BMO Asset Management Inc. and BMO Investments Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Investment fund managers granted relief from related party transaction reporting requirements in paragraphs 117(1)1, 117(1)3 and 117(1)4 of the Securities Act (Ontario) in respect of the public investment funds to which they provide services or advice -- monthly reporting not required provided that substantially similar disclosure is made in the annual and interim management reports of fund performance for each investment fund and that certain records of related party portfolio transactions are kept by the investment fund.
Applicable Legislative Provisions
Securities Act (Ontario), ss. 117(1)1, 117(1)3 and 117(1)4, and 117(2).
March 12, 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 BMO ASSET MANAGEMENT INC. (BMOAM) AND BMO INVESTMENTS INC. (BMOII, AND EACH OF BMOAM AND BMOII, A FILER, AND COLLECTIVELY, THE FILERS)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting each Filer and any affiliate of a Filer from the management company reporting requirements (the Reporting Requirements) in the Legislation which require the Filer or its affiliate, for each Fund (as defined below) in respect of which it is a management company, to file a report within 30 days after the end of the month in which the following transactions occur:
(a) every transaction of purchase or sale of securities between the investment fund and any related person or company;
(b) every purchase or sale effected by the investment fund through any related person or company with respect to which the related person or company receives a fee either from the investment fund or from the other party to the transaction or from both; and
(c) any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, the investment fund is a joint participant with one or more of its related persons or companies
(collectively, the Reporting Relief).
The Filers also seek to revoke and replace the Current Relief (as defined below) (the Revocation Relief). The Reporting Relief together with the Revocation Relief, 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 Filers have 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, Nova Scotia, New Brunswick and Newfoundland and Labrador (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this Decision, unless otherwise defined.
Filer for the purposes of the definition of "Funds" and paragraphs 4, 7, 14, 15, 17 and 18 includes each of the Filers and each of their affiliates.
Fund means an investment fund (either currently existing or to be established in the future) that is, or will be, subject to NI 81-102 and is, or will be, a reporting issuer and for which a Filer acts, or will act, as the investment fund manager and may also be the portfolio manager from time to time.
NI 81-102 means National Instrument 81-102 Investment Funds.
Nl 81-106 means National Instrument 81-106 Investment Fund Continuous Disclosure.
Nl 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds.
Representations
This decision is based on the following facts represented by the Filer:
1. BMOAM is a corporation incorporated under the laws of the Province of Ontario and BMOII is a corporation amalgamated under the laws of Canada. Each of BMOAM and BMOII is an indirect, wholly-owned subsidiary of Bank of Montreal. The head office of each of BMOAM and BMOII is located in Toronto, Ontario.
2. BMOAM is registered as an adviser in the category of portfolio manager in each of the Jurisdictions and as an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador.
3. BMOII is registered as a mutual fund dealer in each of the Jurisdictions and as an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador.
4. Each Filer is or will be the investment fund manager and may also be the portfolio manager of one or more Funds.
5. Each of the Funds is or will be a reporting issuer in one or more of the Jurisdictions.
6. Each Filer and each of the existing Funds is not in default of securities legislation in any of the Jurisdictions.
7. Each Filer is or will be the investment fund manager and may also be the portfolio manager in respect of one or more Funds and accordingly is a "management company" in respect of such Funds as defined in the Legislation.
8. Bank of Montreal is or will be a "related person or company" to the Funds within the meaning of the Legislation as Bank of Montreal is a substantial securityholder of the management company of each Fund.
9. Any subsidiary or affiliate of Bank of Montreal including, but not limited to, BMO Nesbitt Burns Inc., BMO InvestorLine Inc. and any other brokers or dealers that are now or in the future subsidiaries or affiliates of Bank of Montreal, is or will be a "related person or company" to the Funds within the meaning of the Legislation as Bank of Montreal, which is a substantial securityholder of the management company of each Fund, has or will have a significant interest in any such subsidiary or affiliate of Bank of Montreal (each a Related Entity).
10. Additionally, a Fund may from time to time be a "related person or company" in respect of one or more other Funds within the meaning of the Legislation as Bank of Montreal, which is a substantial securityholder of the management company of each Fund, may have a significant interest in one or more Funds from time to time (each a Related Fund and each of Bank of Montreal, each Related Entity and each Related Fund shall be referred to herein as a Related Party).
11. Pursuant to Section 6.1 of NI 81-107, as well as exemptive relief granted to the Funds from time to time, the Funds are permitted to purchase securities from or sell securities to a Related Party including, but not limited to, the purchase and sale of debt securities by the Funds from or to a Related Party.
12. The portfolio manager or sub-advisor (if applicable) of each Fund has discretion to allocate the brokerage transactions of such Fund in any manner that it believes to be in the Fund's best interests, subject to such policies as may be established by the investment fund manager of the Fund from time to time. Brokerage business of a Fund may be allocated to a Related Party of the Fund for which such Related Party may receive a fee. The process for allocation of brokerage business of a Fund is the same for all brokers, regardless of whether the broker is a related person or company to the Fund.
13. A Fund may from time to time participate as a joint participant with one or more other Related Funds in the purchase of securities under a distribution, including where a Related Party may act as an underwriter in connection with such offering.
14. In the absence of relief therefrom, the Reporting Requirements would require a Filer, for each Fund in respect of which it is a management company, to file, within 30 days of the end of the month in which each transaction occurs, a report (each, a Report) of:
(a) any purchase or sale of securities between a Fund and a Related Party;
(b) any purchase or sale of securities by a Fund that is effected through a Related Party with respect to which that Related Party received a fee for such services, either from the Fund or another party to the transaction or both; and
(c) every transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, a Fund is a joint participant with one or more Related Parties.
15. The Report in each case, would have to disclose the name of the Fund, the name of the Filer, the date of the transaction, the category of the transaction, the parties to the transaction, the issuer of the securities purchased or sold, the class or designation of the securities, the amount or number of securities, the consideration, the name of the related person or company receiving a fee (if applicable), the name of the person or company that paid the fee to the related person or company (if applicable) and the amount of the fee received by the related person or company (if applicable).
16. Pursuant to NI 81-106, the Funds prepare and file, or will prepare and file, interim and annual management reports of fund performance (MRFPs) that disclose any transactions involving a related person or company, including: the identity of that related person or company, the relationship between the related person or company and the Funds, the purpose of the transaction, the measurement basis used to determine the recorded amount, any ongoing commitments to the related party, and, if applicable, the dollar amount of commission, spread, or any other fee that the Fund paid to any related party in connection with a portfolio transaction.
17. It is costly and time consuming for a Filer to provide the Reports required by the Legislation on a monthly and segregated basis for each Fund, and substantially similar information is already included in the MRFPs as required by NI 81-106.
18. Under an Order dated February 6, 2007, the principal regulator granted each Filer relief from the provisions of the Legislation requiring a management company, in respect of each mutual fund to which it provides services or advice, to file a report within 30 days after the end of each month relating to every purchase or sale effected by the mutual fund through any related person or company with respect to which the related person or company received a fee either from the mutual fund or from the other party to the transaction or both (the Current Relief).
19. The Current Relief is not as broad as the Reporting Relief, as the Current Relief does not provide relief from the Reporting Requirements that a report be filed of (i) every transaction of purchase or sale of securities between a Fund and any related person or company; and (ii) any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, a Fund is a joint participant with one or more related persons or companies.
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:
(a) the Revocation Relief is granted; and
(b) the Reporting Relief is granted provided that:
(i) the annual and interim MRFPs for each Fund disclose:
(A) the name of the Related Party;
(B) the amount of any fees paid to each Related Party; and
(C) the person or company who paid the fees, if they were not paid by the Fund; and
(ii) the records of portfolio transactions maintained by each Fund include, separately for every portfolio transaction effected by the Fund through a Related Party:
(A) the name of the Related Party;
(B) the amount of any fees paid to the Related Party; and
(C) the person or company who paid the fees.