Batterymarch Financial Management, Inc. et al. -- s. 80 of the CSA
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-advisers not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options traded on commodity futures exchanges and cleared through clearing corporations, 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), 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
BATTERYMARCH FINANCIAL MANAGEMENT,
INC., BRANDYWINE GLOBAL INVESTMENT
MANAGEMENT, LLC, CLEARBRIDGE ADVISORS,
LLC, CONGRUIX INVESTMENT MANAGEMENT,
ESEMPLIA EMERGING MARKETS, GLOBAL
CURRENTS INVESTMENT MANAGEMENT, LLC,
LEGG MASON CAPITAL MANAGEMENT, INC.,
LEGG MASON GLOBAL ASSET ALLOCATION,
LLC, LEGG MASON INTERNATIONAL EQUITIES
LIMITED, PRIVATE CAPITAL MANAGEMENT, L.P.,
PERMAL INVESTMENT MANAGEMENT
SERVICES LIMITED
AND
ROYCE & ASSOCIATES, LLC
ORDER
(Section 80 of the CFA)
UPON the application (the Application) of Legg Mason Canada Inc. (the Principal Adviser), Batterymarch Financial Management, Inc., Brandywine Global Investment Management, LLC, Clearbridge Advisors, LLC, Congruix Investment Management, Esemplia Emerging Markets, Global Currents Investment Management, LLC, Legg Mason Capital Management, Inc., Legg Mason Global Asset Allocation, LLC, Legg Mason International Equities Limited, Private Capital Management, L.P., Permal Investment Management Services Limited and Royce & Associates, LLC (collectively, the Foreign Sub-Advisers) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA, that the Foreign Sub-Advisers (including their respective directors, officers, representatives and employees acting as advisers on their behalf) be exempt, for a period of five years, from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of acting as an adviser for the Principal Adviser for the benefit of the Clients (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 Principal Adviser and the Foreign Sub-Advisers having represented to the Commission that:
1. The Principal Adviser is a corporation incorporated under the laws of Ontario and its principal business office is in Toronto, Ontario.
2. The Principal Adviser is currently registered as:
(a) an adviser in the categories of investment counsel and portfolio manager and a dealer in the category of exempt market dealer under the Securities Act (Ontario) (OSA); and
(b) an adviser in the category of commodity trading manager under the CFA.
3. The principal business office of each of the Foreign Sub-Advisers is in the United States, England or Singapore. Specifically:
(a) Batterymarch Financial Management, Inc. is a corporation organized under the laws of the State of Maryland and is resident in the United States of America. Batterymarch Financial Management, Inc. is registered as an investment adviser with the United States Securities and Exchange Commission.
(b) Brandywine Global Investment Management, LLC is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Brandywine Global Investment Management, LLC is registered as an investment adviser with the United States Securities and Exchange Commission.
(c) Clearbridge Advisors, LLC is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Clearbridge Advisors, LLC is registered as an investment adviser with the United States Securities and Exchange Commission.
(d) Congruix Investment Management is a registered business of Legg Mason Asset Management (Singapore) Pte. Limited. Congruix Investment Management is registered as an investment adviser with the Monetary Authority of Singapore.
(e) Esemplia Emerging Markets is the trade name used for Legg Mason International Equities Limited, which is registered as an investment adviser with the Financial Services Authority in England.
(f) Global Currents Investment Management, LLC is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Global Currents Investment Management, LLC is registered as an investment adviser with the United States Securities and Exchange Commission.
(g) Legg Mason Capital Management, Inc. is a corporation organized under the laws of the State of Maryland and is resident in the United States of America. Legg Mason Capital Management, Inc. is registered as an investment adviser with the United States Securities and Exchange Commission.
(h) Legg Mason Global Asset Allocation, LLC is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Legg Mason Global Asset Allocation, LLC is registered as an investment adviser with the United States Securities and Exchange Commission.
(i) Legg Mason International Equities Limited is organized under the laws of the United Kingdom and is resident in England. Legg Mason International Equities Limited is registered as an investment adviser with the Financial Services Authority in England.
(j) Permal Investment Management Services Limited is a corporation resident in the United States of America. Permal Investment Management Services Limited is registered as an investment adviser with the United States Securities and Exchange Commission.
(k) Private Capital Management, L.P. is a limited partnership organized under the laws of the State of Delaware and is resident in the United States of America. Private Capital Management, L.P. is registered as an investment adviser with the United States Securities and Exchange Commission.
(l) Royce & Associates, LLC is a limited liability company organized under the laws of the State of Delaware and is resident in the United States of America. Royce & Associates, LLC is registered as an investment adviser with the United States Securities and Exchange Commission.
4. None of the Foreign Sub-Advisers are registered with the Commission, other than Batterymarch Financial Management, Inc. and Private Capital Management, L.P., each of which were formerly registered under the OSA as an adviser in the category of international adviser (investment counsel and portfolio manager) and are currently registered as an adviser in the category of Portfolio Manager with terms and conditions restricting it to conducting its advising activities in accordance with Ontario Securities Commission Rule 35-502 Non-Resident Advisers (Rule 35-502) for a one-year period ending September 28, 2010. None of the Foreign Sub-Advisers are registered in any capacity under the CFA.
5. The Principal Adviser acts as an adviser to high net worth individuals or institutional clients, including pooled funds managed by the Principal Adviser, (each a Client and collectively the Clients).
6. The Clients may, as part of their investment program, invest in Contracts.
7. The Principal Adviser may, pursuant to a written agreement with each Client:
(a) act as an adviser (as defined in the OSA) to the Client in respect of trading securities; and
(b) act as an adviser (as defined in the CFA) to the Client in respect of trading 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. Pursuant to a written agreement which sets out the duties and obligations of each Foreign Sub-Adviser, the Principal Adviser has appointed or will appoint a Foreign Sub-Adviser as a Foreign Sub-Adviser to the Principal Adviser in respect of the purchase or sale of Contracts for the Clients for which such Foreign Sub-Adviser has been appointed a Foreign Sub-Adviser and may appoint a Foreign Sub-Adviser as a Foreign Sub-Adviser to the Principal Adviser in respect of the purchase or sale of Contracts for other similar clients who become Clients in the future.
9. In connection with the Principal Adviser acting as an adviser to the Clients in respect of the purchase or sale of Contracts, the Principal Adviser may, from time to time, pursuant to a written agreement made between the Principal Adviser and the Foreign Sub-Advisers, retain the Foreign Sub-Advisers to act as an adviser to it (the Commodity Advisory Services) by exercising discretionary authority on behalf of the Principal Adviser, in respect of the investment portfolio of the Clients, with discretionary authority to buy or sell Contracts for the Clients, provided that:
(a) in each case, the Contract must be cleared through an acceptable clearing corporation; and
(b) in no case will any trading in Contracts constitute the primary focus or investment objective of the Client.
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 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.
11. By providing the Commodity Advisory Services, the Foreign 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.
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 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 subsection 25(3) 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 Rule 35-502.
13. The relationship among the Principal Adviser, the Foreign Sub-Advisers and the Clients satisfies the requirements of section 7.3 of Rule 35-502.
14. As would be required under section 7.3 of Rule 35-502:
(a) the duties and obligations of the Foreign Sub-Advisers will be set out in a written agreement with the Principal Adviser;
(b) the Principal Adviser will contractually agree with the Clients to be responsible for any loss that arises out of the failure of the Foreign Sub-Advisers:
(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 Clients; 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 Clients from its responsibility for any loss that arises out of the failure of the Foreign Sub-Advisers to meet the Assumed Obligations.
15. The Foreign Sub-Advisers are not residents of any province or territory of Canada.
16. The Foreign Sub-Advisers are, or will be, appropriately registered or licensed or are, or will be, entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Clients pursuant to the applicable legislation of their principal jurisdictions.
17. Prior to purchasing any securities for one or more of the Clients, all investors in the Clients 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 Foreign Sub-Adviser to meet the Assumed Obligations; and
(b) a statement that there may be difficulty in enforcing any legal rights against the Foreign Sub-Adviser (or the individual representatives of the Foreign Sub-Adviser) advising the relevant Client, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
18. On March 28, 2006, the Commission granted some of the Foreign Sub-Advisers an exemption from the requirements of paragraph 22(1)(b) of the CFA in respect of the Commodity Advisory Services which has now expired.
AND UPON the Commission 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, pursuant to section 80 of the CFA, that the Foreign Sub-Advisers (including their respective directors, officers, representatives and employees acting as advisers on their behalf) are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA, in respect of the Commodity 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) each Foreign 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 Clients pursuant to the applicable legislation of its principal jurisdiction;
(c) the duties and obligations of each Foreign Sub-Adviser are set out in a written agreement with the Principal Adviser;
(d) the Principal Adviser has contractually agreed with the respective Clients to be responsible for any loss that arises out of any failure of a Foreign Sub-Adviser to meet the Assumed Obligations;
(e) the Principal Adviser cannot be relieved by a Client or its securityholders from its responsibility for any loss that arises out of the failure of a Foreign Sub-Adviser to meet the Assumed Obligations;
(f) prior to purchasing any securities in a Client, all investors in the Client 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 Foreign Sub-Adviser to meet the Assumed Obligations; and
(ii) a statement that there may be difficulty in enforcing any legal rights against the Foreign Sub-Adviser (or the individual representatives of the Foreign Sub-Adviser) for the Client, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
November 23, 2009