Scotia Asset Management L.P.
Headnote
National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Relief granted to permit a portfolio manager, on behalf of a mortgage fund, to continue to purchase and sell mortgages from and to affiliates of the portfolio manager past November 1, 2009 -- Relief issued on conditions which contemplate IRC approval and oversight
Applicable Legislative Provisions
Securities Act (Ontario), ss. 117(1)(a), 117(1)(c), 117(2).
National Instrument 31-103 Registration Requirements, s. 13.5(2)(b)(i).
October 28, 2009
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
SCOTIA ASSET MANAGEMENT L.P.
(the Filer)
DECISION
Background
The principal regulator (the Decision Maker) in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation):
(a) that the Filer, as adviser to Scotia Mortgage Income Fund (the Fund), be exempt from the requirement which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell securities of any issuer from or to the investment portfolio of a responsible person (the Related Party Relief); and
(b) that the Filer be exempt from the obligation to file monthly reports in respect of such related party transactions (the Reporting Relief),
((a) and (b) are collectively the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission (the OSC) is the principal regulator for the Application; and
(ii) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (M1 11-102) is intended to be relied upon in British Columbia, Alberta, Québec, New Brunswick, Nova Scotia, Saskatchewan, and Newfoundland and Labrador (the Non-principal Jurisdictions).
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and in MI 11-102 have the same meaning in this decision unless they are defined in this decision.
Representations
1. The Filer is an Ontario limited partnership and has its head office in Toronto, Ontario. It is registered in the category of portfolio manager in the Jurisdiction. It is also registered as a portfolio manager in each of the Non-principal Jurisdictions.
2. Scotia Securities Inc. (SSI) is a corporation amalgamated under the laws of Ontario. SSI is the trustee and manager of the Fund until November 1, 2009 at which time the Filer will become trustee and manager of the Fund.
3. The Fund is an open-end mutual fund established under the laws of the Province of Ontario.
4. The Fund is a reporting issuer under the securities laws of each of the provinces and territories of Canada and is not in default of any requirements of applicable securities legislation.
5. The Fund is qualified for distribution in each of the provinces and territories of Canada under a simplified prospectus and annual information form dated November 3, 2008.
6. An independent review committee (IRC) under National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) has been appointed for the Fund.
7. The Filer has been appointed to provide portfolio management and investment advisory services to the Fund. As portfolio manager of the Fund, the Filer is a "responsible person" as defined in the Legislation.
8. The investment objective of the Fund is to provide regular interest income. It invests primarily in high quality mortgages on residential properties in Canada.
9. Scotia Mortgage Corporation and The Bank of Nova Scotia (BNS) are "affiliates" of the Filer within the meaning of the Legislation and accordingly, the Filer is deemed to own securities beneficially owned by Scotia Mortgage Corporation or BNS.
10. Neither Scotia Mortgage Corporation or BNS, nor any director, officer or employee of either of them participates in the formulation of investment decisions made on behalf of, or advice given to, the Fund by the Filer.
11. The Filer is prohibited under the Legislation from purchasing or selling, on behalf of the Fund, the securities of any issuer from or to its own account so that the Fund is prohibited from purchasing mortgages from, or selling mortgages to BNS, Scotia Mortgage Corporation or any other affiliate of the Filer, as such mortgages are deemed to be beneficially owned by the Filer.
12. The Filer seeks greater flexibility to purchase and sell mortgages, on behalf of the Fund, in the event that Scotia Mortgage Corporation is unable for any reason to sell mortgages to the Fund. The Requested Relief, if granted, will permit the Filer greater flexibility to purchase and sell mortgages, on behalf of the Fund, from or to Scotia Mortgage Corporation, BNS, or any other affiliate of the Filer. Accordingly, the Requested Relief will permit the Filer, on behalf of the Fund, to continue to engage in principal trades of mortgages with Scotia Mortgage Corporation, BNS, or any other affiliate of the Filer.
13. NI 81-107 does not provide an exemption for principal trading of the type contemplated by the Requested Relief.
14. The provisions of National Policy Statement No. 29 set out guidelines relating to the acquisition of mortgages by a mutual fund from lending institutions with whom such fund does not deal at arm's length and provide certain protections to the investing public.
15. The IRC of the Fund will consider the policies and procedures of the Filer and will provide its approval on whether the proposed transactions in mortgages achieve a fair and reasonable result for the Fund in accordance with section 5.2(2) of NI 81-107.
16. To the extent that the Fund is purchasing mortgages from, or selling mortgages to, BNS, Scotia Mortgage Corporation or another affiliate of the Filer, this fact is set out, and will continue to be set out, in the simplified prospectus and annual information form of the Fund.
17. The Legislation requires the filing of a report by the Filer with respect to each transaction involving the purchase and sale of mortgages between the Fund and any related person or company (Related Company) as defined in the Legislation, including BNS, Scotia Mortgage Corporation or another affiliate of the Filer, and with respect to each transaction involving the purchase and sale of a mortgage effected by the Fund in respect of which BNS, Scotia Mortgage Corporation or another affiliate of the Filer receives a fee either from the Fund or the Filer or from both (the Reporting Requirement).
18. Since the introduction of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), mutual funds are no longer required to prepare a statement of portfolio transactions. NI 81-106 now requires the Fund to prepare and file annual and interim management reports of fund performance that include a discussion of transactions involving related parties to the Fund. When discussing portfolio transactions with related parties, NI 81-106 requires the Fund to include the dollar amount of commission, spread, or any other fee paid to a related party in connection with a portfolio transaction.
19. The predecessor to the Filer, Scotia Cassels Investment Counsel Limited (SCICL), was granted identical relief in the Jurisdiction and the Non-principal Jurisdictions, under an MRRS Decision Document dated November 1, 2007, by the Ontario Securities Commission as principal regulator for the decision (the Original Decision).
20. Pursuant to an internal reorganization effective November 1, 2009 involving SCICL, the Filer and certain of their affiliates, the portfolio management activity carried on by SCICL prior to November 1, 2009 will be transferred to and carried on by the Filer as of November 1, 2009. As a result of this reorganization, SCICL will, as of November 1, 2009, no longer be relying on the relief granted under the Original Decision.
21. The Filer is, to the best of its knowledge, not in default of securities legislation of any jurisdiction of Canada.
Decision
Related Party Relief
The principal regulator is satisfied that the decision meets the test contained in the Legislation that provides for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Related Party Relief is granted, provided that:
(a) the purchase or sale is consistent with, or is necessary to meet, the investment objective of the Fund;
(b) the IRC of the Fund has approved the transaction in accordance with section 5.2(2) of NI 81-107;
(c) the Filer, as manager of the Fund, complies with section 5.1 of NI 81-107;
(d) the Filer, as manager of the Fund, and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions; and
(e) the Fund keeps the written records required by section 6.1(2)(g) of NI 81-107;
This decision is effective November 1, 2009.
Reporting Relief
The principal regulator is satisfied that the decision meets 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 Reporting Relief is granted provided that:
(a) the annual and interim management reports of fund performance for the Fund disclose
(i) the name of the Related Company,
(ii) the amount of fees paid to each Related Company, and
(iii) the person or company who paid the fees if they were not paid by the Fund; and
(b) the records of portfolio transactions maintained by each Fund include, separately for every portfolio transaction effected by the Fund through a Related Company,
(i) the name of the Related Company,
(ii) the amount of fees paid to the Related Company, and
(iii) the person or company who paid the fees.
This decision is effective November 1, 2009.