Ontario Securities Commission Bulletin
Issue 44/12 - March 25, 2021
Ont. Sec. Bull. Issue 44/12
• Fidelity Long-Term Leaders Fund and Fidelity Long-Term Leaders Currency Neutral Fund
• Purpose Investments Inc. and Purpose Structured Equity Yield Portfolio II
• Lysander Funds Limited et al.
• Mutual Fund Dealers Association of Canada (MFDA) -- s. 144
• Temporary, Permanent & Rescinding Issuer Cease Trading Orders
• Temporary, Permanent & Rescinding Management Cease Trading Orders
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CSA Staff Notice 41-307 (Revised) -- Concerns regarding an Issuer's Financial Condition and the Sufficiency of Proceeds from a Prospectus Offering
First published March 2, 2012, revised March 25, 2021.
March 25, 2021
The purpose of this staff notice is to alert issuers (other than investment fund issuers) and their advisors about our approach where there are concerns regarding the financial condition of an issuer and/or the sufficiency of proceeds in the context of a prospectus offering.{1} In limited circumstances, these concerns may affect our ability to recommend that a receipt be issued for a prospectus. This staff notice applies to all prospectus reviews, regardless of whether the offering is an IPO, new issue or secondary offering.
In this notice, we describe issues that have arisen in past prospectus reviews and explain the types of comments we have raised about an issuer's financial condition and/or the sufficiency of proceeds.
This guidance applies to issuers that have short-term liquidity concerns and/or offerings that do not appear to be raising sufficient proceeds. We recognize the importance of capital formation in Canada, and this guidance is not intended to inhibit capital raising through a prospectus offering other than where there are significant investor protection concerns.
Securities legislation provides that the authorized decision maker must issue a receipt for a prospectus unless it appears to the decision maker that it is not in the public interest to do so or for motives enumerated in securities legislation.{2}
Securities legislation also provides that the decision maker shall not issue a receipt for a prospectus or an amendment to a prospectus in specified circumstances. For example, a decision maker is prohibited from issuing a receipt for a prospectus if it appears that the proceeds from the prospectus offering, along with the issuer's other resources, will be insufficient to accomplish the purpose of the issue stated in the prospectus (the sufficiency of proceeds receipt refusal provision).{3}
As a result of these statutory provisions, consideration of an issuer's financial condition is a critical part of every prospectus review. A prospectus must contain clear disclosure on how the issuer intends to use the proceeds raised in the offering as well as disclosure of the issuer's financial condition, including any liquidity concerns. This disclosure is important to investors because it provides warnings about significant risks that the issuer is facing or may face in the short term and may help investors avoid or minimize negative consequences when making investment decisions. Relevant information in this context may include disclosure on negative cash flow from operating activities, working capital deficiencies, net losses and significant going concern risks.
However, disclosure on its own may not be sufficient to satisfy receipt refusal concerns in certain circumstances. For example, a recommendation of receipt refusal may be appropriate where an issuer lacks sufficient funds to continue operations, or if the proceeds from the prospectus offering will be insufficient to accomplish the purpose of the offering. When conducting prospectus reviews, we may consider the anticipated proceeds from a prospectus offering to be insufficient if they are raised:
• for a specific purpose but do not address the issuer's short-term liquidity requirements
• through a best efforts offering without a minimum subscription, or a minimum subscription that does not appear to be sufficient to satisfy the issuer's short-term liquidity requirements, or
• through a shelf prospectus offering that can be drawn down in small increments that, when considered separately, may not be sufficient to satisfy the issuer's short-term liquidity requirements.
A principal purpose of the sufficiency of proceeds receipt refusal provision is to protect the integrity of the capital markets, which would be harmed if an issuer ceased operations on account of insufficient funds shortly after completing a public securities offering.
We have concerns with the potential implications to investors who invest in issuers that may not be able to continue operations for a reasonable period of time. We consider that an issuer should have sufficient resources to meet its short-term liquidity requirements. This will vary depending on the circumstances of each issuer. The table below sets out some guidelines.
Type of Issuer |
Resources to meet short-term liquidity requirements |
|
|
Exploration stage issuer |
Sufficient to reach completion of the next phase of a project |
|
|
Development stage issuer |
Sufficient to achieve the issuer's next significant milestone |
|
|
Research & development issuer |
Sufficient to achieve progress on the development of a key product |
|
|
Issuer with active operations |
Ability to continue operations for the short term{4} |
We may also consider the sufficiency of proceeds receipt refusal provision to be applicable where an issuer filing a base shelf prospectus does not appear to have sufficient cash resources to meet their short-term liquidity requirements for a reasonable period, which we generally consider to be 12 months.
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Potential receipt refusal
The decision maker will not issue a receipt for a prospectus where:
• it appears that the prospectus inadequately discloses an issuer's financial condition and going concern risk, or
• there is adequate disclosure about the issuer's financial condition, but it appears that either the sufficiency of proceeds receipt refusal provision is applicable or that it is not in the public interest to issue the receipt.
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We may raise comments during the prospectus review process where we have identified concerns about an issuer's financial condition and/or sufficiency of proceeds. This staff notice discusses the following five issues in respect of which we may raise comments:
1. Missing information regarding offering amount and pricing
2. Offering structure
3. Use of proceeds disclosure
4. Risk factor disclosure
5. Representations to support ability to continue operations
1. Missing information regarding offering amount and pricing
We require information regarding the size of the offering to assess whether the sufficiency of proceeds receipt refusal provision is applicable and whether it is in the public interest for the decision maker to issue a receipt. If a preliminary prospectus is filed with the offering amount and pricing information bulleted, we will issue a comment that we require a reasonable opportunity to review a blackline of the draft form of final prospectus (using strike through format for deletions of text) before being in a position to clear the final prospectus. The blackline should include the information currently bulleted in the preliminary prospectus, such as the offering amount, pricing and use of proceeds. If providing this information is not practicable, we may accept an estimate or range of these figures, as applicable. Issuers should note that we may have additional comments based on any new information disclosed in the blackline.
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Practice point
In order to avoid unanticipated delays, issuers should ensure that the blackline of the draft form of final prospectus is filed not less than two business days prior to filing final materials.
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We may also request a copy of any green sheets (and/or similar marketing materials) used in connection with an offering. A review of the green sheet allows us to assess at an early stage the financial condition of the issuer in the context of the then anticipated offering amount. It will also show whether the final offering amount is substantially less than originally anticipated.
2. Offering structure
We will review the overall structure of the proposed offering in the context of the issuer's financial condition.
While there is no requirement to have a minimum subscription for an offering (in National Instrument 41-101 General Prospectus Requirements or National Instrument 44-101 Short Form Prospectus Distributions), the absence of a minimum subscription could be a significant concern where there are questions about the issuer's financial condition or where a minimum amount of proceeds appears necessary to meet the stated purpose of the offering. Accordingly, item 6.3(3) of Form 41-101F1 Information Required in a Prospectus (Form 41-101F1) and item 4.2(3) of Form 44-101F1 Short Form Prospectus (Form 44-101F1) require certain disclosure where there is no certainty of proceeds. In any circumstance involving a base shelf prospectus in which there is a financial condition concern, we may raise certain comments, including one or more of the comments outlined in the discussion below. Ultimately, an issuer may need to change the structure of an offering to address concerns regarding the issuer's financial condition.
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Base shelf prospectus offering
We may take the view that a base shelf prospectus is not appropriate given the issuer's financial condition and uncertainty of financing. As noted above, we may consider the sufficiency of proceeds receipt refusal provision to be applicable where the issuer does not appear to have sufficient cash resources to meet their short-term liquidity requirements for a reasonable period, which we generally consider to be 12 months. Under a base shelf prospectus, an issuer may raise small amounts of capital in increments over the period of 25 months. We may request submissions on the following:
• the issuer's rationale for filing a base shelf prospectus
• whether the issuer intends to file a prospectus supplement in the near future, and if so, the type of securities to be offered, the proceeds that are contemplated to be raised and the manner in which the proceeds will be used
• the availability of other sources of financing to provide working capital and fund the issuer's business if sufficient financing cannot be raised
• the proposed nature and timing of the offerings under the base shelf prospectus, including:
• involvement of an agent or underwriter, if any
• specific use of proceeds for offerings contemplated in the next 12 months
• details regarding concrete development milestones that would advance the issuer's business objectives and are expected to be completed in the next 12 months, including:
• a description of the milestone
• expected timing of completion, and
• financing requirements.
In order to address the concern that incremental drawdowns may be insufficient to satisfy an issuer's short-term liquidity requirements, we may request that the issuer:
• file a short form prospectus with a minimum subscription
• file a short form prospectus with a fully underwritten commitment, and/or
• arrange for additional sources of financing.
Rights offering
We may raise a comment regarding alternatives to a minimum subscription, such as a stand-by commitment, where there is a concern about the sufficiency of proceeds to meet the stated objectives of the offering or there is a concern about the issuer's financial condition.
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3. Use of proceeds disclosure
The use of proceeds disclosure in a prospectus informs our consideration of whether the proceeds of the offering will be sufficient to accomplish the stated purpose of the offering. We will assess whether the use of proceeds disclosure complies with all of the applicable requirements in item 6 of Form 41-101F1 or item 4 of Form 44-101F1.
We have noted inadequate use of proceeds disclosure in the following areas:
• principal purposes of the proceeds
• business objectives and milestones, and
• negative cash flow from operating activities.
An example of the type of disclosure that does not provide sufficient detail on the allocation of proceeds is set out below.
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Example of insufficient use of proceeds disclosure
The net proceeds to the Corporation will be combined with the Corporation's working capital for total available funds of approximately $3,000,000. The estimated net proceeds to the Corporation from this Offering are estimated as indicated below:
Principal Purpose
Amount
Exploration Activities
$2,000,000
General Corporate Purposes
$1,000,000
Total Available Funds
$3,000,000
The net cash proceeds from the Offering will be used by the Corporation for exploration activities and general corporate purposes. The Corporation expects to accomplish the business objectives described in this Prospectus using the Total Available Funds. The Corporation intends to spend the funds available to it as stated in this Prospectus. There may be circumstances where, for sound business reasons, a reallocation of funds may be necessary.
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The guidance below sets out the type of information we would expect to be included in the use of proceeds disclosure.
Principal purposes of the proceeds
Where the disclosure is overly general, we may request that the issuer provide additional information, such as:
• a breakdown of the proceeds towards a certain phase of a project, in the case of an exploration or development stage issuer
• a breakdown of the proceeds towards capital expenditures
• a breakdown of proceeds allocated to general and administrative expenditures, and
• clarification of how proceeds raised under recent financings have been or are being allocated.
If the offering is subject to a minimum subscription, the use of proceeds for both the minimum and maximum subscription must be disclosed. The disclosure should provide adjustments in spending if the proceeds raised are less than the maximum amount. This disclosure, as set out in item 6.3(3) of Form 41-101F1 and item 4.2(3) of Form 44-101F1, should be provided where:
• closing of the distribution is not subject to a minimum offering amount
• the distribution is on a best efforts basis, and
• the issuer has significant short-term non-discretionary expenditures.
Short-term non-discretionary expenditures include those for general corporate purposes, or significant short-term capital or contractual commitments, and an issuer may not have other readily accessible resources to satisfy those expenditures or commitments. We may request that the issuer discuss, both quantitatively and qualitatively, how the proceeds will be used with reference to various potential thresholds of proceeds raised, in the event the issuer raises less than the maximum subscription, and the resulting impact on the issuer's liquidity, operations, capital resources and solvency.
Finally, we remind issuers that statements such as "for general corporate purposes", are not considered to be sufficient disclosure{5}.
Business objectives and milestones
Where an issuer has not sufficiently described each significant event that must occur for the business objectives to be accomplished, we will request additional disclosure of each event as well as the specific time period in which each event is expected to occur and the costs related to it. Generally, we expect that the proceeds from the offering will be sufficient to meet the issuer's working capital and operational needs until its next significant milestone.
In the case of a mining issuer, the use of proceeds disclosure should be consistent with the recommendation and budget in the issuer's technical report(s). We take the view that general statements referring to completion of a "phase" of an exploration program may not be sufficient. We may request a further breakdown of the exploration activities contemplated in each phase, as the case may be, and the relevant time period to complete such activities.
Negative cash flow from operating activities
An issuer with negative cash flow from operating activities in its most recently completed financial year for which financial statements have been included in the prospectus should:
• prominently disclose that fact in the use of proceeds section of the prospectus
• disclose whether, and if so, to what extent, it will use the proceeds of the distribution to fund any anticipated negative cash flow from operating activities in future periods, and
• disclose negative cash flow from operating activities as a risk factor{6}.
We may also request additional information be disclosed in the prospectus relating to:
• the issuer's most current working capital amount
• the issuer's cash burn rate on a monthly or quarterly basis
• the period of time that the proceeds of the offering are expected to fund operations, and
• any significant debt obligations maturing in the short term.
Item 6.2 of Form 41-101F1 requires additional disclosure of certain information relating to junior issuers, such as disclosure of the total funds available, and the following breakdown of those funds:
• the estimated net proceeds from the sale of the securities offered under the prospectus
• the estimated consolidated working capital (deficiency) as at the most recent month end before filing the prospectus, and
• the total other funds available to be used to achieve the principal purposes identified by the junior issuer pursuant to this item.
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Practice Point
Depending on the circumstances, we may take the view that this disclosure is a material fact for issuers that are not technically junior issuers and that this disclosure should be included in a prospectus in order to meet the requirement to provide "full, true and plain disclosure of all material facts".
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4. Risk factor disclosure
Item 21.1 of Form 41-101F1 and item 17.1 of Form 44-101F1 require disclosure of risk factors relating to an issuer and its business, such as cash flow and liquidity problems. The accompanying instructions provide guidance that the risks should be disclosed in order of seriousness, from the most serious to the least serious. We have noted insufficient or boilerplate disclosure in the prospectus for many key risk factors related to an issuer's financial condition.
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Example of insufficient boilerplate risk factor disclosure
The Corporation's ability to continue as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. The Corporation has no proven history of performance, earnings or success.
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Issuer's financial condition
A prospectus should clearly disclose an issuer's going concern risk to allow readers to make an informed investment decision. This disclosure should explain the uncertainties that may create going concern risk and how the issuer is addressing that risk. As previously noted, even if the risk is adequately disclosed, we will exercise judgement to assess whether the sufficiency of proceeds receipt refusal provision is applicable or if there is a public interest concern in issuing a receipt.
When preparing risk factor disclosure about financial condition, issuers should consider disclosing the following:
• quantification of losses, working capital deficit, negative cash flow from operating activities, debt levels
• how the issuer expects to remedy the liquidity or solvency issues
• other sources of financing available to the issuer
• the implications to the issuer's liquidity, capital resources, operations (i.e. scaling back exploration activities, capital expenditures, research and development expenditures, general and administrative expenditures etc.) and its ability to remain a going concern, and
• the period of time the proceeds raised under the prospectus are expected to fund operations.
In many circumstances, an issuer with going concern risk should include the disclosure required by item 8.7 of Form 41-101F1 for junior issuers. This item requires disclosure of:
• the period of time the proceeds raised under the prospectus are expected to fund operations
• the estimated total operating costs necessary for the issuer to achieve its stated business objectives during that period of time, and
• the estimated amount of other material capital expenditures during that period of time.
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Practice Point
While item 8.7 of Form 41-101F1 applies specifically to junior issuers, this information may constitute a material fact for other issuers depending on their particular circumstances, and in that case, we may request this disclosure.
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Risk associated with negative cash flow from operating activities
Issuers are reminded that section 4.3 of Companion Policy 41-101CP and section 4.4 of Companion Policy 44-101CP provide that issuers should disclose negative cash flow from operating activities as a risk factor.
Risk associated with offering structure -- no minimum subscription
Where the offering is being conducted on a best efforts agency basis and we have accepted that a minimum subscription is not required, the issuer is required under item 1.4(3) of Form 41-101F1 and item 1.6(3) of Form 44-101F1 to include on the face page of the prospectus disclosure that there is no minimum amount of funds that must be raised under the offering.
5. Representations to support ability to continue operations
We take the view that an issuer contemplating an offering should be able to continue its operations for a reasonable period of time and meet its short-term liquidity requirements as described on page two of this staff notice. The length of time the issuer will be able to continue operations will vary among industries and among issuers within an industry group. Accordingly, issuers should anticipate comments regarding their ability to continue operations as a going concern.
Representation regarding ability to continue operations
In order to assess whether we have a receipt refusal concern, we may ask the issuer to provide us with a written representation of the number of months that it will be able to continue its operations given its financial condition. The proceeds from the offering should only be considered when making this determination where the offering is a bought deal, or where there is a minimum offering amount or stand-by commitment. Similarly, proceeds from alternative financing arrangements should only be included in this analysis where there is certainty of proceeds. We will generally also request that this representation be disclosed in the prospectus. The rationale for requiring this disclosure is that, in our view, this information is a material fact in the particular circumstances of the issuer due to concerns over its financial condition. We may take the view that the absence of this information may either be an omission of a material fact or raise a public interest concern.
Support for representations regarding ability to continue operations
It is the issuer's responsibility to determine the number of months during which it expects to be able to continue its operations given its financial condition. In some instances, the issuer's representations about its ability to continue as a going concern and the period during which it expects to be able to continue operations may:
• be inconsistent with the issuer's historical statement of cash flows (in particular, its cash flows from operating activities)
• be inconsistent with the disclosure in the preliminary prospectus, including disclosure regarding current and expected profitability, debt repayment schedules and potential sources of additional financing, or
• otherwise appear to be unreasonable.
In these cases, we may request that the issuer provide us with a forecasted cash flow summary to support its assumed period of liquidity (i.e. ability to continue operations). As noted above, the proceeds should only be included in this analysis when there is a bought deal, or where there is a minimum offering amount or stand-by commitment or, in the case of alternative financing arrangements, where there is certainty of proceeds.
The cash flow summary should project the issuer's significant sources and uses of cash for the period of time the issuer has represented that it can continue operations and address the issuer's working capital deficit, if one exists. The summary should also be accompanied by a set of material factors and assumptions to support management's estimates. We will assess whether the assumptions are consistent with the disclosure made in the prospectus as well as the issuer's historical financial performance and obligations. We may request supporting schedules and further details in order to assess the reasonableness of the assumptions made by the issuer. See the discussion below about whether this disclosure constitutes forward-looking information (FLI) and future-oriented financial information (FOFI).
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Practice Point
In the limited circumstances where we request a cash flow summary, we may request additional disclosure in the prospectus. Specifically, we may ask that the following be included in the prospectus:
• the summary in its entirety along with all significant assumptions and the material risk factors that could cause actual results to differ materially from the summary, or
• significant portions of the cash flow summary or material factors and assumptions used to develop the summary.
This information supports the representation regarding the issuer's ability to continue operations and may inform investors' investment decisions. We may conclude that, in certain cases, the cash flow summary represents a material fact in the particular circumstances of the issuer due to concerns over its financial condition. Any disclosure included in the prospectus is subject to liability provisions.
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Forward-looking information and future-oriented financial information
A representation regarding an issuer's ability to continue operations constitutes FLI as defined in securities legislation. Generally, FLI means disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action{7}. Depending on its content, this representation may or may not also be FOFI. When this disclosure is included in the prospectus, the disclosure must comply with the FLI and FOFI requirements in Parts 4A and 4B of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102).
Any cash flow summary and related factors and assumptions provided to support this representation may also be subject to FLI and FOFI requirements.
Issuers will be required to update previously disclosed material FLI in Management's Discussion & Analysis in accordance with section 5.8 of NI 51-102.
We will continue to raise comments in respect of the financial condition of an issuer and the sufficiency of proceeds from a prospectus offering where the concerns discussed above are identified. Additional disclosure may be required in a prospectus, depending on the particular circumstance of the issuer. In some cases where there are significant investor protection concerns, we may recommend that a receipt for a prospectus not be issued.
Questions may be referred to any of:
{1} For additional guidance see OSC Staff Notice 52-719 Going Concern Disclosure Review (OSC Staff Notice 52-719).
{2} Relevant statutory provisions include: s. 120(1) of the Securities Act (Alberta), s. 65(2) of the Securities Act (British Columbia), s. 61(1) of the Securities Act (Ontario) and ss. 14 and 15 of the Securities Act (Quebec). Please refer to the securities legislation of the other Canadian jurisdictions to determine the applicable provisions for those jurisdictions.
{3} See s. 120(2)(c) of the Securities Act (Alberta), s. 120 (2)(c) of the Securities Rules (British Columbia), s. 61(2)(c) of the Securities Act (Ontario) and s. 15(3) of the Securities Act (Quebec). Please refer to the securities legislation of the other Canadian jurisdictions to determine the applicable provisions for those jurisdictions.
{4} While we generally consider this to be 12 months, the length of time an issuer with active operations will be able to continue operations will vary.
{5} As stated in subsection 4.3(2) of Companion Policy to National Instrument 41-101 General Prospectus Requirements (Companion Policy 41-101CP) and subsection 4.4(2) of Companion Policy to National Instrument 44-101 Short Form Prospectus Distributions (Companion Policy 44-101CP).
{6} See the guidance set out in subsection 4.3(1) of Companion Policy 41-101CP and subsection 4.4(1) of Companion Policy 44-101CP.
{7} For the definition of FLI see s. 1(1) of the Securities Act (Alberta), s. 1(1) of the Securities Act (British Columbia), s. 1(1) of the Securities Act (Ontario) and s. 5 of the Securities Act (Quebec).
FOR IMMEDIATE RELEASE
March 18, 2021
TORONTO -- The Commission issued its Reasons and Decision in the above named matter.
A copy of the Reasons and Decision dated March 17, 2021 is available at www.osc.ca.
For Media Inquiries:
For General Inquiries:
Canada Cannabis Corporation et al.
FOR IMMEDIATE RELEASE
March 18, 2021
TORONTO -- Take notice that a confidential hearing in the Confidential Phase of the Motion and the Application in the above-named matters is scheduled to be heard on May 19, 2021.
For Media Inquiries:
For General Inquiries:
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from NI 41-101 to funds offering exchange-traded and conventional mutual fund series under a single simplified prospectus and annual information form -- subject to conditions -- Technical relief granted from Parts 9, 10 and 14 of NI 81-102 to permit each fund to treat its exchange-traded and conventional mutual fund series as if each such class/series was a separate fund for the purpose of compliance with Parts 9, 10 and 14 of NI 81-102 -- subject to conditions.
National Instrument 41-101 General Prospectus Requirements, ss. 3.1(2) and 19.1.
National Instrument 81-102 -- Investment Funds, Parts 9, 10 and 14 and s. 19.1.
March 9, 2021
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of each of the funds listed on Schedule A hereto each being an exchange-traded mutual fund (collectively, the Existing Funds), Emerge ARK Space Exploration Fund, being a mutual fund that plans to offer ETF Securities (as defined below) and Mutual Fund Securities (as defined below) (the Proposed Fund) and such other mutual funds as are managed or may be managed by the Filer now or in the future that offer ETF Securities and Mutual Fund Securities (the Future Funds and together with the Existing Funds and the Proposed Fund, the Funds, and each, a Fund) for a decision under the securities legislation of the Jurisdiction (the Legislation) that grants exemptive relief to the Filer and each Fund as set forth below (collectively, the Exemption Sought):
(a) an exemption from the requirement to prepare and file a long form prospectus for the ETF Securities (as defined below) in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2, and such requirement, the ETF Prospectus Form Requirement), provided that the Fund files a simplified prospectus for the ETF Securities in the form prescribed by Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) and an annual information form in the form prescribed by Form 81-101F2 Contents of Annual Information Form (Form 81-101F2) in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the ETF Securities; and
(b) an exemption from the provisions of Parts 9, 10 and 14 of National Instrument 81-102 Investment Funds (NI 81-102) (the Sales and Redemptions Requirements) to permit the Filer and each Fund to treat the ETF Securities and the Mutual Fund Securities (as defined below) as if such securities were separate funds for the purposes of compliance with the provisions of the Sales and Redemptions Requirements.
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 subsection 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 Ontario (together with Ontario, the Canadian Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units from time to time.
Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.
Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.
Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund's ETF Securities on the NEO Exchange or another Marketplace.
ETF Securities means securities of an exchange-traded class or series of a Fund that are listed or will be listed on the NEO Exchange or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.
Mutual Fund Securities means securities of a non-exchange-traded class or series of a Fund that are or will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
NEO Exchange means NEO Exchange Inc.
Other Dealer means a registered dealer that is not an Authorized Dealer, Designated Broker or Affiliate Dealer.
Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities of a Fund, as applicable.
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Ontario, with its head office located at 26 Wellington Street East, Suite 901, Toronto, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Newfoundland and Québec, a portfolio manager in Ontario and an exempt market dealer in Ontario, Québec and Newfoundland and Labrador.
3. The Filer is, or will be, the investment fund manager of each Fund.
4. The Filer is not in default of securities legislation in any of the Canadian Jurisdictions.
The Funds
5. Each Fund is, or will be, a mutual fund structured as a trust or a corporation or a class thereof that is governed by the laws of a Canadian Jurisdiction. Each Fund is, or will be, a reporting issuer in the Canadian Jurisdictions in which its securities are distributed. Each Existing Fund offers ETF Securities and may, in the future, offer Mutual Fund Securities. The Proposed Fund will offer Mutual Fund Securities and ETF Securities. Each Future Fund may offer Mutual Fund Securities and ETF Securities.
6. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to NI 81-102.
7. The Existing Funds are distributed pursuant to a long form prospectus dated June 15, 2020 in the form prescribed by Form 41-101F2 (the Existing Funds Prospectus). Each Existing Fund currently offers two series of ETF Securities, each of which is listed on the NEO Exchange.
8. If the Exemption Sought from the ETF Prospectus Form Requirement is granted, it is expected that when the Existing Funds Prospectus is renewed in 2021, the Filer will file a preliminary pro forma simplified prospectus and annual information form in the forms prescribed by Form 81-101F1 and Form 81-101F2, respectively, in respect of the Existing Funds, pursuant to which the Filer will qualify for distribution Mutual Fund Securities of the Existing Funds and pursuant to which it will continue to offer ETF Securities of the Existing Funds. Fund facts documents in the form prescribed by Form 81-101F3 for each series of Mutual Fund Securities of the Existing Funds and ETF facts documents in the form prescribed by Form 41-101F4 Information Required in an ETF Facts Document (NI 41-101F4) for each series of ETF Securities of the Existing Funds will also be filed.
9. In or around March 2021, a simplified prospectus and annual information form in the forms prescribed by Form 81-101F1 and Form 81-101F2, respectively, in respect of the Mutual Fund Securities and the ETF Securities of the Proposed Fund, as well as fund facts documents in the form prescribed by Form 81-101F3 for each series of Mutual Fund Securities and ETF facts documents in the form prescribed by NI 41-101F4 for each series of ETF Securities of the Proposed Fund, will be filed with the securities regulatory authorities in each of the Canadian Jurisdictions.
10. If the Exemption Sought from the ETF Prospectus Form Requirement is granted, Mutual Fund Securities and ETF Securities of Future Funds will be distributed pursuant to a simplified prospectus and annual information form in the form prescribed by Form 81-101F1 and Form 81-101F2, respectively. Mutual Fund Securities of the Future Funds will be distributed pursuant to fund facts documents in the form prescribed by Form 81-101F3 and ETF Securities of the Future Funds will be distributed pursuant to ETF facts documents in the form prescribed by NI 41-101F4.
11. The Filer has applied to list the ETF Securities of the Proposed Fund on the NEO Exchange or another Marketplace.
12. The Filer will not file a final prospectus to qualify ETF Securities of a Fund until the applicable Marketplace has conditionally approved the listing of such ETF Securities.
13. Mutual Fund Securities will not be listed on a Marketplace.
14. Mutual Fund Securities may be subscribed for or purchased directly from a Fund through mutual fund dealers, investment dealers and their representatives that are registered under applicable securities legislation in the Canadian Jurisdictions in which they are offered for sale.
15. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the NEO Exchange or another Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the NEO Exchange or another Marketplace.
16. In addition to subscribing for and re-selling their Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer, Designated Broker or Affiliate Dealer.
17. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, ETF Securities generally will not be able to be purchased directly from a Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the NEO Exchange or another Marketplace. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.
18. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the NEO Exchange or another Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or a multiple thereof may exchange such ETF Securities for Baskets of Securities or other securities and/or cash in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the NEO Exchange or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.
ETF Prospectus Form Requirement
19. The Filer believes it is more efficient and expedient to include all of the series of each Fund, including the Mutual Fund Securities and ETF Securities of a Fund, in one prospectus form instead of two different prospectus forms, and that this presentation will assist in providing full, true and plain disclosure of all material facts relating to all classes and series of securities of a Fund. The Filer will file ETF facts documents in the form prescribed by Form 41-101F4 in respect of each class or series of ETF Securities, and will file fund facts documents in the form prescribed by Form 81-101F3 Contents of Fund Facts Document in respect of each class or series of Mutual Fund Securities.
20. The Filer will ensure that any additional disclosure included in the simplified prospectus and annual information form relating to the ETF Securities will not interfere with an investor's ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.
21. The Funds will comply with the provisions of NI 81-101 when filing any prospectus or amendment thereto.
Sales and Redemptions Requirement
22. Parts 9, 10 and 14 of NI 81-102 do not contemplate both Mutual Fund Securities and ETF Securities being offered in a single fund structure. Accordingly, without the Exemption Sought, the Filer and the Funds would not be able to technically comply with those parts of NI 81-102.
23. The Exemption Sought will permit the Filer and the Funds to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with Parts 9, 10 and 14 of NI 81-102. The Exemption Sought will enable each of the ETF Securities and Mutual Fund Securities to comply with Parts 9, 10 and 14 of NI 81-102, as appropriate, for the type of security being offered.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
1. The decision of the principal regulator is that the Exemption Sought from the ETF Prospectus Form Requirement is granted, provided that the Filer will be in compliance with the following conditions:
a. the Filer files a simplified prospectus and annual information form in respect of the ETF Securities in accordance with the requirements of NI 81-101, Form 81-101F1 and Form 81-101F2, other than the requirements pertaining to the filing of fund facts documents;
b. the Filer includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1 or Form 81-101F2) in respect of the ETF Securities, in each Fund's simplified prospectus and/or annual information form, as applicable; and
c. the Filer includes disclosure regarding this decision under the heading "Additional Information" and "Exemptions and Approvals" in each Fund's simplified prospectus and annual information form, respectively.
2. The decision of the principal regulator is that the Exemption Sought from the Sales and Redemptions Requirements is granted, provided that the Filer will be in compliance with the following conditions:
a. with respect to its Mutual Fund Securities, each Fund complies with the provisions of Parts 9, 10 and 14 of NI 81-102 that apply to mutual funds that are not exchange-traded mutual funds; and
b. with respect to its ETF Securities, each Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.
Fidelity Long-Term Leaders Fund and Fidelity Long-Term Leaders Currency Neutral Fund
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from ss.2.1(2) of NI 81-101 to file a prospectus more than 90 days after the date of the receipt for the preliminary prospectus.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1(2), 6.1.
September 15, 2020
Attention: Ryan Trimble
Dear Sir:
______________________________
By letter dated June 12, 2020 (the Application), Fidelity Investments Canada ULC, the manager of the Funds, applied to the Director of the Ontario Securities Commission (the Director) under section 6.1 of NI 81-101 for relief from the operation of subsection 2.1(2) of NI 81-101, which prohibits an issuer from filing a prospectus more than 90 days after the date of the receipt for the preliminary prospectus.
This letter confirms that, based on the information and representations made in the Application, and for the purposes described in the Application, the Director intends to grant the requested exemption to be evidenced by the issuance of a receipt for the Fund's prospectus, subject to the condition that the prospectus be filed no later than September 30, 2020.
Yours very truly,
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for exemptive relief from the filing deadline under subsection 4.3(4) of NI 51-102 in respect of the issuer's restated interim financial reports prepared in accordance with U.S. GAAP for the interim periods since its most recently completed financial year for which annual financial statements have been filed -- pursuant to paragraph 4.3(4)(d) of NI 51-102, the issuer is required to file its restated interim financial reports and the accompanying MD&A on or before the filing deadline for its audited annual financial statements for the year ended December 31, 2020 -- the issuer has encountered unanticipated delays in its work plan and the required restated interim financial reports will not be finalized when its annual financial statements are filed -- relief granted subject to conditions set out in decision document, including that the Issuer files its restated interim financial reports and related MD&A on or before 45 days following the filing deadline.
National Instrument 51-102 Continuous Disclosure Obligations, s. 4.3(4)(d) and Part 13.
March 17, 2021
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting relief from the requirement to file the Restated Interim Financial Reports (as defined herein) on or before the deadline set out in paragraph 4.2(a) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and in accordance with paragraph 4.3(4)(d) of NI 51-102, provided that the Filer files the Restated Interim Financial Reports and related MD&A on or before the earlier of (i) 45 days from the date the Filer files its Annual Financial Statements (as defined herein) and (ii) May 17, 2021 (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 Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Manitoba and Nova Scotia.
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 51-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation existing under the Business Corporations Act (British Columbia). The head office of the Filer is in Mississauga, Ontario.
2. The common shares (Common Shares) of the Filer are listed on the Toronto Stock Exchange and the Nasdaq Capital Market, under the symbol "TRIL".
3. The Filer is a reporting issuer in the provinces of British Columbia, Alberta, Manitoba, Ontario and Nova Scotia.
4. The Filer is subject to reporting obligations under the 1934 Act, and files continuous disclosure documents with the SEC.
5. As part of the Filer's obligations under the 1934 Act, the Filer was required by the SEC, at the end of every second fiscal quarter, to test whether it continued to qualify as a foreign private issuer as defined in Rule 405 of Regulation C under the 1933 Act and Rule 3b-4 under the 1934 Act.
6. As of June 30, 2020, the Filer determined that it no longer met the criteria for qualification as a foreign private issuer because (a) more than 50% of the outstanding Common Shares of the Filer were held by residents of the United States, and (b) the majority of the Filer's directors are resident in the United States.
7. Effective January 1, 2021, the Filer is subject to the reporting requirements applicable to U.S. domestic registrants.
8. In accordance with Section 6120.4 of the SEC's Division of Corporation Finance Financial Reporting Manual, as of January 1, 2021, the Filer is required, to prepare its annual financial statements in accordance with U.S. GAAP.
9. Pursuant to subsection 4.3(4) of NI 51-102, the Filer is required to file restated interim financial reports prepared in accordance with U.S. GAAP for the interim periods since its most recently completed financial year for which annual financial statements have been filed (the Restated Interim Financial Reports) on or before the deadline for the Filer to file its audited annual financial statements for the year ended December 31, 2020 (the Annual Financial Statements). Pursuant to set paragraph 4.2(a) of NI 51-102, the deadline (the Deadline) for the Filer to file the Annual Financial Statements is the earlier of (i) April 1, 2021, being the 90th day after the end of its most recently completed financial year, and (ii) the date of filing, in a foreign jurisdiction, the Annual Financial Statements.
10. The Filer is expected to file its annual report on Form 10-K for the year ended December 31, 2020 (the Annual Report) on or about March 18, 2021 in accordance with the requirements of the SEC.
11. Although the Filer has transitioned its staff to work remotely since March 2020, the remote working environment and recent personnel changes have caused unanticipated delays in the Filer's work plan related to preparing the Restated Interim Financial Reports in accordance with U.S. GAAP.
12. The COVID-19 pandemic has also resulted in unanticipated time sensitive business matters which have diverted the attention of management from preparing the Restated Interim Financial Statements. These include, among other items that will be noted in the Annual Report: (i) delays in receiving supplies for the Filer's product candidates from its contract manufacturing organizations; and (ii) delays and challenges in enrolling and retaining patients in the Filer's clinical trials.
13. The Filer is not in default of securities legislation in any jurisdiction of Canada.
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, subject to all of the following conditions:
(a) on or before the earlier of (i) 45 days from the date the Filer files its Annual Financial Statements and (ii) May 17, 2021, the Filer files the Restated Interim Financial Reports and related MD&A, for the interim periods since December 31, 2019;
(b) the Filer issues and files on SEDAR, as soon as reasonably practicable, and in any event, no later than the date the Issuer files its Annual Financial Statements, a news release that discloses:
a. it is relying on this exemption;
b. that its management and other insiders are subject to an insider trading black-out policy that reflects the principles in section 9 of National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions; and
c. the anticipated date by which the Restated Interim Financial Reports and related MD&A are expected to be filed; and
(c) the Filer does not file a preliminary prospectus or a final prospectus for an offering of securities until it has filed all documents for which it is relying on this exemption.
Purpose Investments Inc. and Purpose Structured Equity Yield Portfolio II
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted for extension of lapse date of prospectus -- Filer inadvertently failed to file a pro forma prospectus not less than thirty days prior to the lapse date as required by the legislation -- Lapse date extended by 20 days -- No conditions.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 62(5).
March 18, 2021
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) that the time limits for the renewal of the simplified prospectus of the Fund (the Current Prospectus) be extended to those time limits that would apply if the lapse date was April 22, 2021 (the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
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 Filer.
1. The Filer is a corporation amalgamated under the laws of the Province of Ontario. The Filer's head office is located in Toronto, Ontario.
2. The Filer is registered as a portfolio manager in British Columbia, Ontario and Québec, an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, a commodity trading manager in Ontario and an investment fund manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan. The Filer is the investment fund manager of the Fund.
3. The Fund is an open-end mutual fund established under the laws of Ontario and is a reporting issuer as defined in the securities legislation of each of the Jurisdictions.
4. Other than the failure to meet the Pro Forma Filing Deadline (defined below), neither the Filer nor the Fund are in default of securities legislation in any of the Jurisdictions.
5. The Fund filed the Current Prospectus, a final simplified prospectus dated April 2, 2020, for which it obtained a receipt and under which it has been distributing securities in the Jurisdictions since the date of the Current Prospectus.
6. Pursuant to the Legislation, the lapse date of the Current Prospectus is April 2, 2021 (the Current Lapse Date). Accordingly, under the Legislation, the distribution of securities of the Fund would have to cease on the Current Lapse Date unless: (i) the Fund files a pro forma prospectus at least 30 days prior to the Current Lapse Date (the Pro Forma Filing Deadline); (ii) the final prospectus is filed no later than 10 days after the Current Lapse Date; and (iii) a receipt for the final prospectus is obtained within 20 days following the Current Lapse Date.
7. The Filer intended to file a pro forma simplified prospectus on or before the Pro Forma Filing Deadline but through inadvertence, the pro forma simplified prospectus of the Fund was not filed on or before the Pro Forma Filing Deadline. As soon as the Filer realized that the Pro Forma Filing Deadline had passed, it filed a pro forma simplified prospectus (the Renewal Prospectus) as expeditiously as possible.
8. The Filer desires to extend the Current Lapse Date of the Current Prospectus to April 22, 2021 to allow the principal regulator in the Jurisdiction sufficient time to review and comment on the Renewal Prospectus and for the Filer to prepare and file all documents for the Fund.
9. There have been no material changes in the affairs of the Fund since the date of the Current Prospectus. Accordingly, the Current Prospectus and current Fund Facts of the Fund represent current information regarding the Fund.
10. Given the disclosure obligations of the Filer and the Fund, should any material change in the business, operations or affairs of the Fund occur, the Current Prospectus and current Fund Facts of the Fund will be amended as required under the Legislation.
11. The Requested Relief will not affect the accuracy of the information contained in the Current Prospectus or the Fund Facts of the Fund and will therefore not be prejudicial to the public interest.
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 Relief is granted.
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -- approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds -- terminating funds and continuing funds do not have substantially similar fundamental investment objectives -- mergers otherwise comply with pre-approval criteria, including securityholder vote, IRC approval -- securityholders provided with timely and adequate disclosure regarding the mergers
National Instrument 81-102 Investment Funds, ss. 5.5(1)(b) and 19.1(2).
March 18, 2021
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed mergers (each a Merger, and collectively the Mergers) of each of the Terminating Funds into the applicable Continuing Fund (each as defined below) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Merger Approval).
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 Manager has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following additional terms shall have the following meanings:
Continuing Fund means each of Signature Global Infrastructure Fund and CI North American Dividend Fund;
Fund means each of the Terminating Funds and the Continuing Funds;
Income Tax Act means the Income Tax Act (Canada);
IRC means the independent review committee for the Funds; and
This decision is based on the following facts represented by the Manager:
The Manager and the Funds
1. The Manager is a corporation amalgamated under the laws of Ontario. The Manager is registered as follows:
(a) under the securities legislation of all provinces and territories as a portfolio manager;
(b) under the securities legislation of Ontario, Quebec and Newfoundland and Labrador as an investment fund manager;
(c) under the securities legislation of all provinces and territories as an exempt market dealer; and
(d) under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.
2. The Manager is the manager of each Fund.
3. Each Terminating Fund and each Continuing Fund is an open-end mutual fund trust governed by a declaration of trust.
4. Neither the Manager nor the Funds are in default of securities legislation in any province or territory of Canada, as applicable.
5. Each Continuing Fund is a reporting issuer under the securities legislation of each province and territory of Canada and is subject to the requirements of NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure. Each Terminating Fund is a reporting issuer under the securities legislation of the Jurisdictions and is subject to the requirements of NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure.
6. Each Fund follows the standard investment restrictions and practices established under the securities legislation of the applicable jurisdictions, except to the extent that the Funds have received an exemption from the securities regulatory authority of a jurisdiction to deviate therefrom.
7. Each Terminating Fund currently distributes its securities in all the Jurisdictions pursuant to a simplified prospectus and annual information form dated May 8, 2020, as amended. Each Continuing Fund currently distributes its securities in all the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated June 25, 2020, as amended.
Reason for Merger Approval
8. Regulatory approval of the Mergers is required because none of the Mergers satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. In particular, in respect of each of Merger 1 and Merger 2 (each as defined below), a reasonable person may not consider the Terminating Fund to have a substantially similar fundamental investment objective as its corresponding Continuing Fund.
9. Other than the criteria described in paragraph 8, each Merger complies with all the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Mergers
10. The Manager intends to merge each Terminating Fund into the Continuing Fund shown opposite its name in the table below:
11. The proposed Mergers were announced in:
(a) a press release dated January 18, 2021;
(b) a material change report dated January 20, 2021; and
(c) amendments dated January 20, 2021 to the simplified prospectus, annual information form and fund facts of each of the Terminating Funds, each of which has been filed on SEDAR.
12. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Manager presented the terms of the Mergers to the IRC for its review. The IRC determined that the Mergers, if implemented, will achieve a fair and reasonable result for each of the Funds.
13. The Manager is convening a special meeting of the securityholders of each Terminating Fund in order to seek the approval of the securityholders of the Terminating Fund to complete its Merger, as required by paragraph 5.1(1)(f) of NI 81-102 (the Meeting). The Meeting will be held on or about March 25, 2021.
14. The Manager has concluded that the Mergers are not material changes to the Continuing Funds, and accordingly, there is no intention to convene a meeting of securityholders of the Continuing Funds to approve the Mergers pursuant to paragraph 5.1(1)(g) of NI 81-102.
15. By way of order dated July 28, 2017, the Manager was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of National Instrument 81-106 Investment Fund Continuous Disclosure to send a printed management information circular to securityholders while proxies are being solicited, and, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such securityholders. In accordance with the Manager's standard of care owed to the Funds pursuant to securities legislation, the Manager will only use the notice-and-access procedure for a particular meeting where it has concluded it is appropriate and consistent with the purposes of notice-and-access (as described in the Companion Policy to NI 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer) to do so, also taking into account the purpose of the meeting and whether the Funds would obtain a better participation rate by sending the management information circular with the other proxy-related materials.
16. Pursuant to requirements of the Notice-and-Access Relief, a notice-and-access document and applicable proxies in connection with the Meeting, along with the fund facts of the Continuing Funds, were mailed to securityholders on February 23, 2021 and were concurrently filed via SEDAR. The management information circular (the Circular), which the notice-and-access document provides a link to, was also filed via SEDAR at the same time.
17. If all required approvals for a Merger are obtained, it is intended that the Merger will occur after the close of business on or about April 16, 2021 (the Effective Date). The Manager therefore anticipates that each securityholder of a Terminating Fund will become a securityholder of its Continuing Fund after the close of business on the Effective Date. Each Terminating Fund will be wound-up as soon as reasonably possible following its Merger.
18. The tax implications of the Mergers as well as the differences between the investment objectives and other features of the Terminating Funds and the Continuing Funds and the IRC's recommendation of the Mergers are described in the Circular, so that securityholders may make an informed decision before voting on whether to approve the Mergers. The Circular also describes the various ways in which securityholders can obtain a copy of the simplified prospectus, annual information form and fund facts for the Continuing Funds and their most recent interim and annual financial statements and management reports of fund performance.
19. Securityholders of each Terminating Fund will continue to have the right to redeem securities of the Terminating Fund at any time up to the close of business on the Effective Date. Following each Merger, all optional plans (including pre-authorized purchase programs, automatic withdrawal plans, systematic switch programs and automatic rebalancing services) which were established with respect to the Terminating Fund will be re-established in comparable plans with respect to its Continuing Fund, unless securityholders advise otherwise.
20. The costs of effecting the Mergers (consisting primarily of legal and regulatory fees, and proxy solicitation, printing and mailing costs) will be borne by the Manager.
21. No sales charges will be payable by securityholders of the Funds in connection with the Mergers.
22. Securities of the applicable Continuing Funds received by securityholders of the Terminating Funds as a result of the Mergers will have the same sales charge option and, for securities purchased under a deferred sales charge option, the same remaining deferred sales charge schedule, as their securities in the Terminating Funds.
23. The investment portfolio and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund in order to effect the Mergers are currently, or will be, acceptable, on or prior to the Effective Date, to the portfolio manager(s) of the applicable Continuing Fund and are, or will be, consistent with the investment objective of the applicable Continuing Fund.
Merger Steps
24. The specific steps to implement each Merger are as follows:
(a) Prior to a Merger, if required, the Terminating Fund will sell any securities in its portfolio that do not meet the investment objective and investment strategies of the Continuing Fund. As a result, the Terminating Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to that Merger being effected.
(b) The value of a Terminating Fund's investment portfolio and other assets will be determined at the close of business on the effective date of the applicable Merger in accordance with the constating documents of the Terminating Fund.
(c) Each of the Terminating Fund and the Continuing Fund may declare, pay and automatically reinvest a distribution to its securityholders of net realized capital gains and net income, if any, to ensure that it will not be subject to tax for its current tax year.
(d) The Terminating Fund will transfer substantially all of its assets to the Continuing Fund. In return, the Continuing Fund will issue to the Terminating Fund units of the Continuing Trust Fund having an aggregate net asset value equal to the value of the assets transferred to the Continuing Fund.
(e) The Continuing Fund will not assume liabilities of the Terminating Fund and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.
(f) Immediately thereafter, units of the Continuing Fund received by the Terminating Fund will be distributed to securityholders of the Terminating Fund in exchange for their units in the Terminating Fund on a dollar-for-dollar and series-by-series basis.
(g) The Terminating Fund will be wound-up within 30 days following its Merger.
25. The result of each Merger will be that investors in each Terminating Fund will cease to be securityholders of the Terminating Fund and will become securityholders of its Continuing Fund, and the Continuing Funds will continue as publicly-offered open-end mutual funds.
Benefits of the Mergers
26. In the opinion of the Manager, the Mergers will be beneficial to securityholders of the Funds for the following reasons:
(a) it is expected that the Mergers will result in a more streamlined and simplified product line-up with less duplication that is easier for investors to understand;
(b) following the Mergers, each Continuing Fund will have more assets, thereby allowing for increased portfolio diversification opportunities and a smaller proportion of assets to be set aside for fund redemptions;
(c) securityholders of each Terminating Fund will benefit by moving to a Continuing Fund with a much larger net asset value, and each Continuing Fund will benefit from its larger profile in the marketplace; and
(d) the management fee and fixed administration fee with respect to each series of each Continuing Fund will be lower than the management fee and current operating expenses that are currently payable by securityholders of the corresponding series of the applicable Terminating Fund.
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 Merger Approval is granted, provided that the Manager obtains the prior approval of the securityholders of the Terminating Funds at a special meeting held for that purpose.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from subsection 5.1(4) of NI 81-101 to permit simplified prospectus of alternative mutual funds to be consolidated with simplified prospectus of mutual funds that are not alternative mutual funds.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 5.1(4) and 6.1.
March 19, 2021
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of RP Alternative Global Bond Fund (the Existing Alternative Fund) and any alternative mutual fund established or restructured in the future and managed by the Filer or an affiliate of the Filer (collectively with the Existing Alternative Fund, the Alternative Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that grants relief to the Alternative Funds from the requirement in subsection 5.1(4) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) which states that a simplified prospectus for an alternative mutual fund must not be consolidated with a simplified prospectus of another mutual fund if the other mutual fund is not an alternative mutual fund (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 Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Canadian Jurisdictions).
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and National Instrument 81-102 Investment Funds (NI 81-102) have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a limited partnership established under the laws of the Province of Ontario. The general partner of the Filer is RP Investment Advisors GP Inc., a corporation incorporated under the laws of the Province of Ontario. The Filer's head office is located in Toronto, Ontario.
2. The Filer is registered as (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; (ii) a portfolio manager in Ontario, Quebec and British Columbia; (iii) an exempt market dealer in each of the Canadian Jurisdictions; and (iv) a commodity trading manager in Ontario.
3. The Filer, or an affiliate of the Filer, is, or will be, the investment fund manager of each Alternative Fund.
4. The Filer is not in default of the securities legislation in any of the Canadian Jurisdictions.
5. Each Alternative Fund is, or will be, established under the laws of Ontario or Canada as a mutual fund that is a trust or a class of shares of a mutual fund corporation and is, or will be, a reporting issuer in one or more of the Canadian Jurisdictions.
6. The Existing Alternative Fund is not in default of the securities legislation in any of the Canadian Jurisdictions.
7. The securities of each Alternative Fund are, or will be, qualified for distribution in one or more of the Canadian Jurisdictions using a simplified prospectus, annual information form and fund facts documents prepared and filed in accordance with the securities legislation of such Canadian Jurisdictions. Each Alternative Fund is, or will be, subject to the requirements of NI 81-101 and NI 81-102.
8. The Filer wishes to combine the simplified prospectus of the Alternative Funds with the simplified prospectus of mutual funds existing today or created in the future (i) that are reporting issuers to which NI 81-101 and NI 81-102 apply, (ii) that are not alternative mutual funds, and (iii) for which the Filer, or an affiliate of the Filer, acts as the investment fund manager (the Conventional Funds) in order to reduce renewal, printing and related costs. Offering the Alternative Funds using the same simplified prospectus and annual information form as the Conventional Funds would facilitate the distribution of the Alternative Funds in the Canadian Jurisdictions under the same prospectus disclosure and enable the Filer to streamline disclosure across the Filer's fund platform.
9. Even though the Alternative Funds are, or will be, alternative mutual funds, they share, or will share, many common operational and administrative features with the Conventional Funds and combining them in the same simplified prospectus will allow investors to more easily compare the features of the Alternative Funds and the Conventional Funds.
10. Investors will continue to receive the fund facts document(s) when purchasing securities of the Alternative Funds or Conventional Funds as required by applicable securities legislation. The form and content of the fund facts document(s) of the Alternative Funds and Conventional Funds will not change as a result of the Exemption Sought. The simplified prospectus and/or annual information form of the Alternative Funds and Conventional Funds will continue to be provided to investors, upon request, as required by applicable securities legislation.
11. National Instrument 41-101 General Prospectus Requirements (NI 41-101) does not contain a provision equivalent to subsection 5.1(4) of NI 81-101. Accordingly, an investment fund manager that manages exchange-traded funds (ETFs) is permitted to consolidate a prospectus under NI 41-101 for its ETFs that are alternative mutual funds with a prospectus for its ETFs that are conventional mutual funds. There is no reason why mutual funds filing a prospectus under NI 81-101 should be treated differently from ETFs filing a prospectus under NI 41-101.
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.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to combine the simplified prospectus of an alternative mutual fund with the simplified prospectus of a conventional mutual fund.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 5.1(4) and 6.1.
March 19, 2021
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Alternative Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting relief to the Alternative Funds from the requirement in subsection 5.1(4) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) that a simplified prospectus (SP) for an alternative mutual fund must not be consolidated with a SP of another mutual fund if the other mutual fund is not an alternative mutual fund, to permit the SP(s) for one or more Alternative Fund(s) to be consolidated with the SP(s) of one or more mutual fund(s) existing today or created in the future (i) that are reporting issuers to which NI 81-101 and National Instrument 81-102 Investment Funds (NI 81-102) apply, (ii) that are not alternative mutual funds, and (iii) for which the Filer, or an affiliate of the Filer, acts as the investment fund manager (the Conventional Funds, and together with the Alternative Funds, the Funds) (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 Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Canadian Jurisdictions).
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the Business Corporations Act (Ontario) with its head office located in Toronto, Ontario.
2. The Filer is registered as: (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; (ii) a portfolio manager in Ontario; and (iii) an exempt market dealer in Ontario.
3. The Filer, or an affiliate of the Filer, is, or will be, the investment fund manager of each Fund.
4. The Filer is not in default of applicable securities legislation in any of the Canadian Jurisdictions.
The Funds
5. Each Alternative Fund is, or will be, established under the laws of Ontario or Canada as an alternative mutual fund that is a trust or a class of shares of a mutual fund corporation and is, or will be, a reporting issuer in one or more of the Canadian Jurisdictions.
6. Each Conventional Mutual Fund is not, or will not be, an alternative mutual fund.
7. The Existing Alternative Funds are not in default of applicable securities legislation in any of the Canadian Jurisdictions.
8. The securities of each Fund are, or will be, qualified for distribution in one or more of the Canadian Jurisdictions using a SP, annual information form (AIF) and fund facts documents prepared and filed in accordance with the securities legislation of such Canadian Jurisdictions. Each Fund is, or will be, subject to the requirements of NI 81-101 and NI 81-102.
Reasons for the Exemption Sought
9. The Filer wishes to combine the SP(s) for one or more Alternative Funds with the SP(s) of one or more Conventional Funds in order to reduce renewal, printing and related costs. Offering the Alternative Funds using the same SP and AIF as the Conventional Funds would facilitate the distribution of the Alternative Funds in the Canadian Jurisdictions under the same prospectus disclosure and enable the Filer to streamline disclosure across the Filer's fund platform.
10. Even though the Alternative Funds are, or will be, alternative mutual funds, they share, or will share, many common operational and administrative features with the Conventional Funds and combining them in the same SP will allow investors to more easily compare the features of the Alternative Funds and the Conventional Funds.
11. Investors will continue to receive the fund facts document(s) when purchasing securities of the Alternative Funds or Conventional Funds as required by applicable securities legislation. The form and content of the fund facts document(s) of the Alternative Funds and Conventional Funds will not change as a result of the Exemption Sought. The SP and/or AIF of the Alternative Funds and Conventional Funds will continue to be provided to investors, upon request, as required by applicable securities legislation.
12. National Instrument 41-101 General Prospectus Requirements (NI 41-101) does not contain a provision equivalent to subsection 5.1(4) of NI 81-101. Accordingly, an investment fund manager that manages exchange-traded funds (ETFs) is permitted to consolidate a prospectus under NI 41-101 for its ETFs that are alternative mutual funds with a prospectus for its ETFs that are conventional mutual funds. There is no reason why mutual funds filing a prospectus under NI 81-101 should be treated differently from ETFs filing a prospectus under NI 41-101.
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.
CI Investments Inc. and the Terminating ETFs
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of merger of exchange traded mutual funds -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- merging funds may be considered not to have substantially similar investment objectives -- one merger will not be a tax deferred transaction -- approval granted subject to securityholder approval.
National Instrument 81-102 Investment Funds, ss. 5.5(1), 5.5(3), 5.6(1), 5.7(1).
March 19, 2021
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating ETFs in the table below for a decision under the securities legislation of the Jurisdiction (the Legislation) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) approving the proposed merger of each Terminating ETF into the Continuing ETF shown opposite its name in the table below (each a Merger, and collectively, the Mergers) (the Merger Approval) (the Terminating ETFs and Continuing ETFs, collectively, the ETFs).
Merger |
Terminating ETF |
Continuing ETF |
|
|
|||
1 |
CI First Asset Morningstar Canada Dividend Target 30 Index ETF Common Units (DXM) |
[RARR] |
CI WisdomTree Canada Quality Dividend Growth Index ETF Non-Hedged Units (DGRC) |
|
|||
2 |
CI First Asset Canadian Buyback Index ETF Common Units (FBE) |
[RARR] |
|
|
|||
3 |
CI First Asset U.S. Buyback Index ETF Common Units (FBU) |
[RARR] |
CI WisdomTree U.S. Quality Dividend Growth Index ETF Hedged Units (DGR) |
|
|||
4 |
CI First Asset European Bank ETF Common Units (FHB) |
[RARR] |
CI First Asset Global Financial Sector ETF Common Units (FSF) |
|
|||
5 |
CI First Asset Morningstar US Dividend Target 50 Index ETF Common Units (UXM) Unhedged Common Units (UXM.B) |
[RARR] |
CI WisdomTree U.S. Quality Dividend Growth Index ETF Hedged Units (DGR) Non-Hedged Units (DGR.B) |
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
1. the Ontario Securities Commission is the principal regulator for this application; and
2. the Manager has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with Ontario, the Jurisdictions).
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 Manager:
The Manager and the ETFs
1. The Manager is a corporation amalgamated under the laws of Ontario with its head office located in Ontario. The Manager is registered as follows:
(a) under the securities legislation of all provinces and territories as a portfolio manager and an exempt market dealer;
(b) under the securities legislation of Ontario, Quebec and Newfoundland and Labrador as an investment fund manager; and
(c) under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.
2. The Manager is the manager of each ETF.
3. Each ETF is:
(a) an open-end mutual fund trust governed by a declaration of trust;
(b) an exchange-traded mutual fund whose securities are listed on the Toronto Stock Exchange (TSX);
(c) a reporting issuer under the securities legislation of each province and territory of Canada, subject to the requirements of NI 81-102 and National Instrument 41-101 General Prospectus Requirements; and
(d) not an alternative mutual fund as defined in NI 81-102.
4. Each ETF follows the standard investment restrictions and practices established under the securities legislation of the applicable Jurisdictions, except to the extent it has received an exemption from the securities regulatory authority of a Jurisdiction to deviate therefrom.
5. Each Terminating ETF and CI First Asset Global Financial Sector ETF, a Continuing ETF, currently distributes its securities in all the Jurisdictions pursuant to a prospectus dated April 22, 2020, as amended. Each other Continuing ETF currently distributes its securities in all the Jurisdictions pursuant to a prospectus dated June 19, 2020, as amended.
6. Neither the Manager nor any ETF is in default of securities legislation in any province or territory of Canada, as applicable.
Reason for Merger Approval
7. For each Merger, regulatory approval is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. In particular,
(a) in respect of each Merger, a reasonable person may not consider the Terminating ETF to have a substantially similar fundamental investment objective as its corresponding Continuing ETF; and
(b) in respect of Merger 4, the Merger will not be a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) (the Income Tax Act) or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Income Tax Act.
8. Each Merger otherwise complies with all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Mergers and Securityholder Disclosure
9. The Manager intends to merge each Terminating ETF into the Continuing ETF shown opposite its name in the table above and for Terminating ETF investors to receive the series of the Continuing ETF equivalent to their series in the Terminating ETF shown opposite its name in the table above.
10. The proposed Mergers were announced in the following documents, each of which has been filed on SEDAR:
(a) a press release dated February 1, 2021;
(b) a material change report dated February 1, 2021; and
(c) amendment dated February 3, 2021 to the prospectus and revised ETF facts of each of the Terminating ETFs.
11. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Manager presented the terms of the Mergers to the independent review committee of the Terminating ETFs (the IRC) for its review. The IRC determined that the Mergers, if implemented, will achieve a fair and reasonable result for each of the Terminating ETFs.
12. The Manager is convening a special meeting of the securityholders of each Terminating ETF in order to seek their approval to complete the applicable Merger, as required by paragraph 5.1(1)(f) of NI 81-102 (each, a Meeting). The Meetings will be held concurrently on or about April 1, 2021. As disclosed in the management information circular of the Terminating ETFs dated February 19, 2021 (the Circular), due to the COVID-19 pandemic and current restrictions placed on public gatherings, investors will not be able to attend the Meetings physically. Securityholders of the ETFs and duly-appointed proxyholders, regardless of geographic location, will have an equal opportunity to participate at the Meetings through teleconference as they would at a physical meeting, provided they remain connected on the telephone at all times during the Meetings. Securityholders and duly-appointed proxyholders will be able to listen to the Meetings and to ask questions when prompted while the Meetings are being held, and to submit their votes by the end of the Meetings.
13. The Manager has concluded that the Mergers are not material changes to the Continuing ETFs, and accordingly, there is no intention to convene meetings of securityholders of the Continuing ETFs to approve the Mergers pursuant to paragraph 5.1(1)(g) of NI 81-102.
14. By way of order dated July 28, 2017, the Manager was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of National Instrument 81-106 Investment Fund Continuous Disclosure to send a printed management information circular to securityholders while proxies are being solicited that, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such securityholders.
15. Pursuant to requirements of the Notice-and-Access Relief, a notice-and-access document and applicable proxies in connection with the Meeting, along with the ETF facts of the Continuing ETFs, were mailed to securityholders of the Terminating ETFs on February 19, 2021 and were concurrently filed via SEDAR. The Circular, which the notice-and-access document provides a link to, was also filed via SEDAR at the same time.
16. If all required approvals for a Merger are obtained, it is intended that the Merger will occur after the close of business on or about April 16, 2021 (the Effective Date). The Manager therefore anticipates that each securityholder of a Terminating ETF will become a securityholder of its corresponding Continuing ETF after the close of business on the Effective Date. Each Terminating ETF will be wound-up as soon as reasonably possible following its Merger.
17. The Circular describes:
(a) The tax implications of the Mergers;
(b) The differences between the investment objectives and other features of the Terminating ETFs and the Continuing ETFs;
(c) The IRC's recommendation in respect of the Mergers;
(d) The various ways in which securityholders can obtain a copy of the prospectuses and ETF facts for the Continuing ETFs and their most recent interim and annual financial statements and management reports of fund performance; and
(e) The steps for implementing each Merger.
18. The Circular also discloses that:
(a) Securityholders will continue to have the right to redeem their securities of the Terminating ETFs up to the close of business on the Effective Date. Securityholders of the Terminating ETFs will subsequently be able to redeem their securities of the corresponding Continuing ETFs acquired through the Mergers, which will be subject to the same redemption charges, if any, their securities of the Terminating ETFs were subject to;
(b) In respect of Merger 4, which is being effected on a taxable basis, the Continuing ETF has capital loss carryforwards for tax purposes that will be lost if that Merger is implemented on a tax-deferred basis. Merger 4 will be effected on a taxable basis and the Continuing ETF will preserve its unutilized capital loss carryforwards for use to shelter capital gains realized by it in future years;
(c) It is expected that only the Terminating ETFs involved in Mergers 2 and 5 will distribute net realized capital gains to their securityholders as a result of the Mergers in advance of the effective date(s) of the Mergers. For Merger 4, the Terminating ETF expects that it will have sufficient loss carryforwards or sufficient capital gains refund to offset any capital gains realized on the liquidation of assets prior to its Merger and on the transfer of its assets to the Continuing ETF. These expectations may change in advance of the Mergers due to market activity, portfolio manager activity and/or securityholder activity;
(d) Neither the Terminating ETFs nor the Continuing ETFs will bear any of the costs and expenses associated with the Mergers. Such costs will be borne by the Manager;
(e) If a proposed Merger is not approved by securityholders of a Terminating ETF, that Terminating ETF will instead be terminated on or about April 22, 2021.
19. The Manager believes the Circular provides securityholders of the Terminating ETFs with sufficient information to permit them to make an informed decision as to whether to approve the applicable Merger.
Merger Implementation
20. The specific steps to implement each Merger are as follows:
(a) Prior to the Merger, if required, the Terminating ETF will sell any securities in its portfolio that do not meet the investment objective and investment strategies of the Continuing ETF. As a result, the Terminating ETF may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to the Merger being effected.
(b) The value of a Terminating ETF's investment portfolio and other assets will be determined at the close of business on the effective date of the applicable Merger in accordance with the constating documents of the Terminating ETF.
(c) Each of the Terminating ETF and the Continuing ETF may declare, pay and automatically reinvest a distribution to its securityholders of net realized capital gains and net income, if any, to ensure that it will not be subject to tax for its current tax year. In respect of Merger 4, for the Terminating ETF's securityholders, this will also ensure that they will not be subject to tax on any net income generated prior to the Merger in the Continuing ETF.
(d) The Terminating ETF will transfer substantially all of its assets to the Continuing ETF. In return, the Continuing ETF will issue to the Terminating ETF securities of the Continuing ETF having an aggregate net asset value equal to the value of the assets transferred to the Continuing ETF.
(e) The Continuing ETF will not assume liabilities of the Terminating ETF and the Terminating ETF will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.
(f) Immediately thereafter, securities of the Continuing ETF received by the Terminating ETF will be distributed to securityholders of the Terminating ETF in exchange for their securities in the Terminating ETF on a dollar-for-dollar and series-by-series basis (the term "series" as used here also includes class).
(g) The Terminating ETF's securities will be de-listed from the TSX and the Terminating ETF will cease to be reporting issuers in each of the provinces and territories of Canada.
(h) The Terminating ETF will be wound-up within 30 days following its Merger.
21. Each securityholder of the Terminating ETF will receive securities of the Continuing ETF with a value equal to the value of their securities of the Terminating ETF.
22. The costs of effecting the Mergers (consisting primarily of legal and regulatory fees, and proxy solicitation, printing and mailing costs) will be borne by the Manager.
23. No brokerage charges or sales charges will be payable by the ETFs or securityholders of the ETFs in connection with the Mergers.
24. The investment portfolio and other assets of each Terminating ETF to be acquired by the applicable Continuing ETF in order to effect the Mergers are currently, or will be, acceptable, on or prior to the Effective Date, to the portfolio manager(s) of the applicable Continuing ETF and are, or will be, consistent with the investment objective of the applicable Continuing ETF.
25. The result of each Merger will be that investors in each Terminating ETF will cease to be securityholders of the Terminating ETF and will become securityholders of its corresponding Continuing ETF, and the Continuing ETFs will continue as publicly-offered open-end mutual funds.
Benefits of the Mergers
26. In the opinion of the Manager, the Mergers will be beneficial to securityholders of the ETFs for the following reasons:
(a) it is expected that the Mergers will result in a more streamlined and simplified product line-up with less duplication that is easier for investors to understand;
(b) following the Mergers, each Continuing ETF will have more assets and a smaller proportion of assets to be set aside for ETF redemptions;
(c) securityholders of each Terminating ETF will benefit by moving to a Continuing ETF with a much larger net asset value, and each Continuing ETF will benefit from its larger profile in the marketplace; and
(d) the management fee and fixed administration fee or operating expenses, as applicable, with respect to each series or class of each Continuing ETF, as applicable, will be the same as, or, in certain cases, lower than, the management fee and current fixed administration fee or operating expenses, as applicable, of the corresponding series of the applicable Terminating ETF.
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 decision maker under the Legislation is that the Merger Approval is granted provided that the Manager obtains the prior approval of securityholders of a Terminating ETF for its Merger prior to the Effective Date.
RBC Global Asset Management Inc. et al.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to combine the simplified prospectus of an alternative mutual fund with the simplified prospectus of a conventional mutual fund.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 5.1(4) and 6.1
March 19, 2021
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Alternative Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting relief to the Alternative Funds from the requirement in section 5.1(4) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) that a simplified prospectus (SP) for an alternative mutual fund must not be consolidated with a SP of another mutual fund if the other mutual fund is not an alternative mutual fund, to permit the SP(s) for one or more Alternative Fund(s) to be consolidated with the SP(s) of one or more mutual fund(s) existing today or created in the future (i) that are reporting issuers to which NI 81-101 and National Instrument 81-102 Investment Funds (NI 81-102) apply, (ii) that are not alternative mutual funds, and (iii) for which the Filer acts as the investment fund manager (collectively, the RBC Mutual Funds, together with the Alternative Funds, the Funds) (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 Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions or NI 81-102, as applicable, have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer.
The Filer
1. The Filer is a corporation formed by amalgamation pursuant to articles of amalgamation dated November 1, 2013 under the federal laws of Canada and its head office is located in Toronto, Ontario.
2. The Filer is an indirect, wholly-owned subsidiary of Royal Bank of Canada.
3. The Filer is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the securities legislation of each Jurisdiction, is registered as an investment fund manager in each of British Columbia, Ontario, Québec and Newfoundland and Labrador and is also registered in Ontario as a commodity trading manager.
4. The Filer is, or will be, the investment fund manager of the Funds.
5. RBCGAM is not in default of any of its obligations under the securities legislation of any Jurisdiction.
The Funds
6. Each Alternative Fund is, or will be, an alternative mutual fund established under the laws of the Province of Ontario or the laws of another Jurisdiction.
7. Each RBC Mutual Fund is, or will be, a conventional mutual fund and is not, or will not be, an alternative mutual fund.
8. The Funds are, or will be, subject to NI 81-102, subject to any exemptions therefrom that have been, or may be, granted by the securities regulatory authorities.
9. The securities of each Fund are, or will be, offered by a SP and annual information form (AIF) prepared in accordance with NI 81-101 and filed in one or more Jurisdictions. Accordingly, each Fund is, or will be, a reporting issuer in one or more Jurisdictions.
10. The BlueBay Global Alternative Bond Fund (Canada) is not in default of any of its obligations under the securities legislation of the Jurisdictions.
Reasons for the Exemption Sought
11. The Filer wishes to be able to consolidate the SP(s) and AIF(s) (collectively, the SP Documents) for one or more Alternative Funds with the SP Documents of one or more RBC Mutual Funds to reduce renewal, printing and related costs. Offering the Alternative Funds under the same SP Documents as the RBC Mutual Funds would facilitate the distribution of the Alternative Funds in the Jurisdictions under the same prospectus disclosure and enable the Filer to streamline disclosure across the Filer's fund platform.
12. Even though the Alternative Funds are, or will be, alternative mutual funds, they share, or will share, many common operational and administrative features with the RBC Mutual Funds and combining them in the same SP Documents will allow investors to more easily compare the features of the Alternative Funds and the RBC Mutual Funds.
13. The Filer may make changes to the features of the RBC Mutual Funds as part of the process of renewing the RBC Mutual Funds' SP Documents. The ability to file the SP Documents of the Alternative Funds with those of the RBC Mutual Funds will ensure that the Filer can make the operational and administrative features of the Alternative Funds and the RBC Mutual Funds consistent with each other, as appropriate.
14. Investors will continue to receive a fund facts document when purchasing securities of an Alternative Fund as required by applicable securities legislation. The form and content of the fund facts document of the Alternative Funds will not change as a result of the Exemption Sought.
15. The SP and/or AIF of the Alternative Funds will continue to be provided to investors, upon request, as required by applicable securities legislation.
16. National Instrument 41-101 General Prospectus Requirements (NI 41-101) does not contain a provision which is equivalent to subsection 5.1(4) of NI 81-101. Accordingly, an investment fund manager that manages exchange-traded funds (ETFs) is permitted to consolidate a prospectus under NI 41-101 for its ETFs that are alternative mutual funds with a prospectus for its ETFs that are conventional mutual funds. The Filer submits that there is no reason why mutual funds filing a prospectus under NI 81-101 should be treated differently from ETFs filing a prospectus under NI 41-101.
17. The Filer is of the view that the Exemption Sought is not prejudicial to the public interest and is in the best interests of the Alternative Funds and their securityholders.
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 is that the Exemption Sought is granted.
Investment Industry Regulatory Organization of Canada (IIROC) -- s. 144 of the Act and s. 78(1) of the CFA
Variation and restatement of the IIROC recognition order to clarify and update terms and conditions of recognition and reporting requirements.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., s. 78(1).
WHEREAS the Commission issued an order dated May 16, 2008, as amended on May 28, 2010 and March 9, 2018, recognizing IIROC as a self-regulatory organization pursuant to section 21.1 of the Act and subsection 16(1) of the CFA ("Previous Order");
AND WHEREAS the Commission has determined that it is not prejudicial to the public interest to issue an order that varies and restates the Previous Order to amend Appendix A, Schedule 1 and Schedule 2 to clarify and update the terms and conditions of IIROC's recognition as a self-regulatory organization as well as its recognition criteria and reporting requirements;
IT IS ORDERED pursuant to section 144 of the Act and subsection 78(1) of the CFA that the Previous Order be varied and restated as follows:
The Investment Dealers Association of Canada (the IDA) had been recognized by the Alberta Securities Commission, British Columbia Securities Commission, Manitoba Securities Commission, Nova Scotia Securities Commission, Ontario Securities Commission, Saskatchewan Financial Services Commission, the Financial Services Regulation Division, Department of Government Services, Consumer & Commercial Affairs Branch (Newfoundland and Labrador) and the Autorité des marchés financiers (Québec), and had applied to the New Brunswick Securities Commission for recognition (together with the Securities Office, Consumer, Corporate and Insurance Services Division, Office of the Attorney General (Prince Edward Island), (the Recognizing Regulators) as a self-regulatory organization or self-regulatory body pursuant to applicable legislation.
Market Regulation Services Inc. (RS) had been recognized by the Autorité des marchés financiers (Québec) and the Alberta Securities Commission, British Columbia Securities Commission, Manitoba Securities Commission and Ontario Securities Commission as a self-regulatory organization or self-regulatory body pursuant to applicable securities legislation.
The IDA and RS agreed to combine their operations into IIROC.
IIROC will, among other things:
a. regulate investment dealers, including alternative trading systems (ATSs) and futures commission merchants (Dealer Members);
b. if retained by an ATS pursuant to National Instrument 23-101 Trading Rules, regulate the ATS as a Marketplace Member (defined below) and the subscribers of the ATS;
c. establish, administer and monitor its rules, policies and other similar instruments (Rules);
d. enforce compliance with its Rules by Dealer Members and others subject to its jurisdiction;
e. provide services to exchanges and quotation and trade reporting systems (QTRSs) (together with ATSs, Marketplace Members) that choose to retain it as a regulation services provider, as that term is defined under National Instrument 21-101 Marketplace Operation;
f. if retained by an exchange or QTRS, administer, monitor and/or enforce rules pursuant to a regulation services agreement between IIROC and that exchange or QTRS (RSA);
g. conduct certain functions delegated to it by Recognizing Regulators, including registration functions; and
h. perform investigation and enforcement functions on behalf of the IDA and RS for as long as each of the IDA and RS continues to be recognized by the Ontario Securities Commission (Commission) as a self-regulatory organization or a self-regulatory body.
On April 30, 2008, the Board of IIROC adopted the rules and policies of RS and the regulatory By-laws, Regulations, Forms and Policies of the IDA that were in force and effect at that time, subject to incidental conforming changes made to ensure consistency, and the Hearing Committees and Hearing Panels Rule as the Rules.
On April 30, 2008, the Board of IIROC adopted the market integrity notices issued by RS and all regulatory notices, bulletins, directives and guidance provided by the IDA that were in effect at that time.
IIROC applied to the Commission and the other Recognizing Regulators for recognition as a self-regulatory organization pursuant to subsection 21.1(1) of the Act and subsection 16(1) of the CFA.
The Commission issued an order dated May 16, 2008 and effective on June 1, 2008, recognizing IIROC as a self-regulatory organization pursuant to subsection 21.1(1) of the Act and subsection 16(1) of the CFA.
IIROC applied on May 14, 2010, to amend Appendix A of the order dated May 16, 2008, to: (i) extend the time for IIROC to develop an integrated fee model and submit it for approval with the Commission and (ii) extend the time IIROC must provide written quarterly reports on the status of the development of the fee model.
The Commission issued an order dated May 16, 2008, as amended on May 28, 2010, amending Appendix A pursuant to section 144 of the Act and subsection 16(1) of the CFA (Previous Order).
The Executive Director applied on February 6, 2018, to amend Appendix A and Schedule 2 of the Previous Order to clarify and update IIROC's reporting requirements.
The Executive Director applied on January 21, 2020, to amend Appendix A, Schedule 1 and Schedule 2 of the Previous Order to clarify and update the terms and conditions of IIROC's recognition as a self-regulatory organization.
The Commission is satisfied that continuing to recognize IIROC as a self-regulatory organization, subject to the terms and conditions set out in Appendix A, is not prejudicial to the public interest.
The Commission hereby continues to recognize IIROC as a self-regulatory organization pursuant to section 21.1 of the Act and subsection 16(1) of the CFA on the terms and conditions set out in Appendix A and the applicable provisions of the Memorandum of Understanding between the Recognizing Regulators, as amended from time to time (MOU).
Dated May 16, 2008, as amended on May 28, 2010, March 9, 2018, and October 22, 2020 to be effective on April 1, 2021.
IIROC must continue to meet the criteria attached at Schedule 1.
a. Prior Commission approval is required for any changes to the following:
(i) the corporate governance structure of IIROC, as reflected in IIROC's By-law No. 1 (By-law No. 1);
(ii) IIROC's articles of incorporation or continuance; and
(iii) the assignment, transfer, delegation or sub-contracting of the performance of all or a substantial part of its regulatory functions or responsibilities as a self-regulatory organization.
b. Prior Commission approval is required for material changes to the following:
(i) the fee model;
(ii) the functions IIROC performs;
(iii) IIROC's organizational structure;
(iv) the activities, responsibilities, and authority of the District Councils; and
(v) the Regulation Services Agreement between IIROC and any Marketplace Member.
a. IIROC must operate on a not-for-profit basis.
b. IIROC must comply with any terms and conditions the Commission may impose in the public interest concerning any transaction that would result in IIROC:
(i) ceasing to perform its services;
(ii) discontinuing, suspending or winding-up all or a significant portion of its operations;
(iii) disposing of all or substantially all of its assets; or
(iv) terminating its agreement with an information technology service provider providing critical technology systems.
IIROC must comply with the process for filing and obtaining Commission approval for by-laws, Rules and any amendments to by-laws or Rules as outlined in Appendix B of the MOU, as amended from time to time.
a. IIROC must:
(i) ensure that at least 50% of its board of directors (Board), other than the President of IIROC, are independent directors as defined in By-law No. 1;
(ii) ensure that one of the directors represents an exchange or ATS that is not affiliated with a marketplace
(A) that retains IIROC, and
(B) has at least a 40% Market Share as defined in By-law No. 1 (Market Share); and
(iii) review the corporate governance structure, including the composition of the Board, at the request of the Commission,
to ensure that there is a proper balance between, and effective representation of, the public interest and the interests of marketplaces, dealers and other entities desiring access to the services provided by IIROC.
Subject to applicable law and the Rules and by-laws of IIROC, before rendering a decision that affects the rights of a person or company in relation to membership, registration or enforcement matters, IIROC must provide that person or company an opportunity to be heard.
a. IIROC must set Rules governing its members and others subject to its jurisdiction.
b. IIROC must administer and monitor compliance with the Rules and securities laws by members and others subject to its jurisdiction and enforce compliance with the Rules by Dealer Members, including ATSs, and others subject to its jurisdiction.
c. If retained by an exchange or QTRS, IIROC must administer, monitor and/or enforce rules pursuant to an RSA.
d. IIROC must, subject to applicable legislation, collect, use and disclose personal information only to the extent reasonably necessary to carry out its regulatory activities and mandate.
e. IIROC must ensure that it is accessible for contact by the public for purposes relating to the performance of its functions as a self-regulatory organization.
f. IIROC must publish concurrently in English and French each document issued to the public or generally to any class of members.
g. IIROC must adopt policies and procedures designed to ensure that confidential information about its operations or those of any Dealer Member, Marketplace Member or marketplace participant is maintained in confidence and not shared inappropriately with other persons, and must use all reasonable efforts to comply with these policies and procedures.
h. IIROC must, at least annually, self-assess IIROC's performance of its regulatory responsibilities, and report thereon to its Board, together with any recommendations for improvements.
All fines collected by IIROC and all payments made under settlement agreements entered into with IIROC may be used only as follows:
a. as approved by the Corporate Governance Committee,
(i) for the development of systems or other expenditures that are necessary to address emerging regulatory issues and are directly related to protecting investors or the integrity of the capital markets, provided that any such use does not constitute normal course operating expenses;
(ii) for education or research projects that are directly relevant to the investment industry, are in the public interest, and which benefit the public or the capital markets;
(iii) to contribute to a non-profit, tax-exempt organization, the purposes of which include protection of investors, or those described in paragraph (a)(ii);
(iv) for such other purposes as may be subsequently approved by the Commission; or
b. for reasonable costs associated with the administration of IIROC's hearing panels.
a. Subject to paragraph (b), IIROC must
(i) promptly notify the public and the news media of:
(A) the specifics relating to each disciplinary or settlement hearing once the hearing date is set, and
(B) the terms of each settlement and the disposition of each disciplinary action once the terms or disposition is determined; and
(ii) ensure that disciplinary and settlement hearings are open to the public and the news media.
b. Despite paragraph (a), IIROC may, on its own initiative or on request, order a closed-door hearing or prohibit the publication or release of information or documents if it determines that it is required for the protection of confidential matters. IIROC must establish written criteria for making a determination of confidentiality.
a. IIROC must
(i) ensure that each of IIROC's critical technology systems has
(A) appropriate internal controls to ensure integrity and security of information; and
(B) reasonable and sufficient capacity, and backup to enable IIROC to properly carry on its business; and
(ii) have controls to manage the risks associated with its operations, including an annual review of its contingency and business continuity plans.
b. IIROC must, on a reasonably frequent basis, and in any event at least annually, cause to be performed an independent review of the controls and capacity described in paragraph (a) above in accordance with established audit procedures and standards. The Board must conduct a review of the report containing the recommendations and conclusions of the independent review.
IIROC must also, on a reasonably frequent basis, and in any event at least annually, complete the following, which may be completed as part of the independent review:
(i) make reasonable current and future capacity estimates for its critical technology systems;
(ii) conduct capacity stress tests to determine the ability of those systems to perform its regulation functions in an accurate, timely and efficient manner;
(iii) review and keep current the development and testing methodology of those systems; and
(iv) review the vulnerability of those systems to internal and external threats including physical hazards and natural disasters.
c. The term and condition in paragraph (b) above will not apply if:
(i) the information technology provider retained by IIROC is required, either by law or otherwise, to conduct an annual independent review; and
(ii) IIROC's Board obtains and reviews annually a copy of the independent review report of its information technology provider to ensure that it has controls in place to address the matters outlined in paragraphs (a) and (b) above.
d. IIROC must, periodically or at the request of the Commission, benchmark surveillance systems and services provided by its information technology providers against comparable systems and services available from other third-party technology providers.
a. IIROC must comply with reporting requirements set out in Schedule 2 of this Recognition Order, as amended from time to time by the Commission or its staff.
b. IIROC must provide the Commission with other reports, documents and information as the Commission or its staff may request.
a. The governance structure and arrangements must ensure:
(i) effective oversight of the entity;
(ii) fair, meaningful and diverse representation on the governing body (Board) and any committees of the Board, including a reasonable proportion of independent directors;
(iii) a proper balance among the interests of the different persons or companies subject to regulation by IIROC; and
(iv) each director or officer is a fit and proper person.
IIROC must regulate to serve the public interest in protecting investors and market integrity. It must articulate and ensure it meets a clear public interest mandate for its regulatory functions.
IIROC must effectively identify and manage conflicts of interest.
a. All fees imposed by IIROC must be equitably allocated. Fees must not have the effect of creating unreasonable barriers to access.
b. The process for setting fees must be fair and transparent.
c. IIROC must operate on a cost-recovery basis.
IIROC must comply with the Industry Agreement signed with the Canadian Investor Protection Fund (CIPF).
a. IIROC must have reasonable written criteria that permit all persons or companies that satisfy the criteria to access IIROC's regulatory services.
b. The access criteria and the process for obtaining access should be fair and transparent.
IIROC must have sufficient financial resources for the proper performance of its functions and to meet its responsibilities.
a. IIROC must maintain its capacity to effectively and efficiently perform its regulatory functions, which include governing the conduct of persons or companies subject to its regulation and monitoring and enforcing applicable requirements.
b. IIROC must maintain in each jurisdiction where it has an office
(i) sufficient financial, technological, human and other resources; and
(ii) appropriate organizational structures and adequate technological systems
to efficiently, effectively and in a timely manner perform its regulatory functions and responsibilities.
IIROC must maintain controls to ensure capacity, integrity requirements and security of its technology systems.
a. IIROC must establish and maintain Rules that:
(i) are necessary or appropriate to govern and regulate all aspects of its functions and responsibilities as a self-regulatory entity;
(ii) are designed to:
(A) ensure compliance with securities laws,
(B) prevent fraudulent and manipulative acts and practices,
(C) promote just and equitable principles of trade and the duty to act fairly, honestly and in good faith,
(D) foster cooperation and coordination with entities engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in, securities,
(E) foster fair, equitable and ethical business standards and practices,
(F) promote the protection of investors, and
(G) provide for appropriate discipline of those whose conduct it regulates;
(iii) do not impose any burden or constraint on competition or innovation that is not necessary or appropriate in furtherance of IIROC's regulatory objectives;
(iv) do not impose costs or restrictions on the activities of market participants that are disproportionate to the goals of the regulatory objectives sought to be realized; and
(v) are not contrary to the public interest.
The process for discipline must be fair and transparent.
To assist the Commission and other regulatory authorities in carrying out their regulatory mandates, IIROC must share information and cooperate with:
a. the Commission and any other securities regulatory authority, whether domestic or foreign;
b. exchanges;
c. self-regulatory organizations;
d. clearing agencies;
e. financial intelligence or law enforcement agencies or authorities; and
f. investor protection or compensation funds, whether domestic or foreign.
This assistance includes the collection and sharing of information and other forms of assistance for the purpose of market surveillance, investigations, enforcement litigation, investor protection and compensation and for any other regulatory purpose and is subject to applicable laws related to information sharing and protection of personal information.
Constituting documents, by-laws and operating rules of IIROC should allow that the power to make decisions relating to the supervision of its activities in Québec will be exercised mainly by persons residing in Québec.
a. IIROC will provide the Commission with at least twelve months' written notice prior to completing any transaction that would result in IIROC:
(i) ceasing to perform its services;
(ii) discontinuing, suspending or winding-up all or a significant portion of its operations; or
(iii) disposing of all or substantially all of its assets.
b. IIROC will provide the Commission with at least three months' written notice prior to:
(i) terminating its agreement with an information technology service provider providing critical technology systems; or
(ii) any intended material change to its agreement with an information technology service provider regarding its critical technology systems.
IIROC will immediately notify the Commission of the following events:
a. the admission of a new member, including the member's name, and any terms and conditions that are imposed on the member;
b. members whose rights and privileges or membership will be suspended or terminated, including:
(i) the member's name;
(ii) the reasons for the proposed suspension or termination; and
(iii) a description of the steps being taken to ensure that the member's clients are being dealt with appropriately;
c. receipt of a member's intention to resign.
d. receipt of an application for a Board exemption or amendment to a Board exemption that could have a significant impact on:
(i) IIROC members and others subject to IIROC's jurisdiction, or
(ii) the capital markets generally including, for greater clarity, certain stakeholders or sectors.
The notice required by this section, other than in (d), may be provided by IIROC issuing a public notice containing the information, provided that such public notice will be issued immediately after the decision is made for admission, suspension or termination of membership and immediately after receipt of a notice of intention to resign, as the case may be.
IIROC will provide the Commission with prompt notice of the following events and situations, and in each case describe the circumstances that gave rise to the reportable event or situation, and IIROC's proposed response to ensure resolution, and, if appropriate, provide timely updates:
a. situations that would reasonably be expected to raise concerns about IIROC's financial viability, including but not limited to, an inability to meet its expected expenses for the next quarter or the next year;
b. any determination by IIROC, or notification from any of the Recognizing Regulators, that IIROC is not or will not be in compliance with one or more of the terms and conditions of its recognition in any jurisdiction, or with one or more of the criteria for recognition set out in Schedule 1;
c. any material violations of securities legislation of which IIROC becomes aware in the ordinary course operation of its business;
d. any material failures in the controls described in terms and conditions 10(a)(i) and (ii) of Appendix A to this Recognition Order;
e. any failure, malfunction, delay or security breach, including material cyber security breaches, of IIROC's critical systems or technology systems that support IIROC's critical systems;
f. any breach of security safeguards involving information under IIROC's control if it is reasonable in the circumstances to believe that the breach creates a real risk of significant harm to investors, issuers, registrants, other market participants, IIROC, CIPF, or the capital markets;
g. any material change to the information set out in the application letter dated December 21, 2007;
h. actual or apparent misconduct or non-compliance by members, Approved Persons, marketplace participants, or others, where investors, clients, creditors, members, CIPF, or IIROC may reasonably be expected to suffer serious damage as a consequence thereof, including but not limited to:
(i) where fraud appears to be present; or
(ii) where serious deficiencies in supervision or internal controls exist;
i. situations that would reasonably be expected to raise concerns about a member's continued viability, including but not limited to, capital deficiency, early warning, and any condition which, in the opinion of IIROC, could give rise to payments being made out of CIPF, including any condition which, alone or together with other conditions, could, if appropriate corrective action is not taken, reasonably be expected to:
(i) inhibit the member from promptly completing securities transactions, promptly segregating clients' securities as required or promptly discharging its responsibilities to clients, other members, or creditors;
(ii) result in material financial loss to the member or its clients; or
(iii) result in material misstatement of the member's financial statements;
j. any action taken by IIROC with respect to a member in financial difficulty;
k. any terms and conditions imposed, varied or removed by IIROC relating to a member;
l. any enforcement agreement and undertaking entered into, varied or rescinded at IIROC's request relating to a member.
IIROC will file on a quarterly basis with the Commission a report pertaining to IIROC's regulatory operations promptly after the report is reviewed or approved by IIROC's Board, board committees, or senior management, as the case may be, containing at a minimum the following information and documents:
a. a summary of ongoing initiatives, policy changes, and emerging or key issues that arose in the previous quarter for each of IIROC's regulatory operations;
b. a summary of all compliance examinations in progress or completed during the previous quarter, and all compliance examinations scheduled to be commenced in the upcoming quarter by IIROC office and department, including information on repeat or significant deficiencies;
c. a summary of any terms and conditions imposed, varied or removed relating to Approved Persons during the previous quarter;
d. a summary of all discretionary exemptions granted to individuals, members, and marketplace participants during the previous quarter;
e. summary statistics for the previous quarter regarding all client complaints, and complaints received from other sources including, but not limited to, any other securities regulatory authority;
f. summary statistics by IIROC office for the previous quarter regarding the caseload for each of case assessment, trading review and analysis, market surveillance, investigations and prosecutions, separated between Member and Marketplace Regulation cases, including the length of time the files have been open;
g. a summary of enforcement files that were referred to any of the Recognizing Regulators during the previous quarter; and
h. IIROC's regulatory staff complement, by function, and details of any material changes or reductions in regulatory staffing, by function, during the previous quarter.
IIROC will file on an annual basis with the Commission a report pertaining to IIROC's regulatory operations promptly after the report is reviewed or approved by IIROC's Board, board committees, or senior management, as the case may be, containing at a minimum the following documents:
a. the self-assessment referred to in term and condition 7(h) of Appendix A to this Recognition Order. The self-assessment must contain information as specified by Commission staff from time to time and include the following information:
(i) an assessment of how IIROC is meeting its regulatory mandate, including an assessment against the recognition criteria in Schedule 1 to the Recognition Order and the terms and conditions in Appendix A to the Recognition Order;
(ii) an assessment against its strategic plan;
(iii) a description of trends seen as a result of compliance reviews, investigations and prosecutions conducted, and complaints received, including IIROC's plan to deal with any issues;
(iv) whether IIROC is meeting its benchmarks, and reasons for any benchmarks not being met;
(v) a description and update on significant projects undertaken by IIROC; and
(vi) a description of issues raised by any of the Recognizing Regulators, external auditors or internal audit, which are being tracked by IIROC's senior management, together with a summary of the progress made on their resolution; and
b. certification by IIROC's Chief Executive Officer and General Counsel that IIROC is in compliance with the terms and conditions applicable to it in Appendix A to this Recognition Order.
a. IIROC will file with the Commission unaudited quarterly financial statements with notes within 60 days after the end of each financial quarter.
b. IIROC will file with the Commission audited annual financial statements accompanied by the report of an independent auditor within 90 days after the end of each fiscal year.
a. IIROC will provide the Commission on a timely basis with the following information and documents upon publication or completion of review and approval by IIROC's Board, board committees, or senior management, as the case may be:
(i) the results of any corporate governance review referred to in term and condition 5(a)(iii) of Appendix A to this Recognition Order;
(ii) material changes to the code of business ethics and conduct and the written policy about managing potential conflicts of interests of members of IIROC's Board;
(iii) changes in the members of IIROC's Board;
(iv) the financial budget for the current year, together with the underlying assumptions, that have been approved by IIROC's Board;
(v) the independent review report referred to in term and condition 10(b) of Appendix A to this Recognition Order;
(vi) the results of benchmarking of surveillance systems and services referred to in term and condition 10(d) of Appendix A to this Recognition Order, together with a summary of the process undertaken and conclusions reached;
(vii) enterprise risk management reports, and any material changes to enterprise risk management methodology;
(viii) the internal audit charter, annual internal audit plan, and internal audit reports;
(ix) the annual report for the current year;
(x) the compliance examination plan for the current year;
(xi) material changes to the compliance or enforcement processes or scope of work, including risk assessment models for:
(A) Financial and Operations Compliance;
(B) Business Conduct Compliance; and
(C) Trading Conduct Compliance.
b. IIROC will provide the Commission with reasonable prior notice of any document that it intends to publish or issue to the public or to any class of members which, in the opinion of IIROC, could have a significant impact on:
(i) its members and others subject to its jurisdiction; or
(ii) the capital markets generally.
c. IIROC will, upon request, provide the Commission with the following information and documents as soon as practicable:
(i) information concerning closed investigations or prosecutions which did not lead to disciplinary or settlement proceedings including the final investigation report and recommendation memorandum; and
(ii) information concerning enforcement matters that resulted in disciplinary or settlement proceedings including the final penalty memorandum.
Mutual Fund Dealers Association of Canada (MFDA) -- s. 144
Variation and restatement of the MFDA recognition order to clarify and update terms and conditions of recognition and reporting requirements.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.
WHEREAS the Commission issued an order dated February 6, 2001, as amended on March 30, 2004, November 3, 2006, October 28, 2008, December 12, 2008, October 29, 2014, and March 9, 2018, recognizing the MFDA as a self-regulatory organization for mutual fund dealers pursuant to section 21.1 of the Act ("Previous Order");
AND WHEREAS the Recognizing Regulators entered into a Memorandum of Understanding regarding oversight of the MFDA effective October 2, 2013;
AND WHEREAS the Recognizing Regulators have entered into a new Memorandum of Understanding regarding oversight of the MFDA effective April 1, 2021 (MOU), which includes a Joint Rule Review Protocol (JRRP) for review and approval of, or non-objection to, Rule Changes (as defined in the MOU) of the MFDA;
AND WHEREAS the Commission has determined that it is not prejudicial to the public interest to issue an order that varies and restates the Previous Order to amend Schedule A and Appendix A to clarify and update the terms and conditions of the MFDA's recognition as a self-regulatory organization;
IT IS ORDERED pursuant to section 144 of the Act that the Previous Order be varied and restated as follows:
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")
AND
IN THE MATTER OF MUTUAL FUND DEALERS ASSOCIATION OF CANADA/ASSOCIATION CANADIENNE DES COURTIERS DE FONDS MUTUELS (the "MFDA")
RECOGNITION ORDER (Section 21.1)
WHEREAS the Commission recognized the MFDA as a self-regulatory organization for mutual fund dealers by an order dated February 6, 2001, as amended on March 30, 2004, November 3, 2006, October 28, 2008, December 12, 2008, October 29, 2014, and March 9, 2018 ("Previous Order"), subject to terms and conditions;
AND WHEREAS the MFDA will continue to regulate, in accordance with its by-laws, rules, regulations, policies, forms, and other similar instruments ("Rules"), the operations and the standards of practice and business conduct of its members and their Approved Persons as defined under its Rules;
AND WHEREAS the Commission is satisfied that continuing to recognize the MFDA would not be prejudicial to the public interest;
THE COMMISSION HEREBY VARIES AND RESTATES the MFDA's recognition as a self-regulatory organization so that the recognition pursuant to section 21.1 of the Act continues, subject to the terms and conditions set out in Schedule A.
Dated February 6, 2001, as amended on March 30, 2004, November 3, 2006, October 28, 2008, December 12, 2008, October 29, 2014, March 9, 2018, and October 22, 2020 to be effective on April 1, 2021.
For the purposes of this Schedule:
"Approved Person" has the same meaning as that under the MFDA rules, as amended by the MFDA and approved by the Commission from time to time;
"member" means a member of the MFDA;
"MFDA IPC" means MFDA Investor Protection Corporation;
"rules" means the by-laws, rules, regulations, policies, forms, and other similar instruments of the MFDA; and
"securities legislation" has the same meaning as that defined in National Instrument 14-101.
The MFDA is and shall remain a not-for-profit corporation.
(A) The MFDA's arrangements with respect to the appointment, removal from office and functions of the persons ultimately responsible for making or enforcing the rules of the MFDA, being the Board of Directors (the "Board"), shall secure a proper balance between the interests of the different members of the MFDA in order to ensure diversity of representation on the Board. In recognition that the protection of the public interest is a primary goal of the MFDA, a reasonable number and proportion of directors on the Board and on the committees of the Board shall be and remain during their term of office Public Directors as defined in By-law No. 1 of the MFDA.
(B) The MFDA's governance structure shall provide for:
(i) at least 50% of its directors, other than its President and Chief Executive Officer, shall be Public Directors;
(ii) the President and Chief Executive Officer of the MFDA is deemed to be neither a Public Director nor a non-Public Director;
(iii) appropriate representation of Public Directors on committees and bodies of the Board, in particular:
(a) at least 50% of directors on the governance committee of the Board shall be Public Directors,
(b) a majority of directors on the audit committee of the Board shall be Public Directors,
(c) at least 50% of directors on the executive committee of the Board, if any, shall be Public Directors,
(d) meetings of the Board shall have a quorum requirement of a reasonable number and proportion of Public Directors and non-Public Directors, with at least two Public Directors, and
(e) meetings of any committee or body of the Board shall have a quorum requirement of a reasonable number and proportion of Public Directors and non-Public Directors, provided that if the committee or body has Public Directors then the quorum must require at least one Public Director be present;
(iv) the remaining number of directors serving on the Board and on the above referred to committees and bodies of the Board, shall consist of directors representing the different members of the MFDA to ensure diversity of representation on the Board in accordance with paragraph (A);
(v) appropriate qualification, remuneration, and conflict of interest provisions and provisions with respect to the limitation of liability of and indemnification protection for directors, officers and employees of the MFDA; and
(vi) a chief executive officer and other officers, all of whom, except for the chair of the Board, are independent of any member.
(A) Any and all fees imposed by the MFDA on its members shall be equitably allocated and bear a reasonable relation to the costs of regulating members, carrying out the MFDA's objects and protecting the public interest. Fees shall not have the effect of creating unreasonable barriers to membership and shall be designed to ensure that the MFDA has sufficient revenues to discharge its responsibilities.
(B) The MFDA's process for setting fees shall be fair, transparent, and appropriate.
The MFDA shall co-operate with and assist the MFDA IPC and any compensation funds or contingency trust funds that are from time to time considered by the Commission under securities legislation to be compensation funds or contingency trust funds for mutual fund dealers. The MFDA shall ensure that its rules give it the power to assess members, and require members to pay such assessments, on account of assessments or levies made by or in respect of the MFDA IPC.
(A) The MFDA's rules shall permit all properly registered mutual fund dealers who satisfy the membership criteria to become members thereof and shall provide for the non-transferability of membership.
(B) Without limiting the generality of the foregoing, the MFDA's rules shall provide for:
(i) reasonable financial and operational requirements, including minimum capital and capital adequacy, debt subordination, bonding, insurance, record-keeping, new account, knowledge of clients, suitability of trades, supervisory practices, segregation, protection of clients' funds and securities, operation of accounts, risk management, internal control and compliance (including a written compliance program), client statement, settlement, order taking, order processing, account inquiries, confirmation and back office requirements;
(ii) reasonable proficiency requirements (including training, education and experience) with respect to Approved Persons of members;
(iii) consideration of disciplinary history, including breaches of applicable securities legislation, the rules of other self-regulatory organizations or MFDA rules, prior involvement in criminal, relevant quasi-criminal, administrative or insolvency proceedings or civil proceedings involving business conduct or alleging fraudulent conduct or deceit, and prior business and other conduct generally, of applicants for membership and any partners, directors and officers, in order that membership may, where appropriate, be refused where any of the foregoing have previously engaged in improper conduct, and shall be refused where the past conduct of any of the foregoing affords reasonable grounds for belief that the applicant's business would not be conducted with integrity;
(iv) reasonable consideration of relationships with other members and other business activities to ensure the appropriateness thereof; and
(v) consideration of the ownership of applicants for membership under the criteria established in paragraph 6(E).
(C) The MFDA shall require members to confirm to the MFDA that persons that it wishes to sponsor, employ or associate with as Approved Persons comply with applicable securities legislation and are properly registered.
(D) The MFDA rules shall require a member to give prior notice to the MFDA before any person or company acquires a material registered or beneficial interest in securities or indebtedness of or any other ownership interest in the member, directly or indirectly, or becomes a transferee of any such interests, or before the member engages in any business combination, merger, amalgamation, redemption or repurchase of securities, dissolution or acquisition of assets. In each case there may be appropriate exceptions in the case of publicly traded securities, de minimis transactions that do not involve changes in de facto or legal control or the acquisitions of material interests or assets, and non-participating indebtedness.
(E) The MFDA rules shall require approval by the MFDA in respect of all persons or companies proposing to acquire an ownership interest in a member in the circumstances outlined in paragraph 6(D) and, except as provided in paragraph 6(F), for approval of all persons or companies that satisfy criteria providing for:
(i) consideration of disciplinary history, including breaches of applicable securities legislation, the rules of other self-regulatory organizations or MFDA rules, involvement in criminal, relevant quasi-criminal, administrative or insolvency proceedings or civil proceedings involving business conduct or alleging fraudulent conduct or deceit, and prior business and other conduct generally; and
(ii) reasonable consideration of relationships with other members and involvement in other business activities to ensure the appropriateness thereof.
(F) The MFDA rules shall give the MFDA the right to refuse approval of all persons or companies that are proposing to acquire an ownership interest in a member in the circumstances outlined in paragraph 6(D) who do not agree to:
(i) submit to the jurisdiction of the MFDA and comply with its rules;
(ii) notify the MFDA of any changes in his, her or its relationship with the member or of any involvement in criminal, relevant quasi-criminal, administrative or insolvency proceedings or in civil proceedings involving business conduct or alleging fraudulent conduct or deceit;
(iii) accept service by mail in addition to any other permitted methods of service;
(iv) authorize the MFDA to co-operate with other regulatory and self-regulatory organizations, including sharing information with these organizations; and
(v) provide the MFDA with such information as it may from time to time request and full access to and copies of any records.
(A) The MFDA shall enforce, as a matter of contract between itself and its members, compliance by its members and their Approved Persons with the rules of the MFDA and, to assist the Commission with carrying out its regulatory mandate, the MFDA shall cooperate with the Commission in ensuring compliance with applicable securities legislation relating to the operations, standards of practice and business conduct of members and Approved Persons, without prejudice to any action that may be taken by the Commission under securities legislation.
(B) The MFDA shall conduct periodic reviews of its members and the members' Approved Persons to ensure compliance by its members and the members' Approved Persons with the rules of the MFDA and shall conduct such reviews at a frequency requested by the Commission or its staff. The MFDA shall also cooperate with the Commission in the conduct of reviews of its members and the members' Approved Persons as requested by the Commission or its staff, to ensure compliance by its members and their Approved Persons with applicable securities legislation.
(C) The MFDA shall promptly advise the MFDA IPC of any actual or apparent material breach of the rules thereof of which the MFDA becomes aware.
(A) The MFDA shall, as a matter of contract, have the right to and shall appropriately discipline its members and their Approved Persons for violations of the rules of the MFDA and, to assist the Commission with carrying out its regulatory mandate, shall cooperate with the Commission in the enforcement of applicable securities legislation relating to the operations, standards of practice and business conduct of the members and Approved Persons, without prejudice to any action that may be taken by the Commission under securities legislation.
(B) The MFDA rules shall enable it to prevent the resignation of a member from the MFDA if the MFDA considers that any matter affecting the member or any registered or beneficial holder of a direct or indirect ownership interest in securities, indebtedness or other interests in the member, or in a person or company associated or affiliated with the member or affecting the member's Approved Persons or any of them, should be investigated or that the member or any such person, company or Approved Person should be disciplined.
(C) The MFDA shall require its members and their Approved Persons to be subject to the MFDA's review, enforcement and disciplinary procedures.
(D) The MFDA shall notify the public and the media
(i) of any disciplinary or settlement hearing, as soon as practicable and in any event not less than 14 days prior to the date of the hearing, and
(ii) of the disposition of any disciplinary action or settlement, including any discipline imposed, and shall promptly make available any written decision and reasons.
(E) Any notification required under paragraph 8 (D) shall include, in addition to any other information specified in paragraph 8 (D), the names of the member and the relevant Approved Persons together with a summary of circumstances that gave rise to the proceedings.
(F) The MFDA shall maintain a register to be made available to the public, summarizing the information which is required to be disclosed under paragraphs 8 (D) and (E).
(G) The MFDA shall at least annually review all material settlements involving its members or their Approved Persons and their clients with a view to determining whether any action is warranted, and the MFDA shall prohibit members and their Approved Persons from imposing confidentiality restrictions on clients vis-à-vis the MFDA or the Commission, whether as part of a resolution of a dispute or otherwise.
(H) Disciplinary and settlement hearings shall be open to the public and media except where confidentiality is required for the protection of confidential matters. The criteria and any changes thereto for determining these exceptions shall be specified and submitted to the Commission for approval.
The MFDA shall ensure that the requirements of the MFDA relating to admission to membership, the imposition of limitations or conditions on membership, denial of membership and termination of membership are fair and reasonable, including in respect of notice, an opportunity to be heard or make representations, the keeping of a record, the giving of reasons and provision for appeals.
All fines collected by the MFDA and all payments made under settlement agreements entered into with the MFDA may be used only as follows:
(A) as approved by the MFDA's Board,
(i) for funding the MFDA IPC;
(ii) for the development of systems or other expenditures that are necessary to address emerging regulatory issues and are directly related to protecting investors or the integrity of the capital markets, provided that any such use does not constitute normal course operating expenses;
(iii) for education or research projects that are directly relevant to the investment industry, are in the public interest, and which benefit the public or the capital markets;
(iv) to contribute to a non-profit, tax-exempt organization, the purposes of which include protection of investors, or those described in paragraph (A)(iii);
(v) for such other purposes as may be subsequently approved by the Commission; or
(B) for reasonable costs associated with the administration of the MFDA's hearing panels.
(A) The MFDA shall, subject to the terms and conditions of its recognition and the jurisdiction and oversight of the Commission in accordance with securities legislation, establish such rules as are necessary or appropriate to govern and regulate all aspects of its business and affairs and shall in so doing:
(i) seek to ensure compliance by members and their Approved Persons with applicable securities legislation relating to the operations, standards of practice and business conduct of the members;
(ii) seek to prevent fraudulent and manipulative acts and practices and to promote the protection of investors, just and equitable principles of trade and high standards of operations, business conduct and ethics;
(iii) seek to promote public confidence in and public understanding of the goals and activities of the MFDA and to improve the competence of members and their Approved Persons;
(iv) seek to standardize industry practices where appropriate for investor protection;
(v) seek to provide for appropriate discipline;
and shall not:
(vi) permit unfair discrimination among investors, mutual funds, members or others; or
(vii) impose any barrier to competition that is not appropriate.
(B) Unless otherwise approved by the Commission, the rules of the MFDA governing the conduct of member business regulated by the MFDA shall afford investors protection at least equivalent to that afforded by securities legislation, provided that higher standards in the public interest shall be permitted and are encouraged.
MFDA will comply with the process for filing and obtaining Commission approval for by-laws, Rules and any amendments to by-laws or Rules as outlined in the JRRP, as amended from time to time.
(A) The MFDA shall have adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules. With the consent of the Commission, the arrangements for monitoring and enforcement may make provision for the following:
(i) one or more parts of those functions to be performed (and without affecting its responsibility) by another body or person that is able and willing to perform it; and
(ii) its members and their Approved Persons to be deemed to be in compliance with its rules by complying with the substantially similar rules of such other body or person.
The Commission's consent may be varied or revoked from time to time and may be subject to terms and conditions.
(B) The MFDA shall respond promptly and effectively to public inquiries and generally shall have effective arrangements for the investigation of complaints (including anonymous complaints) against its members or their Approved Persons. With the consent of the Commission, such arrangements may make provision for one or more parts of that function to be performed on behalf of the MFDA (and without affecting its responsibility) by another body or person that is able and willing to perform it. The Commission's consent may be varied or revoked from time to time and may be subject to terms and conditions. The MFDA and any other body or person performing such function on behalf of the MFDA shall not refrain from investigating complaints due to the anonymity of the complainant where the complaint is otherwise worthy of investigation and sufficiently detailed to permit investigation.
(C) The MFDA shall ensure that it is accessible to the public and shall designate and make available to the public the names and telephone numbers of persons to be contacted for various purposes, including making complaints and enquiries.
(D) The arrangements and resources referred to in paragraphs (A) and (B) above shall consist at a minimum of:
(i) a sufficient complement of qualified staff, including professional and other appropriately trained staff;
(ii) an adequate supervisory structure;
(iii) adequate management information systems;
(iv) a compliance department and an enforcement department with appropriate reporting structures directly to senior management, and with written procedures wherever practicable;
(v) procedures and structures that minimize or eliminate conflicts of interest within the MFDA;
(vi) inquiry and complaint procedures and a public information facility, including with respect to the discipline history of members and their Approved Persons;
(vii) guidelines regarding appropriate disciplinary sanctions; and
(viii) the capacity and expertise to hold disciplinary hearings (including regarding proposed settlements) utilizing public representatives within the meaning of the current section 19.5 of the MFDA's By-law No. 1 together with member representatives.
(E) The MFDA shall cooperate and assist with any reviews, scheduled or unscheduled, of its self-regulatory functions by the MFDA IPC or the Commission. In addition, in the event that the Commission is of the view that there has been a serious actual or apparent failure in the MFDA's fulfilment of its self-regulatory functions, the MFDA shall, where requested by the Commission, undergo an independent third-party review on terms and by a person or persons satisfactory to or determined by the Commission, which review shall be at the expense of the MFDA.
(F) The MFDA shall cooperate and assist with any reviews, scheduled or unscheduled, of its corporate governance structure by the Commission. In addition, in the event that the Commission is of the view that there has been a serious weakness in the MFDA's corporate governance structure, the MFDA shall upon the request of the Commission undergo an independent third-party review on terms and by a person or persons satisfactory to or determined by the Commission, which review shall be at the expense of the MFDA.
(G) The MFDA shall not make material changes to its organizational structure, which would affect its self-regulatory functions, without prior approval of the Commission.
(H) The MFDA shall comply with reporting requirements set out in Appendix A, as amended from time to time by the Commission or its staff. The MFDA shall also provide the Commission with other reports, documents and information as the Commission or its staff may request.
(A) The MFDA must ensure that its Continuing Education (CE) Tracking System, has
(i) appropriate internal controls to ensure integrity and security of information; and
(ii) has reasonable and sufficient capacity, and backup to enable the MFDA to properly carry on its business.
(B) The MFDA must on a reasonably frequent basis, and at least biennially, cause a report to be prepared in accordance with established audit standards by a qualified party which provides details of a review designed to ensure that the CE Tracking System has an adequate system of internal controls (including, but not limited to, integration into the MFDA business continuity and disaster recovery plans).
(C) Before finalizing any engagement to prepare the report described in (B), the MFDA must discuss the choice of qualified party and scope of the review with the Commission.
The MFDA shall assist and cooperate with, by sharing information and otherwise, the MFDA IPC, the Commission and its staff, and other Canadian federal, provincial and territorial recognized self-regulatory organizations and regulatory authorities, including without limitation, those responsible for the supervision or regulation of securities firms, financial institutions, insurance matters and competition matters. The Commission and its staff shall have unrestricted access to the books and records, management, staff and systems of the MFDA.
The MFDA will provide the Commission with at least twelve months' written notice prior to completing any transaction that would result in the MFDA:
a. ceasing to perform its services;
b. discontinuing, suspending or winding-up all or a significant portion of its operations; or
c. disposing of all or substantially all of its assets.
The MFDA will immediately notify the Commission of the following events:
a. the admission of a new member, including the member's name, and any terms and conditions that are imposed on the member;
b. members whose rights and privileges or membership will be suspended or terminated, including:
(i) the member's name;
(ii) the reasons for the proposed suspension or termination; and
(iii) a description of the steps being taken to ensure that the member's clients are being dealt with appropriately;
c. receipt of a member's intention to resign;
d. receipt of an application for a Board exemption or amendment to a Board exemption that could have a significant impact on:
(i) MFDA members and others subject to the MFDA's jurisdiction, or
(ii) the capital markets generally including, for greater clarity, certain stakeholders or sectors.
The notice required by this section, other than in (d), may be provided by the MFDA issuing a public notice containing the information, provided that such public notice will be issued immediately after the decision is made for admission, suspension or termination of membership and immediately after receipt of a notice of intention to resign, as the case may be.
The MFDA will provide the Commission with prompt notice of the following events and situations, and in each case describe the circumstances that gave rise to the reportable event or situation, the MFDA's proposed response to ensure resolution, and, if appropriate, provide timely updates:
a. situations that would reasonably be expected to raise concerns about the MFDA's financial viability, including but not limited to, an inability to meet its expected expenses for the next quarter or the next year;
b. any determination by the MFDA, or notification from any of the Recognizing Regulators, that the MFDA is not or will not be in compliance with one or more of the terms and conditions of its recognition in any jurisdiction;
c. any material violations of securities legislation of which the MFDA becomes aware in the ordinary course operation of its business;
d. any breach of security safeguards involving information under the MFDA's control if it is reasonable in the circumstances to believe that the breach creates a real risk of significant harm to investors, issuers, registrants, other market participants, the MFDA, the MFDA IPC, or the capital markets;
e. actual or apparent misconduct or non-compliance by members, Approved Persons, or others, where investors, clients, creditors, members, the MFDA IPC or the MFDA may reasonably be expected to suffer serious damage as a consequence thereof, including but not limited to:
(i) where fraud appears to be present; or
(ii) where serious deficiencies in supervision or internal controls exist;
f. situations that would reasonably be expected to raise concerns about a member's continued viability, including but not limited to, capital deficiency, early warning, and any condition which, in the opinion of the MFDA, could give rise to payments being made out of the MFDA IPC, including any condition which, alone or together with other conditions, could, if appropriate corrective action is not taken, reasonably be expected to:
(i) inhibit the member from promptly completing securities transactions, promptly segregating clients' securities as required or promptly discharging its responsibilities to clients, other members, or creditors;
(ii) result in material financial loss to the member or its clients; or
(iii) result in material misstatement of the member's financial statements;
g. any action taken by the MFDA with respect to a member in financial difficulty;
h. any terms and conditions imposed, varied or removed by the MFDA relating to a member;
i. any enforcement agreement and undertaking entered into, varied or rescinded at the MFDA's request relating to a member.
The MFDA will file on a quarterly basis with the Commission a report pertaining to the MFDA's regulatory operations promptly after the report is reviewed or approved by the MFDA's Board, board committees, or senior management, as the case may be, containing at a minimum the following information and documents:
a. a summary of ongoing initiatives, policy changes, and emerging or key issues that arose in the previous quarter for each of the MFDA's regulatory operations;
b. a summary of all compliance examinations in progress or completed during the previous quarter, and all compliance examinations scheduled to be commenced in the upcoming quarter by the MFDA office and department, including information on repeat or significant deficiencies;
c. a summary of all discretionary exemptions granted to individuals and members during the previous quarter;
d. summary statistics for the previous quarter regarding all client complaints, and complaints received from other sources including, but not limited to, any other securities regulatory authority;
e. summary statistics by MFDA office for the previous quarter regarding the caseload for each of case assessment, investigations, and prosecutions, including the length of time the files have been open;
f. a summary of enforcement files that were referred to any of the Recognizing Regulators during the previous quarter; and
g. the MFDA's regulatory staff complement, by function, and details of any material changes or reductions in regulatory staffing, by function, during the previous quarter.
The MFDA will file on an annual basis with the Commission a report pertaining to the MFDA's regulatory operations promptly after the report is reviewed or approved by the MFDA's Board, board committees or senior management, as the case may be, containing at a minimum the following documents:
a. a self-assessment containing information as specified by Commission staff from time to time and include the following information:
(i) an assessment of how the MFDA is meeting its regulatory mandate, including an assessment against the recognition criteria and the terms and conditions in Schedule A to the Recognition Order;
(ii) an assessment against its strategic plan;
(iii) a description of trends seen as a result of compliance reviews, investigations and prosecutions conducted, and complaints received, including the MFDA's plan to deal with any issues;
(iv) whether the MFDA is meeting its benchmarks, and reasons for any benchmarks not being met;
(v) a description and update on significant projects undertaken by the MFDA; and
(vi) a description of issues raised by any of the Recognizing Regulators, external auditors or internal audit, which are being tracked by the MFDA's senior management, together with a summary of the progress made on their resolution; and
b. certification by the MFDA's Chief Executive Officer and General Counsel that the MFDA is in compliance with the terms and conditions applicable to it in Schedule A to this Recognition Order.
a. The MFDA will file with the Commission unaudited quarterly financial statements with notes within 60 days after the end of each financial quarter.
b. The MFDA will file with the Commission audited annual financial statements accompanied by the report of an independent auditor within 90 days after the end of each fiscal year.
a. The MFDA will provide the Commission on a timely basis with the following information and documents upon publication or completion of review and approval by the MFDA's Board, board committees, or senior management, as the case may be:
(i) the results of any corporate governance review referred to in term and condition 13(F) of Schedule A to this Recognition Order;
(ii) material changes to the code of business ethics and conduct and the written policy about managing potential conflicts of interests of members of the MFDA's Board;
(iii) changes in the members of the MFDA's Board;
(iv) the financial budget for the current year, together with the underlying assumptions, that have been approved by the MFDA's Board;
(v) enterprise risk management reports, and any material changes to enterprise risk management methodology;
(vi) the internal audit charter, annual internal audit plan, and internal audit reports, or similar interval review documents;
(vii) the annual report for the current year;
(viii) material changes to the compliance or enforcement processes or scope of work, including risk assessment models for:
(A) Financial Compliance;
(B) Sales Compliance; and
(C) Enforcement.
b. The MFDA will provide the Commission with reasonable prior notice of any document that it intends to publish or issue to the public, or to any class of members which, in the opinion of the MFDA, could have a significant impact on:
(i) its members and others subject to its jurisdiction; or
(ii) the capital markets generally.
c. The MFDA will, upon request, provide the Commission with the following information and documents as soon as practicable:
(i) information concerning closed investigations or prosecutions which did not lead to disciplinary or settlement proceedings including the final investigation report and recommendation memorandum; and
(ii) information concerning enforcement matters that resulted in disciplinary or settlement proceedings including the final investigation report and recommendation memorandum.
Application for an order that the issuer is not a reporting issuer under applicable securities laws -- requested relief granted.
Securities Act, R.S.O. 1990, c. S.5, as am., s.1(10)(a)(ii).
Citation: Re TORC Oil & Gas Ltd., 2021 ABASC 30
March 17, 2021
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for an order under the securities legislation of the Jurisdictions (the Legislation) that the Filer has ceased to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer (the Order Sought).
Under the Process for Cease to be a Reporting Issuer Applications (for a dual application):
(a) The Alberta Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that subsection 4C.5(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador; and
(c) this order is the order of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this order, unless otherwise defined.
This order is based on the following facts represented, on behalf of the Filer, by Whitecap Resources Inc. (Whitecap) as the successor of the Filer by way of amalgamation:
1. the Filer is not an OTC reporting issuer under Multilateral Instrument 51-105 -- Issuers Quoted in the U.S. Over-the-Counter Markets;
2. the outstanding securities of the Filer, including debt securities, are beneficially owned, directly or indirectly, by fewer than 15 securityholders in each of the jurisdictions of Canada and fewer than 51 securityholders in total worldwide;
3. no securities of the Filer, including debt securities, are traded in Canada or another country on a marketplace as defined in National Instrument 21-101 -- Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported;
4. the Filer is applying for an order that the Filer has ceased to be a reporting issuer in all of the jurisdictions of Canada in which it is a reporting issuer; and
5. the Filer is not in default of securities legislation in any jurisdiction.
Each of the Decision Makers is satisfied that the order meets the test set out in the Legislation for the Decision Maker to make the order.
The decision of the Decision Makers under the Legislation is that the Order Sought is granted.
Citation: 2020 BCSECCOM 478
¶ 1 ProSmart Enterprises Inc. (the Issuer) is subject to a failure-to-file cease trade order (the FFCTO) issued by the regulator or securities regulatory authority in each of British Columbia (the Principal Regulator) and Ontario (each a Decision Maker) respectively on February 1, 2019.
¶ 2 The Issuer has applied to each of the Decision Makers under National Policy 11-207 Failure-to-File Cease Trade Orders and Revocation in Multiple Jurisdictions (NP 11-207) for an order revoking the FFCTOs.
¶ 3 This order is the order of the Principal Regulator and evidences the decision of the Decision Maker in Ontario.
¶ 4 Terms defined in National Instrument 14-101 Definitions or in NP 11-207 have the same meaning if used in this order, unless otherwise defined.
¶ 5 Each of the Decision Makers is satisfied that the order to revoke the FFCTO meets the test set out in the Legislation for the Decision Maker to make the decision.
¶ 6 The decision of the Decision Makers under the Legislation is that the FFCTO is revoked, as it applies to the Issuer.
¶ 7 November 27, 2020
TMAC Resources Inc. -- s. 1(6) of the OBCA
Applicant deemed to have ceased to be offering securities to the public under the Business Corporations Act (Ontario).
Business Corporations Act, R.S.O. 1990, c. B. 16 as am., s. 1(6).
UPON the application of the Applicant to the Ontario Securities Commission (the Commission) for an order pursuant to subsection 1(6) of the OBCA to be deemed to have ceased to be offering its securities to the public;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is an "offering corporation" as defined in subsection 1(1) of the OBCA.
2. The Applicant has no intention to seek public financing by way of an offering of securities.
3. On February 11, 2021 the Applicant was granted an order (the Reporting Issuer Order) pursuant to subclause 1(10)(a)(ii) of the Securities Act (Ontario) that it is not a reporting issuer in Ontario and is not a reporting issuer or the equivalent in any other jurisdiction in Canada in accordance with the simplified procedure set out in National Policy 11-206 Process for Cease to be a Reporting Issuer Applications. The representations set out in the Reporting Issuer Order continue to be true.
AND UPON the Commission being satisfied that to grant this order would not be prejudicial to the public interest;
IT IS HEREBY ORDERED by the Commission, pursuant to subsection 1(6) of the OBCA, that the Applicant is deemed to have ceased to be offering its securities to the public for the purpose of the OBCA.
DATED at Toronto, Ontario this 18th day of February, 2021.
Plant & Company Brands Group Inc.
National Policy 11-206 Process for Cease to be a Reporting Issuer Applications -- The issuer ceased to be a reporting issuer under securities legislation.
Securities Act , R.S.O. 1990, c.S.5, as am., s. 1(10)(a)(ii).
March 16, 2021
¶ 1 The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for an order under the securities legislation of the Jurisdictions (the Legislation) that the Filer has ceased to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer (the Order Sought).
Under the Process for Cease to be a Reporting Issuer Applications (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application,
(b) the Filer has provided notice that subsection 4C.5(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, and
(c) this order is the order of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
¶ 2 Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this order, unless otherwise defined.
¶ 3 This order is based on the following facts represented by the Filer:
1. the Filer is not an OTC reporting issuer under Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets;
2. the outstanding securities of the Filer, including debt securities, are beneficially owned, directly or indirectly, by fewer than 15 securityholders in each of the jurisdictions of Canada and fewer than 51 securityholders in total worldwide;
3. no securities of the Filer, including debt securities, are traded in Canada or another country on a marketplace as defined in National Instrument 21-101 Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported;
4. the Filer is applying for an order that the Filer has ceased to be a reporting issuer in all of the jurisdictions of Canada in which it is a reporting issuer; and
5. the Filer is not in default of securities legislation in any jurisdiction.
¶ 4 Each of the Decision Makers is satisfied that the order meets the test set out in the Legislation for the Decision Maker to make the order.
The decision of the Decision Makers under the Legislation is that the Order Sought is granted.
Ardenton Financial Inc. -- s. 28
1. Ardenton Financial Inc. (Ardenton or the Firm) is registered under the Securities Act (Ontario) (the Act) as a dealer in the category of exempt market dealer.
2. Ardenton was also registered under the securities laws of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec, and Saskatchewan.
3. On March 5, 2021, Ardenton informed its principal regulator, the British Columbia Securities Commission (BCSC) that Ardenton Capital Corporation, an issuer that is related to Ardenton and the source of Ardenton's income, had petitioned for protection from its creditors under the Companies' Creditors' Arrangement Act, R.S.C. 1985, c. C-36. As a result, Ardenton had ceased conducting registrable activities.
4. On March 8, 2021, Ardenton consented to the suspension of its registration in British Columbia, Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec, and Saskatchewan, at the request of staff of the BCSC.
5. On March 8, 2021, the Executive Director of the BCSC accepted the recommendation of staff of the BCSC, with the consent of Ardenton, and suspended Ardenton's registration and suspended the Firm's registration in British Columbia, Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec, and Saskatchewan.
6. On March 12, 2021, Elizabeth King, Deputy Director, Registrant Conduct, Compliance and Registrant Regulation Branch, on behalf of staff of the Ontario Securities Commission (Staff), wrote to Ardenton. This letter stated that Staff had recommended to the Director that the registration of the firm be suspended (the Notice) on the basis that it would be objectionable for the firm to remain registered in Ontario when its registration has been suspended in the other Canadian jurisdictions in which it was registered.
7. The Notice advised Ardenton that it was entitled to an opportunity to be heard before the Director decided to accept Staff's recommendation.
8. On March 12, 2021, Ardenton advised Staff that it was not objecting to Staff's recommendation to suspend its registration.
9. My decision is that the registration of Ardenton be suspended, effective March 15, 2021.
March 15, 2021.
Citation: Ziaian (Re), 2021 ONSEC 9
Date: 2021-03-17
File No.: 2020-34
Hearing: |
November 12, 2020 |
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Decision: |
March 17, 2021 |
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Panel: |
Timothy Moseley |
Vice-Chair and Chair of the Panel |
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Appearances: |
Joseph Groia |
For Bardya Ziaian |
Trevor Fairlie |
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Sylvia Samuel |
For Staff of the Investment Industry Regulatory Organization of Canada |
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Andrew Werbowski |
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Gavin Mackenzie |
For Staff of the Commission |
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Alexandra Matushenko |
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[1] Mr. Ziaian applies to the Ontario Securities Commission to review a decision{1} of the Investment Industry Regulatory Organization of Canada (IIROC) about a proceeding brought by IIROC Staff against him.
[2] The hearing on the merits of IIROC Staff's allegations has not started. It was initially to proceed as an oral hearing.
[3] Before the IIROC hearing could begin, the COVID-19 pandemic intervened. IIROC decided that the hearing would instead proceed electronically. Mr. Ziaian objected, but IIROC overruled that objection. Mr. Ziaian asks the Commission to review that decision.
[4] Mr. Ziaian argues that IIROC did not have authority to change the mode of the hearing over his objection. I disagree. I find that IIROC can hold the merits hearing as an electronic hearing. However, I reach that conclusion for reasons that differ in some respects from the IIROC hearing panel's reasons.
[5] On July 31, 2019, IIROC Staff filed a Statement of Allegations against Mr. Ziaian. The following day, IIROC issued a Notice of Hearing, which advised that pursuant to s. 8409 of the IIROC Rules of Practice and Procedure (IIROC Rules),{2} the merits hearing would be an oral hearing.
[6] The merits hearing was initially scheduled for May 2020. However, as the widespread effects of the COVID-19 pandemic began to take hold, a pre-hearing conference was held. The merits hearing was adjourned to a date to be determined. The parties and the hearing panel reserved dates in October, although no order was made fixing those dates.
[7] On August 26, IIROC's hearing co-ordinator advised the parties that the merits hearing could take place on the reserved dates, either by videoconference or at the offices of the court reporting service used by IIROC. The hearing co-ordinator asked whether the merits hearing would proceed on the dates the parties had reserved. IIROC Staff replied that the hearing should proceed by videoconference. Mr. Ziaian said that the hearing must be in person.
[8] On August 27, IIROC's hearing co-ordinator confirmed to the parties that an electronic pre-hearing conference would take place on September 2. That conference proceeded as scheduled. At the conference, IIROC Staff advised that it was ready to proceed on the reserved dates.
[9] On September 8, IIROC issued a Pre-Hearing Conference Memorandum signed by the hearing panel, which purported to confirm matters discussed at the pre-hearing conference. It stated that:
a. Mr. Ziaian's request for "an oral in-person hearing" was denied;
b. Mr. Ziaian's request for an adjournment of the hearing to January 2021 was denied;
c. the hearing would be an electronic hearing;
d. the hearing would proceed on the reserved dates in October; and
e. if Mr. Ziaian wished to bring a motion asking for an adjournment and "an oral in-person hearing", he should do so expeditiously.
[10] Mr. Ziaian says that he did not ask for an adjournment or an oral hearing, contrary to what the memorandum states.
[11] On September 10, Mr. Ziaian filed a notice of motion with IIROC. He asked for an order that the merits hearing continue as an oral hearing or, in the alternative, that the proceeding be permanently stayed because IIROC had no jurisdiction to continue the merits hearing as an electronic hearing.
[12] On September 23, the IIROC hearing panel heard the motion. The following day, it issued its decision, in which it dismissed Mr. Ziaian's motion and ordered that the merits hearing proceed on the reserved dates in October.
[13] On September 30, Mr. Ziaian filed his application with the Commission to commence this proceeding. He asks the Commission to set aside the September 24 decision of the IIROC hearing panel and to order that the merits hearing be an in-person oral hearing.
[14] On October 7, following an attendance that day by IIROC Staff and Mr. Ziaian, the IIROC hearing panel ordered that the merits hearing not proceed on the reserved dates, but rather on dates to be set following the issuance of this decision.
[15] Before I analyze the substantive issues raised by this application, I must address a preliminary issue raised by Mr. Ziaian about OSC Staff's role in this proceeding.
[16] At midday on November 11, the day before the hearing, counsel for Mr. Ziaian wrote to the Registrar and to counsel for IIROC Staff and for OSC Staff. He advised that he intended to raise a preliminary issue at the hearing about whether OSC Staff has standing as a party in this proceeding. He had first informed OSC Staff the evening before of his intention to raise the issue.
[17] At the hearing on November 12, I dismissed Mr. Ziaian's objection for the following reasons.
[18] It is well established that OSC Staff is a party in proceedings of this kind.{3}
[19] Furthermore, OSC Staff's role as a party to this proceeding was clear and undisputed no later than October 7, more than a month before this hearing. On that day, counsel for Mr. Ziaian wrote to the Registrar (with a copy to counsel for IIROC Staff and for OSC Staff), advising that "[c]ounsel for the Parties (Mr. Ziaian, IIROC Staff and OSC Staff)" had agreed on a schedule for the delivery of materials before the hearing. That schedule contemplated that OSC Staff, as one of the parties, would deliver its memorandum of fact and law by November 4.
[20] The Commission issued an order on October 8 reflecting the agreed-upon schedule.{4} The three parties delivered their materials by that schedule.
[21] The parties exchanged correspondence on November 11, the day before the hearing. At approximately 5:00pm that day, counsel for Mr. Ziaian advised that "[t]his problem was caused entirely by [OSC] Staff making submissions in their factum that exceed any reasonable role that it can or should play." Counsel for Mr. Ziaian maintained that position at the hearing before me.
[22] At the hearing, I declined Mr. Ziaian's invitation to rule formally on the reasonableness of OSC Staff's submissions. In particular, I declined to rule on whether any of those submissions went beyond Mr. Ziaian's suggested description of OSC Staff's role as an amicus, or friend of the tribunal. Even if some or all of the submissions were unreasonable or excessive, that would not disqualify OSC Staff from being a party. It is open to me, as it would be to any hearing panel, to disregard submissions that cross the line.
[23] I conclude by finding that OSC Staff was properly a party from when Mr. Ziaian filed his application and that counsel for Mr. Ziaian agreed to that fact no later than October 7. There was no reasonable basis for Mr. Ziaian's counsel to resile from that agreement, particularly on the eve of the hearing. In any event, I have found no need to rely on OSC Staff's submissions in coming to my decision.
A. Introduction
[24] Before turning to the main issues, I set out the legal framework for this proceeding.
[25] Mr. Ziaian brings this application under s. 21.7 of the Securities Act,{5} which provides that any person directly affected by a decision of a recognized self-regulatory organization may apply to the Commission for a review of that decision.
[26] On an application such as this, the Commission may confirm the IIROC decision or make such other decision as it considers proper.{6} The Commission's review of an IIROC decision is a hearing de novo rather than an appeal. In other words, the Commission exercises original jurisdiction rather than a more limited appellate jurisdiction. The Commission need not defer to the IIROC hearing panel's decision.{7}
[27] Although such deference is not required, the Commission has chosen as a matter of practice to limit the circumstances under which it will substitute its own decision for that of a self-regulatory organization such as IIROC.{8} This choice is consistent with the requirement in the Act that the Commission have regard to the fundamental principle that the Commission should "use the enforcement capability and regulatory expertise of recognized self-regulatory organizations."{9}
[28] The Commission has often stated{10} that it will interfere with a decision of a self-regulatory organization only if:
a. the hearing panel proceeded on an incorrect principle;
b. the hearing panel erred in law;
c. the hearing panel overlooked some material evidence;
d. new and compelling evidence is presented to the Commission that was not presented to the hearing panel; or
e. the hearing panel's perception of the public interest conflicts with that of the Commission.
B. Has Mr. Ziaian established that the Commission should interfere with the IIROC Decision?
[29] Mr. Ziaian submits that the first three of the above criteria are met in this case.
[30] As I have noted above, I reach the same conclusion as the IIROC hearing panel did, although I follow a different analytical path to that conclusion. I identify three aspects of the IIROC Decision that I would approach differently. It is a close call whether all three differences of view constitute errors. Still, I consider them sufficient, taken together, for me to exercise the original jurisdiction conferred by the Act.
[31] I respectfully depart from the IIROC panel's approach in the following ways.
[32] First, and most importantly, the IIROC panel's analysis of a respondent's entitlement about the hearing mode is perfunctory and confusing. In its brief reference to s. 8423(2)(i) of the IIROC Rules (which section prescribes a respondent's entitlement to be heard "in person" at a merits hearing), the panel presents a videoconference hearing and "an in-person hearing" as mutually exclusive alternatives. The panel states that the "sole difference between [a videoconference hearing] and an in-person hearing is the physicality of attending."{11}
[33] The IIROC Rules contemplate three hearing modes: an "oral hearing", an "electronic hearing", and a "written hearing". An "in-person hearing" is not among them.
[34] It was a central question before the IIROC panel, and it is a central question before me, whether an electronic hearing conducted by videoconference would satisfy the "in person" requirement in the rule about a merits hearing. To present an electronic hearing and an "in-person hearing" as mutually exclusive is problematic, especially given the IIROC panel's ultimate conclusion that the merits hearing could proceed electronically.
[35] It may be that the IIROC panel meant "oral hearing" instead of "in-person hearing". If so, then in my respectful view, while the panel's analysis was correct (although misstated), the panel did not adequately confront the ordinary meaning of the words "in person" and whether it thought that the words could bear an interpretation that includes appearing by videoconference.
[36] Whether or not the IIROC panel meant "oral hearing" instead of "in-person hearing", the uncertainty and confusion remain. This alone is a sufficient basis for me to interfere with the IIROC panel's decision.
[37] My second point of divergence relates to the IIROC panel's statement that Mr. Ziaian was effectively arguing that "the ultimate control of the hearing process for hearings on the merits lies with the Respondent, not the Panel."{12} In my view, that is an overly broad mischaracterization of Mr. Ziaian's submissions before the IIROC hearing panel.
[38] The third point on which I diverge from the IIROC panel is about how it framed the choice of hearing mode. It stated: "when an in-person [oral?] hearing is not possible and may not be for some considerable period of time, an electronic hearing is a viable and fair alternative"{13}.
[39] That phrase repeats the problematic juxtaposition of an "in-person hearing" and an "electronic hearing". Apart from that, while it may be true that an electronic hearing is a viable and fair alternative to an oral hearing, the hearing panel's authority to choose the hearing mode must be explicit. The viability and fairness of an electronic hearing are not a sufficient basis for changing the hearing mode without authority to do so.
[40] For clarity (because I do not take the IIROC hearing panel to have suggested this), I note that an electronic hearing may be a viable and fair alternative even if an oral hearing is available. No inference should be drawn that a hearing panel can choose to proceed electronically only when an oral hearing is unavailable.
[41] For these reasons, it is appropriate for me to exercise original jurisdiction and consider the issues anew. This application presents the following three principal issues, which I will address in turn:
a. What is the source of IIROC's authority to conduct a hearing and to choose the mode of the hearing?
b. Does a respondent's entitlement to be "heard in person" at a merits hearing require physical presence in the same room as the panel and/or the witnesses?
c. What, if anything, flows from IIROC's offer to conduct Mr. Ziaian's hearing offsite?
C. IIROC's authority to conduct a hearing and to choose the mode of the hearing
[42] I begin by locating IIROC's authority to conduct a hearing and to choose the hearing mode. It is common ground that:
a. the IIROC tribunal has no inherent jurisdiction;
b. the Statutory Powers Procedure Act{14} (SPPA) does not apply to proceedings before the IIROC tribunal; and
c. the tribunal's authority to conduct a hearing and choose the hearing mode is found in s. 8409(1) of the IIROC Rules, which states that subject to enumerated subsections (to which I will return below), "a hearing panel may conduct a hearing as an oral hearing, electronic hearing or written hearing."
[43] Subsection 8409(3) states that in determining the hearing mode, "a hearing panel may consider any relevant factors, including... the... timeliness of the hearing [and] the fairness of the hearing process to, and the convenience of, each of the parties".
[44] It is important to note that the authority set out in s. 8409(1) is that of the hearing panel and that the list of relevant factors explicitly applies to the hearing panel's choice. Further, it is important to note that the authority in s. 8409(1) is not time-limited; in other words, a hearing panel may exercise that authority at any time, subject to any constraints appearing elsewhere.
[45] Before considering how this authority is limited by a respondent's entitlement to be "heard in person" at a merits hearing, I wish to address two arguments made by Mr. Ziaian.
[46] First, he points out that s. 8409(9)(ii) gives a hearing panel the authority, "on its own motion, at any stage of a proceeding", to make an order "continuing" an oral hearing as an electronic hearing. The panel may exercise this authority only where no party objects. Mr. Ziaian objects, and he contends that his objection deprives the hearing panel of its only authority to choose to proceed with the hearing as an electronic hearing.
[47] I reject that submission because s. 8409(9)(ii) applies to a hearing panel "continuing" a hearing. As Mr. Ziaian has agreed, the merits hearing has not yet commenced. A hearing that has not yet begun cannot be said to "continue".
[48] Second, he notes that s. 8409(4) provides that a "party may request an electronic hearing or written hearing in a commencing notice." Subsections 8409(5) through 8409(8) set out various steps that may follow if a party makes the request contemplated by s. 8409(4). These steps include the right of another party to object to the request, and the powers and obligations of a hearing panel where a notice of objection has been filed.
[49] Mr. Ziaian asserted that s. 8409(4) through 8409(8) are relevant in this proceeding. He says that I must take them into account when considering the steps taken by IIROC or by IIROC Staff about the hearing mode.
[50] I disagree. Subsections 8409(4) through 8409(8) apply to a party's request "in a commencing notice", and another party's objection, if any, to that request. In this case, no request for an electronic hearing was made by a party in a commencing notice. The subsections are not relevant in this proceeding.
D. Does a respondent's entitlement to be "heard in person" require physical presence in the same room as the panel and/or the witnesses?
[51] Having located the hearing panel's authority to choose the hearing mode, I will now consider how a specific limitation on that authority applies.
[52] Mr. Ziaian points to s. 8423(2)(i), which provides that at a hearing on the merits, "other than a written hearing, a respondent is entitled to attend and be heard in person".
[53] Mr. Ziaian and IIROC Staff offer two competing interpretations of this subsection.
[54] Mr. Ziaian submits that the words "attend and be heard in person", properly interpreted, give the respondent the right to be physically present in the same room as the hearing panel.
[55] IIROC Staff contends that the words do not require physical presence in the same room. IIROC Staff submits that the words give the respondent the right to "attend" (i.e., participate in the hearing in real time) and be heard "in person" (i.e., directly, not just through counsel or an agent).
[56] There can be no doubt that in everyday use, the words "in person" first call to mind a situation where one is physically present in the same room as another. However, that reflexive interpretation may not be the only reasonable one in the context of an IIROC hearing.
[57] The IIROC Rules do not explicitly speak to whether physical presence is required. The question, therefore, is whether the words "in person" can reasonably bear the interpretation advanced by IIROC Staff (i.e., that they include a videoconference hearing in which the respondent and the hearing panel are present).
[58] The words "a respondent is entitled to attend and be heard in person" must be viewed in context. In particular, I must consider the immediately preceding words: "At a hearing on the merits, other than a written hearing, a respondent is entitled...". The entitlement to be heard "in person" applies to a hearing on the merits, other than a written hearing.
[59] The exclusion of a written hearing is sensible. It would be stretching the words "attend and be heard in person" beyond recognition to interpret them as applying to a written hearing, where there is no real-time attendance by anyone.
[60] Electronic hearings are not excluded, however, and it is unclear why that is so. If, as Mr. Ziaian submits, the words "in person" necessarily invoke an oral hearing, why do the opening words not say "At an oral hearing on the merits" or "At a hearing on the merits, other than an electronic hearing or a written hearing"? The rule, as drafted, leaves open the possibility that a respondent can attend and be heard in person at an electronic hearing.
[61] I also note how the words contrast with those found in the definition of "oral hearing". The IIROC Rules define that term in s. 8402(1) to be a "hearing at which the parties or their counsel or agents attend before a hearing panel in person". The words "before a hearing panel", present in that definition, do not appear in s. 8423(2)(i). The reason for the difference is not evident. IIROC Staff submits that this is a deliberate distinction and that the words "before a hearing panel" necessarily require physical presence. I am not persuaded by that submission. I find the difference puzzling but not determinative one way or the other.
[62] Finally, I consider whether there is any policy reason to choose one interpretation over the other. I begin that inquiry by asking whether a requirement of physical co-location would protect an essential entitlement of a respondent who faces an IIROC proceeding.
[63] In my view, it would not. I heard no convincing argument that a videoconference hearing deprives a respondent of due process or fairness. Indeed, such a conclusion would be contrary to Commission and judicial authority on the subject.{15} Some respondents prefer to be in the same room as the hearing panel, but such a preference cannot determine the appropriate interpretation.
[64] Mr. Ziaian submits that the only evidence before the IIROC hearing panel or before me about the fairness of a videoconference hearing is an affidavit of Mr. Richard, who was Mr. Ziaian's counsel at the IIROC proceeding. Based on that affidavit, Mr. Ziaian's counsel at the hearing before me (a member of the same firm) argued that a videoconference hearing imposes a significant impairment to effective cross-examination.
[65] I cannot accept that submission as a general bar to the holding of merits hearings by videoconference. Over the past many months, courts and other tribunals (including this Commission) have held that for civil and administrative proceedings generally, videoconference hearings do not cause an impermissible unfairness to the parties.
[66] I am aware of no authority to the contrary, and Mr. Ziaian could not identify any such authority.
[67] I adopt the general approach of the courts and this Commission. As for Mr. Richard's affidavit, it identifies no circumstances particular to this proceeding that would warrant a departure from the general approach. I do not find his affidavit to be persuasive.
[68] In conclusion on the interpretation issue, and in my respectful view, the IIROC Rules are not well drafted on this point. Both the interpretation suggested by Mr. Ziaian and the interpretation suggested by IIROC Staff are reasonable. Each has its flaws.
[69] Faced with these two alternative interpretations, I am guided by s. 8403(1), which provides that the IIROC Rules "shall be interpreted and applied to secure... the most expeditious and least expensive conduct of the proceeding."
[70] Applying that rule leads me to conclude, as the IIROC hearing panel did, that a videoconference hearing sufficiently meets a respondent's entitlement to attend a merits hearing in person. That interpretation better satisfies the requirement of "the most expeditious... conduct of the proceeding."
E. What, if anything, flows from IIROC's offer to conduct Mr. Ziaian's hearing offsite?
[71] Having concluded that the IIROC Rules permit a hearing panel to decide that a merits hearing shall be held by videoconference, I turn to consider IIROC's advice to Mr. Ziaian and IIROC Staff that the hearing could, at least at the time, be held at the offices of a court reporting service.
[72] Mr. Ziaian places considerable emphasis on this communication. He asserts that the dispute between IIROC and Mr. Ziaian about the hearing mode is "deeply troubling" and "unnecessary"{16} because the hearing on the merits can take place at the court reporter's office. He also asserts that civil trials were taking place safely in courtrooms at the relevant time, and IIROC was scheduling in-person hearings in British Columbia.
[73] I cannot accept the submission. I take notice{17} of the fact that throughout the pandemic, circumstances have fluctuated significantly. Public health advice (which varies by jurisdiction) has changed frequently in response to the changing circumstances. The degree of safety associated with particular indoor locations depends on many factors. Evidence or assertions about what may have been happening in other venues inside or outside of Ontario, or at different times, are irrelevant.{18}
[74] There is no evidence before me that the court reporter's offices would have been a safe location for a hearing following IIROC's decision to abandon that option. I emphatically reject Mr. Ziaian's submission that IIROC's decision was irrational.
[75] Following the hearing of this application, the parties advised that IIROC had issued a news release that indicated that a merits hearing in an unrelated matter was scheduled to proceed at the court reporter's offices. I do not consider that fact to be relevant to my decision for two reasons. First, it was expressly subject to change, and second, it was at a particular point in time.
[76] For the above reasons, I conclude that while I take a different analytical path to the result reached by the IIROC panel, the result is the correct one. Accordingly, the hearing on the merits of the allegations against Mr. Ziaian may proceed as the hearing panel directs, including by videoconference if that is its choice.
Dated at Toronto this 17th day of March, 2021.
{1} Ziaian (Re), 2020 IIROC 34 (IIROC Decision)
{2} IIROC, online: https://www.iiroc.ca/industry/rulebook/Documents/rule-8400.pdf
{3} See, e.g., Derivative Services Inc (Re), (2001) 24 OSCB 4575 at para 34; Market Regulation Services Inc (Re), 2009 ONSEC 37, (2009) 32 OSCB 8051 at para 11; Hahn Investment Stewards & Co (Re), 2009 ONSEC 41, (2009) 32 OSCB 8683 at para 12; CI Financial Corp (Re), 2011 ONSEC 27, (2011) 34 OSCB 10937 at para 11; TD Securities Inc (Re), 2013 ONSEC 29, (2013) 36 OSCB 7492 at para 7
{4} (2020) 43 OSCB 8066
{5} RSO 1990, c S.5
{6} Securities Act, ss. 21.7(2) and 8(3)
{7} Johal v Funeral Services, 2012 ONCA 785 at para 4
{8} Pariak-Lukic v Investment Industry Regulatory Organization of Canada, 2016 ONSC 2564 (Div Ct) at para 14
{9} Paragraph 4 of section 2.1 of the Act
{10} See, e.g., Canada Malting Co (Re), (1986) 9 OSCB 3565 at para 24; Marek (Re), 2017 ONSEC 41, (2017) 40 OSCB 9167 at para 24
{11} IIROC Decision at para 34
{12} IIROC Decision at para 24
{13} IIROC Decision at para 45
{14} RSO 1990, c S.22
{15} See First Global Data Ltd (Re), 2020 ONSEC 23, (2020) 43 OSCB 7349 (First Global), and the cases cited therein
{16} Hearing Transcript, Ziaian (Re), November 12, 2020 at 48 lines 5-7
{17} Pursuant to s. 16(a) of the SPPA
{18} First Global at paras 61-65
Temporary, Permanent & Rescinding Issuer Cease Trading Orders
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THERE IS NOTHING TO REPORT THIS WEEK. |
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Performance Sports Group Ltd. |
19 October 2016 |
31 October 2016 |
31 October 2016 |
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Agrios Global Holdings Ltd. |
September 17, 2020 |
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Project #3188434
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Project #3173008
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Project #3189852
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Project #3189631
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Project #3188008
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Project #3187491
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Project #3185597
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Project #3189094
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Project #3188084
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Project #3187284
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Project #3189667
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Project #3190351
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Project #3190386
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Project #3189700
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Project #3182296
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Project #3187126
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Project #3189846
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Project #3190350
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Project #3185426
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Project #3187836
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Project #3187836
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Project #3189685
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Project #3176246
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Project #3173008
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Project #3173170
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Project #3184142
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Project #3179995
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Project #3181569
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Project #3175894
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Project #3170567
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Project #3173173
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Project #3163460
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Project #3183284
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Project #3162783
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Project #3167992
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Project #3183407
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Project #3183492
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Project #3183130
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Type |
Company |
Category of Registration |
Effective Date |
|
|||
Change of Registration Category |
Chronicle Investments Ltd. |
From: Portfolio Manager and Exempt Market Dealer |
March 17, 2021 |
To: Portfolio Manager, Exempt Market Dealer, and Investment Fund Manager |
|||
|
|||
Name Change |
From: BNY Mellon Wealth Management, Advisory Services, Inc. |
Portfolio Manager, Exempt Market Dealer, and Investment Fund Manager |
March 1, 2021 |
To: Guardian Partners Inc. |
|||
|
|||
Voluntary Surrender |
FSIMI Inc. |
Portfolio Manager and Exempt Market Dealer |
March 18, 2021 |
|
|||
New Registration |
RedJay Asset Management Inc. |
Portfolio Manager and Exempt Market Dealer |
March 22, 2021 |
Investment Industry Regulatory Organization of Canada (IIROC) -- Variation and Restatement of Recognition Order -- Notice of Commission Approval
The Commission issued an order (Variation Order) pursuant to section 144 of the Securities Act (Ontario) and subsection 78(1) of the Commodity Futures Act (Ontario), varying and restating an order dated May 16, 2008, as amended May 28, 2010, March 9, 2018 and October 22, 2020 recognizing IIROC as a self-regulatory organization.
The Variation Order clarifies and updates IIROC's terms and conditions of recognition and reporting requirements.
The Variation Order comes into effect on April 1, 2021 and is also published on the OSC website and in Chapter 2 of the OSC Bulletin, dated March 25, 2021.
Mutual Fund Dealers Association of Canada (MFDA) -- Variation and Restatement of Recognition Order -- Notice of Commission Approval
The Commission issued an order (Variation Order) pursuant to section 144 of the Securities Act (Ontario), varying and restating an order dated February 6, 2001, as amended on March 30, 2004, November 3, 2006, October 28, 2008, December 12, 2008, October 29, 2014, March 9, 2018 and October 22, 2020 recognizing the MFDA as a self-regulatory organization.
The Variation Order clarifies and updates the MFDA's terms and conditions of recognition and reporting requirements.
The Variation Order comes into effect on April 1, 2021 and is also published on the OSC website and in Chapter 2 of the OSC Bulletin, dated March 25, 2021.