BlackRock Asset Management Canada Limited and iShares Equal Weight Bank & LifeCo ETF
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from concentration restrictions in subsection 2.1(1) to permit ETF to purchase securities of an issuer if after the purchase more than 10% of the ETF's net asset value would be in securities of an issuer -- ETF holds equal weight positions in the largest Canadian banks and lifecos -- subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.1(1) and 19.1.
June 10, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BLACKROCK ASSET MANAGEMENT CANADA LIMITED (the Filer) AND iSHARES EQUAL WEIGHT BANC & LIFECO ETF (The Fund)
DECISION
Background
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 of the principal regulator (the Legislation) granting relief from subsection 2.1(1) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Fund to purchase and hold securities of an issuer if, immediately after the transaction, more than 10% of the Fund's net asset value (NAV) would be invested in securities of any one issuer, with respect to investments in the securities of one or more Canadian banks and/or Canadian life insurance companies (the Requested Relief).
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 (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
These decisions are based on the following facts represented by BlackRock Canada:
The Filer and The Fund
1. The Filer's head office is located in Toronto, Ontario. The Filer is registered as a portfolio manager, investment fund manager and exempt market dealer in each of the Jurisdictions, as a commodity trading manager in Ontario and as a commodities adviser in Manitoba.
2. The Filer is the trustee, manager and portfolio adviser of the Fund, which is governed by an amended and restated Declaration of Trust made as of April 6, 2018.
3. The Fund is an exchange traded fund that is a reporting issuer in each of the Jurisdictions and is subject to NI 81-102. The Fund's securities are distributed pursuant to a prospectus and ETF Facts both dated June 26, 2020 and prepared in accordance with National Instrument 41-101 General Prospectus Requirements. The Fund's units are listed for trading on the Toronto Stock Exchange (the TSX).
4. The Fund's investment objective is to provide its unitholders with a diversified, equal-weighted investment in a portfolio of common shares of the largest Canadian banks and Canadian life insurance companies.
5. The Fund employs a passive equal weighting approach that is intended to reduce the risks to investors of increasing exposure to any single investment. Issuers are selected for inclusion in the Fund based on the following criteria: (i) the minimum market capitalization of such an issuer is $5 billion for banks and $1.5 billion for life insurance companies; and (ii) the issuer must be a Canadian bank or a Canadian life insurance company.
6. The Fund's portfolio is generally rebalanced: (i) quarterly, to adjust for changes in the market value of investments; and (ii) to reflect the impact of a merger, acquisition or other significant corporate action or event of or affecting one or more of the Canadian banks or life insurance companies held by the Fund (collectively, the Rebalancing Procedure).
7. In addition, between the quarterly rebalancing dates, the Fund may sell portfolio securities for working capital purposes. In order to rebalance the portfolio, the Filer will, at the time of rebalancing, calculate the market value of its portfolio, less any amount to be used for working capital purposes, and divide such resultant amount by the number of issuers to be included in the portfolio. Rebalancing transactions will be effected as soon as is reasonably practicable thereafter. As a result of changes in market prices of the shares of the issuers in the portfolio between rebalancing dates, it is not expected that the holdings of the issuers in the Fund will be exactly equally weighted at any given time. The Fund's portfolio may also be rebalanced in the event the Fund issues units.
8. The issuers held in the Fund are available on the iShares Funds' website at www.blackrock.com/ca.
9. Neither the Filer nor the Fund is in default of securities legislation in any of the Jurisdictions.
Regulatory Considerations
10. In order to achieve its investment objectives, the Fund may at times be required to invest more than 10% of its NAV in the common shares of a single Canadian bank or a single Canadian life insurance company.
11. Absent the Requested Relief, the Fund would not be permitted to purchase securities of one or more of those issuers if, immediately after the transaction more than 10% of its NAV would be invested in securities of such issuer pursuant to subsection 2.1(1) of NI 81-102.
Generally
12. The common shares of the Canadian banks and Canadian life insurance companies that the Fund holds are listed on the TSX or another recognized Canadian exchange. The common shares of these large capitalization Canadian banks and Canadian life insurance companies are currently among the most liquid publicly-listed Canadian equity securities and are less likely to be subject to liquidity concerns than the securities of other issuers.
13. If required to facilitate distributions or pay the Fund's expenses, a portion of the Fund's holdings will typically be liquidated to fund such requirements.
14. Future subscriptions for the Fund's units will be used to acquire securities of each Canadian bank and Canadian life insurance company held in the Fund, typically in the same weights as they are currently held in the Fund's portfolio, based on their relative market values at the time of such subscription.
15. In the absence of: (i) new subscriptions for the Fund's units (ii) sales or delivery of common shares of issuers that are held by the Fund to facilitate distributions, exchanges, redemptions or to pay the Fund's expenses, or (iii) corporate actions of the issuers held by the Fund or reinvestment of cash dividends, it is expected that the number of common shares of each issuer in the Fund's portfolio will generally not change. The Fund's portfolio will not be actively managed by the Filer and as noted above is generally rebalanced on a quarterly basis in order to maintain the approximate equal weightings.
16. The Fund's investment objective and strategies, as well as the risk factors associated therewith, are disclosed in the Fund's prospectus, and the issuers held in the Fund's portfolio are publicly available on the Filer's website. The Fund's investors have full disclosure of the Fund's holdings, and the risks involved in buying and holding the Fund's units.
17. The Requested Relief will enhance the Fund's ability to pursue and achieve its investment objective in a cost-effective manner and will provide greater flexibility with respect to implementing its investment strategies.
Decision
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 provided that:
(a) an investment in Canadian banks and Canadian life insurance companies is made in accordance with the Fund's investment objectives and investment strategies as described in the prospectus;
(b) the prospectus discloses in the investment strategies that the Fund's portfolio will generally be rebalanced in accordance with the Rebalancing Procedure;
(c) the Fund will not purchase securities of a Canadian bank or a Canadian life insurance company if immediately after the transaction, more than 15% of the Fund's NAV would be invested, directly or indirectly, in securities of that Canadian bank or Canadian life insurance company; and
(d) the Fund includes in its next prospectus and each renewal thereafter (a) disclosure regarding this decision under the heading "Exemptions and Approvals" and (b) a risk factor regarding the concentration of the Fund's portfolio in Canadian banks and Canadian life insurance companies, and the risks associated therewith.