Security Investors, LLC -- s. 78(1) of the CFA
Headnote
Section 78(1) of the Commodity Futures Act (Ontario) -- Variation of previous order with respect to section 80 of the CFA exempting from adviser registration requirement in section 22(1)(b) of CFA, as a result of required registration in United States.
Statutes Cited
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 78(1), 80.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C. 20, AS AMENDED
(the "CFA")
AND
IN THE MATTER OF
SECURITY INVESTORS, LLC
(the "Applicant")
ORDER
(Subsection 78(1) of the CFA)
UPON the application (the "Application") of the Applicant to the Ontario Securities Commission (the "Commission") for an order, pursuant to subsection 78(1) of the CFA, to vary a previous order (the "Previous Order") of the Commission dated November 23, 2011, made under subsection 80 of the CFA, In the Matter of Security Investors, LLC, a copy of which is attached as Attachment 'A' hereto;
AND WHEREAS the Previous Order provided that the Applicant and its Representatives (as defined in the Previous Order) are exempt from the adviser registration requirements in paragraph 22(1)(b) of the CFA, in respect of providing advice to Permitted Clients (as defined in the Previous Order) as to trading in Foreign Contracts (as defined in the Previous Order), provided that certain conditions are satisfied, including: clause (c) of the Previous Order, which requires that the Applicant continues to be exempt from registration as a commodity trading advisor and commodity pool operator with the Commodity Futures Trading Commission (the "US CFTC") on a basis which permits it to carry on the activities in the USA that registration as an adviser under the CFA would permit it to carry on in Ontario;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is required to register with, and is expected to be registered with, the US CFTC as a commodity pool operator by December 31, 2012, or a later date if extended, on a basis which will permit it to carry on the activities in the USA that registration as an adviser under the CFA would permit it to carry on in Ontario, and
2. All of the representations contained in the Previous Order remain unchanged, except representation 4 relating to the Applicant's ability to rely upon an exemption from registration with the US CFTC.
AND UPON the Commission being of the opinion that to make this Order would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to section 78(1) of the CFA, that the Previous Order is varied to delete clause (c) and substitute therefor the following:
"(c) the Applicant continues to be registered, or operates under an exemption from registration, pursuant to the applicable securities or commodity futures legislation in the USA on a basis which permits it to carry on the activities in the USA that registration as an adviser under the CFA would permit it to carry on in Ontario;"
December 28, 2012
Attachment 'A'
Headnote
Foreign adviser exempted from the adviser registration requirement in section 22(1)(b) of the Commodity Futures Act (Ontario) to act as an adviser in respect of commodity futures contracts or commodity futures options for certain institutional investors in Ontario -- Clients meet the definition of "permitted client" in NI 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.
Terms and conditions on exemption correspond to the relevant terms and conditions on the comparable exemption from the adviser registration requirement available to international advisers in respect of securities set out in section 8.26 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Exemption also subject to a five-year "sunset clause" condition.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am.
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 1(1), 22(1)(b), 80.
Instruments Cited
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 1.1, 8.26.
National Instrument 33-109 Registration Information, Form 33-109F6.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the CFA)
AND
IN THE MATTER OF
SECURITY INVESTORS, LLC
(the Applicant)
ORDER
(Section 80 of the CFA)
UPON the application (the Application) of the Applicant to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that 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) be exempt, for a period of five years, 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:
"CFA Adviser Registration Requirement" means the requirement in the CFA that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under the CFA;
"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;
"International Adviser Exemption" means the exemption from the OSA Adviser Registration Requirement set out in section 8.26 of NI 31-103;
"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 the OSA that prohibits a person or company from acting as an adviser unless the person or company is registered in the appropriate category of registration under the OSA; and
"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 it excludes a person or company registered under the securities or commodities legislation of a jurisdiction of Canada as an adviser or dealer;
"specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National instrument 33-109 -- Registration Information; and
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is a limited liability company formed under the laws of Kansas. The Applicant currently carries on business under the names "Security Global Investors", "Guggenheim Investments" and "Rydex Investments". The head office of the Applicant is located in New York, New York, United States of America (USA or US).
2. The Applicant is a portfolio manager that provides a variety of discretionary advisory services to:
(i) certain investment companies registered in the USA under the U.S Investment Company Act of 1940, as amended, consisting of approximately 180 series;
(ii) unregistered non-U.S. investment companies and other investment vehicles;
(iii) institutions, such as insurance companies, other financial institutions, pension and profit sharing plans, U.S. and non-U.S. governmental entities, colleges, hospitals, charitable organizations, endowment funds and foundations;
(iv) clients of broker-dealers, investment advisers or other financial intermediaries who offer comprehensive brokerage, custodial and advisory services for a single fee; and
(v) certain individuals and trusts.
3. As of December 31, 2010, the assets under management by the Applicant were approximately $22 billion.
4. The Applicant is registered with the Securities and Exchange Commission of the USA as an investment adviser, and is exempt from registration with the Commodity Futures Trading Commission ("CFTC") of the USA as a commodity pool operator and commodity trading advisor, pursuant to U.S Commodity Exchange Act, Section 4m and CFTC Rules 4.5, 4.6, 4.13 and 4.14. The Applicant's business does not consist primarily of acting as a commodity pool operator or commodity trading advisor. It does, however, provide commodity interest trading advice incidental to its business of providing securities or other investment advice.
5. The Applicant is not registered in any capacity under the CFA or the OSA.
6. Institutional investors that are Permitted Clients seek to engage the Applicant as a discretionary portfolio manager for the purpose of implementing certain specialized investment strategies.
7. The Applicant seeks to act as a discretionary portfolio manager on behalf of prospective institutional investors that are Permitted Clients. The proposed advisory services would include the use of specialized investment strategies employing Foreign Contracts.
8. There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the International Adviser Exemption. Consequently, in order to advise Permitted Clients as to trading in Foreign Contracts, in the absence of this Order the Applicant would need to obtain registration as an adviser under the CFA, in the category of "commodity trading manager".
9. The Applicant submits that it would not be prejudicial to the public interest for the Commission to make this Order because:
(i) the Applicant will only advise Permitted Clients as to trading in Foreign Contracts;
(ii) Permitted Clients seek to access certain specialized portfolio management services provided by the Applicant, including advice as to trading in Foreign Contracts; and
(iii) the Applicant would provide advice to Permitted Clients as to trading in Foreign Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the International Adviser Exemption.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make this Order;
IT IS ORDERED, pursuant to section 80 of the CFA, that the Applicant and its Representatives are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA, in respect of providing advice to Permitted Clients as to trading in Foreign Contracts, provided that:
(a) the Applicant provides advice to Permitted Clients only as to trading in Foreign Contracts and does not advise that Permitted Client as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts;
(b) the Applicant's head office or principal place of business remains in the USA;
(c) the Applicant continues to be exempt from registration as a commodity trading manager and commodity pool operator with the US CFTC on a basis which permits it to carry on the activities in the USA that registration as an adviser under the CFA would permit it to carry on in Ontario;
(d) the Applicant continues to engage in the business of an adviser, as defined in the CFA, in the USA;
(e) 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 if the affiliate or affiliated partnership is registered under securities legislation, commodities legislation or derivatives legislation in a jurisdiction of Canada) is 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);
(f) before advising a Permitted Client with respect to Foreign Contracts, the Applicant notifies the Permitted Clients of all of the following:
(i) the Applicant is not registered in Ontario to provide the advice described under paragraph (a) of this Order;
(ii) the foreign jurisdiction in which the Applicant's head office or principal place of business is located;
(iii) all or substantially all of the Applicant's assets may be situated outside of Canada;
(iv) there may be difficulty enforcing legal rights against the Applicant because of the above; and
(v) the name and address of the Applicant's agent for service of process in Ontario;
(g) the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix "A";
(h) the Applicant notifies the Commission of any regulatory action after the date of this Order in respect of the Applicant, or any predecessors or specified affiliates of the Applicant, by completing and filing Appendix "B" within 10 days of the commencement of such action;
(i) by December 1 of each year, the Applicant notifies the Commission of its continued reliance on the exemption from registration granted pursuant to the Order; and
(j) his Order shall expire five years after the date hereof.
November 23, 2011
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; and
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.
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 is to be submitted to the following address:
Ontario Securities CommissionSuite 1903, Box 5520 Queen Street WestToronto, ON M5H 3S8Attention: Senior Registration Supervisor, Dealer TeamTelephone: (416) 593-8263email: [email protected]
Appendix B
Notice of Regulatory Action
1. Has the firm, or any predecessors or specified affiliates{1} 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:
Name of Entity
Regulator/organization
Date of settlement (yyyy/mm/dd)
Details of settlement
Jurisdiction
2. Has any financial services regulator ,securities or derivatives exchange, SRO or similar organization:
Yes
No
(a) Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?
_____
_____
(b) Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?
_____
_____
(c) Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(d) Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(e) Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?
_____
_____
(f) Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(g) Issued an order (other than en exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?
_____
_____
If yes, provide the following information for each action:
Name of Entity
Type of Action
Regulator/organization
Date of action (yyyy/mm/dd)
Reason for action
Jurisdiction
3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?
Yes _____ No _____
If yes, provide the following information for each investigation:
Name of entity
Reason or purpose of investigation
Regulator/organization
Date investigation commenced (yyyy/mm/dd)
Jurisdiction
Name of firm
Name of firm's authorized signing officer or partner
Title of firm's authorized signing officer or partner
Signature
Date (yyyy/mm/dd)
Witness
The witness must be a lawyer, notary public or commissioner of oaths.
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Name of witness |
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Title of witness |
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Signature |
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This form is to be submitted to the following address:
Ontario Securities CommissionSuite 1903, Box 5520 Queen Street WestToronto, ON M5H 3S8Attention: Senior Registration Supervisor, Dealer TeamTelephone: (416) 593-8263email: [email protected]
{1} In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 -- Registration Information.