Tempered Investment Management Ltd

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

National Instrument 31-103, s. 15.1, 13.5(2)(b) Registration Requirements, Exemptions and Ongoing Obligations:

Inter-Fund Trades

An investment fund manager, portfolio manager and dealer wants relief from self-dealing restrictions in section 13.5(2)(b) of NI 31-103 for trades in portfolio securities between and among pooled funds managed by the Filer and discretionary accounts managed by the Filer (but not for trades among managed accounts) and for those trades to occur at the current market price or the last sale price -- Inter-fund trades are consistent with the investment objective of the fund or the managed account; funds without an IRC have constituted an equivalent entity; trades are referred to and approved by the fund's IRC or equivalent and comply with any standing instructions; the managed account has authorization for inter-fund trades; the trade will occur at the last sale price or the current market price and complies with paragraphs (c), (d), (f) and (g) of section 6.1(2) of NI 81-107

Managed Account In Specie Transactions

A portfolio manager wants relief from self-dealing restrictions in section 13.5(2)(b) of NI 31-103 to permit purchases and redemptions of units or shares using portfolio securities between managed accounts and pooled funds -- The managed account client has authorized in specie transactions; where applicable, the IRC of the fund has approved the transaction and any standing instructions have been complied with; the next account statement for the managed account describes the portfolio securities and their value; the fund will keep written records of the transaction; the filer does not receive compensation -- For an acquisition by a managed account: the fund is permitted to purchase the portfolio securities; the portfolio securities are acceptable to the portfolio manager of the fund and meet the investment criteria; the value of the portfolio securities is equal to the issue price of units in the fund -- For a redemption by a managed account: the portfolio securities meet the investment criteria of the managed account and are acceptable to the filer; the value of the portfolio securities is equal to the net asset valuation calculation

Pooled Fund In Specie Transactions

A portfolio manager wants relief from self-dealing restrictions in section 13.5(2)(b) of NI 31-103 to permit purchases and redemptions of units or shares using portfolio securities between pooled funds -- The IRC of the fund has approved the transaction and any standing instructions have been complied with; the fund will keep written records of the transaction; the filer does not receive compensation. For an acquisition: the fund is permitted to purchase the portfolio securities; the portfolio securities are acceptable to the portfolio manager of the acquiring fund and meet the investment criteria; the value of the portfolio securities is equal to the issue price of units in the fund -- For a redemption: the portfolio securities meet the investment criteria of the acquiring fund and are acceptable to the filer; the value of the portfolio securities is equal to the net asset valuation calculation

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- conflicts of interest relief from section 13.5(2)(b) of NI 31-103 to permit inter-fund and in-specie trades between related pooled funds and managed accounts -- with inter-fund trades involving exchange-traded securities at the last sale price as defined in the Universal Market Integrity Rules -- subject to conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b) and 15.1.

Citation: 2021 BCSECCOM 28

January 29, 2021

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF TEMPERED INVESTMENT MANAGEMENT LTD. (the Filer)

DECISION

Background

¶ 1 The securities regulatory authority or regulator in each of the Jurisdictions (each, a Decision Maker) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the prohibitions in sections 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibit 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 a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, in order to permit,

(a) a Pooled Fund (as defined below) to purchase securities from or sell securities to a Pooled Fund or a Managed Account (as defined below);

(b) a Managed Account to purchase securities from or sell securities to a Pooled Fund;

(c) the transactions listed in (a) and (b) (each an Inter-Fund Trade) to be executed at the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) on that trading day, where the securities involved in the Inter-Fund Trade are exchange- traded securities (which term shall include Canadian and foreign-exchange securities) ((a), (b) and (c) are collectively, the Inter-Fund Trading Relief); and

(d) in-specie subscriptions and redemptions by (each subscription or redemption, an In- Specie Transfer):

(i) Managed Accounts in the Pooled Funds; and

(ii) Pooled Funds in the Pooled Funds (together, the In-Specie Transfer Relief)

(the Inter-Fund Trading Relief and In-Specie Transfer Relief are, collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the British Columbia Securities Commission is the principal regulator for this Application;

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

¶ 2 Terms defined in MI 11-102, National Instrument 14-101 Definitions, National Instrument 81- 102 Investment Funds (NI 81-102), NI 81-107 and NI 31-103 have the same meaning if used in this decision, unless otherwise defined. The following terms have the following meanings:

1. Clients means individuals, institutions and other entities to whom the Filer offers, or may offer, discretionary portfolio management services through a Managed Account (as defined below);

2. Discretionary Management Agreement means a written agreement between the Filer and a Client seeking wealth management or related services;

3. Existing Pooled Funds means each existing open-ended investment fund that is not a reporting issuer, securities of which are sold solely to investors in Canada pursuant to exemptions from the prospectus requirement, of which the Filer acts as the manager and portfolio manager;

4. Future Pooled Funds means each open-ended investment fund that is not a reporting issuer, securities of which are sold solely to investors in Canada pursuant to exemptions from the prospectus requirement, for which the Filer may act as manager and portfolio manager in the future;

5. Managed Account means an account managed by the Filer for a Client that is not a responsible person and over which the Filer has discretionary authority;

6. Pooled Funds means collectively, the Existing Pooled Funds and the Future Pooled Funds.

Representations

¶ 3 This decision is based on the following facts represented by the Filer:

1. the Filer is a corporation incorporated under the laws of British Columbia with its head office in North Vancouver, British Columbia;

2. the Filer is registered as: (i) an investment fund manager in British Columbia, Alberta, Ontario and Quebec; (ii) a portfolio manager in British Columbia, Alberta and Ontario; and (iii) an exempt market dealer in British Columbia, Alberta and Ontario;

3. the Filer is, or will be, the manager and portfolio manager of each of the Pooled Funds; the Filer may appoint third party sub-advisers to the Pooled Funds;

4. each of the Pooled Funds is, or will be, an investment fund established as a trust, partnership or corporation under the laws of British Columbia, Canada or another province or territory in Canada and is not, or will not be in the case of a Future Pooled Fund, a reporting issuer in any of the provinces and territories of Canada;

5. the securities of the Existing Pooled Funds are distributed on a private placement basis pursuant to available prospectus exemptions; each Existing Pooled Fund is not subject to NI 81-102;

6. the Filer and the Existing Pooled Funds are not in default of securities legislation in any of the provinces and territories of Canada;

7. the Filer offers discretionary portfolio management services to Clients seeking wealth management or related services under Discretionary Management Agreements in connection with the Managed Account of the Client with the Filer;

8. pursuant to the Discretionary Management Agreement entered into with each Client, the Client appoints the Filer to act as portfolio manager in connection with an investment portfolio of the Client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent or instructions of the Client to execute the trade;

9. the portfolio management services provided by the Filer to each Client consist, or will consist, of the following:

(a) each Client executes a Discretionary Management Agreement whereby the Client authorizes the Filer to supervise, manage and direct purchases and sales in the Client's Managed Account, at the Filer's full discretion on a continuing basis;

(b) qualified employees of the Filer perform investment research, securities selection and portfolio management functions with respect to all securities, investments, cash and cash equivalents and other assets in the Managed Account;

(c) each Managed Account holds securities and other investments as selected by the Filer in its sole discretion; and

(d) the Filer retains overall responsibility for the advice provided to its Clients and has a designated senior officer to oversee and supervise the Managed Accounts;

Inter-Fund Trades

10. the Filer wishes to be able to permit Inter-Fund Trades of portfolio securities between:

(a) a Pooled Fund and another Pooled Fund; and

(b) a Managed Account and a Pooled Fund;

11. different sections of NI 31-103 and NI 81-107 impose different prohibitions and exceptions on Pooled Funds with respect to Inter-Fund Trades;

12. the Filer considers that because of the various investment objectives and investment strategies utilized by the Pooled Funds and Managed Accounts, it may be appropriate for different investment portfolios to acquire or dispose of the same securities directly, rather than with a third party; authorizing the Inter-Fund Trades may result in such benefits as lower trading costs and quicker execution;

13. the Filer has determined that it would be in the best interests of the Pooled Funds and Managed Accounts to receive the Inter-Fund Trading Relief because making the Pooled Funds and Managed Accounts subject to the same set of rules governing the execution of Inter-Fund Trades will result in:

(a) cost and timing efficiencies in respect of the execution of Inter-Fund Trades; and

(b) simplified and more efficient monitoring thereof, for the Filer in connection with the execution of Inter-Fund Trades;

14. each Inter-Fund Trade will be consistent with the investment objectives of the relevant Pooled Fund or Managed Account, as applicable;

15. at the time of an Inter-Fund Trade, the Filer will have policies and procedures in place to enable the applicable Pooled Funds and Managed Accounts to engage in Inter-Fund Trades;

16. the Filer, as manager of each Pooled Fund, will establish an independent review committee (IRC) in respect of each Pooled Fund to review and provide its approval for any proposed Inter-Fund Trades between a Pooled Fund and another Pooled Fund or a Managed Account;

17. the IRC of the Pooled Funds will be composed by the manager of the Pooled Funds in accordance with section 3.7 of NI 81-107 and the IRC will be expected to comply with the standard of care set out in section 3.9 of NI 81-107; the IRC of the Pooled Funds will not approve an Inter-Fund Trade involving a Pooled Fund unless it has made the determination set out in subsection 5.2(2) of NI 81-107;

18. prior to engaging in Inter-Fund Trades on behalf of a Managed Account, each Discretionary Management Agreement or other documentation will contain the authorization of the Client for the portfolio manager of the Managed Account to engage in Inter-Fund Trades;

19. the Filer cannot rely on the exemption from the trading prohibition and the investment counsel prohibition codified under subsection 6.1(4) of NI 81-107 unless each party to the transaction is a reporting issuer and the Inter-Fund Trade occurs at the "current market price of the security" which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price;

20. the Filer considers that it would be in the best interests of the Pooled Funds and Managed Accounts, as applicable, if an Inter-Fund Trade could be made at the Last Sale Price prior to the execution of the trade, in lieu of the Closing Sale Price, as this will result in the trade being done at the price which is closest to the price at the time the decision to make the trade is made;

21. when the Filer engages in an Inter-Fund Trade of securities between Pooled Funds or between a Managed Account and a Pooled Fund, it will follow policies and procedures established by the Filer as applicable; currently, these policies and procedures apply to both the Filer and any sub-adviser to the Pooled Fund, as appropriate, and contemplate the following general steps:

(a) the portfolio manager (or sub-adviser, as applicable) of the Filer will request the approval of the Chief Compliance Officer of the Filer or his or her designated alternate to execute a purchase or sale of a security by a Pooled Fund or a Managed Account as an Inter-Fund Trade;

(b) upon receipt of the required approval, the portfolio manager (or sub-adviser, as applicable) of the Filer will deliver the trading instructions to a trader on a trading desk of the Filer;

(c) upon receipt of the trade instructions and the required approval, the trader on the trading desk will execute the trade as an Inter-Fund Trade in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 provided that, for exchange-traded securities, the Inter-Fund Trade may be executed at the Last Sale Price of the security in lieu of the Closing Sale Price; and

(d) the policies applicable to the trading desk of the Filer will require that all orders are to be executed on a timely basis;

22. if the IRC of a Pooled Fund becomes aware of an instance where the Filer did not comply with the terms of this Decision, or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Pooled Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction which is the Pooled Fund's principal regulator;

In-Specie Transfers

23. investments in individual securities may not be appropriate in certain circumstances for a Client; consequently, the Filer may, where authorized under the applicable Discretionary Management Agreement, from time to time, invest the assets in a Client's Managed Account in securities of any one or more of the Pooled Funds in order to give such Client the benefit of asset diversification and lower commission charges and generally to facilitate portfolio management;

24. the Filer may wish, or otherwise be required, to deliver portfolio securities held in a Managed Account or Pooled Fund to a Pooled Fund in respect of a purchase of units or shares of the Pooled Fund (Fund Securities), and may wish, or otherwise be required, to receive portfolio securities from a Pooled Fund in respect of a redemption of Fund Securities by a Managed Account or Pooled Fund; as the Filer is, or will be, the portfolio manager of the Pooled Funds and is, or will be, the portfolio manager of the Managed Accounts, the Filer would be considered a 'responsible person' within the meaning of NI 31-103;

25. as the Filer may in the future be the trustee of a Pooled Fund which is organized as a trust, each such Pooled Fund may be an 'associate' of the Filer, and accordingly, absent the grant of the In-Specie Transfer Relief, the Filer could be precluded by the provisions of section 13.5(2)(b)(ii) of NI 31-103 from effecting the In-Specie Transfers in such circumstances; as the Filer is, or will be, a registered adviser, and is or will be the manager and/or portfolio manager of the Pooled Funds and is, or will be, the portfolio manager of the Managed Accounts, absent the grant of the In-Specie Transfer Relief, the Filer would be precluded by section 13.5(2)(b)(iii) of NI 31-103 from effecting the In-Specie Transfers;

26. each Discretionary Management Agreement or other documentation will contain the authorization of the Client for the Filer to engage in In-Specie Transfers on behalf of the Managed Account;

27. the only cost which will be incurred by a Managed Account or a Pooled Fund for an In-Specie Transfer is a nominal administrative charge levied by the custodian of the relevant Pooled Fund in recording the trades, and any commission charged by the dealer executing the trade;

28. the Filer, as manager of the Pooled Funds, will value the securities transferred under an In- Specie Transfer on the same valuation day on which the purchase price or redemption price of the Fund Securities of a Pooled Fund is determined; with respect to the purchase of Fund Securities of a Pooled Fund, the securities transferred to a Pooled Fund under an In-Specie Transfer in satisfaction of the purchase price of those Fund Securities will be valued as if the securities were portfolio assets of the Pooled Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102; with respect to the redemption of Fund Securities of a Pooled Fund, the securities transferred to a Managed Account or Pooled Fund in satisfaction of the redemption price of those Fund Securities will have a value equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price of the Fund Securities of the Pooled Fund, as contemplated by section 10.4(3)(b) of NI 81-102;

29. should any In-Specie Transfer contemplated specifically by the Exemption Sought, involve the transfer of an "illiquid asset" (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm's length purchaser or seller, immediately before effecting the In-Specie Transfer;

30. In-Specie Transfers will be subject to (i) compliance with the written policies and procedures of the Filer respecting In-Specie Transfers that are consistent with applicable securities legislation, and (ii) the oversight of the Chief Compliance Officer of the Filer to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Pooled Fund and the Managed Account, uninfluenced by considerations other than the best interests of the Pooled Fund and Managed Account;

31. the Filer has determined that it will be in the best interests of the Pooled Funds and the Managed Accounts to obtain the Exemption Sought; and

32. absent the Exemption Sought, neither the Pooled Funds, Managed Accounts, nor the Filer, on their behalf, will be permitted to engage in Inter-Fund Trades or In-Specie Transfers.

Decision

¶ 4 Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that:

(a) the Inter-Fund Trading Relief is granted provided that:

(i) the Inter-Fund Trade is consistent with the investment objectives of the Pooled Fund or Managed Account, as applicable;

(ii) the Filer, as manager of a Pooled Fund, refers the Inter-Fund Trade involving a Pooled Fund to the IRC of that Pooled Fund in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;

(iii) in the case of an Inter-Fund Trade between Pooled Funds:

a. the IRC of each Pooled Fund has approved the Inter-Fund Trade in respect of the Pooled Fund in accordance with the terms of subsection 5.2(2) of NI 81-107; and

b. the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price; and

(iv) in the case of an Inter-Fund Trade between a Managed Account and a Pooled Fund:

a. the IRC of the Pooled Fund has approved the Inter-Fund Trade in respect of such Pooled Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;

b. the Discretionary Management Agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade; and the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price; and

(b) the In-Specie Transfer Relief is granted provided that:

(i) if the transaction is the purchase of Fund Securities of a Pooled Fund by a Managed Account;

a. the Filer obtains the prior written consent of the Client of the Managed Account before it engages in any In-Specie Transfer in connection with the purchase of Fund Securities of the Pooled Fund;

b. the Pooled Fund would, at the time of payment, be permitted to purchase the portfolio securities held by the Managed Account;

c. the portfolio securities are acceptable to the Filer, as portfolio manager of the Pooled Fund and consistent with the Pooled Fund's investment objectives;

d. the value of the portfolio securities sold to the Pooled Fund by the Managed Account is equal to the issue price of the Fund Securities of the Pooled Fund for which they are used as payment, valued as if the securities were portfolio assets of that Pooled Fund;

e. the account statement next prepared for the Managed Account will include a note describing the portfolio securities delivered to the Pooled Fund and the value assigned to such securities; and

f. the Pooled Fund keeps written records of all In-Specie Transfers during the financial year of the Pooled Fund, reflecting details of the portfolio securities delivered to the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(ii) if the transaction is the redemption of Fund Securities of a Pooled Fund by a Managed Account:

a. the Filer obtains the prior written consent of the Client of the Managed Account to the payment of redemption proceeds in the form of an In-Specie Transfer and such consent has not been revoked;

b. the portfolio securities are acceptable to the Filer as portfolio manager of the Managed Account and consistent with the Managed Account's investment objectives;

c. the value of the portfolio securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price;

d. the holder of the Managed Account has not provided notice to terminate its Discretionary Management Agreement with the Filer;

e. the account statement next prepared for the Managed Account will include a note describing the portfolio securities delivered to the Managed Account and the value assigned to such securities;

f. the Pooled Fund keeps written records of all In-Specie Transfers in a financial year of the Pooled Fund, reflecting details of the portfolio securities delivered by the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and

g. the Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a Pooled Fund, and in respect of any delivery of securities further to an In-Specie Transfer, the only charge paid by the Managed Account, if any, is a nominal administrative charge levied by the custodian in recording the trade and any commission charged by the dealer executing the trade;

(iii) if the transaction is the purchase of Fund Securities of a Pooled Fund by a Pooled Fund:

a. the Pooled Fund would at the time of payment be permitted to purchase the portfolio securities;

b. the portfolio securities are acceptable to the Filer as portfolio manager of the Pooled Fund, and consistent with the Pooled Fund's investment objectives;

c. the value of the portfolio securities is equal to the issue price of the Fund Securities of the Pooled Fund for which they are payment, valued as if the securities were portfolio assets of that Pooled Fund; and

d. each Pooled Fund keeps written records of all In-Specie Transfers in a financial year of a Pooled Fund, reflecting details of the portfolio securities delivered to the Pooled Fund, and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(iv) if the transaction is the redemption of Fund Securities of a Pooled Fund by a Pooled Fund:

a. the portfolio securities are acceptable to the Filer as portfolio manager of the Pooled Fund, and consistent with the investment objectives of the Pooled Fund; the value of the portfolio securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Securities used to establish the redemption price of the Pooled Fund; and

b. each Pooled Fund keeps written records of all In-Specie Transfers in a financial year of the Pooled Fund, reflecting details of the portfolio securities delivered by the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(v) the Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a Pooled Fund and, in respect of any delivery of portfolio securities further to an In-Specie Transfer, the only charge paid by the Pooled Fund, if any, is a nominal administrative charge levied by the custodian in recording the trade and any commission charged by the dealer executing the trade; and

(vi) if any In-Specie Transfer involves the transfer of an "illiquid asset" (as defined in NI 81-102), the Filer must obtain at least one quote for the asset from an independent arm's length purchaser or seller, immediately before effecting the In-Specie Transfer (as contemplated by commentary #7 to section 6.1 of National Instrument 81-107 Independent Review Committee for Investment Funds).