Securities Law & Instruments

Headnote

Section 80 of the Commodity Futures Act (Ontario) (the CFA) -- Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to sub-advisers headquartered in foreign jurisdictions in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions -- Relief mirrors exemption available in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations made under the Securities Act (Ontario) -- Relief is subject to a sunset clause.

Subsection 78(1) of the Commodity Futures Act (Ontario) -- Order also revokes prior order of the Commission dated September 1, 2015, In the Matter of Sun Life Global Investments (Canada) Inc. and MFS Institutional Advisors, Inc. that would otherwise have expired on September 1, 2020.

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 1(1), 22(1)(b), 78(1) and 80.

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.26.1.

Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.11.

Applicable Orders

In the Matter of Sun Life Global Investments (Canada) Inc. and MFS Institutional Advisors, Inc., (2015), 38 OSCB 7838

IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C. 20, AS AMENDED (the CFA) AND IN THE MATTER OF SUN LIFE GLOBAL INVESTMENTS (CANADA) INC., SUN LIFE CAPITAL MANAGEMENT (CANADA) INC., PRIME ADVISORS, INC., RYAN LABS ASSET MANAGEMENT INC., SUN LIFE CAPITAL MANAGEMENT (U.S.) LLC AND MFS INSTITUTIONAL ADVISORS, INC.

ORDER (Subsection 78(1) and Section 80 of the CFA)

UPON the application (the Application) of Sun Life Global Investments (Canada) Inc. (SLGIC), Sun Life Capital Management (Canada) Inc. (SLC Management Canada, and together with SLGIC, the Principal Advisers and each a Principal Adviser), Prime Advisors, Inc. (Prime Advisors), Ryan Labs Asset Management Inc. (Ryan Labs), Sun Life Capital Management (U.S.) LLC (SLC Management US) and MFS Institutional Advisors, Inc. (MFS and together with Prime Advisors, Ryan Labs and SLC Management US, the Sub-Advisers and each a Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order:

(a) pursuant to subsection 78(1) of the CFA revoking the exemption order granted by the Commission to SLGIC and MFS on September 1, 2015 (the Previous Order); and

(b) pursuant to section 80 of the CFA, that each Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of their respective Sub-Adviser in respect of the Sub-Advisory Services (as defined below) (the Representatives) be exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Advisers for the benefit of the Clients (as defined below) regarding commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges and cleared through clearing corporations (the Relief Sought);

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Principal Advisers and the Sub-Advisers having represented to the Commission that:

Principal Advisers

1. SLGIC is a corporation established under the federal laws of Canada with its head office in Toronto, Ontario.

2. SLGIC is registered as a mutual fund dealer in Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan, and Yukon, as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, and as a commodity trading manager and portfolio manager in Ontario.

3. SLC Management Canada is a corporation established under the federal laws of Canada with its head office in Toronto, Ontario.

4. SLC Management Canada is registered as an investment fund manager, an exempt market dealer and a portfolio manager in each of Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and Yukon, and as a commodity trading manager in Ontario.

5. SLGIC and SLC Management Canada are affiliates as each is an indirect wholly-owned subsidiary of Sun Life Financial Inc. (SFI), a company the shares of which are listed on, among others, the Toronto Stock Exchange.

Sub-Advisers

6. Each Sub-Adviser is organized under the laws of a jurisdiction other than Canada or the provinces or territories thereof.

7. Prime Advisors is a company formed under the laws of Washington State, United States with its head office and principal place of business in Redmond, Washington, United States. Prime Advisors is an indirect wholly-owned subsidiary of SFI.

8. Prime Advisors provides asset and portfolio management services to institutional investors across multiple strategies and financial instruments. Prime Advisors is registered as an investment adviser with the Securities and Exchange Commission of the United States (SEC). It is exempted from registration as a commodity trading adviser and commodity pool operator with the U.S. Commodity Futures Trading Commission (CFTC).

9. Ryan Labs is a company formed under the laws of the State of Delaware, United States, with its head office and principal place of business in New York, New York, United States. Ryan Labs is an indirect wholly-owned subsidiary of SFI.

10. Ryan Labs provides asset and portfolio management services to institutional investors across multiple strategies and financial instruments. Ryan Labs is registered as an investment adviser with the SEC and as a commodity trading adviser and commodity pool operator with the CFTC.

11. Ryan Labs also currently relies on the exemption from the requirement to register as an adviser under the Securities Act (Ontario) (OSA) pursuant to the international sub-adviser exemption in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

12. SLC Management US is a limited liability company formed under the laws of the State of Delaware, United States with its head office and principal place of business in Wellesley Hills, Massachusetts, United States. SLC Management US is an indirect wholly-owned subsidiary of SFI.

13. SLC Management US provides asset and portfolio management services to institutional investors across multiple strategies and financial instruments. SLC Management US is registered as an investment adviser with the SEC and as a commodity trading adviser and commodity pool operator with the CFTC.

14. SLC Management US also currently relies on the exemption from the requirement to register as an adviser under the OSA pursuant to the international adviser exemption in section 8.26 of NI 31-103.

15. Each of Ryan Labs and SLC Management US currently relies on an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA to provide advice to permitted clients (as defined in section 1.1 of NI 31-103) in respect of Contracts primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada. These exemptions will expire on March 14, 2022 and October 29, 2023 in the case of Ryan Labs and SLC Management US, respectively.

16. On or about December 31, 2019, it is expected that Ryan Labs and Prime Advisors will merge with SLC Management US and the resulting entity will be named Sun Life Capital Management (U.S.) LLC.

17. MFS is a limited liability company formed under the laws of the State of Delaware, United States, with its head office and principal place of business in Boston, Massachusetts, United States. MFS is an indirect wholly-owned subsidiary of SFI.

18. MFS provides asset and portfolio management services to institutional investors across multiple strategies and financial instruments. MFS is registered as an investment adviser with the SEC. It is exempted from registration as a commodity trading adviser and commodity pool operator with the CFTC.

19. MFS also currently relies on the exemption from the requirement to register as an adviser under the OSA pursuant to the international adviser exemption in section 8.26 of NI 31-103.

20. Each Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodity futures or other applicable legislation of the United States that permits it to carry on activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario. As such, each Sub-Adviser is authorized and permitted to carry on the Sub-Advisory Services (as defined below) in the jurisdiction outside of Canada in which its head office or principal place of business is located.

21. None of the Sub-Advisers is registered in any capacity under the CFA or the OSA, nor are any of the Sub-Advisers registered in any capacity under the securities law, commodity futures law or derivatives law of any other jurisdiction of Canada.

22. Other than as described in paragraphs 11, 14, 15 and 19 above, none of the Sub-Advisers is currently relying on any exemptions from the requirement to register under securities law, commodity futures law or derivatives law of any jurisdiction of Canada.

23. Each Sub-Adviser engages in the business of an adviser in respect of Contracts in its principal jurisdiction.

24. None of the Sub-Advisers is a resident of any province or territory of Canada.

25. The Sub-Advisers and the Principal Advisers are affiliates, as defined in the OSA. Each of the Sub-Advisers and the Principal Advisers are indirectly wholly-owned by their parent company, SFI.

26. Each Sub-Adviser is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws in each jurisdiction outside of Canada in which its head office or principal place of business is located.

27. None of the Principal Advisers or the Sub-Advisers is in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada.

28. Each of SLGIC and MFS relied on the Previous Order and have complied with all the terms and conditions of the Previous Order.

The Clients

29. The Principal Advisers provide, or may provide discretionary and/or non-discretionary portfolio management services in Ontario to the following clients (each referred to individually as a Client and collectively as the Clients):

(a) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds);

(b) investment funds, the securities of which are sold on a private placement basis in Ontario and the other provinces and territories of Canada pursuant to prospectus exemptions (where available) contained in National Instrument 45-106 Prospectus Exemptions and applicable securities legislation (the Pooled Funds);

(c) clients who have entered into investment management agreements with a Principal Adviser to establish managed accounts (the Managed Accounts); and

(d) other Investment Funds, Pooled Funds and Managed Accounts that may be established or retained in the future in respect of which a Principal Adviser will engage a Sub-Adviser to provide portfolio advisory services (the Future Clients).

30. Certain of the Clients may, as part of their investment program, invest in Contracts. The Principal Advisers act, or will act, as a commodity trading manager in respect of such Clients.

Proposed Advisory Services

31. In connection with the Principal Advisers acting as advisers to Clients in respect of the purchase or sale of Contracts, each Principal Adviser, pursuant to a written agreement made between the Principal Adviser and each respective Sub-Adviser, has retained (or will retain) the respective Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of Contracts in which that Sub-Adviser has experience and expertise in respect of all or a portion of the assets of the investment portfolio of the respective Client, including discretionary or non-discretionary authority to buy or sell Contracts for the Client (the Sub-Advisory Services), provided that such investments are consistent with the investment objectives and strategies of the applicable Client.

32. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser.

33. By providing the Sub-Advisory Services, each Sub-Adviser and its Representatives will be engaging in, or holding themselves out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the Relief Sought, would be required to register as an adviser or a representative of an adviser, as the case may be, under the CFA.

34. There is presently no rule or regulation under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in subsection 25(3) of the OSA provided under section 8.26.1 of NI 31-103.

35. The relationship among any Principal Adviser, any Sub-Adviser and any Client is, and will be, consistent with the requirements of section 8.26.1 of NI 31-103.

36. A Sub-Adviser will only provide the Sub-Advisory Services to a Principal Adviser as long as that Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.

37. As would be required under section 8.26.1 of NI 31-103:

(a) the obligations and duties of each Sub-Adviser are, or will be, set out in a written agreement with the relevant Principal Adviser(s); and

(b) the relevant Principal Adviser(s) have entered into, or will enter into, a written contract with each Client, agreeing to be responsible for any loss that arises out of the failure of any Sub-Adviser:

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and each Client; or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations).

38. The written agreement between a Principal Adviser and each Sub-Adviser sets out, or will set out, the obligations and duties of each party in connection with the Sub-Advisory Services and permits, or will permit, the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the applicable Sub-Adviser in respect of the Sub-Advisory Services.

39. Each Principal Adviser will deliver to its Clients all required reports and statements under applicable securities, commodity futures and derivatives legislation.

40. The prospectus or other offering document, if any, (in either case, the Offering Document) of each Client that is an Investment Fund or a Pooled Fund and for which a Principal Adviser engages one or more Sub-Advisers to provide the Sub-Advisory Services includes, or will include, the following disclosure (the Required Disclosure):

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of any Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Advisers (or any of their Representatives) because the Sub-Advisers are resident outside of Canada and all or substantially all of their assets are situated outside of Canada.

41. Prior to purchasing any securities of one or more of the Clients that are Investment Funds or Pooled Funds directly from a Principal Adviser, all investors in these Investment Funds or Pooled Funds who are Ontario residents will receive, or have received, the Required Disclosure in writing (which may be in the form of an Offering Document).

42. Each Client that is a Managed Account for which a Principal Adviser engages one or more Sub-Advisers to provide the Sub-Advisory Services will receive, or has received, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client.

AND UPON the Commission being satisfied that it would not be prejudicial to the public interest for the Commission to make this Order;

IT IS ORDERED pursuant to subsection 78(1) of the CFA that the Previous Order is revoked;

AND IT IS ORDERED pursuant to section 80 of the CFA, that each Sub-Adviser and its Representatives is exempt from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to a Principal Adviser in respect of the Sub-Advisory Services, provided that at the time that such activities are engaged in:

(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) the Sub-Adviser's head office or principal place of business is in a jurisdiction outside of Canada;

(c) the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodities futures or other applicable legislation of the jurisdiction outside of Canada in which its head office or principal place of business is located, that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario;

(d) the Sub-Adviser engages in the business of an adviser in respect of Contracts in the jurisdiction outside of Canada in which its head office or principal place of business is located;

(e) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(f) the Principal Adviser has entered into a written agreement with each Client, agreeing to be responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations;

(g) the Offering Document of each Client that is an Investment Fund or a Pooled Fund and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services includes the Required Disclosure;

(h) prior to purchasing any securities of a Client that is an Investment Fund or a Pooled Fund directly from the Principal Adviser, each investor in any of these Investment Funds or Pooled Funds who was or is an Ontario resident received, or will receive, the Required Disclosure in writing; and

(i) each Client that is a Managed Account Client for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services received, or will receive, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client;

AND IT IS FURTHER ORDERED that this Order will terminate on the earliest of:

(a) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;

(b) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the ability of any Sub-Adviser to act as a sub-adviser to the Principal Advisers in respect of the Sub-Advisory Services; and

(c) five years after the date of this Order.

Dated at Toronto, Ontario, this 15th day of November, 2019.

Craig Hayman
Lawrence Haber
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission