AIM Mutual Fund Dealer Inc. - Decision - s. 5.1 of Rule 31-506
Headnote
Section 5.1 of Rule 31-506 SRO Membership -Mutual Fund Dealers - mutual fund dealer exempted, subject toconditions, from the requirements of the Rule that it file anapplication and prescribed fees with the Mutual Fund DealersAssociation of Canada - mutual fund dealer will conduct limitedmutual fund dealer activities only - mutual fund dealer subjectto terms and conditions of registration.
Statute Cited
Securities Act, R.S.O. 1990, c. S.5, as am.
Rule Cited
Rule 31-506 SRO Membership - Mutual Fund Dealers,ss. 2.1, 3.1, 5.1.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S.5,AS AMENDED (the "Act")
AND
ONTARIO SECURITIES COMMISSIONRULE 31-506
SRO MEMBERSHIP - MUTUAL FUNDDEALERS (the "Rule")
AND
IN THE MATTER OF
AIM MUTUAL FUND DEALER INC.
DECISION
(Section 5.1 of the Rule)
UPON The Director having received anapplication (the "Application") from AIM Mutual FundDealer Inc. ("AMFDI") for a decision, pursuant tosection 5.1 of the Rule, exempting AMFDI from the membershipand filing requirements in sections 2.1 and 3.3 of the Rule;
UPON considering the Application andthe recommendation of staff of the Ontario Securities Commission(the "Commission");
AND UPON AMFDI having represented tothe Director that:
1. AMFDI is a corporation incorporated underthe laws of the province of Ontario;
2. AMFDI has applied to the Commission forregistration as mutual fund dealer;
3. AMFDI and AIM Funds Management Inc. ("AIM")are each wholly owned by AIM Canada Holdings Inc. which, inturn, is indirectly wholly owned by AMVESCAP PLC. As such,AMFDI and AIM are affiliated companies under the SecuritiesAct (Ontario) (the "Act");
4. AIM's principal business activity is managingmutual funds (the "Funds"), the securities of whichare qualified for sale to the public in some or all of theprovinces and territories of Canada pursuant to prospectusesfor which receipts have been issued by the relevant Canadiansecurities administrators;
5. It is intended that the principal businessof AMFDI will be to assist AIM by undertaking the ancillarymutual fund dealer activities relating to the Funds that AIMis currently registered to undertake without membership inthe Mutual Fund Dealers Association of Canada (the "MFDA")in Ontario pursuant to an exemption from the MFDA membershiprequirements under the Act. AIM wishes to transfer its ancillarymutual fund dealer activities in Ontario to AMFDI to increaseadministrative efficiencies and reduce fees;
6. AIM obtained an MRRS Decision Documentexempting it from the requirements to become a member of theMFDA in the provinces of British Columbia, Alberta, Saskatchewan,Manitoba and Ontario on January 23, 2002. AIM obtained a similarOrder from the province of Nova Scotia on June 21, 2002;
7. Other than as described in this Order andany schedules attached hereto, AMFDI will not sell the Fundsdirectly to the public. Securities of the Funds sold to thepublic are sold through participating dealers and brokers;
8. It is intended that AMFDI's activitiesas a mutual fund dealer will be restricted to servicing, andacting as the mutual fund dealer of record in respect of,the purchase and sale of securities of the Funds by the followingtypes of parties and accounts, all of which shall be consistentwith the Permitted Activities listed in Appendix A:
(a) accounts held by current and formeremployees, officers and directors of AIM (including itspredecessor companies) or an entity which provides or previouslyprovided services to AIM ("Employees and Service Providers"),as well as individuals connected to Employees and ServiceProviders ("Connected Individuals"). ConnectedIndividuals include individuals in a special relationshipwith Employees and Service Providers such as spouses ofEmployees and Service Providers, and the children, parents,grandparents, nieces, nephews and siblings of either Employeesand Service Providers or their spouses, as well as peoplewho are closely associated with the founders of predecessorsof AIM;
(b) accounts for third parties who purchaseand hold securities of the Funds as portfolio investmentsof "fund-on-fund" products. Such arrangementsinvolve the sale of securities of an underlying Fund toa top third party fund. Under these arrangements, AMFDImay be the mutual fund dealer of record in the purchaseand sale of securities of the Fund or the mutual fund dealerof record may be a mutual fund dealer who is an affiliateof the purchasing third party;
(c) accounts in connection with productscommonly known as RSP clone funds. Such arrangements involve:
(i) the direct acquisition and sale bythe top RSP clone Fund of securities of the underlyingFund;
(ii) the sale of securities of the underlyingFund to a counterparty under a derivatives contract enteredinto by the top RSP clone Fund or to affiliates of suchcounterparty; or
(iii) both (i) and (ii).
In connection with the transactions describedunder (ii) above, AMFDI may be the mutual fund dealer ofrecord in the purchase and sale of securities of the underlyingFund or the mutual fund dealer of record may be a mutualfund dealer who is an affiliate of the purchasing thirdparty;
(d) accounts of institutional investorsheld by insurance companies which purchase securities ofcertain Funds for their segregated funds, pooled funds andother similar products;
(e) accounts for certain defined contributionand defined benefits pension plans (the "Pension Accounts").Following the amalgamation of AIM with Trimark InvestmentManagement Inc. on August 1, 2000, AIM transferred the majorityof the Pension Accounts to other companies, but has notyet been able to transfer the remaining Pension Accountswithout adversely affecting the holders of the accounts.AIM does not, and AMFDI will not, pursue new Pension Accounts;and
(f) accounts which hold the initial capitalprovided by persons permitted to make initial investmentsin a new mutual fund that AIM promotes as identified insection 3.1 of National Instrument 81-102 ;
9. In connection with its application forregistration as a mutual fund dealer, AMFDI must obtain membershipin the MFDA by filing the appropriate application and feeor obtain an exemption from such requirements;
10. Registration of AMFDI as a member in theMFDA is not appropriate due to the limited nature of AMFDI'sproposed mutual fund dealer activities and its affiliationwith AIM, the manager of the Funds;
11. AMFDI will obtain and maintain its registrationas a mutual fund dealer and will comply with applicable securitieslegislation and rules;
12. AMFDI has agreed to the imposition ofthe terms and conditions on its registration as a mutual funddealer set out in the attached Appendix "A", whichoutlines the activities it has agreed to adhere to in connectionwith its application for this Decision;
13. Any person or company that becomes a clientof AMFDI as a result of the transfer of ancillary mutual funddealer activities from AIM that is contemplated in paragraph5, above, will receive prompt and prominent written noticefrom AMFDI that:
The Registrant is not currently a member,and does not intend to become a member, of the Mutual FundDealers Association; consequently, clients of the Registrantwill not have available to them investor protection benefitsthat would otherwise derive from membership of the Registrantin the MFDA, including coverage under any investor protectionplan for clients of members of the MFDA;
14. Any other person or company will, beforethey are accepted as a client of AMFDI, receive from AMFDIthe prominent written notice referred to in paragraph 13,above;
AND UPON the Director being satisfiedthat to do so would not be prejudicial to the public interest;
IT IS THE DECISION of the Director, pursuantto section 5.1 of the Rule, that AMFDI is exempt from the requirementsin sections 2.1 and 3.3 of the Rule;
PROVIDED THAT AMFDI complies with theterms and conditions on its registration as a mutual fund dealerunder the Act set out in the attached Appendix "A".
October 3, 2002.
"David M. Gilkes"
APPENDIX "A"
TERMS AND CONDITIONS OF REGISTRATION
OF AIM MUTUAL FUND DEALERINC.
AS A MUTUAL FUND DEALER
Definitions
1. For the purposes hereof, unless the contextotherwise requires:
(a) "Act" means the SecuritiesAct, R.S.O. 1990, c. S.5, as amended;
(b) "Adviser" means an adviseras defined in subsection 1(1) of the Act;
(c) "Client Name Trade" means,for the Registrant, a trade to, or on behalf of, a personor company, in securities of a mutual fund, that is managedby the Registrant or an affiliate of the Registrant, where,immediately before the trade, the person or company is shownon the records of the mutual fund or of an other mutualfund managed by the Registrant or an affiliate of the Registrantas the holder of securities of such mutual fund, and thetrade consists of:
(i) a purchase, by the person or company,through the Registrant, of securities of the mutual fund;or
(ii) a redemption, by the person or company,through the Registrant, of securities of the mutual fund;
and where, the person or company:
(iii) is a client of the Registrant oran affiliate of the Registrant that was not solicitedby the Registrant or an affiliate of the Registrant; or
(iv) was an existing client of the Registrantor an affiliate of the Registrant on the Effective Date;
(d) "Commission" means the OntarioSecurities Commission;
(e) "Effective Date" means October4, 2002;
(f) "Employee", for the Registrant,means:
(i) an employee of the Registrant;
(ii) an employee of an affiliated entityof the Registrant; or
(iii) an individual that is engaged toprovide, on a bona fide basis, consulting, technical,management or other services to the Registrant or to anaffiliated entity of the Registrant, under a written contractbetween the Registrant or the affiliated entity and theindividual or a consultant company or consultant partnershipof the individual, and, in the reasonable opinion of theRegistrant, the individual spends or will spend a significantamount of time and attention on the affairs and businessof the Registrant or an affiliated entity of the Registrant;
(g) "Employee", for a ServiceProvider, means an employee of the Service Provider or anaffiliated entity of the Service Provider, provided that,at the relevant time, in the reasonable opinion of the Registrant,the employee spends or will spend, a significant amountof time and attention on the affairs and business of:
(i) the Registrant or an affiliated entityof the Registrant; or
(ii) a mutual fund managed by the Registrantor an affiliated entity of the Registrant;
(h) "Executive", for the Registrant,means a director, officer or partner of the Registrant orof an affiliated entity of the Registrant;
(i) "Executive", for a ServiceProvider, means a director, officer or partner of the ServiceProvider or of an affiliated entity of the Service Provider;
(j) "Exempt Trade", for the Registrant,means:
(i) a trade in securities of a mutualfund that is made between a person or company and an underwriteracting as purchaser or between or among underwriters;
(ii) any other trade for which the Registrantwould have available to it an exemption from the registrationrequirements of the Act if the Registrant were not a "marketintermediary" as such term is defined in section204 of the Regulation; or
(iii) a trade in securities of a mutualfund for which the Registrant has received a discretionaryexemption from the registration requirements of the Act;
(k) "Fund-on-Fund Trade", forthe Registrant, means a trade that consists of:
(i) a purchase, through the Registrant,of securities of a mutual fund that is made by anothermutual fund;
(ii) a purchase, through the Registrant,of securities of a mutual fund that is made by a counterparty,an affiliated entity of the counterparty or an other personor company, pursuant to an agreement to purchase the securitiesto effect a hedge of a liability relating to a contractfor a specified derivative or swap made between the counterpartyand another mutual fund; or
(iii) a sale, through the Registrant,of securities of a mutual fund that is made by anothermutual fund where the party purchasing the securitiesis:
(A) a mutual fund managed by the Registrantor an affiliated entity of the Registrant; or
(B) a counterparty, affiliated entityor other person or company that acquired the securitiespursuant to an agreement to purchase the securitiesto effect a hedge of a liability relating to a contractfor a specified derivative or swap made between thecounterparty and another mutual fund; and
where, in each case, at least one of thereferenced mutual funds is a mutual fund that is managedby either the Registrant or an affiliated entity of theRegistrant;
(l) "In Furtherance Trade" means,for the Registrant, a trade by the Registrant that consistsof any act, advertisement, or solicitation, directly orindirectly in furtherance of an other trade in securitiesof a mutual fund, where the other trade consists of a purchaseor sale of securities of a mutual fund that is managed bythe Registrant or an affiliated entity of the Registrantand is made by or through an other registered dealer ifthe Registrant is not otherwise permitted to make the purchaseor sale pursuant to these terms and conditions;
(m) "Mutual Fund Instrument" meansNational Instrument 81-102 Mutual Funds, as amended;
(n) "Permitted Client", for theRegistrant, means a person or company that is a client ofthe Registrant or an affiliate of the Registrant, and thatis, or was at the time the person or company became a clientof the Registrant or an affiliate of the Registrant:
(i) an Executive or Employee of the Registrantor an affiliate of the Registrant;
(ii) a Related Party of an Executive orEmployee of the Registrant or an affiliate of the Registrant;
(iii) a Service Provider of the Registrantor an affiliate of the Registrant, or an affiliated entityof a Service Provider of the Registrant or an affiliateof the Registrant;
(iv) an Executive or Employee of a ServiceProvider of the Registrant or an affiliate of the Registrant;or
(v) a Related Party of an Executive orEmployee of a Service Provider of the Registrant or anaffiliate of the Registrant;
(o) "Permitted Client Trade" means,for the Registrant, a trade to a person who is a PermittedClient or who represents to the Registrant that he or sheis a person included in the definition of Permitted Client,in securities of a mutual fund that is managed by the Registrantor an affiliate of the Registrant, and the trade consistsof a purchase or redemption, by the person, through theRegistrant, of securities of the mutual fund;
(p) "Registered Plan" means aregistered pension plan, deferred profit sharing plan, registeredretirement savings plan, registered retirement income fund,registered education savings plan or other deferred incomeplan registered under the Income Tax Act (Canada);
(q) "Registrant" means AIM MutualFund Dealer Inc.;
(r) "Regulation" means R.R.O.1990, Reg. 1015, as amended, made under the Act;
(s) "Related Party", for a person,means an other person who is:
(i) the spouse of the person;
(ii) the issue of:
(A) the person,
(B) the spouse of the person, or
(C) the spouse of any person that isthe issue of a person referred to in subparagraphs (A)or (B) above;
(iii) the parent, grandparent or siblingof the person, or the spouse of any of them;
(iv) the issue of any person referredto in paragraph (iii) above; or
(v) a Registered Plan established by,or for the exclusive benefit of, one, some or all of theforegoing;
(vi) a trust where one or more of thetrustees is a person referred to above and the beneficiariesof the trust are restricted to one, some, or all of theforegoing;
(vii) a corporation where all the issuedand outstanding shares of the corporation are owned byone, some, or all of the foregoing;
(t) "securities", for a mutualfund, means shares or units of the mutual fund;
(u) "Seed Capital Trade" meansa trade in securities of a mutual fund made to a personor company referred to in any of subparagraphs 3.1(1)(a)(i)to 3.1(1)(a)(iii) of the Mutual Fund Instrument; and
(v) "Service Provider", for theRegistrant, means:
(i) a person or company that providesor has provided professional, consulting, technical, managementor other services to the Registrant or an affiliated entityof the Registrant;
(ii) an Adviser to a mutual fund thatis managed by the Registrant or an affiliated entity ofthe Registrant; or
(iii) a person or company that providesor has provided professional, consulting, technical, managementor other services to a mutual fund that is managed bythe Registrant or an affiliated entity of the Registrant.
2. For the purposes hereof, a person or companyis considered to be an "affiliate" or an "affiliatedentity" of an other person or company if the person orcompany would be an affiliated entity of that other personor company for the purposes of Ontario Securities CommissionRule 45-503 Trades To Employees, Executives and Consultantsand, in any event, for the purposes hereof, for the Registrant,AIM Funds Management Inc. is an "affiliate" or an"affiliated entity" of the Registrant.
3. For the purposes hereof:
(a) "issue", "niece","nephew" and "sibling" includes anyperson having such relationship through adoption, whetherlegally or in fact;
(b) "parent" and "grandparent"includes a parent or grandparent through adoption, whetherlegally or in fact;
(c) "registered dealer" meansa person or company that is registered under the Act asa dealer in a category that permits the person or companyto act as dealer for the subject trade; and
(d) "spouse", for an Employeeor Executive, means a person who, at the relevant time,is the spouse of the Employee or Executive.
4. Any terms that are not specifically definedabove shall, unless the context otherwise requires, have themeaning:
(a) specifically ascribed to such term inthe Mutual Fund Instrument; or
(b) if no meaning is specifically ascribedto such term in the Mutual Fund Instrument, the same meaningthe term would have for the purposes of the Act.
Restricted Registration
Permitted Activities
5. The registration of the Registrant as amutual fund dealer under the Act shall be for the purposesonly of trading by the Registrant in securities of a mutualfund where the trade consists of:
(a) a Client Name Trade;
(b) an Exempt Trade;
(c) a Fund-on-Fund Trade;
(d) an In Furtherance Trade;
(e) a Permitted Client Trade; or
(f) a Seed Capital Trade.