AQR Capital Management Inc. -- s. 80 of the CFA
Headnote
Foreign adviser exempted from the adviser registration requirement in section 22(1)(b) of the Commodity Futures Act (Ontario) in order to act as:
(1) an adviser in respect of commodity futures contracts or commodity futures options for certain institutional investors in Ontario -- Clients meet the definition of "permitted client" in NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Contracts and options are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada; and
(2) a sub-adviser in respect of commodity futures contracts and commodity futures options for principal advisers registered under the Commodity Futures Act (Ontario).
Terms and conditions on exemption correspond to the relevant terms and conditions on the comparable exemption from the adviser registration requirement available to:
(1) international advisers in respect of securities set out in section 8.26 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations
(2) sub-advisers not ordinarily resident in Ontario in respect of securities set out in section 7.3 of OSC Rule 35-502 Non-Resident Advisers
Exemption also subject to a five-year "sunset clause" condition.
Applicable Legislative Provisions
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 1(1), 22(1)(b) and 80.
Securities Act, R.S.O. 1990, c. S.5, as am.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 1.1 and 8.26.
National Instrument 33-109 Registration Information, Form 33-109F5 and Form 33-109F6.
Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.3.
IN THE MATTER OF
THE COMMODITY FUTURES ACT
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the CFA)
AND
IN THE MATTER OF
AQR CAPITAL MANAGEMENT, LLC
ORDER
(SECTION 80 OF THE CFA)
UPON the application (the Application) of AQR Capital Management, LLC (the Applicant) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Applicant and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the Applicant'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 (the Order):
"CFA Adviser Registration Requirement" means the provisions in the CFA that prohibit a person or company from acting as an adviser 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;
"Foreign Contract" means a Contract that is primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;
"International Adviser Exemption" means the exemption from the OSA Adviser Registration Requirement set out in section 8.26 of NI 31-103;
"NFA" means the United States National Futures Association;
"NI 31-103" means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
"OSA" means the Securities Act (Ontario);
"OSA Adviser Registration Requirement" means the provisions in the OSA that prohibit 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 in Ontario unless the person or company is registered in the appropriate category of registration under the OSA;
"Permitted Client" means a client in Ontario that is a "permitted client", as that term is defined in section 1.1 of NI 31-103, except that for purposes of the Order such definition shall exclude a person or company registered under the securities or commodities legislation of a jurisdiction of Canada as an adviser or dealer;
"specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information;
"Sub-Adviser Exemption" means the exemption from the OSA Adviser Registration Requirement set out in section 7.3 of OSC 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 Applicant having represented to the Commission that:
1. The Applicant is a limited liability company organized under the laws of the State of Delaware with its principal place of business located at Two Greenwich Plaza, 3rd Floor, Greenwich, CT, United States of America 06830.
2. The Applicant is a specialized portfolio manager that manages investments for investment companies and institutional investors across multiple strategies and financial instruments. As at June 30, 2012, the Applicant had over US$54.6 billion in assets under management.
3. The Applicant is currently registered with the SEC as an investment adviser under the U.S. Advisers Act, registered with the CFTC as a commodity pool operator and commodity trading advisor and an approved member of the NFA.
4. The Applicant and the Representatives are appropriately registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licenses, to provide advice for the Sub-Advisory Clients (defined below) pursuant to the applicable legislation of the Applicant's principal jurisdiction.
5. The Applicant is not resident in any province or territory of Canada.
6. The Applicant is not registered in any capacity under the CFA. The Applicant is registered as an exempt market dealer in each of Ontario, Québec and Saskatchewan, but is not registered as an adviser in any jurisdiction of Canada.
7. The Applicant seeks to act as a discretionary investment manager on behalf of prospective institutional investors in Ontario that are Permitted Clients who seek to engage the Applicant as a discretionary investment manager for purposes of implementing certain specialized investment strategies (the Proposed Advisory Services).
8. Persons or companies that are registered under the CFA as an adviser in the category of commodity trading manager or commodity trading counsel or both (Principal Advisers) seek to retain the Applicant to act as a sub-adviser for purposes of implementing certain specialized investment strategies, including strategies employing Foreign Contracts, in respect of the Principal Adviser's clients (Sub-Advisory Clients) on whose behalf investment advice is, or portfolio management services are, to be provided (the Proposed Sub-Advisory Services). The terms of the written agreement between the Principal Adviser and its Sub-Advisory Clients will grant the Principal Adviser the authority to appoint the Applicant as a sub-adviser.
9. The Proposed Sub-Advisory Services may include providing 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) investment 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). The discretionary portfolio management services provided by the Principal Adviser to its Sub-Advisory Clients will include acting as an adviser with respect to both securities and Contracts where such investments are part of the investment program of such Sub-Advisory Clients.
10. The Proposed Advisory Services and the Proposed Sub-Advisory Services may include the use of specialized investment strategies employing Foreign Contracts (the Foreign Contracts Advice), and the Applicant would not advise in Ontario on Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts.
11. In connection with the Proposed Sub-Advisory Services, the Applicant will exercise discretionary authority on behalf of the Principal Adviser in respect of all or a portion of the assets of the investment portfolios of the Sub-Advisory Clients. The Applicant will ensure that its exercise of discretionary authority is consistent with the investment objectives and strategies of each Sub-Advisory Client.
12. In connection with the Proposed Sub-Advisory Services,
(a) the relationship among the Principal Adviser, the Applicant and any Sub-Advisory Client shall satisfy the applicable requirements of the Sub-Adviser Exemption, namely that:
(i) the obligations and duties of the Applicant are set out in a written agreement with the Principal Adviser;
(ii) the Principal Adviser contractually agrees with its Sub-Advisory Clients on whose behalf investment advice is, or portfolio management services are, to be provided in respect of Foreign Contracts to be responsible for any loss that arises out of the failure of the Applicant:
(A) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interest of the Principal Adviser and each Sub-Advisory Client for whose benefit the advice is or portfolio management services are to be provided, or
(B) 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 (A), the Assumed Obligations); and
(iii) the Principal Adviser cannot be relieved by its Sub-Advisory Clients from its responsibility for any loss that arises out of the failure of the Applicant to meet the Assumed Obligations;
(b) the Applicant 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 or commodity trading counsel or both; and
(c) the Applicant shall ensure that each Principal Adviser delivers to the Sub-Advisory Clients all applicable reports and statements required under applicable securities, commodity futures and derivatives legislation.
13. There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to either the International Adviser Exemption or the Sub-Adviser Exemption. Consequently, in the absence of the Order, the Applicant would be required to satisfy the CFA Adviser Registration Requirement in order to carry out either the Proposed Advisory Services or the Proposed Sub-Advisory Services.
14. The Applicant submits that it would not be prejudicial to the public interest for the Commission to make the Order because:
(a) the Applicant will only advise Permitted Clients as to trading in Foreign Contracts and will not advise any Permitted Client as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to the Applicant providing advice on Foreign Contracts;
(b) the Applicant will only act as a sub-adviser in respect of trading in Foreign Contracts and will not act as a sub-adviser for Principal Advisers in respect of trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to the Applicant providing advice on Foreign Contracts;
(c) Permitted Clients and Principal Advisers seek to access certain specialized portfolio management services provided by the Applicant, including advice as to trading in Foreign Contracts;
(d) the Applicant would provide advice to Permitted Clients as to trading in Foreign Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the International Adviser Exemption; and
(e) the Applicant would act as a sub-adviser to Principal Advisers in respect of trading in Foreign Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the Sub-Adviser Exemption.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make the Order;
IT IS ORDERED, pursuant to Section 80 of the CFA, that the Applicant and its Representatives are exempt from the CFA Adviser Registration Requirement in respect of providing advice to Permitted Clients as to, and acting as a sub-adviser to Principal Advisers in respect of, trading in Foreign Contracts provided that:
(a) the Applicant provides advice to Permitted Clients only as to trading in Foreign Contracts and does not advise any Permitted Client as to trading in Contracts that are not Foreign Contracts, unless providing such advice is incidental to its providing advice on Foreign Contracts;
(b) the Applicant's head office or principal place of business remains in the United States;
(c) the Applicant remains: (i) registered with the SEC as an investment adviser under the U.S. Advisers Act, (ii) registered with the CFTC as a commodity pool operator and commodity trading advisor, and (iii) an approved member of the NFA on a basis which permits it to carry on the activities in the United States that registration under the CFA as an adviser in the category of commodity trading manager or commodity trading counsel or both would permit it to carry on in Ontario;
(d) the Applicant continues to engage in the United States in the business of an adviser, as defined in the CFA;
(e) in respect of providing advice to a Permitted Client as to trading in Foreign Contracts:
(i) as at the end of the Applicant's most recently completed financial year, not more than 10% of the aggregate consolidated gross revenue of the Applicant, its affiliates and its affiliated partnerships (excluding the gross revenue of an affiliate or affiliated partnership of the Applicant that is registered under securities legislation, commodities legislation or derivatives legislation in a jurisdiction of Canada) is derived from the portfolio management activities of the Applicant, its affiliates and its affiliated partnerships in Canada (which, for greater certainty, includes both securities-related and commodity futures-related activities);
(ii) before advising a Permitted Client as to trading in Foreign Contracts, the Applicant notifies each Permitted Client of all of the following:
(A) the Applicant is not registered in Ontario to provide the advice described under paragraph (a) of this Order;
(B) the foreign jurisdiction in which the Applicant's head office or principal place of business is located;
(C) all or substantially all of the Applicant's assets may be situated outside of Canada;
(D) there may be difficulty enforcing legal rights against the Applicant because of the above; and
(E) the name and address of the Applicant's agent for service of process in Ontario;
(iii) the Applicant shall, if it ceases to be a registrant in Ontario, submit to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix "A";
(iv) the Applicant shall, if it ceases to be a registrant in Ontario, submit to the Commission a copy of any Form 33-109F5 Change of Information that relates to changes of information in Part 7 Regulatory Action of the Form 33-109F6 Firm Registration that is required to be submitted in another jurisdiction of Canada;
(v) the Applicant shall, if it ceases to be a registrant in every jurisdiction of Canada, submit to the Commission a completed Notice of Regulatory Action in the form attached as Appendix "B" (the Regulatory Action Form);
(vi) the Applicant shall, if it is required to submit to the Commission a Regulatory Action Form, notify the Commission of any regulatory action initiated after the date that the most recent Regulatory Action Form is filed in respect of the Applicant, or any predecessors or specified affiliates of the Applicant, by completing and filing Appendix "B" within 10 days of the commencement of such action; and
(vii) by December 1 of each year, the Applicant notifies the Commission of its continued reliance on the exemption from registration granted pursuant to the Order;
(f) in respect of acting as a sub-adviser to a Principal Adviser as to trading in Foreign Contracts:
(i) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager or commodity trading counsel or both;
(ii) the Applicant and the Representatives are appropriately registered or licensed to provide advice to the Sub-Advisory Clients pursuant to the applicable legislation of their principal jurisdiction, or are entitled to rely on appropriate exemptions from such registrations or licenses;
(iii) the obligations and duties of the Applicant are set out in a written agreement with the Principal Adviser;
(iv) the Applicant shall not act as a sub-adviser to a Principal Adviser unless the Principal Adviser has contractually agreed with the Sub-Advisory Clients to be responsible for any loss that arises out of any failure of the Applicant to meet the Assumed Obligations;
(v) the Applicant shall not act as a sub-adviser to a Principal Adviser unless the Principal Adviser cannot be relieved by any of its Sub-Advisory Clients from its responsibility for any loss that arises out of any failure of the Applicant to meet the Assumed Obligations;
(vi) where a Sub-Advisory Client prepares a prospectus or similar offering document for delivery to prospective purchasers, any such document shall include the following disclosure:
(A) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Applicant to meet the Assumed Obligations; and
(B) a statement that there may be difficulty in enforcing any legal rights against the Applicant (or any of its Representatives acting on its behalf in respect of the Proposed Sub-Advisory Services) because the Applicant is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and
(vii) where a Sub-Advisory Client does not prepare a prospectus or similar offering document for delivery to prospective purchasers, all investors of the Sub-Advisory Client who are Ontario residents shall receive, prior to the purchase of any Foreign Contracts, written disclosure that includes:
(A) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Applicant to meet the Assumed Obligations; and
(B) a statement that there may be difficulty in enforcing any legal rights against the Applicant (or any of its Representatives acting in respect of the Proposed Sub-Advisory Services) because the Applicant is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
(viii) where a Sub-Advisory Client enters into an investment management agreement for the Proposed Sub-Advisory Services in respect of Foreign Contracts, all applicable Sub-Advisory Clients or investors of the Sub-Advisory Clients who are Ontario residents shall receive, prior to the purchase of any Foreign Contracts, written disclosure that includes:
(A) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Applicant to meet the Assumed Obligations; and
(B) a statement that there may be difficulty in enforcing any legal rights against the Applicant (or any of its Representatives acting in respect of the Proposed Sub-Advisory Services) because the Applicant is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
(g) this Order shall expire five years after the date hereof.
August 28, 2012
APPENDIX A
SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE
INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION UNDER THE
COMMODITY FUTURES ACT, ONTARIO
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Name of person or company ("International Firm"): |
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If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm: |
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Jurisdiction of incorporation of the International Firm: |
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Head office address of the International Firm: |
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The name, e-mail address, phone number and fax number of the International Firm's individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent. |
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Name: |
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E-mail address: |
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Phone: |
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Fax: |
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The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Relief Order"): |
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Section 8.18 [international dealer] |
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Section 8.26 [international adviser] |
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Other [specify]: |
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Name of agent for service of process (the "Agent for Service"): |
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Address for service of process on the Agent for Service: |
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The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding. |
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The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction. |
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Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator |
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a. a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated; and |
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b. an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service. |
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This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction. |
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Dated: ____________________________________
__________________________________________
(Signature of the International Firm or authorized signatory)
__________________________________________
(Name of signatory)
__________________________________________
(Title of signatory)
Acceptance
The undersigned accepts the appointment as Agent for Service of _________________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.
Dated: ____________________________________
__________________________________________
(Signature of the Agent for Service or authorized signatory)
__________________________________________
(Name of signatory)
__________________________________________
(Title of signatory)
This form is to be submitted to the following address:
APPENDIX B
NOTICE OF REGULATORY ACTION
1. Has the firm, or any predecessors or specified affiliates{1} of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?
Yes _____ No _____
If yes, provide the following information for each settlement agreement:
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Regulator/organization |
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Date of settlement (yyyy/mm/dd) |
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Details of settlement |
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Jurisdiction |
2. Has any financial services regulator ,securities or derivatives exchange, SRO or similar organization:
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No |
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(a) Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization? |
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(b) Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission? |
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(c) Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm? |
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(d) Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm? |
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(e) Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm? |
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(f) Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm? |
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(g) Issued an order (other than en exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)? |
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If yes, provide the following information for each action:
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Name of Entity |
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Type of Action |
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Regulator/organization |
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Date of action (yyyy/mm/dd) |
Reason for action |
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Jurisdiction |
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3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?
Yes _____ No _____
If yes, provide the following information for each investigation:
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Name of entity |
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Reason or purpose of investigation |
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Regulator/organization |
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Date investigation commenced (yyyy/mm/dd) |
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Jurisdiction |
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Name of firm |
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Name of firm's authorized signing officer or partner |
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Title of firm's authorized signing officer or partner |
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Signature |
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Date (yyyy/mm/dd) |
Witness
The witness must be a lawyer, notary public or commissioner of oaths.
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Name of witness |
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Title of witness |
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Signature |
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Date (yyyy/mm/dd) |
This form is to be submitted to the following address:
{1} In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 -- Registration Information.