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

National Instrument 81-102 Mutual Funds, ss. 4.1(2), 19.1.

September 22, 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 a Fund or Funds (as defined below), for a decision under the securities legislation of the Jurisdiction of the Principal Regulator (the Legislation):

A. exempting the Funds from the requirements of subsection 4.1(2) of NI 81-102 (the Related Issuer Requirements) that prohibit a dealer managed investment fund from knowingly making an investment in a class of securities of an issuer (Related Issuer), of which:

(a) a partner, director, officer or employee of the dealer manager of the investment fund, or

(b) a partner, director, officer or employee of an affiliate or associate of the dealer manager of the investment fund,

is a partner, director or officer, unless the partner, director, officer or employee:

(i) does not participate in the formulation of investment decisions made on behalf of the dealer managed investment fund;

(ii) does not have access before implementation to information concerning investment decisions made on behalf of the dealer managed investment fund; and

(iii) does not influence, other than through research, statistical and other reports generally available to clients, the investment decisions made on behalf of the dealer managed investment fund;

(the above is collectively, the Exemption Sought),

to 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.

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

B. revoking the Original Decisions (as defined below) as they pertain to relief granted to the Filers, including their relevant affiliated and predecessor entities and the Funds in respect of the Related Issuer Transactions (the Revocation Relief).

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 an existing or future mutual fund of which the Filer, or an affiliate of the Filer, is the manager and/or portfolio manager and to which NI 81-102 and NI 81-107 apply or will apply or, collectively the Funds;

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

Pooled Fund means an existing mutual fund or future mutual fund that is not a reporting issuer, to which NI 81-102 does not apply, the securities of which are, or will be, distributed on a private placement basis pursuant to available prospectus exemptions in the Jurisdictions, of which the Filer, or an affiliate of the Filer, is the manager and/or portfolio manager (collectively, the Pooled Funds)

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 has the meaning set out in A above, and includes a Related Bank; and

Related Funds and Related Pooled Funds includes one or more other Funds and one or more Pooled Fund, in each case, 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 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 Funds are, or will be, qualified for distribution pursuant to s 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 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 Funds is, or will be, a reporting issuer in the Principal Jurisdiction and one or more of the Non-Principal Jurisdictions.

10. Each Fund is or will be a "dealer managed investment fund" within the meaning set out in NI 81-102.

11. Each Filer, or affiliate of a Filer, in its capacity as manager of the Funds, has established or will establish an independent review committee (IRC) in respect of each Fund in accordance with the requirements of NI 81-107.

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

C. The Relief Sought

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

14. Section 6.2(2) of NI 81-107 provides an exemption from the investment fund conflict of interest investment restrictions for purchases of securities of Related Issuers provided the purchase is made on an exchange. It does not provide an exemption from the Related Issuer Requirements in subsection 4.1(2) of NI 81-102 for purchases of exchange-traded securities of a Related Issuer in the secondary market, or for purchases of non-exchange- traded securities of a Related Issuer in either a Primary Offering or in the secondary market.

15. The Funds and the Filers previously received relief from the Related Issuer Requirements by way of decisions dated May 15, 2008, January 6, 2009, two orders on October 30, 2009 and April 5, 2011 (the Original Decisions).

16. The Original Decisions allow the Funds to make investments in non-exchange traded debt securities of one or more Related Issuers in a Primary Offering and in the secondary market provided the debt securities (the Related Issuer Debt Securities) have a "designated rating" within the meaning of that term in NI 81-102. The Original Decisions also allow the Funds to make investments in exchange-traded securities of Related Issuers provided such purchases are made on an exchange and in the secondary market.

17. The Exemption Sought and the Revocation 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. Certain of the non-exchange-traded debt securities issued by Related Issuers no longer have a "designated rating" as defined in NI 81-102. In respect of exchange-traded securities, the Exemption Sought and Revocation Relief will enable the Funds to continue investing in exchange-traded securities of a Related Issuer, in conjunction with the replacement of the Original Decisions which included such relief.

18. The debt securities of Related Issuers that are purchased by a Fund in a Primary Offering pursuant to the Exemption Sought 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.

19. Each non-exchange-traded debt security of a Related Issuer purchased by a Fund in the secondary market pursuant to the Exemption Sought, has been given and will 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.

20. 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; and

(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 that are unrelated to the Funds. 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 investment objectives.

21. If the IRC of a Fund becomes aware of an instance where a Filer or an affiliate of a Filer, in its capacity 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.

22. Each Related Issuer Transaction conducted by a Fund will represent the business judgment of the applicable Filer, uninfluenced by considerations other than the best interests of the Funds.

23. 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 decision 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 is that the Exemption Sought is granted on behalf of the Funds provided that:

1. at the time of each investment, the purchase is consistent with, or is necessary to meet, the investment objective of the Fund;

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

3. 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 transactions;

4. if the purchase is made in a Primary Offering:

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

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

(c) 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 the Related Issuer;

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

(e) the price paid for the non-exchange-traded debt securities by the 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

(f) the non-exchange-traded debt 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;

5. if the purchase occurs in the secondary market:

(a) if the security is an exchange-traded security, the purchase is made on an exchange on which the securities of the issuer are listed and traded;

(b) if the security is not an exchange-traded security,

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

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

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

(B) if the purchase does not occur on a marketplace:

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

(ii) 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; and,

(c) 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; and

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

6. on or before the 90th day after the end of each financial year of the Fund, the manager of the Fund files with the securities regulatory authority or regulator the particulars of any such investments.

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