Manulife Asset Management Limited
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from section 4.2 of NI 81-102 and section 13.5(2)(b) of NI 31-103 to permit inter-fund trading between mutual funds, pooled funds and closed-end funds managed by the same manager or its affiliate -- Relief subject to conditions, including IRC approval and pricing requirements -- certain trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.2(1), 4.3(1), 4.3(2), 19.1.
National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5, 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1(4), 6.1(2).
January 17, 2011
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
MANULIFE ASSET MANAGEMENT LIMITED
(THE FILER) AND THE FUNDS
(AS DEFINED BELOW)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer, or an affiliate of the Filer, as the registered adviser of a Fund (each, an Investment Portfolio Manager), from the prohibition in Section 13.5(2)(b) of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) (the Trading Prohibition) which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell the securities of any issuer from or to the investment portfolio of an associate of a responsible person or any investment fund for which a responsible person acts as an adviser, to permit:
(i) a NI 81-102 Fund (as defined below) to purchase securities from or sell securities to:
(A) another NI 81-102 Fund where the second NI 81-102 Fund is:
(I) an associate of the Investment Portfolio Responsible Person (as defined below) of the first NI 81-102 Fund; or
(II) an investment fund for which an Investment Portfolio Responsible Person of the first NI 81-102 Fund acts as an adviser;
and where the purchase or sale takes place at the Last Sale Price (as defined below), rather than the Closing Sale Price (as defined below);
(B) a Closed End Fund (as defined below) that is:
(I) an associate of the Investment Portfolio Responsible Person of the NI 81-102 Fund; or
(II) an investment fund for which an Investment Portfolio Responsible Person of the NI 81-102 Fund acts as an adviser;
and where the purchase or sale takes place at the Last Sale Price, rather than the Closing Sale Price;
(C) a Pooled Fund (as defined below) that is:
(I) an associate of the Investment Portfolio Responsible Person of the NI 81-102 Fund; or
(II) an investment fund for which an Investment Portfolio Responsible Person of the NI 81-102 Fund acts as an adviser;
(ii) a Pooled Fund to purchase securities from, or sell securities to, another Fund that is:
(A) an associate of an Investment Portfolio Responsible Person of the Pooled Fund; or
(B) an investment fund for which an Investment Portfolio Responsible Person of the Pooled Fund acts as an adviser; and
(iii) a Closed-End Fund to purchase securities from, or sell securities to:
(A) another Closed-End Fund where the second Closed-End Fund is:
(I) an associate of an Investment Portfolio Responsible Person of the first Closed-End Fund; or
(II) an investment fund for which an Investment Portfolio Responsible Person of the first Closed-End Fund acts as an adviser,
and where the purchase or sale takes place at the Last Sale Price, rather than the Closing Sale Price;
(B) an NI 81-102 Fund where the NI 81-102 Fund is:
(I) an associate of an Investment Portfolio Responsible Person of the Closed-End Fund; or
(II) an investment fund for which an Investment Portfolio Responsible Person of the Closed-End Fund acts as an adviser,
and where the purchase or sale takes place at the Last Sale Price, rather than the Closing Sale Price;
(C) a Pooled Fund that is:
(I) an associate of an Investment Portfolio Responsible Person of the Closed-End Fund; or
(II) an investment fund for which an Investment Portfolio Responsible Person of the Closed-End Fund acts as an adviser;
(the Inter-Fund Trades); and
(iv) an Inter-Fund Trade to be executed at the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the Inter-Fund Trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of NI 81-107 on that trading day where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the Application; and
(b) the Filer has provided notice that Section 4.7 of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in respect of the Exemption Sought in each of the other Provinces and Territories of Canada (together with Ontario, the Passport Jurisdictions).
Interpretation
Terms defined in the Legislation, National Instrument 14-101 -- Definitions, NI 31-103, National Instrument 81-102 -- Mutual Funds (NI 81-102) or National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meanings in this decision, unless otherwise defined.
Funds means the following existing and future investment funds of which the Filer, or an affiliate of the Filer, is the manager: existing or future mutual funds to which NI 81-102 applies (the NI 81-102 Funds); existing or future mutual funds to which NI 81-102 and NI 81-107 do not apply (the Pooled Funds); and existing or future investment funds to which NI 81-107 applies but to which NI 81-102 does not apply.
Investment Portfolio Responsible Person for a Fund means either the Investment Portfolio Manager as the registered adviser of the Fund or an affiliate of such Investment Portfolio Manager that has access to, or participates in formulating, an investment decision made on behalf of the Fund.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Ontario, with its registered head office located in Toronto, Ontario. The Filer is an indirect-wholly owned subsidiary of Manulife Financial Corporation.
2. The Filer is registered in the categories of commodity trading manager, exempt market dealer, mutual fund dealer, portfolio manager and investment fund manager.
3. Each Fund is, or will be, an investment fund that is a trust, a corporation or a limited partnership that is established under the laws of Ontario, Canada or other jurisdiction of Canada.
4. An Investment Portfolio Manager acts, or will act, as the investment fund manager of the Funds. An Investment Portfolio Manager acts, or will act, as the portfolio advisor of the Funds. An Investment Portfolio Manager may also act as the trustee of a Fund constituted as a trust.
5. A Fund's reliance on the Exemption Sought will be compatible with its investment objective and strategies.
6. Each NI 81-102 Fund is, or will be, a reporting issuer in one or more Passport Jurisdictions whose securities are, or will be, qualified for distribution pursuant to prospectuses and annual information forms that have been, or will be, prepared and filed in accordance with the securities legislation of those Passport Jurisdictions.
7. Each Closed-End Fund is, or will be, a reporting issuer in Ontario and one or more of the other Passport Jurisdictions whose securities are, or will be, qualified for distribution pursuant to prospectuses that have been, or will be, prepared and filed in accordance with the securities legislation of Ontario and those other Passport Jurisdictions.
8. The securities of each of the Pooled Funds are, or will be, distributed on a private placement basis pursuant to the Legislation and the Pooled Funds will not be reporting issuers.
9. The Filer and each of the existing Funds are not in default of securities legislation, except to the extent that (i) an NI 81-102 Fund engaged in related issuer trades (Related Issuer Trades) before the date of this decision document and following the expiry of previously obtained exemptive relief dated December 19, 2002 relating to the investment by the Funds in debt securities of related issuers (the 2002 Relief); and (ii) a Pooled Fund engaged in Related Issuer Trades or fund on fund trades before the date of this decision document. The Related Issuer Trades involved the purchase by certain NI 81-102 Funds and Pooled Funds of non-exchanged traded debt securities of affiliates of the Filer (certain of which would have been permitted by the 2002 Relief). Such Related Issuer Trades were reviewed and approved by the relevant IRC (as defined below) and each IRC was satisfied that the Related Issuer Trades were made uninfluenced by considerations other than the best interests of the Funds involved.
10. A Fund may be an associate of an Investment Portfolio Responsible Person.
11. Each NI 81-102 Fund and Closed-End Fund has, or will have, an independent review committee (an IRC) in accordance with the requirements of NI 81-107. Each Inter-Fund Trade by a NI 81-102 Fund or a Closed-End Fund will be authorized by the relevant IRC of the NI 81-102 Fund or Closed-End Fund under Section 5.2 of NI 81-107 and the manager and the IRC of the NI 81-102 Fund or the Closed-End Fund, as applicable, will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade.
12. Though the Pooled Funds are not, or will not be, subject to the requirements of NI 81-107, each Pooled Fund has, or will have, an IRC at the time the Pooled Fund makes an Inter-Fund Trade. All Existing Pooled Funds have already established an IRC in order to comply with conditions attached to the 2002 Relief. The mandate of the IRC of each Pooled Fund will include approving Inter-Fund Trades between the Pooled Fund and another Fund.
13. The IRC of a Pooled Fund will now be composed in accordance with Section 3.7 of NI 81-107 and will now be expected to comply with the standard of care set out in Section 3.9 of NI 81-107. The IRC of a Pooled Fund will not approve an Inter-Fund Trade between a Pooled Fund and another Fund unless the IRC has made the determination set out in Section 5.2(2) of NI 81-107.
14. If the IRC of a Pooled Fund becomes aware of an instance where the Filer or an affiliate of the Filer, as manager of the Pooled Fund, did not comply with the terms of this decision or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Pooled Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Pooled Fund is organized.
15. At the time of an Inter-Fund Trade, each Investment Portfolio Manager will have in place policies and procedures to engage in Inter-Fund Trades.
16. When an Investment Portfolio Manager engages in an Inter-Fund Trade it will follow the following procedures:
(a) in respect of a purchase or a sale of a security by a Fund (Portfolio A), the portfolio manager of the Investment Portfolio Manager will either place the trade directly or will deliver the trade instructions to a trader on a trading desk of the Investment Portfolio Manager;
(b) in respect of a sale or a purchase of a security by another Fund (Portfolio B) the portfolio manager of the Investment Portfolio Manager will either place the trade directly or will deliver the trade instructions to a trader on a trading desk of the Investment Portfolio Manager;
(c) each portfolio manager of the Investment Portfolio Manager will request the approval of the chief compliance officer of the Investment Portfolio Manager (or his or her designated alternate during periods when it is not practicable for the chief compliance officer to address the matter) (theCO) to execute the trade as an Inter-Fund Trade;
(d) once the portfolio manager or trader on the trading desk has confirmed the approval of the CO, the portfolio manager or the trader on the trading desk will have the discretion to execute the trade as an Inter-Fund Trade between Portfolio A and Portfolio B in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107;
(e) the policies applicable to the portfolio manager and the trading desk of the Investment Portfolio Manager will require that all Inter-Fund Trade orders are to be executed on a timely basis and will remain open only for 30 days unless the portfolio manager cancels the order sooner; and
(f) the portfolio manager or the trader on a trading desk will advise the Investment Portfolio Manager of the price at which the Inter-Fund Trade occurred.
17. Pursuant to the Trading Prohibition, a Fund may be restricted from making Inter-Fund Trades with another Fund if (i) the second Fund is an associate of an Investment Portfolio Responsible Person of the first Fund, or (ii) an Investment Portfolio Responsible Person of the first Fund is an adviser to the second Fund.
18. The Investment Portfolio Managers of the NI 81-102 Funds and the Closed-End Funds may not be able to rely upon the exemption from Section 13.5(2)(b) of NI 31-103 codified in Section 6.1(4) of NI 81-107. Section 6.1(4) of NI 81-107 provides relief from the Trading Prohibition but only if, among other conditions, the trade involves two investment funds to which NI 81-107 applies (which is not the case when a Pooled Fund is one of the parties to the Inter-Fund Trade) and the Inter-Fund Trade occurs at the current market price which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.
19. The Investment Portfolio Managers of the Pooled Funds cannot rely upon the exemption from Section 13.5(2)(b) of NI 31-103 codified in Section 6.1(4) of NI 81-107 because such codified relief is not available to the Pooled Funds.
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:
(a) the Inter-Fund Trade is consistent with the investment objective of the Fund;
(b) the Filer, or affiliate of the Filer, as manager of the Fund, refers the Inter-Fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107 and the Filer, or affiliate of the Filer, as manager of the Fund, and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;
(c) the IRC has approved the Inter-Fund Trade in accordance with the terms of Section 5.2(2) of NI 81-107;
(d) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price rather than the Closing Sale Price.