Sentry Select Capital Inc. - s. 5.1 of OSC Rule 31-506 SRO Membership - Mutual Fund Dealers
Headnote
Application for registration as mutual fund dealer exempted from requirements that it file an application to become a member of the Mutual Fund Dealers Association of Canada (the MFDA) and become a member of the MFDA. Applicant subject to certain terms and conditions on its registration as a mutual fund dealer.
Applicable Statute
Securities Act, R.S.O. 1990, c. S.5, as am.
Applicable Ontario Rule
Rule 31-506 SRO Membership - Mutual Fund Dealers, ss. 2.1, 3.3(1), 5.1.
Applicable Published Document
Letter sent to the Investment Funds Institute of Canada and the Investment Counsel Association of Canada, December 6, 2000, (2000) 23 OSCB 8467.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)
AND
ONTARIO SECURITIES COMMISSION
RULE 31-506 SRO MEMBERSHIP -- MUTUAL FUND DEALERS
(the Rule)
AND
IN THE MATTER OF
SENTRY SELECT CAPITAL INC.
ORDER
(Section 5.1 of the Rule)
UPON the Director having received an application (the Application) from Sentry Select Capital Inc. (SSCI) for a decision, pursuant to section 5.1 of the Rule, exempting SSCI from the membership and filing requirements in sections 2.1 and 3.3 of the Rule which would otherwise require that SSCI be a member of the Mutual Fund Dealers Association of Canada (the MFDA) and file with the MFDA an application and corresponding fees for membership;
UPON considering the Application and the recommendation of staff of the Ontario Securities Commission (the Commission);
AND UPON SSCI having represented to the Director that:
1. SSCI is a corporation incorporated under the laws of the province of Ontario and has applied to the Commission for registration as an adviser in the categories of investment counsel and portfolio manager and as a dealer in the category of as a mutual fund dealer;
2. SSCI is a wholly-owned subsidiary of Sentry Select Capital Corp. (SSCC);
3. SSCC is the manager of the existing Sentry Select mutual funds (the Current Funds) and its principal business is managing the Current Funds. SSCC also engages in ancillary mutual fund dealer activities relating to the Current Funds pursuant to its registration as a mutual fund dealer with an exemption from the MFDA membership requirements under the Act;
4. It is intended that SSCC transfer its mutual fund management and ancillary mutual fund dealer activities in Ontario to SSCI to increase administrative efficiencies. SSCI will be the manager of the Current Funds and any Sentry Select mutual funds established in the future (the Future Funds, which, together with the Current Funds, are referred to herein as the Funds);
5. SSCC obtained a decision from the Commission exempting it from the requirement to become a member of the MFDA in Ontario on June 12, 2001;
6. Other than as described in this Decision and any schedules attached hereto, SSCI will not sell the Funds directly to the public. Securities of the Funds sold to the public are generally sold through participating dealers and brokers;
7. In connection with its application for registration as a mutual fund dealer under the Act, SSCI must obtain membership in the MFDA by filing the appropriate application and fee or obtain an exemption from such requirements;
8. Registration of SSCI as a member in the MFDA is not appropriate due to the nature of SSCI's proposed business as being primarily a mutual fund manager;
9. SSCI's trading activities as a mutual fund dealer will represent activities that are incidental to its principal business activities;
10. SSCI will obtain and maintain its registration as a mutual fund dealer and will comply with applicable securities legislation and rules;
11. SSCI has agreed to the imposition of the terms and conditions on its registration as a mutual fund dealer set out in the attached Schedule "A", which outlines the activities it has agreed to adhere to in connection with its application for this Decision;
12. Any person or company that is not currently a client of SSCI on the effective date of this Decision, will, before they are accepted as a client of SSCI, receive prominent written notice from SSCI that:
Sentry Select Capital Inc. (SSCI) is not currently a member, and does not intend to become a member, of the Mutual Fund Dealers Association of Canada (the MFDA); consequently, clients of SSCI will not have available to them investor protection benefits that would otherwise derive from membership of SSCI in the MFDA, including coverage under any investor protection plan for clients of members of the MFDA;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS THE DECISION of the Director, pursuant to section 5.1 of the Rule, that SSCI is exempt from the requirements in sections 2.1 and 3.3 of the Rule;
PROVIDED THAT SSCI complies with the terms and conditions on its registration as a mutual fund dealer under the Act set out in the attached Schedule "A".
November 28, 2008.
SCHEDULE "A"
TERMS AND CONDITIONS OF REGISTRATION
OF SENTRY SELECT CAPITAL INC.
AS A MUTUAL FUND DEALER
Definitions
1. For the purposes hereof, except as otherwise defined below or unless the context otherwise requires, defined terms contained in National Instrument 14-101 Definitions have the same meaning in this Schedule "A".
2. For the purposes hereof, unless the context otherwise requires:
(a) "Act" means the Securities Act, R.S.O. 1990, c. S.5, as amended;
(b) "Adviser" means an adviser as defined in subsection 1(1) of the Act;
(c) "Client Name Trade" means, for the Registrant, a trade to, or on behalf of, a person or company, in securities of a mutual fund, that is managed by the Registrant or an affiliate of the Registrant, where the person or company is shown on the records of the mutual fund or of an other mutual fund managed by the Registrant or an affiliate of the Registrant as the holder of securities of such mutual fund, and the trade consists of:
(i) a purchase, by the person or company, through the Registrant, of securities of the mutual fund; or
(ii) a redemption, by the person or company, through the Registrant, of securities of the mutual fund;
and where, the person or company:
(iii) is a client of the Registrant or an affiliate of the Registrant that was not solicited by the Registrant or an affiliate of the Registrant; or
(iv) was an existing client of the Registrant or an affiliate of the Registrant on the Effective Date;
(d) "Commission" means the Ontario Securities Commission;
(e) "Effective Date" means December 1, 2008;
(f) "Employee", for the Registrant, means:
(i) an employee of the Registrant;
(ii) an employee of an affiliated entity of the Registrant; or
(iii) an individual that is engaged to provide, on a bona fide basis, consulting, technical, management or other services to the Registrant or to an affiliated entity of the Registrant, under a written contract between the Registrant or the affiliated entity and the individual or a consultant company or consultant partnership of the individual, and, in the reasonable opinion of the Registrant, the individual spends or will spend a significant amount of time and attention on the affairs and business of the Registrant or an affiliated entity of the Registrant;
(g) "Employee", for a Service Provider, means an employee of the Service Provider or an affiliated entity of the Service Provider, provided that, at the relevant time, in the reasonable opinion of the Registrant, the employee spends or will spend, a significant amount of time and attention on the affairs and business of:
(i) the Registrant or an affiliated entity of the Registrant; or
(ii) a mutual fund managed by the Registrant or an affiliated entity of the Registrant;
(h) "Executive", for the Registrant, means a director, officer or partner of the Registrant or of an affiliated entity of the Registrant;
(i) "Executive", for a Service Provider, means a director, officer or partner of the Service Provider or of an affiliated entity of the Service Provider;
(j) "Exempt Trade", for the Registrant, means:
(i) a trade in securities of a mutual fund that is made between a person or company and an underwriter acting as purchaser or between or among underwriters;
(ii) any other trade for which the Registrant would have available to it an exemption from the dealer registration requirement of the Act if the Registrant were not a "market intermediary" as such term is defined in section 204 of the Regulation; or
(iii) a trade in securities of a mutual fund for which the Registrant has received a discretionary exemption from the dealer registration requirement of the Act;
(k) "Fund-on-Fund Trade", for the Registrant, means a trade that consists of:
(i) a purchase, through the Registrant, of securities of a mutual fund that is made by another mutual fund;
(ii) a purchase, through the Registrant, of securities of a mutual fund that is made by a counterparty, an affiliated entity of the counterparty or an other person or company, pursuant to an agreement to purchase the securities to effect a hedge of a liability relating to a contract for a specified derivative or swap made between the counterparty and another mutual fund; or
(iii) a sale, through the Registrant, of securities of a mutual fund that is made by another mutual fund where the party purchasing the securities is:
(A) a mutual fund managed by the Registrant or an affiliated entity of the Registrant; or
(B) a counterparty, affiliated entity or other person or company that acquired the securities pursuant to an agreement to purchase the securities to effect a hedge of a liability relating to a contract for a specified derivative or swap made between the counterparty and another mutual fund; and
where, in each case, at least one of the referenced mutual funds is a mutual fund that is managed by either the Registrant or an affiliated entity of the Registrant;
(l) "In Furtherance Trade" means, for the Registrant, a trade by the Registrant that consists of any act, advertisement, or solicitation, directly or indirectly in furtherance of an other trade in securities of a mutual fund, where the other trade consists of:
(i) a purchase or sale of securities of a mutual fund that is managed by the Registrant or an affiliated entity of the Registrant; or
(ii) a purchase or sale of securities of a mutual fund where the Filer acts as the principal distributor of the mutual fund;
and where, in each case, is made by or through an other registered dealer if the Registrant is not otherwise permitted to make the purchase or sale pursuant to these terms and conditions;
(m) "Mutual Fund Instrument" means National Instrument 81-102 Mutual Funds, as amended;
(n) "Permitted Client", for the Registrant, means a person or company that is a client of the Registrant or an affiliate of the Registrant, and that is, or was at the time the person or company became a client of the Registrant or an affiliate of the Registrant:
(i) an Executive or Employee of the Registrant or an affiliate of the Registrant;
(ii) a Related Party of an Executive or Employee of the Registrant or an affiliate of the Registrant;
(iii) a Service Provider of the Registrant or an affiliated entity of a Service Provider of the Registrant;
(iv) an Executive or Employee of a Service Provider of the Registrant; or
(v) a Related Party of an Executive or Employee of a Service Provider of the Registrant;
(o) "Permitted Client Trade" means, for the Registrant, a trade to a person who is a Permitted Client or who represents to the Registrant that he or she is a person included in the definition of Permitted Client, in securities of a mutual fund that is managed by the Registrant or an affiliate of the Registrant, and the trade consists of a purchase or redemption, by the person, through the Registrant, of securities of the mutual fund;
(p) "Registered Plan" means a registered pension plan, deferred profit sharing plan, registered retirement savings plan, registered retirement income fund, registered education savings plan or other deferred income plan registered under the Income Tax Act (Canada);
(q) "Registrant" means Sentry Select Capital Inc.;
(r) "Regulation" means R.R.O. 1990, Reg. 1015, as amended, made under the Act;
(s) "Related Party", for a person, means an other person who is:
(i) the spouse of the person;
(ii) the issue of:
(A) the person,
(B) the spouse of the person, or
(C) the spouse of any person that is the issue of a person referred to in subparagraphs (A) or (B) above;
(iii) the parent, grandparent or sibling of the person, or the spouse of any of them;
(iv) the issue of any person referred to in paragraph (iii) above;
(v) a Registered Plan established by, or for the exclusive benefit of, one, some or all of the foregoing;
(vi) a trust where one or more of the trustees is a person referred to above and the beneficiaries of the trust are restricted to one, some, or all of the foregoing; or
(vii) a corporation where all the issued and outstanding shares of the corporation are owned by one, some, or all of the foregoing;
(t) "securities", for a mutual fund, means shares or units of the mutual fund;
(u) "Seed Capital Trade" means a trade in securities of a mutual fund made to a person or company referred to in any of subparagraphs 3.1(1)(a)(i) to 3.1(1)(a)(iii) of the Mutual Fund Instrument; and
(v) "Service Provider", for the Registrant, means:
(i) a person or company that provides or has provided professional, consulting, technical, management or other services to the Registrant or an affiliated entity of the Registrant;
(ii) an Adviser to a mutual fund that is managed by the Registrant or an affiliated entity of the Registrant; or
(iii) a person or company that provides or has provided professional, consulting, technical, management or other services to a mutual fund that is managed by the Registrant or an affiliated entity of the Registrant.
3. For the purposes hereof, a person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other or if both are subsidiary entities of the same person or company, or if each of them is controlled by the same person or company.
4. For the purposes herof, a person or company is considered to be controlled by a person or company if:
(a) in the case of a person or company
(i) voting securities of the first-mentioned person or company carrying more than 50 percent of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of the other person or company; and
(ii) the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;
(b) in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50 percent of the interests in the partnership; or
(c) in the case of a limited partnership, the general partner is the second-mentioned person or company.
5. For the purposes hereof, a person or company is considered to be a subsidiary entity of another person or company if:
(a) it is controlled by
(i) that other; or
(ii) that other and one or more persons or companies, each of which is controlled by that other; or
(iii) two or more persons or companies, each of which is controlled by that other; or
(b) it is a subsidiary entity of a person or company that is that other's subsidiary entity.
6. For the purposes hereof:
(a) "issue", "niece", "nephew" and "sibling" includes any person having such relationship through adoption, whether legally or in fact;
(b) "parent" and "grandparent" includes a parent or grandparent through adoption, whether legally or in fact;
(c) "registered dealer" means a person or company that is registered under the Act as a dealer in a category that permits the person or company to act as dealer for the subject trade; and
(d) "spouse", for an Employee or Executive, means a person who, at the relevant time, is the spouse of the Employee or Executive.
7. Any terms that are not otherwise defined in National Instrument 14-101 Definitions or specifically defined above shall, unless the context otherwise requires, have the meaning:
(a) specifically ascribed to such term in the Mutual Fund Instrument; or
(b) if no meaning is specifically ascribed to such term in the Mutual Fund Instrument, the same meaning the term would have for the purposes of the Act.
Restricted Registration
Permitted Activities
8. The registration of the Registrant as a mutual fund dealer under the Act shall be for the purposes only of trading by the Registrant in securities of a mutual fund where the trade consists of:
(a) a Client Name Trade;
(b) an Exempt Trade;
(c) a Fund-on-Fund Trade;
(d) an In Furtherance Trade;
(e) a Permitted Client Trade; or
(f) a Seed Capital Trade;
provided that, in the case of all trades that are only referred to in clauses (a) or (e), the trades are limited and incidental to the principal business of the Filer.