no Fund shall participate in the Primary Offering if following its purchase the Fund would have more than 5% of its net assets invested in non-exchange-traded debt securities of a Related Issuer;

(h) no Fund shall participate in the Primary Offering if following its purchase the Fund together with Related Funds will hold more than 20% of the securities issued in the Primary Offering;

(i) the price paid for the securities by a Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's-length purchasers who participate in the Primary Offering; and

(j) no later than the time the Fund files its annual financial statements, and no later than the 90th day after each financial year-end, the Filer, or an affiliate of the Filer, as manager of the Fund, files with the securities regulatory authority or regulator the particulars of any such investments;

3. to permit a Pooled Fund to make and hold an investment in exchange-traded securities of a Related Issuer listed and traded on an exchange on the following conditions:

(a) the purchase is made on an exchange where the securities are listed and traded;

(b) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;

(c) at the time of the purchase, the IRC of the Pooled Fund has approved the transaction on behalf of the Pooled Fund in accordance with subsection 5.2(2) of NI 81-107;

(d) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the investment;

(e) the transaction complies with any applicable "market integrity requirements" as defined in NI 81-107; and

(f) no later than the time the Pooled Fund files its annual financial statements, and no later than the 90th day after each financial year-end, the Filer, or an affiliate of the Filer, as manager of the Pooled Fund, files with the securities regulatory authority or regulator the particulars of any such investments.

The Revocation Relief and the Requested Related Issuer Relief

"Raymond Chan"
Manager, Investment Funds Branch
Ontario Securities Commission

The Revocation Relief and the Requested Related Securityholder Relief

"Catherine E. Bateman"
Commissioner
Ontario Securities Commission

 

"Vern Krishna"
Commissioner
Ontario Securities Commission