State Street Global Advisors, Ltd. and SSgA Funds Management, Inc. -- s. 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to a 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 made under the Securities Act (Ontario).
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).
Ontario Securities Commission 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
STATE STREET GLOBAL ADVISORS, LTD.
AND
SSgA FUNDS MANAGEMENT, INC.
ORDER
(Section 80 of the CFA)
UPON the application (the Application) of State Street Global Advisors, Ltd. (the Principal Adviser) and SSgA Funds Management, Inc. (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser, and any individual engaging in or holding himself or herself out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the Sub-Adviser'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 paragraph 22(1)(b) of the CFA that prohibits a person or company from engaging in, or holding himself, herself or itself as engaging in the business of, advising others as 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;
"OSA" means the Securities Act (Ontario);
"OSA Adviser Registration Requirement" means the requirement in subsection 25(3) of the OSA that prohibits a person or company from engaging in the business of, or holding himself, herself or itself out as engaging in the business of, advising anyone with respect to investing in, buying or selling securities unless the person or company is registered in the appropriate category of registration under the OSA;
"OSA Sub-Adviser Exemption" means the exemption from the OSA Adviser Registration Requirement set out in section 7.3 of OSC Rule 35-502;
"OSC Rule 35-502" means Ontario Securities Commission Rule 35-502 Non-Resident Advisers;
"SEC" means the United States Securities and Exchange Commission; and
"U.S. Advisers Act" means the United States Investment Advisers Act of 1940.
AND UPON the Principal Adviser and Sub-Adviser having represented to the Commission that:
1. The Principal Adviser is a corporation incorporated under the laws of Canada with its head office located in Montreal, Quebec. The Principal Adviser and State Street Bank and Trust Company (SSBTC) are wholly owned subsidiaries of State Street Corporation.
2. The Principal Adviser is registered:
(a) under the CFA, as an adviser in the categories of "commodity trading counsel" and "commodity trading manager"; and
(b) under the OSA, as an adviser in the category of "portfolio manager", as a dealer in the category of "exempt market dealer", and as an investment fund manager.
3. To the best of their knowledge, neither the Principal Advisor nor the Sub-Adviser is in default of any requirement of the CFA or the regulations under the CFA, or any requirement of the OSA or the regulations under the OSA.
4. The Principal Adviser is registered as a portfolio manager and exempt market dealer under the securities legislation of all the other provinces and territories of Canada other than Ontario, and as an investment fund manager under the securities legislation of Québec and Newfoundland and Labrador. The Principal Advisor is also registered as a derivatives portfolio manager in Québec, and as a commodity trading counsel and commodity futures manager under the Commodity Futures Act (Manitoba).
5. The head office of the Sub-Adviser is in Boston, Massachusetts, U.S.A. The Sub-Adviser is registered as an Investment Adviser under the U.S Advisers Act and as a Commodity Trading Adviser with the CFTC. The Sub-Adviser provides trading advice services in respect of futures, options on futures and swaps to its clients generally traded on a U.S. Exchange and/or with a U.S. counterparty to certain of its clients.
6. SSBTC, an affiliate of the Sub-Adviser, is a bank regulated in the conduct of its investment advisory business by the U.S. Federal Reserve Board and the Commonwealth of Massachusetts Commissioner of Banks, and is a bank within the meaning of the U.S. Advisers Act. As such, SSBTC is not subject to the U.S. Advisers Act as the definition of an "Investment Adviser" under the U.S. Advisers Act excludes "a bank, or any bank holding company as defined in the Bank Holding Act of 1956". The head office of SSBTC is in Boston, Massachusetts, U.S.A.
7. SSBTC historically provided asset management services to certain institutional clients in both the U.S.A. and abroad. Following passage into law on July 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a decision was made to register the Sub-Adviser as a commodity trading adviser with the U.S. Commodity Futures Trading Commission and delegate all advice regarding futures, options on futures and swaps (as defined in the United States) from SSBTC to the Sub-Adviser. The personnel providing the advice did not change as a result of the regulatory administrative decision to register the Sub-Adviser and delegate the advice. Indeed, the personnel at SSBTC who provide advice relating to securities are the same as those at the Sub-Adviser who provide commodity trading advisory services.
8. SSBTC and the Sub-Adviser act as sub-advisers to the Principal Adviser in the provinces of Quebec and Ontario in respect of securities in reliance on the general exemption from registration granted by the Autorité des marchés financiers on December 18, 2009, with effect on December 28, 2009, and on section 7.3 of OSC Rule 35-502.
9. The Principal Adviser is the investment manager of and/or provides discretionary portfolio management services to segregated accounts and pooled funds.
10. The portfolio management services provided by the Principal Adviser to its clients include acting as an adviser with respect to both securities and Contracts where such investments are part of the investment program of such clients.
11. In connection with the Principal Adviser acting as an adviser to clients in respect of the purchase or sale of securities, the Principal Adviser has retained and will retain SSBTC to act as a sub-adviser to the Principal Adviser by exercising discretionary authority on behalf of the Principal Adviser, pursuant to written agreements made between the Principal Adviser and SSBTC.
12. In addition, where its discretionary services to Clients (as defined below) includes managing trading in Contracts for the Client through discretionary authority granted by the Client, the Principal Adviser will retain the Sub-Adviser to act as a sub-adviser to the Principal Adviser to manage such trading through discretionary authority granted by the Principal Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser (the Proposed Sub-Advisory Services).
13. In connection with the Proposed Sub-Advisory Services, the relationships between the Principal Adviser, the Sub-Adviser and each client of the Registrant on whose behalf the Proposed Sub-Advisory Services are to be provided (each, a Client) will satisfy the applicable requirements of the OSC Sub-Adviser Exemption, namely that:
(a) the obligations and duties of the Sub-Adviser will be set out in a written agreement with the Principal Adviser;
(b) the Principal Adviser contractually agrees with the Client 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 Adviser and the Client; or
(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (the Assumed Obligations); and
(c) the Principal Adviser cannot be relieved by the Clients from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.
14. The Sub-Adviser and its Representatives shall only provide the Proposed Sub-Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of "commodity trading manager".
15. Under the Proposed Sub-Advisory Services, the Principal Adviser will deliver to its Clients, on whose behalf the Proposed Advisory Services are to be provided, all applicable reports and statements under applicable securities, commodity futures and derivatives legislation.
16. Under the Proposed Sub-Advisory Services, a Client must obtain all advice and information and give all instructions and directions through the Principal Adviser and may meet with the Sub-Adviser only if the Principal Adviser is present at all times.
17. By providing the Proposed Sub-Advisory Services, the Sub-Adviser 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 Contracts and, in the absence of being granted the requested relief, would be required to register under the CFA.
18. The Principal Adviser submits that it would not be prejudicial to the public interest for the Commission to make the Order because:
(a) the Principal Adviser seeks to access certain specialized portfolio management services provided by the Sub-Adviser as to trading in Contracts; and
(b) the Sub-Adviser would act as a Sub-Adviser to the Principal Adviser in respect of trading in Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the OSA Sub-Adviser Exemption.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the CFA Adviser Registration Requirement in respect of acting as a sub-adviser to the Principal Adviser as to trading in Contracts, under the Proposed Sub-Advisory Services, provided that:
(a) the Principal Adviser is registered under the CFA as an adviser in the category of "commodity trading manager";
(b) the Sub-Adviser and its Representatives are appropriately registered or licensed to provide the Proposed Sub-Advisory Services to the Clients pursuant to the applicable legislation of the principal jurisdiction of the Sub-Adviser;
(c) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;
(d) the Sub-Adviser shall not act as a sub-adviser to the Principal Adviser unless the Principal Adviser has contractually agreed with each Client to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations and cannot be relieved by any of its Clients from its responsibility for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;
(e) where a Client for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Sub-Advisory Services offers its securities, any offering document of the Client will include the following disclosure:
(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 Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada;
(f) where a Client for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Sub-Advisory Services does not prepare an offering document for delivery to prospective purchasers of its securities, all investors of the Client who are residents of Ontario will have received prior written disclosure of the engagement 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 Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada;
(g) where the Principal Adviser engages the Sub-Adviser to provide the Proposed Sub-Advisory Services for a Client, the Client will receive prior written disclosure of the engagement 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 Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and
(h) this Order shall expire five years after the date hereof.
Dated at Toronto this 3rd day of May, 2013