Emerge Canada Inc.
Headnote
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.
Applicable Legislative Provisions
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
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 EMERGE CANADA INC. (the Filer)
DECISION
Background
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).
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.
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.
Representations
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.
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.
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.