National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption granted from conflict of interest trading prohibition in paragraph 13.5(2)(b) (ii) and (iii) of NI 31-103 to permit Inter-Fund by Managed Accounts and Pooled Funds in Pooled Funds -- Portfolio manager of Managed Accounts is also portfolio manager of Pooled Funds and is therefore a "responsible person" -- Relief subject to certain conditions.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5 and 15.
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the "Jurisdictions") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF ADDENDA CAPITAL INC. (the "Filer")
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the prohibition found under paragraph 13.5(2)b) of Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103) against 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 (i) the investment portfolio of an associate of a responsible person or (ii) an investment fund for which a responsible person acts as an adviser, to permit the purchase and sale of securities of any issuer (each purchase and sale, an Inter-Fund Trade):
(a) between a Fund (defined below) and another Fund or a Managed Account (defined below); and
(b) between a Managed Account and a Fund,
to occur at the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) or at the closing sale price (the Closing Sale Price) contemplated by the definition of current market price referred to in paragraph (e) of section 6.1(2) of Regulation 81-107 respecting Independent Review Committee for Investment Funds (81-107), as determined by the Filer in its discretion (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System (11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Nunavut, New Brunswick, Nova Scotia, Newfoundland-and-Labrador and Prince Edward Island; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in the Legislation, Regulation 14-101 respecting Definitions and 11-102 have the same meanings if used in this decision, unless otherwise defined.
Fund means an investment fund managed by the Filer or an affiliate or managed in the future by the Filer or a affiliate to which Regulation 81-102 respecting Investment Funds does not apply.
Managed Account means an account over which the Filer has discretionary authority.
Certain other defined terms have the meanings given to them above or below.
This decision is based on the following facts represented by the Filer:
1. The Filer was constituted under Part IA of the Companies Act (Québec) and continued under the Business Corporations Act (Québec). Its head office is located in Montréal, Québec.
2. The Filer is a registered portfolio manager, exempt market dealer and a registered investment fund manager in the provinces of Québec, Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Nunavut, New Brunswick, Nova Scotia, Newfoundland-and-Labrador and Prince Edward Island, as well as a registered derivatives portfolio manager in the Province of Québec and a commodity trading manager in the Province of Ontario.
3. Each Fund is, or will be, an investment fund structured as a trust, a corporation or a partnership under the laws of Canada or of one of the provinces or territories of Canada.
4. The Filer or its affiliate is or will be the investment fund manager and/or portfolio manager of each of the Funds.
5. CIBC Mellon Trust Company acts as trustee and as custodian of each of the Funds.
6. The Funds are not, and will not be, reporting issuers in any of the Filing Jurisdictions nor in any of the other provinces or territories of Canada.
7. The securities of the Funds are, or will be, offered pursuant to exemptions from prospectus requirements in each Filing Jurisdiction.
8. The Filer and each of the Funds are not in default of securities legislation in either the Filing Jurisdictions or in any other province or territory of Canada.
9. The Filer or an affiliate is or will be the portfolio manager of each of the Managed Accounts.
10. Each client who wishes to receive the investment management services of the Filer through a Managed Account executes a written discretionary management agreement (Discretionary Management Agreement) with the Filer whereby such client appoints the Filer to act as a portfolio manager in connection with an investment portfolio of the client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute a trade, including the authorization to invest the Managed Accounts in the Funds and to switch Funds as determined by the Filer in accordance with the investment objectives of the Managed Account.
11. The Filer wishes to be able to enter into Inter-Fund Trades of portfolio securities between:
(a) a Fund and another Fund or a Managed Account; and
(b) a Managed Account and a Fund.
12. Inter-Fund Trades will result in benefits to Fund investors and Managed Account holders such as lower trading costs, reduced market disruption and faster order execution.
13. At the time of each Inter-Fund Trade, the Filer (or its affiliate) will have policies and procedures in place to enable it to engage in the applicable Inter-Fund Trade.
14. When the Filer engages in an Inter-Fund Trade of securities between two Funds or between a Managed Account and a Fund, it will follow the following procedures:
(a) an advising representative of the Filer (or its affiliate) will request the approval of the chief compliance officer of the Filer or his or her designated alternate to execute a purchase or sale of a security by a Fund or a Managed Account as an Inter-Fund Trade;
(b) upon receipt of the required approval, the advising representative of the Filer (or its affiliate) will deliver the trading instructions to a trader on a trading desk of the Filer (or its affiliate);
(c) upon receipt of the trade instructions and the required approval, the trader on the trading desk will execute the trade as an Inter-Fund Trade in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of 81-107 provided that, for exchange-traded securities, the trader will have the discretion to execute the Inter-Fund Trade at the Last Sale Price of the security, determined at the time of the receipt of the required approval prior to the execution of the trade, or at the Closing Sale Price; and
(d) the policies applicable to the trading desk of the Filer (or its affiliate) will require that all orders are to be executed on a timely basis.
15. The Filer (or its affiliate) will establish an independent review committee (IRC) in respect of each Fund. The IRC will be composed by the Filer (or its affiliate) in accordance with section 3.7 of 81-107 and will be expected to comply with the standard of care set out in section 3.9 of 81-107. The mandate of the IRC will include approving purchases and sales of securities between a Fund and a Managed Account or between two Funds and the IRC will not approve an Inter-Fund Trade between a Fund and a Managed Account or between two Funds unless it has made the determination set out in section 5.2(2) of 81-107.
16. If the IRC of a Fund becomes aware of an instance where the Filer (or its affiliate), as manager of the Fund, did not comply with the terms of this decision or a condition imposed by 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.
17. The Filer cannot rely on the exemption from section 13.5 of 31-103 contained in subsection 6.1(4) of 81-107 as the Funds and Managed Accounts are not reporting issuers and thus are not subject to 81-107.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:
(a) the Inter-Fund Trade is consistent with the investment objective of the Fund or the Managed Account, as applicable;
(b) the Filer (or its affiliate) refers the Inter-Fund Trade that involves a Fund to the IRC of the Fund in the manner contemplated by section 5.1 of 81-107, and the Filer (or its affiliate), as manager of the Fund complies with section 5.4 of 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;
(c) if the transaction is with a Fund or between two Funds, the IRC of each Fund has approved the Inter-Fund Trade in respect of that Fund in accordance with the terms of subsection 5.2(2) of 81-107;
(d) if the transaction is with a Managed Account, the Discretionary Management Agreement or other documentation in respect of the Managed Account contains or will contain the authorization of the client for the Filer (or its affiliate) to engage in Inter-Fund Trades and such authorization has not been revoked; and
(e) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of 81-107, except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the trade is executed at the Last Sale Price or the Closing Sale Price of the security.