Barclays Global Investors, N.A. and Barclays Global Investors Canada Limited - 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 (Rule 35-502) made under the Securities Act (Ontario).
Statutes Cited
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 78, 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
BARCLAYS GLOBAL INVESTORS, N.A.
AND
BARCLAYS GLOBAL INVESTORS
CANADA LIMITED
ORDER
(Section 80 of the CFA)
UPON the application (the Application) of Barclays Global Investors, N.A. (the Sub-Adviser) and Barclays Global Investors Canada Limited (the Principal Adviser) to the Ontario Securities Commission (the Commission or OSC) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser (including its directors, officers and employees) be exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as an adviser for the Principal Adviser in respect of the Funds (as defined below) regarding commodity futures contracts and commodity futures options traded on commodity futures exchanges (Contracts) 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 amalgamated under the laws of Ontario and is registered:
(a) under the Securities Act (Ontario) (the OSA) as a dealer in the category of limited market dealer, and as an adviser in the categories of investment counsel and portfolio manager, and
(b) under the CFA as an adviser in the category of commodity trading manager.
2. The Sub-Adviser is a national banking association organized under the laws of the United States and operates as a limited purpose trust company. It is primarily regulated in the United States by the Office of the Comptroller of the Currency, the agency of the U.S. Treasury Department that regulates U.S. national banks. The Sub-Adviser is also subject to the jurisdiction of the U.S. Department of Labor to the extent that its fiduciary clients are subject to the U.S. Employee Retirement Income Security Act of 1974, as amended.
3. The Sub-Adviser is registered in the United States with the Commodity Futures Trading Commission as a Commodity Trading Adviser.
4. The Sub-Adviser is registered with the Commission as an international adviser in the categories of portfolio manager and investment counsel and is not registered in any capacity under the CFA.
5. The Principal Adviser is the investment manager of (i) the iShares exchange-traded funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the iShares ETFs), (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario and the other provinces and territories of Canada to accredited investors pursuant to prospectus exemptions and registration exemptions (where available) contained in National Instrument 45-106 -- Prospectus and Registration Exemptions (the Pooled Funds), (iii) managed acccounts of institutional clients who have entered into investment management agreements with the Applicant (the Managed Accounts) and (iv) such other iShares ETFs, Pooled Funds and Managed Accounts as may established in the future and for which the Principal Adviser engages the Sub-Adviser to provide advisory services (each of the funds and managed accounts in (i), (ii), (iii) and (iv) is referred to individually as a Fund and collectively as the Funds).
6. The Funds may, as part of their investment program, invest in Contracts.
7. The Principal Adviser may, pursuant to a written agreement with each Fund:
(a) act as an adviser (as defined in the OSA) to the Fund in respect of securities; and
(b) act as an adviser (as defined in the CFA) to the Fund in respect of Contracts
by exercising discretionary authority in respect of the investment portfolio of the Client, with discretionary authority to purchase or sell on behalf of the Client:
(i) securities; and
(ii) Contracts.
8. In connection with the Principal Adviser acting as an adviser to the Funds in respect of the purchase or sale of securities and Contracts, 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 an adviser to it (the Proposed Advisory Services) by exercising discretionary authority on behalf of the Principal Adviser, in respect of the investment portfolio of the Funds, including discretionary authority to buy or sell Contracts for the Funds, provided that:
(a) in each case, the Contract must be cleared through an acceptable clearing corporation; and
(b) such investments are consistent with the investment objectives and strategies of the Funds.
9. 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 partner or an officer of a registered adviser and is acting on behalf of a registered adviser. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" means commodity futures contracts and commodity futures options.
10. By providing the Proposed Advisory Services, the Sub-Adviser will be acting as an adviser with respect to commodity futures contracts and commodity futures options and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA.
11. 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 for a person or company acting as an adviser in respect of commodity futures contracts and commodity futures options that is similar to the exemption from the adviser registration requirement in section 25(1)(c) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.3 of OSC Rule 35-502 -- Non Resident Advisers (Rule 35-502).
12. The relationship among the Principal Adviser, the Sub-Adviser and the Funds satisfies the requirements of section 7.3 of Rule 35-502.
13. As would be required under section 7.3 of Rule 35-502:
(a) the duties and obligations of the Sub-Adviser will be set out in a written agreement with the Principal Adviser;
(b) the Principal Adviser will contractually agree with the Funds 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 Funds; or
(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations); and
(c) the Principal Adviser cannot be relieved by the Funds 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 is not resident of any province or territory of Canada.
15. The Sub-Adviser is, or will be, appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of its principal jurisdiction.
16. The Sub-Adviser will only provide the Proposed Advisory Services so long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.
17. The prospectus for each iShares ETF will include the following disclosure:
(a) 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
(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the iShares ETF, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
18. Prior to purchasing any securities of one or more of the Pooled Funds or the iShares ETFs directly from the Principal Advisor or entering into an investment management agreement with the Principal Advisor for a managed account, all investors who are Ontario residents will receive written disclosure that includes:
(a) 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
(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed;
IT IS ORDERED that, pursuant to section 80 of the CFA, the Sub-Adviser (including its directors, officers and employees) are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of the Proposed Advisory Services provided to the Principal Adviser, for a period of five years, 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 is appropriately registered or licensed, or is entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of its 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 respective Client to be responsible for any loss that arises out of any failure of a Sub-Adviser to meet the Assumed Obligations;
(e) the Principal Adviser cannot be relieved by a Fund or its securityholders from its responsibility for any loss that arises out of the failure of a Sub-Adviser to meet the Assumed Obligations; and
(f) the prospectus for each iShares ETF 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 the individual representatives of the Sub-Adviser) advising the iShares ETF, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
(g) prior to purchasing any securities of one or more of the Pooled Funds or the iShares ETFs directly from the Principal Advisor or entering into an investment management agreement with the Principal Advisor for a managed account, all investors who are Ontario residents will receive 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 the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
March 27, 2009