Neuberger Berman Investment Advisers LLC – s. 80 of the CFA

Headnote

Foreign adviser exempted from the adviser registration requirement in section 22(1)(b) of the Commodity Futures Act (Ontario) in order to act as:

1)            an adviser in respect of commodity futures contracts and commodity futures options for certain institutional investors in Ontario – Clients meet the definition of “permitted client” in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations – Contracts and options are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada; and

2)            a sub-adviser in respect of commodity futures contracts and commodity futures options for principal advisers registered under the Commodity Futures Act (Ontario).

Terms and conditions on exemption correspond to the relevant terms and conditions on the comparable exemption from the adviser registration requirement available to:

1)            international advisers in respect of securities set out in section 8.26 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations; and

2)            sub-advisers with a head office or principal place of business in a foreign jurisdiction in respect of securities set out in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Exemption also subject to a five-year “sunset clause” condition.

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20., as am., ss. 1(1), 22(1)(b), 80.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 1.1, 8.26, and 8.26.1.

IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the CFA)

AND

IN THE MATTER OF
NEUBERGER BERMAN INVESTMENT ADVISERS LLC

ORDER
(Section 80 OF THE CFA)

                UPON the application (the Application) of Neuberger Berman Investment Advisers LLC (the Applicant) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA exempting the Applicant and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the Applicant's behalf (the Representatives), for a specified period of time, from the adviser registration requirement in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;

                AND UPON considering the Application and the recommendation of staff of the Commission;

                AND WHEREAS for the purposes of this order (the Order):

“CFA Adviser Registration Requirement” means the requirement in paragraph 22(1)(b) of the CFA that prohibits a person or company from acting as an adviser with respect to trading in Contracts unless the person or company is registered in the appropriate category of registration under the CFA;

“CFTC” means the United States Commodity Futures Trading Commission;

“Contract” has the meaning ascribed to that term in subsection 1(1) of the CFA;

“Foreign Contract” means a Contract that is primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;

“Initial Principal Adviser” means Purpose Investments Inc.;

“International Adviser Exemption” means the exemption set out in section 8.26 of NI 31-103 from the OSA Adviser Registration Requirement (as defined below);

“International Sub-Adviser Exemption” means the exemption set out in section 8.26.1 of NI 31-103 from the OSA Adviser Registration Requirement;

“NFA” means the United States National Futures Association;

“NI 31-103” means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

“OSA” means the Securities Act, R.S.O. 1990, c. S.5, as amended;

“OSA Adviser Registration Requirement” means the requirement in subsection 25(3) of the OSA that prohibits a person or company from engaging in or holding himself, herself or itself out as engaging in the business of advising others as to the investing in or the buying or selling of securities, unless the person or company is registered in the appropriate category of registration under the OSA;

“Permitted Client” means a client in Ontario that is a “permitted client”, as that term is defined in section 1.1 of NI 31-103, except that for purposes of this Order such definition shall exclude a person or company registered as an adviser or dealer under the securities legislation or derivatives legislation, including commodity futures legislation, of a jurisdiction of Canada;

“Principal Adviser” means the Initial Principal Adviser and any other adviser registered under the CFA for which the Applicant provides Sub-Advisory Services (defined below);

“SEC” means the United States Securities and Exchange Commission;

“specified affiliate” has the meaning ascribed to that term in Firm Registration to Ontario Securities Commission Rule 33-506 (Commodity Futures Act) Registration Information.

“U.S. Advisers Act” means the United States Investment Advisers Act of 1940; and

“U.S.A.” or “United States” means the United States of America.

AND UPON the Applicant having represented to the Commission that:

1.             The Applicant is a limited liability company organized under the laws of the State of Delaware with its principal place of business located at 1290 Avenue of the Americas, New York, New York, United States of America 10104.

2.             The Applicant is an investment adviser that manages investments across multiple strategies and financial instruments. As at December 31, 2018, the Applicant, together with its affiliates, had over US$300 billion in assets under management.

3.             The Applicant is:

(i)            currently registered with the SEC as an investment adviser under the U.S. Advisers Act;

(ii)           registered with the CFTC as a commodity pool operator and commodity trading advisor; and

(iii)           an approved member of the NFA.

As such, the Applicant is permitted to carry on Advisory Services (defined below) and Sub-Advisory Services (defined below) in the U.S.A.

4.             The Applicant and the Representatives are registered in a category of registration, or operate under an exemption from registration, under the commodities futures or other applicable legislation of the United States, that permit them to carry on the activities in that jurisdiction that registration as an adviser and sub-adviser under the CFA would permit them to carry on in Ontario.

5.             The Applicant maintains an office in Canada located at First Canadian Place, 100 King Street West, 58th Floor, Suite 5850, Toronto, Ontario, Canada, M5X 1E4.

6.             The Initial Principal Adviser is a Corporation amalgamated under the Business Corporations Act (Ontario) with its head office located in Ontario.

7.             The Initial Principal Adviser is registered:

(i)            under the securities legislation in each of the provinces of Canada as a dealer in the category of exempt market dealer;

(ii)           under the securities legislation in each of the provinces of Canada as an investment fund manager;

(iii)           under the securities legislation in British Columbia, Ontario and Québec as an adviser in the category of portfolio manager; and

(iv)          under the CFA in Ontario as a commodity trading manager.

8.             The Applicant is not registered in any capacity under the OSA or CFA or under the securities legislation of any other jurisdiction of Canada.

9.             The Applicant currently relies on the International Advisor Exemption or relief substantially similar thereto in the ten Canadian provinces, and relies on the exemption from the requirement to register as an investment fund manager in Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, or relief substantially similar thereto, in Ontario, Quebec and Newfoundland and Labrador, in order to provide portfolio advisory and investment fund management services in respect of securities to Permitted Clients in these jurisdictions.

10.          The Applicant is not in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction in Canada. The Applicant is in compliance in all material respects with securities laws, commodity futures laws and derivatives laws of the United States.

11.          The Applicant seeks to act as a discretionary investment manager on behalf of institutional investors in Ontario that are Permitted Clients that seek to engage the Applicant as a discretionary investment manager for purposes of implementing certain investment strategies employing primarily Foreign Contracts (the Advisory Services).

12.          Each Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager and seeks to retain the Applicant to act as a sub-adviser for purposes of providing, on a discretionary basis, certain specialized investment strategies employing Contracts (the Sub-Advisory Services) to the Principal Adviser’s Sub-Advisory Clients (defined below).

13.          Each Principal Adviser is, or will be, the investment fund manager of and/or provides, or will provide, discretionary portfolio management services in Ontario to: (i) investment funds, the securities of which will be qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds); (ii) investment funds, the securities of which will be sold on a private placement basis in Ontario and certain other Canadian jurisdictions pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus Exemptions (the Pooled Funds); and (iii) managed accounts of clients who have entered into investment management agreements with a Principal Adviser (the Managed Accounts) (each of the Investment Funds, Pooled Funds and Managed Accounts are each referred to individually as a Sub-Advisory Client and collectively as the Sub-Advisory Clients).

14.          Discretionary portfolio management services provided, or to be provided, by a Principal Adviser to its Sub-Advisory Clients include, or will include, acting as an adviser with respect to both securities and Contracts where such investments are part of the investment program of such Sub-Advisory Clients. The Principal Adviser acts, or will act, as a commodity trading manager in respect of such Sub-Advisory Clients.

15.          The Advisory Services and Sub-Advisory Services will include the use of investment strategies employing Contracts, and, in respect of the Advisory Services, the Applicant will not advise Permitted Clients in Ontario on Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts.

16.          In connection with a Principal Adviser acting as an adviser to Sub-Advisory Clients in respect of the purchase or sale of Contracts, such Principal Adviser, pursuant to a written agreement made between the Principal Adviser and the Applicant, will retain the Applicant to provide the Sub-Advisory Services in respect of all or a portion of the assets of the investment portfolio of the respective Sub-Advisory Client, provided that such investments are consistent with the investment objectives and strategies of the applicable Sub-Advisory Client.

17.          The Applicant and its Representatives will only provide the Sub-Advisory Services as long as each Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.

18.          The relationship among each Principal Adviser, the Applicant and any Sub-Advisory Client will be consistent with the requirements of section 8.26.1 of NI 31-103.

19.          As would be required under section 8.26.1 of NI 31-103:

(a)           the obligations and duties of the Applicant are set out in a written agreement with each Principal Adviser;

(b)           each Principal Adviser will enter into a written agreement with each Sub-Advisory Client, agreeing to be responsible for any loss that arises out of the failure of the Applicant:

(i)            to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and each Sub-Advisory Client; or

(ii)           to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations).

20.          The written agreement between each Principal Adviser and the Applicant sets out the obligations and duties of each party in connection with the Sub-Advisory Services and will permit the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Applicant in respect of the Sub-Advisory Services.

21.          Each Principal Adviser shall deliver to the Sub-Advisory Clients all required reports and statements under applicable securities, commodity futures and derivatives legislation.

22.          The prospectus or other offering document (in either case, the Offering Document) of each Sub-Advisory Client that is an Investment Fund or Pooled Fund and for which a Principal Adviser engages the Applicant to provide Sub-Advisory Services includes, or will include, the following (the Required Disclosure):

(a)           A statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Applicant to meet the Assumed Obligations; and

(b)           A statement that there may be difficulty in enforcing any legal rights against the Applicant (or any of its Representatives) because the Applicant is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

23.          Prior to purchasing any securities of one or more of the Sub-Advisory Clients that are Investment Funds or Pooled Funds directly from a Principal Adviser, all investors in the Investment Funds or Pooled Funds who are Ontario residents will receive the Required Disclosure in writing (which may be in the form of an Offering Document).

24.          Each client that is a Managed Account Client for which a Principal Adviser engages the Applicant to provide Sub-Advisory Services will receive the Required Disclosure in writing prior to the purchasing of any Contracts for such Sub-Advisory Client.

25.          Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser.

26.          By providing the Advisory Services and the Sub-Advisory Services, the Applicant and its Representatives will be engaging in, or holding himself, herself or itself out as engaging in, the business of advising others in respect of Foreign Contracts and, absent the requested relief, would be required to register as an adviser under the CFA.

27.          There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the International Adviser Exemption or the International Sub-Adviser Exemption. Consequently, in order to advise Permitted Clients or Principal Advisers as to trading in Foreign Contracts, in the absence of being granted the requested relief, the Applicant would be required to satisfy the CFA Adviser Registration Requirement by applying for and obtaining registration in Ontario as an adviser under the CFA in the category of commodity trading manager.

                AND UPON the Commission being of the opinion that to do so would not be prejudicial to the public interest;

                IT IS ORDERED, pursuant to section 80 of the CFA, that the Applicant and its Representatives are exempt from the adviser registration requirement of paragraph 22(1)(b) of the CFA in respect of the Advisory Services and acting as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services, provided that:

A.            the Applicant’s head office or principal place of business remains in the United States;

B.            the Applicant remains: (i) registered with the SEC as an investment adviser under the U.S. Advisers Act, (ii) registered with the CFTC as a commodity pool operator and commodity trading advisor, and (iii) an approved member of the NFA on a basis which permits it to carry on the activities in the United States that registration as an adviser under the CFA would permit it to carry on in Ontario;

C.            the Applicant engages in the business of an adviser, as defined in the CFA;

D.            (a)           in respect of the Advisory Services:

(i)            the Applicant provides advice only as to trading in Foreign Contracts and does not provide advice as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts;

(ii)           as at the end of the Applicant’s most recently completed financial year, not more than 10% of the aggregate consolidated gross revenue of the Applicant, its affiliates and its affiliated partnerships (excluding the gross revenue of an affiliate or affiliated partnership of the Applicant that is registered under securities laws, commodity futures laws, or derivatives laws in a jurisdiction of Canada) was derived from the portfolio management activities of the Applicant, its affiliates and its affiliated partnerships in Canada (which, for greater certainty, includes both securities-related and commodity futures-related activities);

(iii)           before advising a Permitted Client, the Applicant notifies the Permitted Client of all of the following:

1.             the Applicant is not registered in Ontario to provide the advice described under paragraph D(a)(i) of the conditions of this Order;

2.             the foreign jurisdiction in which, the Applicant's head office or principal place of business is located;

3.             all or substantially all of the Applicant’s assets may be situated outside of Canada;

4.             there may be difficulty enforcing legal rights against the Applicant because it is resident outside of Canada and all or substantially all of its assets may be situated outside of Canada; and

5.             the name and address of the Applicant's agent for service of process in Ontario;

(iv)          the Applicant has submitted to the Commission a completed Submission to Jurisdiction in the form attached as Appendix “A”;

(v)           the Applicant notifies the Commission of any regulatory action initiated after the date of this Order with respect to the Applicant, or any predecessors, or specified affiliates of the Applicant, by completing and filing Appendix “B” within 10 days of the commencement of each such action, provided that the Applicant may also satisfy this condition by filing with the Commission:

a.             within 10 days of the date of this Order, a notice making reference to, and incorporating by reference the disclosure made by, the Applicant pursuant to federal securities laws of the U.S.A. that is identified on the Investment Adviser Public Disclosure website; and

b.             promptly, a notification of any amendment to the Applicant’s Form ADV and/or filing by the Applicant with the SEC that relates to legal and/or regulatory actions;

(v)           if the Applicant is not registered under the OSA and does not rely on the International Adviser Exemption, by December 31st of each year, the Applicant pays a participation fee based on its specified Ontario revenues for its previous financial year in compliance with the requirements of Part 3 and section 6.4 of Ontario Securities Commission Rule 13-502 Fees as if the Applicant relied on the International Adviser Exemption; and

(vi)          by December 1 of each year, the Applicant notifies the Commission of its continued reliance on the exemption from registration granted pursuant to this Order;

(b)           in respect of acting as a sub-adviser to a Principal Adviser:

(i)            Upon the request of staff of the Commission, the Applicant agrees to provide information with respect to any Principal Adviser for which the Applicant is acting as a sub-adviser;

(ii)           the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(iii)           the obligations and duties of the Applicant are set out in a written agreement with the Principal Adviser;

(iv)          the Applicant shall not act as a sub-adviser to the Principal Adviser unless the Principal Adviser has contractually agreed with the applicable Sub-Advisory Client to be responsible for any loss that arises out of any failure of the Applicant to meet the Assumed Obligations;

(v)           the Applicant will ensure, or has ensured, that the Offering Document of each Sub-Advisory Client that is an Investment Fund or Pooled Fund and for which the Principal Adviser engages the Applicant to provide Sub-Advisory Services will or does include the Required Disclosure;

(vi)          prior to purchasing any securities of one or more of the Sub-Advisory Clients that are Investment Funds directly from the Principal Adviser, the Applicant will ensure, or has ensured, that all investors in these Investment Funds or Pooled Funds who are Ontario residents will receive, or has received, the Required Disclosure in writing (which may be in the form of an Offering Document);

(vii)         the Applicant will ensure that each Sub-Advisory Client that is a Managed Account for which the Principal Adviser engages the Applicant to provide the Sub-Advisory Services will receive, or has received, the Required Disclosure in writing prior to purchasing any Contracts for such Sub-Advisory Client; and

E.            IT IS FURTHER ORDERED that this Order will terminate on the earliest of:

(i)            the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;

(ii)           six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the ability of the Applicant to act as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services or to provide Advisory Services to Permitted Clients; and

(iii)           five years after the date of this Order.

                DATED at Toronto, Ontario, this 14th day of June, 2019.

“Mary Anne DeMonte-Whelan”                                                         “Poonam Puri”
Vice-Chair or Commissioner                                                             Vice-Chair or Commissioner
Ontario Securities Commissioner                                                     Ontario Securities Commission

APPENDIX “A”

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO

1.             Name of person or company ("International Firm"):

2.             If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

3.             Jurisdiction of incorporation of the International Firm:

4.             Head office address of the International Firm:

5.             The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

Name:
E-mail address:
Phone:
Fax:

6.             The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"):

  Section 8.18 [international dealer]

  Section 8.26 [international adviser]

  Other [specify]:

7.             Name of agent for service of process (the "Agent for Service"):

8.             Address for service of process on the Agent for Service:

9.             The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

10.          The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.

11.          Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

a.             a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;

b.             an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service;

c.             a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.

12.          This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

Dated: _______________

________________________________________________
(Signature of the International Firm or authorized signatory)

________________________________________________
(Name of signatory)

________________________________________________
(Title of signatory)

Acceptance

The undersigned accepts the appointment as Agent for Service of _______________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

Dated: ____________________

________________________________________________
(Signature of the Agent for Service or authorized signatory)

________________________________________________
(Name of signatory)

________________________________________________
(Title of signatory)

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings

APPENDIX “B”

NOTICE OF REGULATORY ACTION

1.             Has the firm, or any predecessors or specified affiliates of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes _____ No _____

If yes, provide the following information for each settlement agreement:

2.             Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

If yes, provide the following information for each action:

3.             Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliates is the subject?

Yes _____ No _____

If yes, provide the following information for each investigation:

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings