Pyramis Global Advisors, LLC et al. - ss. 78(1), 80 of the CFA
Headnote
Subsection 78(1) of the Commodity Futures Act (Ontario) -- Revocation of the previous order granting relief from the adviser registration requirements of subsection 22(1)(b) of the CFA to sub-adviser not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options.
Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to sub-adviser not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions. Relief mirrors exemption available in section 7.3 of OSC Rule 35-502 -- Non-Resident Advisers (Rule 35-502) made under the Securities Act (Ontario).
Fees waived as application only required because previous order will expire and amendments to or a rule under the CFA that would have a similar effect as section 7.3 of Rule 35-502 have not yet been adopted.
Statutes Cited
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 78, 80.
Securities Act, R.S.O. 1990, c. S.5, as am. -- Rule 35-502 -- Non Resident Advisers.
IN THE MATTER OF
THE COMMODITY FUTURES ACT
R.S.O. 1990, CHAPTER C. 20, AS AMENDED
(the CFA)
AND
IN THE MATTER OF
PYRAMIS GLOBAL ADVISORS, LLC,
FIL LIMITED
FIDELITY INVESTMENTS CANADA ULC
AND
PYRAMIS CANADA ULC
ORDER
(Section 80 and Subsection 78(1) of the CFA)
UPON the application (the Application) of Pyramis Global Advisors, LLC (Pyramis), FIL Limited (the Sub-Adviser), Fidelity Investments Canada ULC (Fidelity) and Pyramis Canada ULC (Pyramis Canada and, together with Pyramis and Fidelity, the Principal Advisers) to the Ontario Securities Commission (the Commission) for an order:
(a) pursuant to subsection 78(1) of the CFA, revoking the exemption order granted by the Commission to the Sub-Adviser on December 30, 2005 (the Previous Order, as described below); and
(b) pursuant to section 80 of the CFA, that the Sub-Adviser (including its directors, officers and employees) be exempt, for a period of five years, from the requirements of paragraph 22(1)(b) of the CFA in respect of acting as an adviser to Funds (as defined below) in respect of trades in commodity futures contracts and commodity futures options traded on commodity futures exchanges and cleared through clearing corporations;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Sub-Adviser having represented to the Commission that:
1. Pyramis is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Pyramis is registered as an investment adviser with the United States Securities and Exchange Commission
2. Pyramis is registered with the Commission as an adviser under the categories of non-Canadian Adviser under the Securities Act (Ontario) (the OSA) and commodity trading manager under the Act.
3. The Sub-Adviser is a corporation organized under the laws of Bermuda and is resident in Bermuda. The Sub-Adviser is not registered pursuant to any applicable commodity futures legislation in Bermuda and such registration is not required in order to provide the Proposed Advisory Services (as defined below) to the relevant Principal Adviser.
4. The Sub-Adviser is not registered under the CFA as either an adviser or dealer.
5. Fidelity was incorporated under the laws of Canada and has subsequently been continued under the laws of Alberta. Fidelity is resident in Ontario.
6. Fidelity is registered with the Commission as a dealer in the category of mutual fund dealer and as an adviser in the categories of investment counsel and portfolio manager under the OSA, and commodity trading manager under the CFA.
7. Pyramis Canada was incorporated under the laws of Alberta and is resident in Canada.
8. Pyramis Canada is registered with the Commission as an adviser in the categories of investment counsel and portfolio manager under the OSA, and commodity trading manager under the CFA.
9. The Principal Advisers act as advisers to (a) certain mutual funds offered from time to time to the public in Canada that are governed by National Instrument 81-102 -- Mutual Funds, and (b) certain pooled funds offered from time to time to pension plans and other institutional investors (Private Clients) pursuant to exemptions from the prospectus and registration requirements of securities legislation pursuant to National Instrument 45-106 -- Prospectus and Registration Exemptions. The Principal Advisers may in the future establish or advise certain other mutual or pooled funds for which it engages the Sub-Adviser to provide advisory services (each such mutual fund or pooled fund, a Fund and collectively, the Funds).
10. The Funds may, as a part of their investment program, invest in commodity futures contracts and commodity futures options traded on commodity futures exchanges and cleared through clearing corporations.
11. Each Principal Adviser may, pursuant to a written agreement to be entered into between the Principal Adviser and a Fund or Private Client:
(a) act as an adviser (as defined in the OSA) to the Fund or Private Client, in respect of securities, and
(b) act as an adviser to the Fund or Private Client, in respect of trading commodity futures contracts and commodity futures options,
by exercising discretionary authority in respect of the investment portfolio of the Fund, with discretionary authority to purchase or sell on behalf of the Fund:
(i) securities, and
(ii) commodity futures contracts and commodity futures options.
12. In connection with a Principal Adviser acting as an adviser to a Fund or Private Client, in respect of the purchase or sale of commodity futures contracts and commodity futures options, that Principal Adviser may, from time to time, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, retain the Sub-Adviser to act as an adviser to it (the Proposed Advisory Services), by exercising discretionary authority on behalf of the Principal Adviser, in respect of the investment portfolio of the Fund, with discretionary authority to buy or sell commodity futures options and commodity futures contracts for the Fund, provided that:
(a) in each case, the option or contract must be cleared through an acceptable clearing corporation; and
(b) in no case will any trading in commodity futures options or commodity futures contracts constitute the primary focus or investment objective of the Fund.
13. 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 partner or an officer of a registered adviser and is acting on behalf of a registered adviser. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" means commodity futures contracts and commodity futures options.
14. By providing the Proposed Advisory Services, the Sub-Adviser will be acting as an adviser with respect to commodity futures contracts and commodity futures options and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA.
15. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA for a person or company acting as an adviser in respect of commodity futures contracts and commodity futures options that is similar to the exemption from the adviser registration requirement in section 25(1)(c) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.3 of OSC Rule 35-502 -- Non Resident Advisers (Rule 35-502).
16. As would be required under section 7.3 of Rule 35-502:
(a) the obligations and duties of the Sub-Adviser will be set out in a written agreement with the Principal Advisers;
(b) the Principal Advisers will contractually agree with the Funds to be responsible for any loss that arises out of the failure of the Sub-Adviser:
(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Advisers and the Funds; 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); and
(c) the Principal Advisers cannot be relieved by the Funds from their responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.
17. The Sub-Adviser is not a resident of any province or territory of Canada.
18. The Sub-Adviser is, or will be, appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registrations or licences to provide advice to the Funds pursuant to the applicable legislation of its principal jurisdiction.
19. Prior to purchasing any securities in one or more of the Funds, all investors in the Funds who are Ontario residents will receive written disclosure that includes:
(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and
(b) a statement that there may be difficulty in enforcing any legal rights against the relevant Fund or the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
20. On December 30, 2005, the Commission granted the Sub-Adviser an exemption from the requirements of paragraph 22(1)(b) of the CFA in respect of the Proposed Advisory Services (the Previous Order). The Previous Order is scheduled to expire on December 30, 2008.
AND UPON the Commission being satisfied that to it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed;
IT IS ORDERED, pursuant to subsection 78(1) of the CFA, that the Previous Order is revoked;
IT IS FURTHER ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser (including its directors, officers and employees) is exempted from the requirements of paragraph 22(1)(b) of the CFA, in respect of the Proposed Advisory Services provided to the Principal Advisers, for a period of five years, provided that at the relevant time that such activities are engaged in:
(a) each Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;
(b) the Sub-Adviser is appropriately registered or licensed or is entitled to rely on appropriate exemptions from such registrations or licences to provide advice to the Funds pursuant to the applicable legislation of its principal jurisdiction;
(c) the duties and obligations of the Sub-Adviser are set out in a written agreement with each Principal Adviser;
(d) each Principal Adviser has contractually agreed with the respective Fund to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;
(e) the Principal Advisers cannot be relieved by the Fund or its securityholders (including Private Clients) from their responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and
(f) prior to purchasing any securities in one or more of the Funds, all investors in the Funds who are Ontario residents will receive written disclosure that includes:
(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and
(ii) a statement that there may be difficulty in enforcing any legal rights against the relevant Fund or the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
December 19, 2008