Janus Capital Management LLC -- s. 6.1 of OSC Rule 91-502 Trades in Recognized Options
Headnote
Application to the Director for an exemption, pursuant to section 6.1 of Rule 91-502, exempting the Applicant's Representatives from the proficiency requirements in section 3.1 of Rule 91-502 as it applies to advice provided to Permitted Clients in relation to Foreign Recognized Options -- relief subject to conditions, including conditions that Representatives are not resident in Canada and are authorized under the Applicant's SEC registration to advise in respect of Recognized Options in the United States; Representatives are registered as advisers under the Securities Act (Ontario) and otherwise satisfy or are exempt from all other proficiency requirements required for individual advising representatives under Part 3 of NI 31-103; and the Applicant remains in compliance with the terms and conditions of Re Janus Capital Management LLC dated March 3, 2017.
Rule Cited
Ontario Securities Commission Rule 91-502 Trades in Recognized Options, ss. 3.1, 6.1.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the OSA) AND IN THE MATTER OF ONTARIO SECURITIES COMMISSION RULE 91-502 TRADES IN RECOGNIZED OPTIONS (Rule 91-502) AND IN THE MATTER OF JANUS CAPITAL MANAGEMENT LLC
ORDER (Section 6.1 of Rule 91-502)
UPON the application (the Application) of Janus Capital Management LLC (the Applicant) to the Ontario Securities Commission (the Commission) for a decision of the Director, pursuant to section 6.1 of Rule 91-502, exempting the Applicant's salespersons, directors, officers and employees (the Representatives) from section 3.1 of Rule 91-502 as it applies to advice relating to Foreign Recognized Options (as defined below) provided to Permitted Clients (as defined below) resident in Ontario, 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 Decision:
"CFA" means the Commodity Futures Act (Ontario);
"CFA Adviser Registration Requirement" means the provisions of section 22 of the CFA that prohibits a person or company from acting as an adviser with respect to trading in Contracts unless the person or company is registered in the appropriate category of registration under the CFA;
"CFTC" means the Commodity Futures Trading Commission of the United States;
"Foreign Futures Contract" means a contract as defined in subsection 1(1) of the CFA 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;
"Foreign Recognized Option" means a Recognized Option (defined below) that is primarily traded on one or more organized exchanges that are located outside of Canada or primarily cleared through one or more clearing corporations that are located outside of Canada;
"International Adviser Exemption" means the exemption set out in section 8.26 of NI 31-103 from the OSA Adviser Registration Requirement;
"NFA" means the National Futures Association of the United States;
"NI 31-103" means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, as amended from time to time;
"OSA" means the Securities Act, R.S.O. 1990, c. S.5, as amended from time to time;
"OSA Adviser Registration Requirement" means the provisions of section 25 of the OSA that prohibits a person or company from acting as an adviser with respect to investing in, buying or selling securities 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 this Decision 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;
"Recognized Options" has the meaning ascribed to that term in subsection 1(1) of Rule 91-502;
"SEC" means the Securities and Exchange Commission of the United States;
"United States" means the United States of America; and
"United States Advisers Act" means the Investment Advisers Act of 1940 of the United States, as amended from time to time.
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is a company incorporated under the laws of the State of Delaware, United States. Its principal place of business is located in Denver, Colorado.
2. The Applicant engages in the business of an adviser with respect to securities and derivatives in the United States. The Applicant provides investment management services on a fully discretionary basis to its clients through separately managed accounts across multiple strategies and financial instruments including equities, equity options and futures contracts.
3. The Applicant is currently (a) registered with the SEC as an investment adviser under the United States Advisers Act; (b) registered with the CFTC as a commodity trading advisor and is a commodity pool operator; and (c) a member of the NFA.
4. The Applicant is registered as a portfolio manager and exempt market dealer in Ontario, Alberta, British Columbia, Manitoba and Québec.
5. The Applicant and the Representatives were granted an exemption from the CFA Adviser Registration Requirement on March 3, 2017 (CFA International Adviser Equivalent Order). The CFA International Adviser Equivalent Order permits the Representatives to advise Permitted Clients in Ontario with respect to Foreign Futures Contracts without having to be registered under the CFA.
6. The Applicant is not in default of securities legislation, commodity futures legislation or derivatives legislation of any jurisdiction in Canada. The Applicant is in compliance in all material respects with securities laws, commodity futures laws and derivatives laws of the United States.
7. In Ontario, certain institutional investors that are Permitted Clients seek to engage the Applicant as a discretionary investment manager for purposes of implementing certain specialized investment strategies.
8. In addition to its current ability to provide advice to Canadian institutional investors in securities (other than Recognized Options) and Foreign Futures Contracts, the Applicant and the Representatives seek to provide advice in Foreign Recognized Options, in particular equity options, for Canadian institutional investors that are Permitted Clients.
9. Were the proposed advisory services limited to Foreign Futures Contracts, the Applicant and the Representatives would be able to rely on the CFA International Adviser Exemption Equivalent Order and carry out such activities for Permitted Clients on a basis that would be exempt from the requirements of Rule 91-502.
10. There is currently no exemption from Rule 91-502 for foreign registrants similar to the International Adviser Exemption or the CFA International Adviser Exemption Equivalent Order. Consequently, in order to advise Permitted Clients as to trading in Foreign Recognized Options, in the absence of this Decision, the Applicant would be required to satisfy the requirements of Rule 91-502.
11. The Applicant's registrations with the SEC and CFTC include authorization for the Representatives to advise in respect of Recognized Options in the United States.
12. The Representatives are registered as advising representatives of the Applicant under the OSA and are exempt from registration pursuant to the CFA International Adviser Equivalent Order.
13. The regulations in the U.S. applicable to the Applicant do not impose any proficiency requirements on the Representatives in respect of their advice regarding Recognized Options.
14. The Applicant's and the Representatives' registration in Alberta, British Columbia, Manitoba and the availability of a statutory exemption in Québec allow the Applicant and the Representatives to advise Recognized Options with no additional proficiencies or requirements.
15. None of the Representatives have the additional specified proficiency required by Rule 91-502 regarding advice in respect of recognized options being the Canadian Options Course or the Derivatives Fundamentals Course and Options Licensing Course (or the combined course).
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make this Decision;
IT IS THE DECISION of the Director, pursuant to section 6.1 of Rule 91-502, that section 3.1 of Rule 91-502 does not apply to Representatives of the Applicant in respect of advice relating to Foreign Recognized Options provided to Permitted Clients resident in Ontario, provided that
(a) the Representatives provide advice to Permitted Clients only as to trading in Foreign Recognized Options and do not advise any Permitted Client as to trading in Recognized Options that are not Foreign Recognized Options, unless providing such advice is incidental to their providing advice on Foreign Recognized Options;
(b) the Representatives are not resident in Canada and are authorized under the Applicant's SEC registration to advise in respect of Recognized Options in the United States;
(c) the Representatives are registered as advisers under the OSA and otherwise satisfy or are exempt from all other proficiency requirements required for individual advising representatives under Part 3 of NI 31-103;
(d) the Applicant remains in compliance with the terms and conditions of the CFA International Adviser Equivalent Order; and
IT IS FURTHER ORDERED that this Decision will terminate on the earliest of:
(a) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario securities law (as defined in the OSA) that affects the ability of the Applicant or the Representatives to provide advice relating to Recognized Options;
(b) the date on which the CFA International Adviser Equivalent Order is terminated; and
(c) five years after the date of this Decision.
June 20, 2017