Vanguard Investments Canada Inc. and The Vanguard Group, 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 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).

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am.

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

VANGUARD INVESTMENTS CANADA INC. AND

THE VANGUARD GROUP, INC.

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of Vanguard Investments Canada Inc. (the Principal Adviser) and The Vanguard Group, 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Sub-Advisory Services (as defined below) be exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser for the Principal Adviser in respect of the Clients (as defined below) regarding commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges and cleared through clearing corporations;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Sub-Adviser and the Principal Adviser having represented to the Commission that:

1. The Principal Adviser is a corporation established under the laws of the Canada with its head office located in Toronto, Ontario.

2. The Principal Adviser has applied for registration with the Commission as an investment fund manager and as an adviser in the category of portfolio manager under the Securities Act (Ontario) (the OSA) and as a commodity trading manager under the CFA.

3. The Principal Adviser is an indirect wholly-owned subsidiary of the Sub-Adviser.

4. The Sub-Adviser is a corporation established under the laws of the Commonwealth of Pennsylvania, United States, with its principal office in Malvern, Pennsylvania. The Sub-Adviser is wholly-owned by approximately 35 U.S. registered investment companies that are part of the Vanguard family of U.S. mutual funds and that are widely held by the public.

5. The Sub-Adviser is currently registered as an investment advisor in the United States with the U.S. Securities and Exchange Commission. The Sub-Adviser is exempt from registration as a commodity trading adviser and is not required to register as a commodity pool operator with the U.S. Commodity Futures Trading Commission.

6. The Sub-Adviser is not a resident of any province or territory of Canada.

7. The Principal Adviser will be the investment fund manager of and provide discretionary portfolio management services in Ontario to the Vanguard Canada exchange-traded funds (Vanguard Canada ETFs), the securities of which will be qualified by prospectus for distribution to the public in all of the provinces and territories of Canada. In the future, the Principal Adviser may provide discretionary portfolio management services in Ontario to: (i) investment funds, the securities of which will be qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds); (ii) pooled funds, the securities of which will be sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 -- Prospectus and Registration Exemptions (the Pooled Funds); and (iii) managed accounts of clients who have entered into investment management agreements with the Principal Adviser (the Managed Accounts) (each of the Vanguard Canada ETFs, Investment Funds, Pooled Funds and Managed Accounts is referred to individually as a Client and collectively as the Clients).

8. The discretionary portfolio management services provided by the Principal Adviser to its Clients will include acting as an adviser with respect to both securities and the Contracts where such investments are part of the investment program of such Clients.

9. The Principal Adviser will, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, retain the Sub-Adviser to act as sub-adviser to the Principal Adviser in connection with the investment portfolios of Clients with respect to both securities and the Contracts. The relationship among the Principal Adviser, the Sub-Adviser and the Clients will satisfy the applicable requirements contained in section 7.3 of OSC Rule 35-502 Non-Resident Advisers ("Rule 35-502"), namely:

(a) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(b) the Principal Adviser contractually agrees with its Clients on whose behalf investment advice is or portfolio management services are to be provided in respect of securities and the Contracts 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 each Client for whose benefit the advice is or portfolio management services are to be provided, or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (this obligation, together with the obligation in subparagraph (i), the Assumed Obligations); and

(c) the Principal Adviser cannot be relieved by its Clients from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.

10. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative, a partner or an officer of a registered adviser and is acting on behalf of a registered adviser.

11. By providing the Proposed Sub-Advisory Services, the Sub-Adviser and any individuals acting on behalf of the Sub-Adviser (the Sub-Adviser Individuals) in respect of the Proposed Sub-Advisory Services will be engaging in, or holding themselves out as engaging in, the business of advising others in respect of the Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser, or a representative of an adviser, as the case may be, under the CFA.

12. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in section 25(3) of the OSA which is provided under Rule 35-502.

13. The Sub-Adviser and the Sub-Adviser Individuals are appropriately registered or licensed, or is entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Clients pursuant to the applicable legislation of the Sub-Adviser's principal jurisdiction.

14. Where the Sub-Adviser acts as sub-adviser to the Principal Adviser with respect to Contracts (the "Proposed Sub-Advisory Services"), the Sub-Adviser will exercise discretionary authority on behalf of the Principal Adviser in respect of the investment portfolios of Clients, including discretionary authority to buy or sell Contracts for the Clients, provided that:

(a) in each case, the Contracts are cleared through an acceptable clearing corporation; and

(b) such investments are consistent with the investment objectives and strategies of the applicable Client.

15. The written agreement between the Principal Adviser and the Sub-Adviser will set out the obligations and duties of each party in connection with the Proposed Sub-Advisory Services and will permit the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Sub-Adviser in respect of the Proposed Sub-Advisory Services.

16. The Sub-Adviser and the Sub-Adviser Individuals will only provide the Proposed Sub-Advisory Services as long as the Principal Adviser remains registered under the CFA as a commodity trading manager.

17. The Principal Adviser will deliver to the Clients all applicable reports and statements required under applicable securities and derivatives legislation.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the relief requested;

IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Sub-Advisory Services are exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser for the Principal Adviser in respect of the Clients regarding Contracts, provided that at the relevant time that such activities are engaged in:

(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) the Sub-Adviser and the Sub-Adviser Individuals are appropriately registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licences, to provide advice to the Clients pursuant to the applicable legislation of their principal jurisdiction;

(c) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(d) the Principal Adviser has contractually agreed with the Clients to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(e) the Principal Adviser cannot be relieved by any of its Clients from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations;

(f) the prospectus or similar offering document for each Client for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Sub-Advisory Services 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Sub-Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and

(g) in circumstances where a Client for which the Principal Adviser engages the Sub-Adviser to provide the Proposed Sub-Advisory Services does not prepare a prospectus or similar offering document for delivery to prospective purchasers, or where a Client enters into an investment management agreement with the Principal Adviser for a managed account for which the Principal Adviser engages the Sub-Advisor to provide the Proposed Sub-Advisory Services in respect of securities and the Contracts, all applicable Clients or investors of the Clients who are Ontario residents will receive, prior to the purchase of any Contracts, written disclosure 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 individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Proposed Sub-Advisory Services) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

October 14, 2011