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Horizons ETFs Management (Canada) Inc. and Portfolio Management Association of Canada
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted to mutual fund organizations from prohibitions contained in subsection 5.4(1) of National Instrument 81-105 Mutual Fund Sales Practises permitting mutual fund organizations to pay a portion of the direct costs incurred by the Portfolio Management Association of Canada in organizing, conference, seminars, courses and other educational events, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-105 Mutual Fund Sales Practises, ss. 5.4(1) and 9.1.
November 8, 2019
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 HORIZONS ETFs MANAGEMENT (CANADA) INC. (Horizons) AND IN THE MATTER OF PORTFOLIO MANAGEMENT ASSOCIATION OF CANADA (PMAC)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Horizons and PMAC (collectively, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a decision under Section 9.1 of National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105) exempting the Mutual Fund Organizations (as defined herein) from the prohibition set out in Subsection 5.4(1) of NI 81-105 to permit them to pay the direct costs (as such term is defined in NI 81-105) incurred by PMAC relating to a conference, seminar, webinar, course, meeting or other educational event (the Events) that are organized and presented by PMAC (the Exemption Sought).
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 Filers have provided notice that they intend to rely on Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-105 have the same meaning if used in this decision, unless otherwise stated.
"Mutual Fund Organizations" means the member of the organization of a mutual fund (as defined in NI 81-105) that wishes to pay the direct costs relating to an Event organized and presented by PMAC, and includes Horizons.
Representations
This decision is based on the following facts represented by the Filers:
The Filers
1. PMAC is a not-for-profit association established in 1952 (formerly known as the Investment Counsel Association of Canada (ICAC)) having its head office in Toronto, Ontario. PMAC represents over 270 investment management firms registered to do business in Canada as portfolio managers. In addition to this primary registration, PMAC members may also be registered as investment fund managers and/or exempt market dealers.
2. PMAC is a forum for portfolio management firms to share best practices and industry knowledge. PMAC's mission is to advocate the highest standards of unbiased portfolio management in the interest of investors served by its members. PMAC pursues its mission and objectives through various activities, including:
(a) hosting an annual National Conference, annual Compliance Forums and regular meetings, seminars and webinars;
(b) hosting networking events for members and affiliates;
(c) conducting and publishing surveys on operational, compliance and best practice issues;
(d) making submissions to government and regulators;
(e) sharing member developed/legally vetted templates, policies and standards; and,
(f) increasing public awareness of independent portfolio management and its benefits.
3. PMAC may be considered to be a "trade or industry association" as this term is used in s. 5.4(1) of NI 81-105.
4. Horizons is a corporation existing under the laws of Canada with its head office located in Toronto, Ontario. Horizons manages certain exchange-traded funds (Funds) that are qualified for distribution to investors across Canada. As such, Horizons is a "member of the organization" of the Funds, as this term is defined in NI 81-105, by virtue of being the manager of the Funds.
The Events
5. As part of its services, PMAC arranges and holds conferences, seminars, webinars, meetings and other Events for its members. Events have been held in various Canadian jurisdictions and may be held elsewhere in Canada or in the continental United States of America in the future. The Events are primarily directed at PMAC's members (registered portfolio management firms) and other industry participants.
6. The primary purpose of the Events is to provide education on economic, regulatory, legal, tax and compliance matters. Events usually include a networking component. In addition, the Events may include discussion of the regulation of mutual funds and ETFs, economic/market outlook, financial planning, investing in securities, mutual fund industry matters, or mutual funds generally, and therefore are consistent with the requirements of paragraph 5.4(2)(a) of NI 81-105.
7. The Events are designed to align with PMAC's goal of advancing standards in the portfolio management industry. The Events are not dissimilar in nature to educational events sponsored by the Investment Funds Institute of Canada (IFIC) and the Investment Industry Regulatory Organization of Canada (IIROC, formerly the Investment Dealers Association of Canada (the IDA)); however, they are not directed at or generally attended by investment dealers or their representatives.
8. Horizons wishes to sponsor certain or all of the Events. However, subsection 5.4(1) of NI 81-105 generally prohibits Mutual Fund Organizations from paying the costs or expenses relating to a conference, seminar or course that is organized and presented by IFIC, the IDA or another trade or industry association. PMAC may be considered to be "another trade or industry association".
9. Subsection 5.4(2) of NI 81-105 provides an exemption to permit members of a Mutual Fund Organization to sponsor conferences, seminars or courses organized and presented by IFIC, the IDA or their respective affiliates in accordance with the conditions set out therein. No exemption is granted to any other trade or industry associations such as PMAC.
10. Horizons proposes to sponsor the Events in accordance with the conditions set out in subsection 5.4(2) of NI 81-105.
11. PMAC anticipates that other Mutual Fund Organizations will similarly wish to sponsor a portion of the costs of different Events and agree to pay such costs for such Events in accordance with subsection 5.4(2) of NI 81-105, from time to time. If the Requested Relief is granted, PMAC will ensure that any sponsorship of an Event by Horizons and other Mutual Fund Organizations shall comply with the following conditions, which are the conditions set out in subsection 5.4(2) of NI 81-105:
(a) the primary purpose of an Event will be the provision of educational information about the economic/market outlook, financial planning, investing in securities, mutual fund industry matters or mutual funds generally;
(b) none of the Mutual Fund Organizations will pay in aggregate more than ten percent (10%) of the total direct costs incurred by PMAC for the organization and presentation of an Event;
(c) the selection of a representative of a participating dealer to attend an Event will be made exclusively by the participating dealer, uninfluenced by the Mutual Fund Organizations; and
(d) all Events will be held in Canada or the continental United States of America.
(collectively, the Conditions).
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 Exemption Sought is granted, provided that:
(a) the Mutual Fund Organizations and PMAC comply with the Conditions;
(b) PMAC, on behalf of each Mutual Fund Organization (other than Horizons) whose mutual funds are reporting issuers in Ontario and who wishes to sponsor an Event in reliance on this decision, file an advance written notice with the Director of the Investment Funds and Structured Products Branch of the Ontario Securities Commission that:
(i) names the Mutual Fund Organization that intends to sponsor the Event in reliance on this decision; and
(ii) confirms that the Mutual Fund Organization has agreed to sponsor the Event in accordance with the Conditions; and
(c) this decision will terminate one year after the publication in final form of any legislation or rule which modifies the provisions of section 5.4 of NI 81-105 in a manner which makes the Exemption Sought unnecessary or provides similar relief on a different basis or subject to different conditions.
"Heather Zordel"
Commissioner
Ontario Securities Commission
"Mary Anne De Monte-Whelan"
Commissioner
Ontario Securities Commission