Toron Capital Markets Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief sought from conflict of interest provisions in NI 31-103 to permit in specie transfers of holdings amongst managed accounts, pooled funds and mutual funds managed by the manager -- relief subject to usual conditions, such as consent of managed account clients to allow in specie transfers, acceptability of portfolio assets to receiving fund or managed account portfolio manager, filer to keep written record of transfers, certain pricing conditions.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and ongoing Registrant Obligations, ss. 13.5(2)(b), 15.1.
May 12, 2015
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 TORON CAPITAL MARKETS INC.
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from Toron Capital Markets Inc. (the Filer) and any affiliate of the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption from Section 13.5(2)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that prohibits an 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 the securities of any issuer from or to the investment portfolio of an associate of a responsible person or any investment fund for which a responsible person acts as an adviser,
To permit the following purchases and redemptions (each purchase and redemption, an In Specie Transaction):
(i) the purchase by a fully managed account managed by the Filer or an affiliate (each, a Managed Account and, collectively, the Managed Accounts) of securities of existing Toron AMI Pooled Funds or any future Toron AMI Pooled Funds (each, a Fund and, collectively, the Funds) and the redemption of securities held by a Managed Account in a Fund, and as payment:
(A) for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the Fund; and
(B) for such redemption, in whole or in part, by the Fund making good delivery of portfolio securities to the Managed Account
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the Application; and
(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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec and New Brunswick (the Passport Jurisdictions).
Interpretation
Terms defined in NI 31-103, National Instrument 14-101 Definitions or the securities legislation of the Jurisdiction or the Passport Jurisdictions have the same meaning in this Decision Document.
Representations
This decision is based on the following representations by the Filer:
The Filer
1. The Filer is a corporation existing under the laws of the Province of Ontario with its head office in Toronto, Ontario.
2. The Filer is registered as a portfolio manager in Ontario and each of the Passport Jurisdictions and is, or will be, responsible for managing the assets of each of the Funds and the Managed Accounts, has, or will have, complete discretion to invest and reinvest the assets of each of the Funds and the Managed Accounts, and is, or will be, responsible for executing all portfolio transactions for each of the Funds and the Managed Accounts.
3. The Filer is registered as an investment fund manager, in respect of any Fund managed by it, in Ontario and in any other Passport Jurisdiction where such registration is required.
4. The Filer is, or will be, the investment fund manager and/or portfolio manager of each of the Funds.
5. The Filer or any affiliate is, or will be, the portfolio manager of each of the Managed Accounts.
6. The Filer is not a reporting issuer in any jurisdiction in Canada and is not in default of securities legislation of any jurisdiction in Canada.
The Funds
7. Each of the Funds is, or will be, an open-end mutual fund trust established pursuant to a trust agreement that is governed by the laws of the Province of Alberta.
8. Securities of each of the Funds are, or will be, offered and issued pursuant to available prospectus exemptions in accordance with National Instrument 45-106 -- Prospectus and Registration Exemptions.
9. None of the Funds are reporting issuers in any jurisdiction in Canada and none of the Funds are in default of securities legislation of any jurisdiction in Canada.
10. A Fund may be an associate of the Filer or any affiliate that is a responsible person in respect of a Managed Account or an investment fund for which the Filer acts as an advisor.
Managed Accounts
11. Each client of the Filer or any affiliate has executed or will execute a subscription agreement or an investment management agreement for a fully managed account (the Client) with the Filer. In the case of investment management agreements, the Filer or any affiliate has been appointed or will be appointed as portfolio manager for the investment portfolio of the Client with full discretionary authority. The investment management agreement or other documentation contains or will contain the authorization of the Client, on behalf of the Managed Account, to engage in In Specie Transaction with the Funds.
In Specie Transactions
12. The Filer wishes to be able to enter into In Specie Transactions in accordance with the investment objectives of the applicable Managed Accounts and Funds. Absent the Exemption Sought, the Filer would be prohibited by subsection 13.5(2)(b) of NI 31-103 from engaging in In Specie Transactions.
13. In all In Specie Transactions, the Filer will value the portfolio securities to be delivered using the same values that are used to calculate the net asset value for the purpose of the issue price or redemption price of the securities of the Fund.
14. Should any In Specie Transaction involve the transfer of an "illiquid asset" (as defined in National Instrument 81-102 -- Investment Funds), 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 Transaction.
15. In Specie Transactions will be subject to: (i) compliance with written policies and procedures which enable the Funds to engage in In Specie Transactions with Managed Accounts that are consistent with applicable securities legislation; and (ii) the oversight of the Filer's and/or any affiliate's compliance department to ensure that the transactions represent the business judgement of the Filer acting in a discretionary capacity with respect to the applicable Managed Accounts and Funds, uninfluenced by considerations other than the best interests of the applicable Managed Accounts and Funds.
16. The Filer considers that effecting In Specie Transactions will be beneficial to the Funds and Managed Accounts in that they will allow the Filer to manage the Funds more effectively, reduce transaction costs on the acquisition or disposition of securities for the applicable Fund or Managed Account and there will be reduced market disruption associated with the transactions. In Specie Transactions are an effective way to deliver portfolio securities to the Clients or Funds in circumstances where, in the judgement of the Filer and/or any affiliate, such transactions are in the best interests of the Clients and the Funds.
Decision
The principal regulator is satisfied that the decision meets the 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 Exemption Sought is granted provided that:
(a) in connection with an In Specie Transaction where a Managed Account acquires securities of a Fund:
(i) the Filer or any affiliate obtains the prior written consent of the relevant Managed Account client before it engages in any In Specie Transactions;
(ii) the securities delivered by the Managed Account to the Fund are acceptable to the Filer as portfolio manager of the Fund and consistent with the investment objective of the Fund;
(iii) the value of the securities delivered by the Managed Account to the Fund is equal to the issue price of the securities of the Fund for which they are payment, valued as if the securities were portfolio assets of that Fund;
(iv) the account statement next prepared for the Managed Account will include a note describing the securities delivered by the Managed Account to the Fund and the value assigned to such securities; and
(v) the Fund will keep written records of an In Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered by the Managed Account to the 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;
(b) in connection with an In Specie Transaction where a Managed Account redeems securities of a Fund:
(i) the Filer or any affiliate obtains the prior written consent of the relevant Managed Account client before it engages in any In Specie Transactions in connection with the redemption of securities of a Fund;
(ii) the securities delivered by the Fund to the Managed Account are acceptable to the Filer or any affiliate as portfolio manager of the Managed Account, and are consistent with the Managed Account's investment objective;
(iii) the value of the securities delivered by the Fund to the Managed Account is equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price;
(iv) the holder of the Managed Account has not provided notice to terminate its Managed Account with the Filer or any affiliate;
(v) the account statement next prepared for the Managed Account will include a note describing the securities delivered by the Fund to the Managed Account and the value assigned to such securities; and
(vi) the Fund will keep written records of an In Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered by the Fund to the Managed Account 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
(c) the Filer and any affiliate does not receive any compensation in respect of any sale or redemption of securities of a Fund (other than redemption fees which have been disclosed) and, in respect of any delivery of securities further to an In Specie Transaction, the only charge paid by the Managed Account is the commission charged by the dealer executing the trade.