Fidelity Investments Canada ULC
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from section 2.5 of NI 81-102 to permit mutual funds to invest up to 10% of their NAV in US listed ETFs and non-redeemable investment funds that invest primarily in physical commodities on an unlevered basis -- decision also revokes and replaced prior relief order -- relief subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.5(2)(a) and (c) and 19.1.
Securities Act, R.S.O. 1990, c. S.5, s. 144
June 20, 2024
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 FIDELITY INVESTMENTS CANADA ULC (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the existing and future open-ended mutual funds and exchange traded funds (ETFs) managed by the Filer or an affiliate, that are subject to National Instrument 81-102 Investment Funds (NI 81-102) and that are not money market funds or precious metals funds (the Funds), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
(a) revoking and replacing the Previous Decision (as defined below); and
(b) exempting the Funds from the prohibitions contained in paragraphs 2.5(2)(a), 2.5(2)(a.1) and 2.5(2)(c) of NI 81-102 to permit each Fund to invest in ETFs (US Commodity ETFs) and non-redeemable investment funds (US Commodity NRIFs, and together with US Commodity ETFs, the US Commodity Funds) traded on a stock exchange in the United States that do not qualify as index participation units (IPUs) that have exposure to one or more physical commodities
(collectively, 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 (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon (together with Ontario, the Jurisdictions).
Interpretation
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.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation amalgamated under the laws of the Province of Alberta, with its head office located in Toronto, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Québec and Newfoundland and Labrador. The Filer is also registered as a portfolio manager and mutual fund dealer in each of the Jurisdictions and is registered under the Commodity Futures Act (Ontario) in the category of commodity trading manager.
3. The Filer acts, or will act, as manager and portfolio manager of each of the Funds.
4. The Filer is not in default of securities legislation in any of the Jurisdictions.
The Funds
5. Each Fund is, or will be, a "mutual fund" as defined in applicable securities legislation, governed by the laws of Canada or a Jurisdiction.
6. Securities of each Fund are, or will be, qualified for distribution in some or all of the Jurisdictions under a prospectus and Fund Facts or ETF facts prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) or National Instrument 41-101 General Prospectus Requirements, as applicable.
7. Each Fund is, or will be, a reporting issuer in some or all of the Jurisdictions and is or will be subject to NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities. The Funds are or will be structured as either alternative mutual funds or as conventional mutual funds.
8. The existing Funds are not in default of securities legislation in any Jurisdiction.
The Previous Decision
9. The Filer obtained a previous decision dated May 18, 2018 (the Previous Decision) exempting the Funds from the requirements of paragraphs 2.3(1)(f), 2.3(1)(h), 2.5(2)(a) and 2.5(2)(c) of NI 81-102, as in effect at the time, to permit the Funds invest in the following:
(a) Silver (as defined in the Previous Decision) (the Silver Relief)
(b) ETFs traded on a stock exchange in Canada or the United States that do not qualify as IPUs that have exposure to one or more physical commodities, including, but not limited to, gold and silver on an unlevered basis (Commodity ETFs) (the Commodity ETFs Relief)
10. The Previous Decision also continued certain relief previously granted to Fidelity Tactical Strategies Fund to invest in Commodity ETFs, Leveraged Gold/Silver ETFs (as defined in the Previous Decision) and Inverse or Leveraged ETFs (as defined in the Previous Decision) (the Fidelity Tactical Strategies Fund Relief). Fidelity Tactical Strategies Fund is proposed to be merged with Fidelity Global Balanced Portfolio, subject to unitholder approval, effective on or around September 6, 2024.
11. Since the Previous Decision was granted, there have been amendments to NI 81-102 (the Amendments) that have had the effect of codifying the Silver Relief, the Commodity ETFs Relief as it applies to Commodity ETFs that are listed for trading in Canada (Canadian Commodity ETFs), and the relief granted under the Fidelity Tactical Strategies Fund Relief. NI 81-102 now also permits the Fund to invest in non-redeemable investment funds that are reporting issuers subject to NI 81-102, including non-redeemable investment funds that are not IPUs and that have exposure to one or more physical commodities, on an unlevered basis (Canadian Commodity NRIFs, and together with Canadian Commodity ETFs, Canadian Commodity Funds).
12. The effect of the Amendments is that the Funds no longer require the Silver Relief, the Commodity ETFs Relief with respect to investing in Canadian Commodity ETFs, and the Fidelity Tactical Strategies Fund Relief.
13. The Funds now wish to have the ability to also invest in US Commodity NRIFs. The Filer is therefore requesting that the Previous Decision be revoked and replaced by the Exemption Sought in order to permit the Funds to be able to continue investing in US Commodity ETFs and to also invest in US Commodity NRIFs.
The US Commodity Funds
14. Each US Commodity Fund is, or will either be structured as, a "mutual fund" or "non-redeemable investment fund" as such terms are defined under the Securities Act (Ontario) and are or will be reporting issuers in the United States.
15. The securities of each US Commodity Fund are or will be, listed for trading on a stock exchange in the United States.
16. The assets of each US Commodity Fund consist or will consist primarily of one or more physical commodities, or investments in vehicles or derivatives that have an underlying interest in such physical commodity or commodities. These physical commodities may include, without limitation, precious metals commodities (such as gold, silver, platinum, platinum certificates, palladium and palladium certificates), energy commodities (such as crude oil, gasoline, heating oil and natural gas), industrials and/or metals commodities (such as aluminum, copper, nickel, uranium and zinc) and agricultural commodities (such as coffee, corn, cotton, lean hogs, live cattle, soybeans, soybean oil, sugar and wheat). The objective of a US Commodity Fund is to reflect the price of the applicable commodity or commodities (less such US Commodity Fund's expenses and liabilities) on an unlevered basis, or track the performance of an index which is intended to reflect the changes in the market value of the applicable physical commodity or commodities sector.
Investments in the US Commodity Funds
17. Each existing Fund is, and each future Fund will be, permitted, in accordance with its investment objectives and investment strategies, to invest securities of US Commodity Funds.
18. Any regulatory concerns, such as undue risk, liquidity concerns or lack of transparency, in connection with investing in the US Commodity Funds are mitigated by the following facts:
(a) the US Commodity Funds trade on an exchange in the United States and are generally relatively liquid. The US Commodity Funds will be "registered" investment companies in the United States which means that there will be clear disclosure about the US Commodity Funds readily available in the marketplace,
(b) the amount of loss that can result from an investment by a Fund in the US Commodity Funds will be limited to the amount invested by the Fund in securities of the US Commodity Funds,
(c) investments by the Funds in US Commodity Funds will be very limited. In accordance with the investment strategies of the Funds, no more than 10% of the net asset value of the Fund will be invested in one or a combination of US Commodity Funds taken at market value at the time of purchase, and
(d) the prospectus of each existing Fund discloses, or will disclose the next time it is renewed, and the prospectus of each future Fund will disclose: (i) that the Fund has obtained the Exemption Sought; (ii) an explanation of what each type of Commodity Fund is; (iii) to the extent the Fund may invest in securities of a US Commodity Fund; and (iv) the risks associated with such investments and strategies.
Necessity for Exemption Sought
19. None of the US Commodity Funds are, or will be reporting issuers in a Jurisdiction, and are not or will not be, subject to NI 81-102, or seek to comply with NI 81-102.
20. In the absence of the Exemption Sought, the Funds would not be permitted to invest in a US Commodity Fund because:
(a) paragraph 2.5(2)(a) of NI 81-102 would prohibit the Funds that are not alternative mutual funds, from investing in securities of US Commodity Funds because they are not or will not be subject to NI 81-102;
(b) paragraph 2.5(2)(a.1) of NI 81-102 would prohibit the Funds that alternative mutual funds from investing in securities of US Commodity Funds because they are not or will not be subject to or necessarily be in compliance with, NI 81-102; and
(c) paragraph 2.5(2)(c) of NI 81-102 would prohibit the Funds from investing in securities of US Commodity Funds because they are not or will be not reporting issuers in a Jurisdiction.
Generally
21. An investment by a Fund in a US Commodity Fund will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.
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 Exemption Sought is granted provided that:
(a) the investment by a Fund in securities of a US Commodity Fund is in accordance with the fundamental investment objectives and investment strategies of the Fund;
(b) the securities of the US Commodity Funds are listed for trading on a stock exchange in the United States;
(c) each Fund does not purchase securities of a US Commodity Fund if, immediately after the transaction,
(i) in the case of a Fund that is not an alternative mutual fund, more than 10% of the net asset value of the Fund, taken at market value at the time of the transaction would, in the aggregate, consist of:
A. securities of alternative mutual funds, non-redeemable investment funds and US Commodity Funds; or
B. investments in physical commodities, including investments in securities of Canadian Commodity Funds and US Commodity Funds; and
(ii) in the case of a Fund that is an alternative mutual fund, more than 10% of the net asset value of the Fund, taken a market value at the time of the transaction would consist of securities of US Commodity Funds;
(d) the prospectus of each existing Fund discloses, or will disclose the next time it is renewed, and the prospectus of each future Fund will disclose:
(i) in the investment strategies section:
A. that the Fund has obtained relief to invest in securities of US Commodity Funds;
B. an explanation of what each type of US Commodity Fund is;
C. to the extent the Fund may invest in securities of a US Commodity Fund, that the Fund may indirectly invest in gold and other physical commodities; and
(ii) the risks associated with such investments and strategies.
Application File #: 2024/0113
SEDAR+ File #: 6089618