National Bank Investments Inc. et al.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief to permit exchange-traded mutual fund prospectus to omit an underwriter’s certificate – Relief granted from take-over bid requirements for normal course purchases of securities on a marketplace – Relief granted to facilitate the offering of exchange-traded mutual funds.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 59(1), 147.
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

[TRANSLATION]

January 9, 2019

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
(the Jurisdictions)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
NATIONAL BANK INVESTMENTS INC.
(the Filer)

AND

NBI ACTIVE CANADIAN PREFERRED SHARES ETF, NBI GLOBAL REAL ASSETS INCOME ETF,
NBI CANADIAN FAMILY BUSINESS INDEX ETF AND NBI LIQUID ALTERNATIVES ETF
(the Proposed ETFs)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application from the Filer on behalf of the Proposed ETFs, each being an exchange traded mutual fund, and such other exchange traded mutual funds as are managed or may be managed by the Filer or an affiliate or successor or the Filer now or in the future that are structured in the same manner as one of the Proposed ETFs (together with the Proposed ETFs, the ETFs and each individually, an ETF) for a decision under the securities legislation of the Jurisdictions (the Legislation) that:

(a)           exempts the Filer and each ETF from the requirement in section 5.9 of Regulation 41-101 respecting General Prospectus Requirements (V-1.1, r.14) (Regulation 41-101) (and in Ontario, subsection 59(1) of the Securities Act (Ontario)) to include a certificate of an underwriter in an ETF’s prospectus (the Underwriter’s Certificate Requirement);

(b)           exempts all purchasers and holders purchasing Listed Securities (as defined below) in the normal course through the facilities of the TSX (as defined below) or another Marketplace (as defined below) from the Take-over Bid Requirements (as defined below) in Part 2 of Regulation 62-104 respecting Takeover Bids and Issuer Bids (V-1.1, r. 35) (Regulation 62-104)

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a)           the Autorité des marchés financiers is the principal regulator for this application; and

(b)           the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System (V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in each of the jurisdictions of Canada other than the Jurisdictions; and

(c)           the decision is the decision of the principal regulator and evidences the decision of the securities regulatory or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions (V-1.1, r. 3), Regulation 11-102, Regulation 41-101, Regulation 62-104 and Regulation 81-102 respecting Investment Funds (V-1.1, r. 39) (Regulation 81-102) 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 (as defined below) from time to time.

Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of an ETF authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more ETFs on a continuous basis from time to time.

Basket of Securities means, in relation to the Listed Securities of:

(i)            NBI Active Canadian Preferred Shares ETF, NBI Global Real Assets Income ETF, NBI Liquid Alternatives ETF and any other ETF that does not seek to track an index: (i) a group of securities selected by the portfolio manager of the applicable ETF or any applicable sub-advisor from time to time that collectively reflect the constituents of, and their weightings in, the portfolio of the ETF, or (ii) a group of securities selected by the portfolio manager of the applicable ETF or any applicable sub-advisor from time to time; and

(ii)           NBI Canadian Family Business Index ETF and any other index-tracking ETF: (i) a group of some or all of the constituent securities held, to the extent reasonably possible, in approximately the same proportion as they are reflected in the applicable index; or (ii) a group of some or all of the constituent and other securities selected by the portfolio manager of the applicable ETF or any applicable sub-advisor from time to time that collectively reflect the aggregate investment characteristics of, or a representative sample of, the applicable index;

“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 an ETF to perform certain duties in relation to the ETF, including the posting of a liquid two-way market for the trading of the ETF’s Listed Securities on the TSX or another Marketplace.

“Form 41-101F2” means Form 41-101F2 Information Required in an Investment Fund Prospectus.

“Listed Securities” means a series of securities of an ETF distributed pursuant to a long form prospectus prepared pursuant to Regulation 41-101 and Form 41-101F2 that is listed on the TSX or another Marketplace.

“Marketplace” means a “marketplace” as defined in Regulation 21-101 respecting Marketplace Operation (V-1.1, r. 5) that is located in Canada.

“Other Dealer” means a registered dealer that acts as authorized dealer or designated broker to other exchange-traded funds that are not managed by the Filer.

“Prescribed Number of Listed Securities” means the number of Listed Securities of an ETF 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 Listed Securities or Unlisted Securities, as applicable.

“Take-over Bid Requirements” means the requirements of Regulation 62-104 relating to take-over bids, including the requirement to file a report of a take-over bid and to pay the accompanying fee, in each jurisdictions of Canada.

“TSX” means the Toronto Stock Exchange.

“Unlisted Securities” means a series of securities of an ETF offered only on a private placement basis pursuant to available prospectus exemptions, including the accredited investor exemption, under securities laws.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1.             The Filer’s head office is in Montréal, Quebec.

2.             The Filer is a corporation governed by the laws of Canada.

3.             The Filer is registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador, and as a mutual fund dealer in each jurisdictions of Canada.

4.             The Filer or an affiliate of the Filer is, or will be, the investment fund manager of each ETF. Natcan Trust Company, an affiliate of the Filer, is the trustee of the Proposed ETFs.

5.             The Filer is not in default of securities Legislation in any jurisdictions of Canada.

The ETFs

6.             Each Proposed ETF is a mutual fund structured as a trust that is governed by the laws of the Province of Ontario. NBI Liquid Alternatives ETF is an exchange-traded fund and an “alternative mutual fund”, as defined under Regulation 81-102.The Future ETFs will either be trusts or corporations or classes thereof governed by the laws of a Jurisdiction. Each ETF will be a reporting issuer in the jurisdictions of Canada in which its Listed Securities are distributed.

7.             Subject to any exemptions that have been, or may be, granted by the applicable securities regulatory authorities, each ETF is, or will be, a mutual fund subject to Regulation 81-102 and Securityholders of each ETF will have the right to vote at a meeting of Securityholders in respect of matters prescribed by Regulation 81-102.

8.             Each ETF may issue more than one series of securities, including, but not limited to Listed Securities and Unlisted Securities.

9.             The Filer has filed a long form prospectus prepared in accordance with Regulation 41-101 in respect of the Listed Securities of the ETFs, subject to any exemptions that may be granted by the applicable securities regulatory authorities.

10.          The Filer will apply to list the Listed Securities on the TSX or another Marketplace.

The Exemption Sought

11.          Listed Securities will be distributed on a continuous basis in one or more of the jurisdictions of Canada under a prospectus. Listed Securities may generally only be subscribed for or purchased directly from the ETFs (the Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of Listed Securities on any day when there is a trading session on the TSX or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of Listed Securities on the TSX or another Marketplace.

12.          In addition to subscribing for and re-selling Creation Units, Authorized Dealers, Designated Brokers, and Affiliate Dealers will also generally be engaged in purchasing and selling Listed 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 Listed 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.

13.          Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of Listed Securities to be issued, cash only, a Basket of Securities and cash, and/or a combination of cash and securities other than Baskets of Securities, in each case in an amount equal to the net asset value of the Listed Securities subscribed for next determined following the receipt of the subscription order.

14.          Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker may be contractually required to subscribe for Creation Units of an ETF for cash in an amount not to exceed a specified percentage of the net asset value of the ETF or such other amount established by the Filer.

15.          The Designated Brokers and Authorized Dealers will not receive any fees or commissions from the Filer or the ETFs in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or the ETF may, in the Filer’s discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.

16.          Each ETF will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for Listed Securities for the purpose of maintaining liquidity for the Listed Securities.

17.          Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and any prospectus exempt distributions, Listed Securities generally will not be able to be purchased directly from an ETF. Investors are generally expected to purchase and sell Listed Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. Listed 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 Listed Securities may generally do so by selling their Listed Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of Listed Securities or multiple thereof may exchange such Listed Securities for Baskets of Securities and/or cash in the discretion of the Filer. Securityholders may also redeem Listed Securities for cash at a redemption price equal to 95% of the closing price of the Listed Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per Listed Security.

Underwriter’s Certificate Requirement

19.          Authorized Dealers and Designated Brokers will not provide the same services in connection with a distribution of Creation Units as would typically be provided by an underwriter in a conventional underwriting.

20.          The Filer will generally conduct its own marketing, advertising and promotion of the ETFs to the extent permitted by its registrations.

21.          Authorized Dealers and Designated Brokers will not be involved in the preparation of an ETF’s prospectus, will not perform any review or any independent due diligence as to the content of an ETF’s prospectus, and will not incur any marketing costs or receive any underwriting fees or commissions from the ETFs or the Filer in connection with the distribution of Listed Securities. The Authorized Dealers and Designated Brokers generally seek to profit from their ability to create and redeem Listed Securities by engaging in arbitrage trading to capture spreads between the trading prices of Listed Securities and their underlying securities and by making markets for their clients to facilitate client trading in Listed Securities.

22.          The Filer, on behalf of the ETFs, may enter into agreements with various Authorized Dealers (that may or may not be Designated Brokers) pursuant to which the Authorized Dealers may subscribe for Listed Securities.

Take-over Bid Requirements

23.          As equity securities that will trade on the TSX or another Marketplace, it is possible for a person or company to acquire such number of Listed Securities so as to trigger application of the Take-over Bid Requirements. However,

a.             it will not be possible for one or more Securityholders to exercise control or direction over an ETF, as the constating documents of each ETF will provide that only the Filer or the trustee of the ETF may call a meeting of the Securityholders, other than where a vacancy in the office of the trustee occurs, in which case one or more Securityholders may call a meeting to replace the trustee where the Filer has failed to appoint a successor trustee or has failed to call a meeting of the Securityholders of the ETF to replace the trustee;

b.             it will be difficult for the purchasers of Listed Securities to monitor compliance with the Take-over Bid Requirements because the number of outstanding Listed Securities will always be in flux as a result of the ongoing issuance and redemption of Listed Securities by each ETF; and

c.             the way in which the Listed Securities will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium for outstanding Listed Securities because pricing for each Listed Security will generally reflect the net asset value of the Listed Securities.

24.          The application of the Take-over Bid Requirements to the ETFs would have an adverse impact on the liquidity of the Listed Securities because they could cause the Designated Brokers and other large Securityholders to cease trading
Listed Securities once a Securityholder has reached the prescribed threshold at which the Take-over Bid Requirements would apply. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the ETFs.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.

“Louis Morisset”
President and Chief Executive Officer