Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individual to be registered with both firms. The Filers have agreed that up to a maximum of ten individuals will be dually registered under the exemption at any point in time. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
March 6, 2020
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
LYSANDER FUNDS LIMITED
CANSO INVESTMENT COUNSEL LTD.
(CIC, and together with Lysander, the Filers)
The regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief for a decision:
- from the restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (such restriction, the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit each of Mr. Timothy Hicks and Mr. Brian (Richard) Usher-Jones – and future individuals (such individuals, the Future Representatives and together with Messrs. Hicks and Usher-Jones, the Representatives) – to be registered as an advising representative, associate advising representative, and/or dealing representative, as the case may be, of each of Lysander and CIC (the Relief Sought); and
- to revoke and replace previous relief from the Dual-Registration Restriction granted to Lysander and CIC in May 2012 to permit each of Messrs. Hicks and Usher-Jones to be registered as a dealing representative of Lysander under its exempt market dealer registration while also being an advising representative (or associate advising representative, as Mr. Usher-Jones then was) of CIC (the Prior Order).
For clarity, the Relief Sought will apply to up to ten representatives at any one time, including Messrs. Hicks and Usher-Jones and any Future Representatives.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
- Lysander is registered as an exempt market dealer and investment fund manager with the Ontario Securities Commission (OSC). It is also registered as an investment fund manager in each of Québec and Newfoundland & Labrador. The head office of Lysander is in Toronto, Ontario.
- Lysander is the retail fund management arm within the Canso group and acts as the investment fund manager of (i) investment funds which are qualified for sale in Ontario and various other Canadian jurisdictions of Canada pursuant to a simplified prospectus, (ii) Canso Credit Income Fund (TSX: PBY.UN), a closed-end fund, and (iii) Lysander-Slater Preferred Share ActivETF (TSX: PR), an exchange-traded fund (the Current Lysander Funds). Lysander may, in the future, act as investment fund manager for non-prospectus-qualified funds and additional prospectus qualified funds (the Future Lysander Funds) (the Current Lysander Funds and the Future Lysander Funds are collectively referred to as the Lysander Funds). The Current Lysander Funds are distributed by third-party registered dealers. Lysander has an exempt market dealer registration but that registration is currently used in a limited manner, such as: (i) when an officer or employee of a portfolio management firm that advises a Lysander Fund wishes to (and is eligible to) purchase units of a Lysander Fund on a prospectus-exempt basis and such officer or employee does not wish to engage their own dealer; (ii) when Lysander purchases units of a Lysander Fund; and (iii) to operate a publicly-accessible website for the Lysander Funds and the CFM Funds (as defined below).
- Lysander is a direct majority-owned subsidiary of Grip Investments Limited (Grip), while CIC is an indirect majority-owned subsidiary of Grip. Since each of Lysander and CIC is under Grip’s common control, each is an affiliate of the other.
- CIC is registered as a portfolio manager and exempt market dealer with the OSC and with each of the remaining 9 provincial securities regulatory authorities. The head office of CIC is in Richmond Hill, Ontario.
- CIC acts as a portfolio manager for certain of the Lysander Funds as well as for the non-prospectus-qualified investment funds for which another affiliate, Canso Fund Management Ltd. (CFM), acts as investment fund manager (the CFM Funds). In addition to its portfolio manager role with the Lysander Funds and the CFM Funds, CIC also acts as portfolio manager to high net-worth individuals and institutions under separately managed account agreements. Finally, CIC also from time to time acts as sub-adviser for various prospectus- and non-prospectus qualified investment funds managed by third parties. In addition to these adviser activities, CIC acts as an exempt market dealer primarily to facilitate the purchase of the CFM Funds by CIC’s managed accounts and to distribute the CFM Funds to clients that qualify for a prospectus exempt distribution, such as accredited investors.
- The Current Lysander Funds are advised both by CIC and by third-party portfolio managers. There are currently no other portfolio advisers to the CFM Funds other than CIC. CFM does not act as the investment fund manager to prospectus-qualified investment funds. Therefore, each of Lysander and CFM act as the investment fund manager to different business lines, and CIC acts as a portfolio manager to both business lines.
- CIC dealing representatives are permitted to trade (including acts in furtherance of a trade) in securities of the CFM Funds, subject to CIC procedures for permitted products. CIC may also trade in securities of the Lysander Funds on an exempt basis. Distribution of the Lysander Funds under the funds’ prospectus to the retail public is done via third party dealers.
- Each of Mr. Hicks and Mr. Usher-Jones is currently registered as a dealing representative of CIC and of Lysander, and as an advising representative of CIC, pursuant to the Prior Order.
- Mr. Hicks is the Chief Investment Officer (CIO) and a Director of Lysander. Mr. Hicks is also Portfolio Manager at CIC and President, Chief Compliance Officer (CCO) and a Director of CFM. Mr. Usher-Jones is the Chief Executive Officer, President and the Ultimate Designated Person (UDP) of Lysander. Mr. Usher-Jones is also Portfolio Manager at CIC and a Director of CFM. Each of Messrs. Hicks and Usher-Jones provides portfolio management services in respect of the Current Lysander Funds in his capacity as an advising representative of CIC. Messrs. Hicks and Usher-Jones also provide portfolio management services to the CFM Funds and to certain managed account clients of CIC (i.e. outside of the Current Lysander Funds and the CFM Funds, as applicable) as an advising representative of CIC. They each also provide marketing and/or distribution services in respect of the CFM Funds to clients resident in various provinces of Canada in their capacities as dealing representatives of CIC.
- The Current Lysander Funds are each advised by one or more registered firms located in Canada. Lysander has sought portfolio manager registration in Ontario in order to adopt one or both of the following advisory models: (i) utilizing sub-advisers availing themselves of the sub-adviser registration exemption in section 8.26.1 of NI 31-103 (the Sub-Advisory Model) and (ii) having multiple portfolio advisers for a single Lysander Fund, where each is managing a particular strategy or sleeve within the relevant fund’s overall mandate (the Multi-Manager Model).
- It is proposed that once Lysander is registered as a portfolio manager with the OSC, each of Messrs. Hicks and Usher-Jones will continue to be an advising representative of CIC and provide portfolio management services to managed account clients of CIC (i.e. including the Current Lysander Funds and the CFM Funds). They each will also continue to provide marketing and/or distribution services in their capacities as dealing representatives of CIC.
- Messrs. Hicks and Usher-Jones trade with different client bases in their current dual roles with Lysander and CIC, and there has been minimal potential for conflicts of interest. Moreover, because the Filers are majority-owned subsidiaries of the same ultimate shareholder, the existing dual registration of Messrs. Hicks and Usher-Jones has not given rise to the conflicts of interest present in similar arrangements involving unrelated, arms’-length firms.
- Messrs. Hicks and Usher-Jones will be registered as advising representatives with Lysander in order to permit them to oversee the activities of the portfolio advisers engaged under each of the Sub-Advisory Model and the Multi-Manager Model.
- Because each of Lysander, CIC and CFM are affiliates, and because each of Messrs. Hicks and Usher-Jones is a dealing representative of both CIC and Lysander, and an advising representative of CIC – and any Future Representative will be an advising representative, associate advising representative and/or dealing representative, as the case may be, with CIC and Lysander – each is or will be intimately familiar with all of the investment products offered by each of Lysander and CFM and is or will be in the best position to act in the existing and proposed dual roles with Lysander and CIC. It is anticipated that any Future Representatives would have similar duties at Lysander and CIC in respect of the Lysander Funds to those described for each of Messrs. Hicks and Usher-Jones.
- Dual registration as an advising representative of each of Lysander and CIC would allow each of Messrs. Hicks and Usher-Jones to continue to advise their current mandates with CIC while also overseeing the Sub-Advisory Model and the Multi-Manager Model at Lysander outlined above. Registration as an advising or associate advising representative, as the case may be, for each of the Future Representatives would permit them to conduct similar activities in their applicable capacity(ies).
- The terms and conditions, if any, on the Representatives’ dealing, advising or associate advising registration with Lysander, as the case may be, would be the same as under his or her applicable registration with CIC.
- Each of the Representatives will be subject to supervision by each of the Filers and come under the applicable compliance requirements of both Filers.
- Each of the Filers’ respective Ultimate Designated Persons will ensure that the Representatives have sufficient time and resources to adequately serve each Filer and its clients. Each of the Filers’ respective Chief Compliance Officers will monitor and assess whether the Representatives have sufficient time and resources to adequately serve each Filer and its clients.
- Neither Lysander nor CIC is in default of any requirement of securities legislation in any jurisdiction of Canada.
- In order to implement the Sub-Advisory Model and the Multi-Manager Model, Lysander must seek portfolio manager registration itself. Once such registration is obtained, a Representative would not be able to directly advise a CIC client (including a Lysander Fund) pursuant to his or her registration with CIC and simultaneously perform duties related to the Sub-Advisory Model and the Multi-Manager Model, absent the Relief Sought. In order for such Representative to be able to perform both sets of duties, he or she must seek registration with Lysander. Also, absent the Relief Sought, Messrs. Hicks and Usher-Jones would not be able to continue their dealing activities on behalf of Lysander and CIC.
- The dual registration of the Representatives as advising or associate advising representatives, as the case may be, will not give rise to conflicts of interest because CIC already acts as a portfolio adviser to some of the Current Lysander Funds. As such a dually-registered Representative of CIC and Lysander will be overseeing 2 different business lines with no or minimal overlap. Finally, as noted above, Lysander is the investment fund manager of prospectus-qualified investment funds in the Canso group, and CIC acts as a portfolio manager to some of those Lysander Funds. The interests of the Filers are aligned, and because the role of the Representatives is to support the business activities and interests of the Canso group of companies (including Lysander and CIC), the potential for conflicts of interest is remote.
- The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representatives and will be able to deal appropriately with any such conflicts. Lysander and CIC have previously obtained dual-registration relief via the Prior Order and are thus familiar with the rules, requirements and necessary procedures of having dually-registered individuals.
- The Filers do not expect that the dual registration of the Representatives will create significant additional work and are confident that each Representative will have sufficient time to adequately serve both firms, especially given the current roles that each of Messrs. Hicks and Usher-Jones currently perform (and each Future Representative would otherwise perform) in respect of the Lysander Funds and as advising representatives with CIC.
- Disclosure regarding the dual employment of a Representative will be disclosed in writing to clients of both Lysander and CIC and in the offering documentation for each of the CFM Funds and Lysander Funds for which the Representative acts as an advising or associate advising representative, as applicable.
- Each Representative will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.
- In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting the Representatives to be registered as an advising representative, associate advising representative, and/or dealing representative, as the case may be, of each Filer, even though the Filers are affiliates and have controls and compliance procedures in place to deal with such advising, associate advising and/or dealing activities.
The regulator is satisfied that the decision meets the test set out in the Legislation for the regulator to make the decision. The decision of the regulator under the Legislation is as follows:
- the Prior Order, as it pertains to the Filers and any associate or affiliate of the Filers, is revoked; and
- the Relief Sought is granted on the following conditions:
- That at any point in time, no more than ten (10) Representatives are dually registered with both Filers;
- The Representatives are subject to supervision by, and the applicable compliance requirements of, both Filers;
- The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representatives have sufficient time and resources to adequately serve each Filer and its respective clients;
- The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representatives and deal appropriately with any such conflicts; and
- The relationship between the Filers and the fact that the Representatives are dually registered with both of them is fully disclosed in writing to clients of each of them that deal with such person.
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission