National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from subparagraphs 13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit inter-fund trades between investment funds and pooled funds managed by the same manager -- Inter-fund trades subject to conditions, including IRC approval and pricing requirements -- Trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5, 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).
October 26, 2015
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 COUNSEL PORTFOLIO SERVICES INC. (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation (the Legislation) of the Jurisdiction of the principal regulator for an exemption (the Requested Relief) from the prohibition in subsection 13.5(2)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of: (i) an associate of a responsible person, or (ii) an investment fund for which a responsible person acts as an adviser (the Trading Prohibition), to permit a Fund (as defined below) to purchase or sell a security from or to another Fund (as defined below) (each, an Inter-Fund Trade), with such Inter-Fund Trades to be executed at the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada (UMIR Rules), prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) on that trading day, where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign-exchange securities).
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; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is also intended to be relied upon by the Filer in all of the other provinces and territories of Canada, including Quebec, where required (the Other Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions have the same meaning if used in this decision, unless otherwise defined.
"Fund" means an existing, or future, mutual fund, as defined in the Legislation, that is a reporting issuer subject to National Instrument 81-102 Investment Funds (NI 81-102) of which the Filer, or an affiliate of the Filer, acts or may act as manager and/or portfolio adviser.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of the Province of Ontario, with its head office located in Mississauga, Ontario.
2. The Filer is registered as a portfolio manager and investment fund manager in Ontario, and as an investment fund manager in Quebec and Newfoundland & Labrador.
3. The Filer, or an affiliate of the Filer, is, or will be, the manager and adviser of the Funds. In its capacity as an adviser of the Funds, the Filer or an affiliate of the Filer is, or will be, a "responsible person" as defined in Section 13.5(1) of NI 31-103.
4. Each of the Funds is, or will be, established under the laws of Canada or a province or territory of Canada as an open-ended mutual fund trust or a class of shares of a mutual fund corporation. Each of the Funds is, or will be, subject to the requirements of NI 81-102.
5. The securities of each of the Funds are, or will be, qualified for distribution in Ontario and in one or more of the Other Jurisdictions pursuant to a simplified prospectus and annual information form. The existing Funds are currently qualified for distribution in all of the provinces and territories of Canada, other than Quebec.
6. Each of the Funds is, or will be, a reporting issuer in Ontario and in one or more of the Other Jurisdictions.
7. The Funds do not, and will not, rely on the exemptive relief granted to Mackenzie Financial Corporation (an affiliate of the Filer) dated August 19, 2015.
8. The Filer and the Funds are not in default of the securities legislation of Ontario and the Other Jurisdictions.
Independent Review Committee
9. The existing Funds have, and the future Funds will have, an independent review committee (IRC) in accordance with the requirements of NI 81-107.
10. The IRC of the Funds is, or will be, composed by the Filer in accordance with section 3.7 of NI 81-107, and the IRC complies, or will comply, with the standard of care set out in section 3.9 of NI 81-107.
11. Inter-Fund Trades involving a Fund will be referred to the IRC under subsection 5.2(1) of NI 81-107, and the Filer and the IRC will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade. The IRC will not approve an Inter-Fund Trade unless it has made the determination set out in subsection 5.2(2) of NI 81-107.
12. The Filer wishes to be able to permit Inter-Fund Trades of portfolio securities between one Fund and another Fund to occur at the Last Sale Price.
13. Subsection 6.1(4) of NI 81-107 provides the Filer with an exemption from the Trading Prohibition, provided that the Inter-Fund Trade occurs at the Closing Sale Price.
14. The Filer cannot rely on the exemption from the Trading Prohibition available in subsection 6.1(4) of NI 81-107 because the Inter-Fund Trades would not occur at the "current market price of the security" which, in the case of exchange-traded securities, includes the Closing Sale Price, but not the Last Sale Price.
15. At the time of an Inter-Fund Trade, the Filer, or an affiliate of the Filer, will have policies and procedures in place to enable the Funds to engage in Inter-Fund Trades.
16. The Filer, or an affiliate of the Filer, will comply with the following procedures when entering into Inter-Fund Trades:
(a) the portfolio manager of the Filer, or of an affiliate of the Filer, will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund (Fund A) to a trader on the trading desk of the Filer;
(b) the portfolio manager of the Filer, or of an affiliate of the Filer, will deliver the trade instructions in respect of a sale or purchase of a security by a Fund (Fund B) to a trader on the trading desk of the Filer;
(c) upon receipt of the trade instructions and the required approval, the Inter-Fund Trade between Fund A and Fund B will be executed in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107, provided that, for exchange-traded securities, the Inter-Fund Trade may be executed at the Last Sale Price of the security prior to the execution of the trade in lieu of the Closing Sale Price;
(d) the trader on the trading desk of the Filer will be required to execute all Inter-Fund Trades on a timely basis; and
(e) the trader on the trading desk of the Filer will advise the portfolio manager(s) of Fund A and Fund B of the price at which the Inter-Fund Trade occurred.
17. Each Inter-Fund Trade will be consistent with the investment objectives of the relevant Funds.
18. The Filer has determined that it would be in the best interests of the Funds if an Inter-Fund Trade is made at the Last Sale Price prior to the execution of the trade, because this will result in the trade being done at the price which is closest to the market price of the security at the time the decision to make the trade is made.
19. If the IRC of a Fund becomes aware of an instance where the Filer did not comply with the terms of this decision or a condition imposed by the Legislation or the IRC in its approval, the IRC will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under the laws of which the Fund is organized.
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 Requested Relief is granted provided that:
(a) the Inter-Fund Trade is consistent with the investment objectives of each Fund;
(b) the Filer, or an affiliate of the Filer, as manager of a Fund, refers the Inter-Fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107, and the Filer, or an affiliate of the Filer, and the IRC of the Fund complies with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;
(c) the IRC of each Fund has approved the Inter-Fund Trade in accordance with the terms of subsection 5.2(2) of NI 81-107; and
(d) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107, except that, for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price.