BMO Asset Management Inc.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to facilitate the offering of exchange-traded mutual fund securities and conventional mutual fund securities under the same form of prospectus -- Relief granted from the requirement in NI 41-101 to file a long form prospectus for exchange-traded fund securities provided that a simplified prospectus is prepared and filed in accordance with NI 81-101 and the filer includes disclosure required pursuant to Form 41-101F2 that is not contemplated by Form 81-101F1 in respect of the exchange-traded fund securities -- Filer will file ETF Facts in the form prescribed by Form 41-101F4 in respect of exchange-traded fund securities of a fund and will file a Fund Facts document in the form prescribed by Form 81-101F3 in respect of conventional mutual fund securities of a fund -- Technical relief granted from Parts 9, 10 and 14 of NI 81-102 to permit each fund to treat its exchange-traded fund securities and conventional mutual fund securities as separate mutual funds for the purpose of compliance with Parts 9, 10 and 14 of NI 81-102.
Applicable Legislative Provisions
National Instrument 41-101 General Prospectus Requirements, ss. 3.1(2) and 19.1.
National Instrument 81-102 Investment Funds, Parts 9, 10 and 14 and s. 19.1.
July 9, 2024
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
BMO ASSET MANAGEMENT INC.
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of each of the Existing Funds (as defined below) and such other mutual funds as are managed or may be managed by the Filer or an affiliate now or in the future that offer ETF Securities (as defined below) either alone or along with Mutual Fund Securities (as defined below) (collectively, the Future Funds and together with the Existing Funds, the Funds, and each, a Fund), for a decision under the securities legislation of the Jurisdiction (the Legislation) granting exemptive relief that:
(a) exempts the Filer, any affiliate of the Filer, and each Fund from the requirement in subsection 3.1(2) of National Instrument 41-101 General Prospectus Requirements (NI 41-101) to prepare and file a long form prospectus for the ETF Securities in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (the Form 41-101F2) provided that the Filer files (i) a prospectus for the ETF Securities in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), other than the requirements pertaining to the filing of a fund facts document; and (ii) an ETF facts document in accordance with Part 3B of NI 41-101 (the ETF Prospectus Form Relief); and
(b) permits the Filer, any affiliate of the Filer, and each Fund that offers both ETF Securities and Mutual Fund Securities to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with the provisions of Parts 9, 10 and 14 of National Instrument 81-102 Investment Funds (NI 81-102) (the Sales and Redemptions Relief),
(collectively, the ETF Prospectus Form Relief and the Sales and Redemptions Relief, the Exemption Sought).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator; 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 all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).
Interpretation
Capitalized terms used herein have the meaning ascribed thereto below (or in National Instrument 14-101 Definitions, MI 11-102 and NI 81-102, as applicable) unless otherwise defined in this Decision.
Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units (as defined below) from time to time.
Authorized Dealer means a registered dealer, which may be an affiliate of the Filer, that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.
Basket of Securities means, in relation to the ETF Securities of a Fund, a group of some or all of the constituent securities of the Fund, a group of securities or assets representing the constituents of the Fund, or a group of securities selected by the portfolio manager or sub-advisor, as applicable, from time to time.
Designated Broker means a registered dealer, which may be an affiliate of the Filer, that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund's ETF Securities on an Exchange or another Marketplace.
ETF Facts means an ETF facts document prepared in accordance with Part 3B of NI 41-101.
ETF Securities means securities of an exchange-traded Fund or of an exchange-traded series of a Fund that are listed or will be listed on an Exchange or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
Exchange means the Toronto Stock Exchange or Cboe Canada Inc., as applicable.
Existing ETFs means the ETFs managed by the Filer that are distributed pursuant to a long form prospectus dated January 17, 2024.
Existing ETF Series Mutual Funds means the mutual funds managed by an affiliate of the Filer that are distributed pursuant to a simplified prospectus dated May 24, 2024.
Existing Funds means the Existing ETFs together with the Existing ETF Series Mutual Funds.
Form 81-101F1 means Form 81-101F1 Contents of Simplified Prospectus.
Fund Facts means a prescribed summary disclosure document required pursuant to NI 81-101 in respect of one or more classes or series of Mutual Fund Securities being distributed under a prospectus.
Legislation means the securities legislation of each of the Jurisdictions, as applicable.
Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operations that is located in Canada.
Mutual Fund Securities means securities of a Fund that are not listed or traded on an exchange and that are or will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
Other Dealer means a registered dealer that is not an Authorized Dealer, Designated Broker or Affiliate Dealer.
Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer or an affiliate from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities of a Fund, as applicable.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Ontario, having its head office in the City of Toronto.
2. The Filer is registered as a portfolio manager and exempt market dealer in each of the Jurisdictions, as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, as a commodity trading manager in Ontario, and as a derivatives portfolio manager in Quebec.
3. The Filer, or an affiliate of the Filer, is, or will be, the investment fund manager of each of the Funds.
4. The Filer is not in default of securities legislation in any of the Jurisdictions.
The Funds
5. Each Fund is, or will be, an open-ended mutual fund established as either a trust or a class of shares of a mutual fund corporation under the laws of a Jurisdiction. Each Fund is, or will be, a reporting issuer in the Jurisdictions in which its securities are distributed. Each Fund that relies on the Exemption Sought will offer ETF Securities either alone or along with Mutual Fund Securities.
6. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to NI 81-102 and Securityholders will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.
7. The Existing ETFs are distributed pursuant to a long form prospectus dated January 17, 2024 in the form prescribed by Form 41-101F2 (the Long Form Prospectus). Each of the Existing ETFs currently offers ETF Securities listed on an Exchange.
8. The Existing ETF Series Mutual Funds are distributed pursuant to a simplified prospectus dated May 24, 2024. Each Existing ETF Series Mutual Fund currently offers ETF Securities listed on an Exchange, as well as Mutual Fund Securities.
9. If the ETF Prospectus Form Relief is granted, it is expected that:
a. on or about July 2024, the Filer will file a preliminary simplified prospectus in the form prescribed by Form 81-101F1 in respect of a Future Fund, pursuant to which it will offer ETF Securities. ETF Facts in the form prescribed by Form 41-101F4 Information Required in an ETF Facts Document (Form 41-101F4) for each class or series of ETF Securities of such Future Fund will also be filed.
b. when the Long Form Prospectus is renewed in 2025, the Filer may file a preliminary and pro forma simplified prospectus in the form prescribed by Form 81-101F1, in respect of the Existing ETFs, pursuant to which it will continue to offer ETF Securities of the Existing ETFs. ETF Facts in the form prescribed by Form 41-101F4 for each class or series of ETF Securities of the Existing ETFs will also be filed. In addition, Fund Facts in the form prescribed by Form 81-101F3 Contents of Fund Facts Document (the Form 81-101F3) for each class or series of Mutual Fund Securities of any Future Fund would also be filed.
10. The Filer or an affiliate has applied, or will apply, to list any ETF Securities of each of the Funds that relies on the Exemption Sought on an Exchange or another Marketplace. In the case of a Future Fund, the Filer or an affiliate will not file a final or amended simplified prospectus for any of the Funds in respect of the ETF Securities until an Exchange or other applicable Marketplace has conditionally approved the listing of the ETF Securities.
11. The Existing Funds are not in default of securities legislation in any of the Jurisdictions.
12. Mutual Fund Securities may be subscribed for or purchased directly from a Fund through appropriately registered dealers.
13. ETF Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a simplified prospectus. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on an Exchange or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on an Exchange or another Marketplace.
14. In addition to subscribing for and reselling their Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market.
15. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, ETF Securities generally will not be able to be purchased directly from a Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of an Exchange or another Marketplace. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.
16. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on an Exchange or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or multiple thereof may exchange such ETF Securities for Baskets of Securities and/or cash, securities other than Baskets of Securities and/or cash, or cash only, at the discretion of the Filer or an affiliate. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the net asset value of the ETF Securities on the date of redemption.
ETF Prospectus Form Relief
17. The Filer believes it is more efficient and expedient to include all classes or series of Mutual Fund Securities and ETF Securities (as applicable), in one prospectus form instead of two different prospectus forms and that this presentation will assist in providing full, true and plain disclosure of all material facts relating to the securities of the Funds by permitting disclosure relating to all classes or series of securities to be included in one prospectus.
18. The Filer or an affiliate will file ETF Facts in the form prescribed by Form 41-101F4 in respect of each class or series of ETF Securities and will file Fund Facts in the form prescribed by Form 81-101F3 in respect of each class or series of Mutual Fund Securities.
19. The Filer or an affiliate will ensure that any additional disclosure included in the simplified prospectus of the Funds relating to the ETF Securities will not interfere with an investor's ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.
20. The Funds will comply with the provisions of NI 81-101 when filing any prospectus or amendment thereto.
21. The Funds will comply with Part 3B of NI 41-101 when preparing and filing ETF Facts for the ETF Securities of the Funds.
Sales and Redemption Relief
22. Parts 9, 10 and 14 of NI 81-102 do not contemplate both Mutual Fund Securities and ETF Securities being offered in a single fund structure. Accordingly, without the Sales and Redemption Relief, the Filer or an affiliate and each Fund that offers both ETF Securities and Mutual Fund Securities would not be able to technically comply with those parts of NI 81-102.
23. The Sales and Redemptions Relief will permit the Filer or an affiliate and each Fund that offers both ETF Securities and Mutual Fund Securities to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with Parts 9, 10 and 14 of NI 81-102. The Exemption Sought will enable each of the ETF Securities and Mutual Fund Securities to comply with Parts 9, 10 and 14 of NI 81-102, as appropriate, for the type of security being offered.
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:
1. in respect of the ETF Prospectus Form Relief, the Filer or an affiliate complies with the following conditions:
(a) the Filer or an affiliate files a simplified prospectus in respect of the ETF Securities in accordance with the requirements of NI 81-101 and Form 81-101F1, other than the requirements pertaining to the filing of a fund facts document;
(b) the Filer or an affiliate includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1) in respect of the ETF Securities in each Fund's simplified prospectus; and
(c) the Filer or an affiliate includes disclosure regarding this decision under the heading "Additional Information" in each Fund's simplified prospectus; and
2. in respect of the Sales and Redemptions Relief, the Filer or an affiliate and each Fund comply with the following conditions:
(a) with respect to its Mutual Fund Securities, each Fund complies with the provisions of Parts 9, 10 and 14 of NI 81-102 that apply to mutual funds that are not exchange-traded mutual funds; and
(b) with respect to its ETF Securities, each Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.
"Darren McKall"
Manager, Investment Management Division
Ontario Securities Commission
Application File #: 2024/0384
SEDAR Project #: 6151326