Securities Law & Instruments


Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of change of manager of a mutual fund, and a mutual fund merger – merger approval required because merger does not meet the criteria for per-approval – continuing fund has different investment objectives than terminating fund – merger not a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act – manager of continuing fund is not an affiliate of the manager of the terminating funds – securityholders provided with timely and adequate disclosure regarding the merger – change of manager is not detrimental to unitholders or contrary to the public interest.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(a), 5.5(1)(b), 5.5(3), 5.6, 5.7, 19.1.

November 10, 2017

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
QUESTRADE WEALTH MANAGEMENT INC.
(Questrade or the Filer)

AND

IN THE MATTER OF
QUESTRADE RUSSELL US MIDCAP GROWTH INDEX ETF HEDGED TO CAD,
QUESTRADE RUSSELL US MIDCAP VALUE INDEX ETF HEDGED TO CAD,
QUESTRADE RUSSELL 1000 EQUAL WEIGHT US TECHNOLOGY INDEX ETF HEDGED TO CAD,
QUESTRADE RUSSELL 1000 EQUAL WEIGHT US INDUSTRIALS INDEX ETF HEDGED TO CAD,
QUESTRADE RUSSELL 1000 EQUAL WEIGHT US HEALTH CARE INDEX ETF HEDGED TO CAD,
QUESTRADE RUSSELL 1000 EQUAL WEIGHT US CONSUMER DISCRETIONARY INDEX ETF HEDGED TO CAD
AND QUESTRADE FIXED INCOME CORE PLUS ETF
(the Merging Funds)

AND

QUESTRADE GLOBAL TOTAL EQUITY ETF
(together with the Merging Funds, the Questrade ETFs)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Questrade ETFs, for a decision under the securities legislation of the Jurisdiction (the Legislation) approving:

a)            the mergers (each a Merger and collectively, the Mergers) of the Merging Funds into certain exchange traded mutual funds (the Continuing Funds) managed by WisdomTree Asset Management Canada, Inc. (WisdomTree Canada) under section 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102); and

b)            the change of manager of Questrade Global Total Equity ETF from Questrade to WisdomTree Canada (the Change in Manager, and together with the Mergers, the Requested Approval) under section 5.5(1)(a) of NI 81-102.

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 intended to be relied upon in all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions (NI 14-101), MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

Questrade

1.             The Filer is a corporation organized under the laws of the Province of Ontario, with its head office located in Toronto, Ontario. The Filer is a wholly-owned subsidiary of Questrade Financial Group.

2.             The Filer is registered as an investment fund manager, exempt market dealer and restricted portfolio manager in the Jurisdictions, and is not in default of applicable securities legislation in any of the Jurisdictions.

3.             The Filer is the trustee, manager and portfolio manager of the Questrade ETFs. Each of the Questrade ETFs is an exchange traded mutual fund established under the laws of the Province of Ontario.

4.             The Filer’s primary business is to act as investment fund manager for the Questrade ETFs and to act as portfolio manager in connection with an online digital advice platform known as Portfolio IQ.

Questrade ETFs

5.             Questrade Russell US Midcap Growth Index ETF Hedged to CAD, Questrade Russell US Midcap Value Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Technology Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Industrials Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Health Care Index ETF Hedged to CAD and Questrade Russell 1000 Equal Weight US Consumer Discretionary Index ETF Hedged to CAD (collectively, the Questrade Index ETFs) are exchange traded mutual funds established under the laws of the Province of Ontario that seek to replicate the performance of a specified market index.

6.             Questrade Fixed Income Core Plus ETF and Questrade Global Total Equity ETF (together, the Questrade Active ETFs) are actively managed exchange traded mutual funds established under the laws of the Province of Ontario. The Filer has appointed Jarislowsky, Fraser Limited as sub-advisor for Questrade Fixed Income Core Plus ETF and One Capital Management, LLC (One Capital) as sub-advisor for Questrade Global Total Equity ETF.

7.             Securities of the Questrade Index ETFs are distributed in each of the Jurisdictions under a long form prospectus and ETF summary documents each dated February 8, 2017, as amended by amendment no. 1 dated July 31, 2017 and amendment no. 2 dated October 12, 2017, prepared in accordance with the requirements of National Instrument 41-101 General Prospectus Requirements (NI 41-101) and NI 81-102, as applicable.

8.             Securities of the Questrade Active ETFs are distributed in each of the Jurisdictions under a long form prospectus and ETF summary documents each dated August 8, 2017, as amended by amendment no. 1 dated October 12, 2017, prepared in accordance with the requirements of NI 41-101 and NI 81-102, as applicable.

9.             Each Questrade ETF is a reporting issuer under the applicable securities legislation of each of the Jurisdictions.

10.          The Questrade ETFs are subject to, among other laws and regulations, NI 81-102, National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).

11.          The Questrade ETFs are not in default of applicable securities legislation in any of the Jurisdictions.

12.          CIBC Mellon Trust Company is the custodian of the Questrade ETFs.

WisdomTree Canada

13.          WisdomTree Canada is a corporation incorporated under the laws of the Province of Ontario, with its head office located in Toronto, Ontario. WisdomTree Canada is a privately owned company and a wholly-owned subsidiary of WisdomTree Investments, Inc., a U.S. public company.

14.          WisdomTree Canada is registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador, and as an exempt market dealer in each of the provinces of Canada, and is not in default of applicable securities legislation in any of the Jurisdictions.

15.          WisdomTree Canada is the trustee and manager of the Continuing Funds identified in paragraph 24 below.

16.          WisdomTree Canada’s primary business is to act as investment fund manager for the WisdomTree family of exchange traded funds in Canada, all of which are listed on the Toronto Stock Exchange (TSX) as of the date hereof.

Continuing Funds

17.          Each of the Continuing Funds is an exchange traded mutual fund established under the laws of the Province of Ontario.

18.          Securities of the Continuing Funds are distributed in each of the Jurisdictions under a long form prospectus dated June 14, 2017, as amended by amendment no. 1 dated July 26, 2017 and ETF summary documents each dated June 14, 2017, as they may be amended from time to time, prepared in accordance with the requirements of NI 41-101 and NI 81-102, as applicable.

19.          Each Continuing Fund is a reporting issuer under the applicable securities legislation of each of the Jurisdictions.

20.          The Continuing Funds are subject to, among other laws and regulations, NI 81-102, NI 81-106 and NI 81-107.

21.          The Continuing Funds are not in default of applicable securities legislation in any of the Jurisdictions.

22.          Mellon Capital Management Corporation (Mellon Capital) provides investment advisory services to the Continuing Funds pursuant to the terms of an investment advisory agreement (the Investment Advisory Agreement) between WisdomTree Canada, in its own capacity and in its capacity as manager of the Continuing Funds, and Mellon Capital, as amended. Pursuant to the Investment Advisory Agreement, Mellon Capital manages the assets held by the Continuing Funds in accordance with each Continuing Fund’s investment objectives and investment strategies and subject to the Continuing Fund’s investment restrictions.

23.          State Street Trust Company Canada is the custodian of the Continuing Funds.

Proposed Transaction

24.          In a press release issued on and material change report filed on July 27, 2017, Questrade announced that, among other things, WisdomTree Canada agreed to acquire the assets of the Questrade ETFs, whether by effecting a merger of a Questrade ETF into an existing WisdomTree ETF, or by becoming the successor manager to an existing Questrade ETF.

25.          The Proposed Transaction is expected to be completed before the end of November, 2017 (Closing), subject to receiving all necessary unitholder, regulatory and other approvals.

26.          Pursuant to the Proposed Transaction, WisdomTree Canada will become the manager and trustee of Questrade Global Total Equity ETF, and each Merging Fund will be merged into the applicable Continuing Fund as follows:

Merging Funds
(managed by Questrade)

Continuing Funds
(managed by WisdomTree Canada)

Questrade Russell US Midcap Growth Index ETF Hedged to CAD – net asset value as at August 25, 2017: $7,626,025,04

Questrade Russell US Midcap Value Index ETF Hedged to CAD (net asset value as at August 25, 2017: $7,646,359.03)

WisdomTree U.S. MidCap Dividend Index ETF – new fund launched on September 21, 2017

Questrade Russell 1000 Equal Weight US Technology Index ETF Hedged to CAD – net asset value as at August 25, 2017: $5,243,459.65

Questrade Russell 1000 Equal Weight US Industrials Index ETF Hedged to CAD – net asset value as at August 25, 2017: $5,734,007.13

Questrade Russell 1000 Equal Weight US Health Care Index ETF Hedged to CAD – net asset value as at August 25, 2017: $1,086,083.53

Questrade Russell 1000 Equal Weight US Consumer Discretionary Index ETF Hedged to CAD – net asset value as at August 25, 2017: $986,044.69

WisdomTree U.S. Quality Dividend Growth Index ETF – net asset value as at August 25, 2017: $7,965,936

Questrade Fixed Income Core Plus ETF – net asset value as at August 25, 2017: $26,838,110.80

WisdomTree Yield Enhanced Canada Aggregate Bond Index ETF – net asset value as at August 25, 2017: $9,766,468.01


The following changes will result from the Mergers into the Continuing Funds and Questrade ETF unitholders will experience the following changes:

Merging Funds
(managed by Questrade)

Continuing Funds
(managed by WisdomTree Canada)

Summary of Changes Relevant to Questrade ETF Unitholders Resulting from the Mergers

Questrade Russell US Midcap Growth Index ETF Hedged to CAD

Questrade Russell US Midcap Value Index ETF Hedged to CAD

WisdomTree U.S. MidCap Dividend Index ETF

  • Change in manager and trustee  to WisdomTree Canada

 

  • Change in investment advisor to Mellon Capital Management Corporation
  • Change in custodian to State Street Trust Company Canada

 

  • Change in investment objectives
  • Change of auditors to Ernst & Young LLP

 

  • change in management fee from 0.35% to 0.38%

Questrade Russell 1000 Equal Weight US Technology Index ETF Hedged to CAD

Questrade Russell 1000 Equal Weight US Industrials Index ETF Hedged to CAD

Questrade Russell 1000 Equal Weight US Health Care Index ETF Hedged to CAD

Questrade Russell 1000 Equal Weight US Consumer Discretionary Index ETF Hedged to CAD

WisdomTree U.S. Quality Dividend Growth Index ETF

  • Change in manager and trustee to WisdomTree Canada

 

  • Change in investment advisor to Mellon Capital Management Corporation
  • Change in custodian to State Street Trust Company Canada

 

  • Change in investment objectives
  • Change of auditors to Ernst & Young LLP

 

  • Change in management fee from 0.25% to 0.38%

Questrade Fixed Income Core Plus ETF

WisdomTree Yield Enhanced Canada Aggregate Bond Index ETF

  • Change in manager and trustee to WisdomTree Canada

 

  • Change in investment advisor to Mellon Capital Management Corporation from Jarislowsky, Fraser Limited as investment sub-advisor
  • Change in custodian to State Street Trust Company Canada

 

  • Change in investment objectives
  • Change of auditors to Ernst & Young LLP

 

  • Change in management fee from 0.50% to 0.18%


27.          Under the Mergers and/or the Change in Manager, as applicable, the manager and trustee of each Merging Fund and Questrade Global Total Equity ETF will change from Questrade to WisdomTree Canada.

28.          As a result of the Mergers, the portfolio manager of the applicable Questrade ETFs will change from Questrade to Mellon Capital, and Jarislowsky Fraser Limited will no longer act as sub-advisor of Questrade Fixed Income Core Plus ETF.

29.          As a result of the Change in Manager, all material agreements regarding the administration of the Questrade ETFs will either be amended and restated by WisdomTree Canada or be terminated and WisdomTree Canada will enter into new agreements or enter into an amendment to an existing agreement with the relevant service provider, as required. Subject to obtaining any necessary approvals, WisdomTree Canada will become the successor trustee and investment fund manager of the Questrade Global Total Equity ETF. State Street Trust Company will be appointed as replacement custodian of the Questrade Global Total Equity ETF. It is expected that One Capital will be the investment advisor of the Questrade Global Total Equity ETF.

30.          The Questrade ETFs’ Independent Review Committee (the IRC) has reviewed the conflicts of interests matters associated with the proposed Mergers and Change in Manager, including the process to be followed in connection with such Mergers and Change in Manager, and after reasonable inquiry has advised Questrade that, in its determination, if implemented, the resolutions achieve a fair and reasonable result for each of the Questrade ETFs. As Anthony. L. Cox is a member of the IRC of the Questrade ETFs and a member of the IRC of the Continuing Funds managed by WisdomTree Canada, Mr. Cox recused himself from participating in the discussions regarding the proposed Mergers and Change in Manager.

31.          WisdomTree Canada’s IRC has reviewed the conflict of interest matters related to the proposed Mergers and after reasonable inquiry has provided WisdomTree Canada with a positive recommendation having determined that each of the Mergers, if implemented, achieves a fair and reasonable result for each of the Continuing Funds managed by WisdomTree Canada.

32.          Upon completion of the Mergers and the Change in Manager, the individuals that comprise the IRC of the Merging Funds and Questrade Global Total Equity ETF will cease to be members of such IRC by operation of subsections 3.10(1)(a) and (b) of NI 81-107. Immediately following completion of the Change in Manager, WisdomTree Canada has confirmed that the new members of the Questrade Global Total Equity ETF’s IRC will be the same individuals that currently comprise the IRC for the Continuing Funds, namely: Karen Fisher (Chair), Gerry O’Connor and Anthony L. Cox.

Additional Information Regarding the Proposed Transaction

33.          In addition to the press release mentioned above and the corresponding material change reports, which were issued and filed on SEDAR, investors in the Questrade ETFs have been further notified of the Proposed Transaction with WisdomTree Canada through (i) an amendment to the final prospectus of the Merging Funds (except for Questrade Fixed Income Core Plus), which was filed on SEDAR on July 31, 2017 and (ii) the final prospectus of Questrade Fixed Income Core Plus ETF and Questrade Global Total Equity ETF, which was filed on SEDAR on August 11, 2017.

34.          Pursuant to NI 81-102, special meetings of the unitholders of the Questrade ETFs will be held on November 10, 2017, or an adjournment thereof (the Meetings). At the Meetings, unitholders of the Questrade ETFs will be asked to approve the Mergers and/or the Change in Manager, as applicable.

35.          The Notice-and-Access Document and forms of proxy in respect of the Meetings (the Meeting Materials) describing the Mergers and the Change in Manager were sent to unitholders of the Questrade ETFs on October 11, 2017 and copies thereof were filed on SEDAR in accordance with applicable securities legislation, and exemptive relief obtained by Questrade on November 10, 2016 permitting the Questrade ETFs to use Notice-and-Access to send proxy-related materials to beneficial unitholders.

36.          The Meeting Materials contain a detailed description of the proposed Mergers and the Change in Manager, the ETF summary documents for the Continuing Funds, information about the Merging Funds and Continuing Funds and income tax considerations for unitholders of the Questrade ETFs. The Meeting Materials also describe the various ways in which investors can obtain a copy of the prospectus of the Continuing Funds, as well as the most recent interim and annual financial statements and management reports of fund performance for the Continuing Funds.

37.          The Meeting Materials contain sufficient information regarding the business, management and operations of WisdomTree Canada (including details of its officers and directors), the Continuing Funds, and Questrade Global Total Equity ETF, and all information necessary to allow unitholders to make an informed decision about the Mergers and the Change in Manager. All other required information and documents necessary to comply with applicable proxy solicitation requirements of securities legislation, including the ETF summary documents for the Continuing Funds, for the Meetings have also been mailed to applicable unitholders of the Questrade ETFs.

38.          The Filer, WisdomTree Canada and their respective affiliates are not related parties. Except pursuant to the Proposed Transaction and certain commercial relationships relating to the marketing of the Continuing Funds and other services, there are no relationships between the Filer, WisdomTree Canada, or their respective affiliates.

Business Reasons for Proposed Transaction

39.          Questrade believes that the proposed Mergers and the Change in Manager are in the best interests of the unitholders of the applicable Questrade ETF. The Mergers and Change in Manager are being proposed, in part, due to the aggregate management expense ratio of the Questrade ETF platform currently being absorbed by Questrade, which is well above what is ordinarily charged by exchange traded funds with similar investment objectives and strategies. After nearly two years of operation, and taking into consideration Questrade’s subsidization of operating expenses, Questrade has re-evaluated whether it is in the unitholders’ and management’s interests to continue offering the Questrade ETFs. Accordingly, and after considering several alternatives, Questrade believes unitholders are better served by the proposed Mergers and the Change in Manager.

40.          Questrade, and not the Questrade ETFs, will bear all costs and expenses associated with calling and holding the Meetings and implementing the Change in Manager and Mergers, including legal fees, filing fees and other expenses associated with preparing, printing and mailing applicable Meeting Materials, obtaining necessary securities regulatory approvals, filing prospectus amendments, press releases and material change reports and other costs associated with calling the Meetings and effecting the Mergers and Change in Manager.

41.          The Mergers into the Continuing Funds will eliminate the operating and regulatory costs of operating the Questrade ETFs as separate exchange traded funds, and the unitholders of the respective Continuing Funds, as a result of their greater size and continuous distribution, may over time benefit from a reduction of their respective management expense ratios as the non-trading portion of its operating costs and its regulatory costs are expected to be spread over a larger asset base.

42.          WisdomTree is a more experienced ETF-focused asset manager with a global presence. As of June 30, 2017, WisdomTree had approximately US$45 billion in AUM and was the 12th largest ETF sponsor in the world as measured by assets under management.

Impact of the Proposed Transaction

43.          The Proposed Transaction is not expected to have any material impact on the business, operations or affairs of the Continuing Funds or the unitholders of the Continuing Funds and WisdomTree Canada intends to manage and administer the Continuing Funds in the similar manner both before and after Closing.

44.          In connection with the Change in Manager, WisdomTree Canada intends to change the name of Questrade Global Total Equity ETF to “ONE Global Equity ETF”.

45.          In connection with the Change in Manager of Questrade Global Total Equity ETF, (i) the manager and trustee will change from Questrade to WisdomTree Canada, (ii) the investment advisor is expected to be One Capital, (iii) the custodian will change from CIBC Mellon Trust Company to State Street Trust Company Canada, (iv) the registrar and transfer agent will change from Computershare Trust Company of Canada to State Street Trust Company Canada, and (v) the auditors will change from KPMG LLP to Ernst & Young LLP. Accordingly, applicable notices of termination have been, or will be, provided to terminating service providers of Questrade Global Total Equity ETF.

46.          In connection with the Mergers, the applicable Questrade ETF will merge into the applicable Continuing Fund, and as a result unitholders of the Questrade ETFs will become unitholders of the applicable Continuing Fund and will experience the following changes, (i) the manager and trustee will be WisdomTree Canada, (ii) the investment advisor will be Mellon Capital, (iii) in the case of Questrade Fixed Income Core Plus ETF, Jarislowsky Fraser Limited will not be acting as sub-advisor, (iv) the custodian will be State Street Trust Company Canada, (v) the registrar and transfer agent will be State Street Trust Company Canada, and (vi) the auditors will be Ernst & Young LLP.

47.          The material implications of the proposed changes to the unitholders of the Questrade ETFs are all described in the Meeting Materials.

48.          There is no intention to change the officers, directors or registered individuals of WisdomTree Canada.

49.          The closing of the Proposed Transaction will not adversely affect WisdomTree Canada’s financial position or its ability to fulfill its regulatory obligations.

Additional Information with respect to the Mergers

50.          The net asset value of each of the Merging Funds and the Continuing Funds is set out in paragraph 26 above.

51.          Pursuant to the Mergers, unitholders of a Merging Fund will receive securities of a similar currency hedged class of the corresponding Continuing Fund as they currently own in the Merging Fund.

52.          The total value of the units of each Continuing Fund offered to unitholders of the relevant Merging Fund will have a value that is equivalent to the net asset value of the Merging Fund calculated on the effective date of the Merger (or as at the close of business on the business day that is prior to the effective date of the Merger).

53.          As set out in paragraph 26 above, the fundamental investment objective of each Merging Fund is not substantially similar to the investment objective of its corresponding Continuing Fund. The Meeting Materials clearly delineate the differences in investment objectives, investment strategies and other material differences between each Merging Fund and the relevant Continuing Fund into which it will be merged.

54.          As set out in paragraph 26 above, the management fee of each of WisdomTree U.S. MidCap Dividend Index ETF and WisdomTree U.S. Quality Dividend Growth Index ETF is higher than the management fee of the relevant Merging Funds. The management fee of WisdomTree Yield Enhanced Canada Aggregate Bond Index ETF is lower than the management fee of the relevant Merging Fund. The Meeting Materials clearly delineate the differences in management fees and expense structures between the Merging Funds and the Continuing Funds.

55.          The net asset value for each Merging Fund and Continuing Fund is calculated on a daily basis on each day that the TSX is open for trading.

56.          No redemption fee will be payable by unitholders of the Merging Funds in connection with the Mergers.

57.          Prior to the effective date of the Mergers, each Merging Fund will liquidate its entire portfolio into cash such that the Continuing Funds may acquire portfolio assets that are consistent and acceptable to the portfolio manager of the Continuing Funds and consistent with the investment objectives of the Continuing Funds.

58.          Mergers of: (i) Questrade Russell 1000 Equal Weight US Consumer Discretionary Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Health Care Index ETF Hedged to CAD, Questrade Russell 1000 Equal Weight US Industrials Index ETF Hedged to CAD and Questrade Russell 1000 Equal Weight US Technology Index ETF Hedged to CAD into WisdomTree U.S. Quality Dividend Growth Index ETF and (ii) Questrade Fixed Income Core Plus ETF into WisdomTree Barclays Yield Enhanced Canada Aggregate Bond Index ETF (each such Questrade ETF being a “Taxable Merger Terminating Fund” and each such Continuing Fund being a “Taxable Merger Continuing Fund”; and each such Merger being a “Taxable Merger”) will be effected on a taxable basis.

59.          Mergers of Questrade Russell US Midcap Growth Index ETF Hedged to CAD and Questrade Russell US Midcap Value Index ETF Hedged to CAD into WisdomTree U.S. MidCap Dividend Index ETF (each such Questrade ETF being a “Tax-Deferred Merger Terminating Fund” and the Continuing Fund being a “Tax-Deferred Merger Continuing Fund”; and each such Merger being a “Tax-Deferred Merger”) will be effected as a “qualifying exchange” within the meaning of section 132.2 of the Income Tax Act (Canada) (the Tax Act).

60.          The redemption provisions of the Questrade ETFs and the Continuing Funds, and Questrade Global Total Equity ETF following the Change in Manager, are the same, including the right to redeem units for cash at a redemption price per unit equal to the lesser of: (i) 95% of the closing price for the units on the TSX on the effective day of the redemption; and (ii) the net asset value per unit on the effective day of the redemption.

61.          Questrade is advised by WisdomTree Canada that the Mergers are not considered to be a material change for any of the Continuing Funds.

62.          The Questrade ETFs have complied with Part 11 of NI 81-106 in connection with the making of the decision by the board of directors of Questrade to proceed with the Mergers and Change in Manager.

63.          Questrade is not entitled to rely upon the approval of the IRC in lieu of unitholder approval for the Mergers due to the fact that one or more conditions of section 5.6 of NI 81-102 will not be met, as described below:

Merging Funds
(managed by Questrade)

Continuing Funds
(managed by WisdomTree Canada)

Reasons not qualified as
Pre-Approved Merger (section 5.6)

Questrade Russell US Midcap Growth Index ETF Hedged to CAD

Questrade Russell US Midcap Value Index ETF Hedged to CAD

WisdomTree U.S. MidCap Dividend Index ETF

  • Section 5.6(1)(a)(i) – not the same manager

 

  • Section 5.6(1)(a)(ii) – not substantially similar fundamental investment objectives and fee structure

Questrade Russell 1000 Equal Weight US Technology Index ETF Hedged to CAD

Questrade Russell 1000 Equal Weight US Industrials Index ETF Hedged to CAD

Questrade Russell 1000 Equal Weight US Health Care Index ETF Hedged to CAD

Questrade Russell 1000 Equal Weight US Consumer Discretionary Index ETF Hedged to CAD

WisdomTree U.S. Quality Dividend Growth Index ETF

  • Section 5.6(1)(a)(i) – not the same manager

 

  • Section 5.6(1)(a)(ii) – not substantially similar fundamental investment objectives and fee structure
  • Section 5.6(1)(b) – merger not effected as a Qualifying Exchange or other tax-deferred transaction under the Tax Act

Questrade Fixed Income Core Plus ETF

WisdomTree Yield Enhanced Canada Aggregate Bond Index ETF

  • Section 5.6(1)(a)(i) – not the same manager

 

  • Section 5.6(1)(a)(ii) – not substantially similar fundamental investment objectives and fee structure
  • Section 5.6(1)(b) – merger not effected as a Qualifying Exchange or other tax-deferred transaction under the Tax Act

 

64.          At each Meeting, the affirmative vote of not less than a majority of the votes cast by unitholders of the applicable Questrade ETF present in person or represented by proxy at that Meeting is required for approval of the Merger and/or the Change in Manager, as applicable. It is expected that the Merger in respect of each Merging Fund will be implemented if approved by its unitholders, regardless of whether a Merger is approved by unitholders of the other Merging Funds.

65.          Subject to receipt of unitholder and regulatory approvals, the Mergers and Change in Manager will occur as soon as reasonably practicable following receipt of all required unitholder and regulatory approvals, subject to the discretion of Questrade to not proceed with any one or more of the Mergers and the Change in Manager. It is currently anticipated that the Mergers and Change in Manager will occur on or before the end of November, 2017.

66.          Each Merging Fund will be terminated concurrently or as soon as reasonably possible following, or upon implementation of, the Merger.

Steps for the Taxable Mergers

67.          As soon as reasonably practicable, prior to the effective date of the Taxable Mergers, each Taxable Merger Terminating Fund will liquidate its entire portfolio into cash.

68.          Prior to the Taxable Mergers, each Taxable Merger Terminating Fund will distribute any net income and net realized capital gains for its current taxation year to the extent necessary to eliminate its liability for non-refundable income tax.

69.          The “Exchange Ratio” in respect of the units of each Taxable Merger Terminating Fund will be calculated by dividing the net asset value of the units of the applicable Taxable Merger Terminating Fund by the net asset value of the units of the applicable class of the applicable Taxable Merger Continuing Fund, in each case, as at the close of business on the business day prior to the effective date of the Taxable Merger.

70.          On the effective date of the applicable Taxable Merger, each Taxable Merger Terminating Fund will, after satisfying any outstanding liabilities, transfer all of its assets to the applicable Taxable Merger Continuing Fund (which will consist entirely of cash prior to the Taxable Merger) in consideration for an amount (a “Purchase Price”) equal to the fair market value of the assets transferred to the applicable Taxable Merger Continuing Fund at the effective time of the applicable Taxable Merger.

71.          Each Taxable Merger Continuing Fund will satisfy each applicable Purchase Price by issuing to the applicable Taxable Merger Terminating Fund that number of units of the applicable class of the applicable Taxable Merger Continuing Fund (rounded down to the nearest whole unit) equal to the number of units of the applicable Taxable Merger Terminating Fund then outstanding multiplied by the applicable Exchange Ratio (calculated in the same manner as described in step 3 above). Such issued units of the Taxable Merger Continuing Fund will be listed on the TSX at all times while they are held by a Taxable Merger Terminating Fund.

72.          Immediately thereafter, all of the units of each Taxable Merger Terminating Fund will be redeemed and the redemption price therefor will be paid by delivering the applicable number of units of the applicable class of the applicable Taxable Merger Continuing Fund to Unitholders of the applicable Taxable Merger Terminating Fund based on the number of such units of such Taxable Merger Terminating Fund then held with each unitholder of the applicable Taxable Merger Terminating Fund receiving that number of units of the applicable class of the applicable Taxable Merger Continuing Fund (rounded down to the nearest whole unit) as is equal to the Exchange Ratio (calculated in the same manner as described in step 3 above) multiplied by the number of units of the applicable Taxable Merger Terminating Fund held by such unitholder immediately prior to the completion of the Taxable Merger.

73.          Each Taxable Merger Terminating Fund will be wound up in connection with the Taxable Mergers.

74.          Questrade and WisdomTree Canada have analyzed the tax implications of the Mergers from the perspective of unitholders of the Merging Funds and the Continuing Funds and have concluded that it is more appropriate to effect the Taxable Mergers on a taxable basis.

75.          No commission or other fee will be charged to unitholders of the Taxable Merger Terminating Funds on the issue or exchange of securities of the Taxable Merger Continuing Funds.

Steps for the Tax-Deferred Mergers

76.          As soon as reasonably practicable, prior to the effective date of the Tax-Deferred Merger, each Tax-Deferred Merger Terminating Fund will liquidate its entire portfolio into cash.

77.          Prior to the Tax-Deferred Mergers, each of the Tax-Deferred Merger Terminating Funds and the Tax-Deferred Merger Continuing Fund will distribute any net income and net realized capital gains for its current taxation year to the extent necessary to eliminate its liability for non-refundable income tax.

78.          The “Exchange Ratio” in respect of the units of each Tax-Deferred Merger Terminating Fund will be calculated by dividing the net asset value of the units of the applicable Tax-Deferred Merger Terminating Fund by the net asset value of the units of the applicable class of the Tax-Deferred Merger Continuing Fund, in each case, as at the close of business on the business day prior to the effective date of the Tax-Deferred Merger.

79.          On the effective date of the Tax-Deferred Merger, each of the Tax-Deferred Merger Terminating Funds will, after satisfying any outstanding liabilities, transfer all of its assets to the Tax-Deferred Merger Continuing Fund (which will consist entirely of cash prior to the Tax-Deferred Merger) in consideration for an amount (a “Purchase Price”) equal to the fair market value of its assets transferred to the Tax-Deferred Merger Continuing Fund at the effective time of the applicable Tax-Deferred Merger.

80.          The Tax-Deferred Merger Continuing Fund will satisfy each applicable Purchase Price by issuing to the applicable Tax-Deferred Merger Terminating Fund that number of units of the applicable class of the Tax-Deferred Merger Continuing Fund (rounded down to the nearest whole unit) equal to the number of units of the applicable Tax-Deferred Merger Terminating Fund then outstanding multiplied by the applicable Exchange Ratio (calculated in the same manner as described in step 3 above). Such issued units of the Tax-Deferred Merger Continuing Fund will be listed on the TSX at all times while they are held by a Tax-Deferred Merger Terminating Fund.

81.          Immediately thereafter, all of the units of each of the Tax-Deferred Merger Terminating Funds that are listed on the TSX will be redeemed and the redemption price therefor will be paid by delivering the applicable number of units of the applicable class of the Tax-Deferred Merger Continuing Fund to Unitholders of the applicable Tax-Deferred Merger Terminating Fund based on the number of such units of such Tax-Deferred Merger Terminating Fund then held with each unitholder of the applicable Tax-Deferred Merger Terminating Fund receiving that number of units of the applicable class of the Tax-Deferred Merger Continuing Fund (rounded down to the nearest whole unit) as is equal to the Exchange Ratio (calculated in the same manner as described in Step 3 above) multiplied by the number of units of the applicable Tax-Deferred Merger Terminating Fund held by such unitholder immediately prior to the completion of the Tax-Deferred Merger.

82.          Each Tax-Deferred Merger Terminating Fund and the Tax-Deferred Merger Continuing Fund will file a joint tax election in respect of the transfer to the Tax-Deferred Merger Continuing Fund of all of the assets of that Tax-Deferred Merger Terminating Fund.

83.          Each Tax-Deferred Merger Terminating Fund will be wound-up in connection with the Tax-Deferred Mergers.

84.          No commission or other fee will be charged to unitholders of the Tax-Deferred Merger Terminating Fund on the issue or exchange of securities of the Tax-Deferred Merger Continuing Fund.

General

85.          In the event that any of the Mergers or the Change in Manager are not approved by unitholders of the applicable Questrade ETF, the Manager currently intends to terminate such remaining Questrade ETF in accordance with its respective Declaration of Trust. In the event of termination of a Questrade ETF, the Manager will provide not less than 60 days’ notice to unitholders of the applicable Questrade ETF and will issue a press release in advance thereof.

86.          The Manager expects that all of the current officers and directors of WisdomTree Canada will continue on in their current capacities and that they will continue to have the requisite integrity and experience as contemplated under section 5.7(1)(a)(v) of NI 81-102. The experience and integrity of each of the members of the WisdomTree Canada management team is apparent by their education and years of experience in the investment industry. Such experience and integrity has been established and accepted by the Principal Regulator through the granting of registration to such individuals and/or through the granting of a receipt for the prospectus of the Continuing Funds.

87.          The Mergers will not adversely affect WisdomTree Canada’s financial position or its ability to fulfill its regulatory obligations.

88.          The Requested Approval is not detrimental to the protection of investors in the Questrade ETFs or Continuing Funds or prejudice the public interest.

Decision

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 Approval is granted provided that for a Questrade ETF, Questrade obtains the prior approval of the securityholders of the Questrade ETFs at the Meetings.

“Darren McKall”
Manager
Investment Fund and Structured Products
Ontario Securities Commission