Sceptre Investment Counsel Limited - MRRS Decision
Headnote
Mutual reliance review system for exemptiverelief applications - portfolio manager exempted, subject toterms and conditions, from the dealer registration requirementsin the Legislation in respect of (a) trades by the Registrantof units of mutual funds managed and promoted by the Registrantto clients for whom the Registrant has fully managed accountsgoverned by the terms of an investment management agreement(including Fund of Funds Trades), and (b) wholesaling and marketingactivities carried on by the Registrant in respect of the mutualfunds, to the extent that such activities constitute acts infurtherance of a trade.
Statues Cited
Securities Act, R.S.O. 1990, c.S.5, as amendeds. 25, 74(1).
Rules Cited
National Instrument 81-102 Mutual Funds.
Ontario Securities Commission Rule 31-506 -SRO Membership - Mutual Fund Dealers.
Ontario Securities Commission Rule 45-501 ExemptDistributions.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, SASKATCHEWAN,ONTARIO
AND NEW BRUNSWICK
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
SCEPTRE INVESTMENT COUNSELLIMITED
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatoryauthority or regulator (the "Decision Maker") in eachof the Provinces of British Columbia, Saskatchewan, Ontarioand New Brunswick (the "Jurisdictions") has receivedan application (the "Application") from Sceptre InvestmentCounsel Limited (the "Registrant") for a decision,pursuant to the securities legislation of the Jurisdictions(the "Legislation"), that the requirement (the "DealerRegistration Requirement") in the Legislation that prohibitsa person or company from trading in a security unless registeredas a dealer in the appropriate category shall not apply to theRegistrant or to the officers and employees acting on its behalfin respect of certain activities of the Registrant relatingto mutual funds of which the Registrant or an affiliate of theRegistrant is or becomes the Manager (the "Mutual Funds");
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications ("MRRS")the Ontario Securities Commission is the principal regulatorfor this Application;
AND WHEREAS the Registrant having representedto the Decision Makers that:
1. The Registrant is a corporation governedby the Business Corporations Act (Ontario):
2. The Registrant is registered as an adviserin the categories of investment counsel and portfolio manager(or equivalent registration) and as a dealer in the categoryof mutual fund dealer (or equivalent legislation) in eachof the Jurisdictions. The Registrant has applied in Ontariofor registration as a dealer in the category of limited marketdealer.
3. The Registrant offers investment managementservices to high net worth individuals, pension funds, institutionsand corporations ("Client(s)"). Most Clients enterinto investment counsel agreements which grant the Registrantfull discretionary authority over the Client's account (each,a "Managed Account"). Some Clients have accountswith the Registrant where the Registrant is not granted fulldiscretionary authority and which, therefore, are not ManagedAccounts.
4. The Registrant is also the sponsor, managerand portfolio manager of a total of 19 Mutual Funds distributedunder exemptions from the prospectus requirements of the Legislationand eight Mutual Funds which are prospectus qualified pursuantto National Instrument 81-102 - Mutual Funds ("NI81-102") and may in the future be the manager of additionalMutual Funds. The Registrant manages the investment portfoliosof the Mutual Funds with full discretionary authority underthe constating documents of the Mutual Funds.
5. Incidental to its principal business ofportfolio management, the Registrant wishes to distributeunits of the Mutual Funds to its Managed Accounts and to causecertain of the Mutual Funds to invest in the units of anotherMutual Fund (the "Fund of Fund Trades"). Exceptas provided for in paragraph 9 of this Decision Document andin the Fund of Fund Trades, the Registrant will not distributeunits of the Mutual Funds to persons for whom it does nothave a Managed Account.
6. Sceptre Mutual Fund Dealer Inc. ("SMFDI")is a wholly owned subsidiary of the Registrant and is registeredunder or has applied for registration under the applicableLegislation as a dealer in the category of mutual fund dealer(or the equivalent registration) and has been granted membershipin the Mutual Fund Dealers Association.
7. Upon SMFDI's registration as a mutual funddealer (or the equivalent registration) in each of the Jurisdictions,the Registrant will assign to SMFDI all of its accounts forwhich it trades shares or units of the Mutual Funds (the "Assignment")except the following:
(a) The Managed Accounts; and
(b) The Fund of Fund Trades.
8. After the Assignment, the trading activitiesof the Registrant in shares or units of the Mutual Funds willbe limited to trades for Managed Accounts and Fund of FundTrades except as provided for in paragraph 9 of this DecisionDocument.
9. The Registrant also wishes to conduct marketingand wholesaling activities in respect of the Mutual Funds."Marketing or Wholesaling Activities" means forthe Registrant, a trade by the Registrant that consists ofany act, advertisement or solicitation, directly or indirectly,in furtherance of another trade in securities of a MutualFund, where the other trade consists of:
(i) a purchase or sale of securities ofa Mutual Fund; or
(ii) a purchase or sale of securitiesof a Mutual Fund of which the Registrant acts as the "principaldistributor" of the Mutual Fund for the purposesof NI 81-102;
and where the purchase or sale is, in eachcase, made by or through another dealer that is registeredunder the Legislation where the trade is made in a categorythat permits it to act as a dealer for such trade.
10. After the Assignment, the Registrant intendsto voluntarily surrender its registration as a mutual funddealer in the Jurisdictions.
11. Without the relief requested, the Registrantwould require continued registration as a mutual fund dealerin order to (a) distribute shares or units of prospectus-qualifiedMutual Funds to investors for whom the Registrant has ManagedAccounts where no registration exemption is available underthe applicable Legislation, (b) conduct the Fund of Fund Tradeswhere no registration exemption is available under the applicableLegislation, and (c) conduct Marketing and Wholesaling Activitiesin respect of the Mutual Funds.
12. Without the relief requested, the Registrant,as a mutual fund dealer, would be required pursuant to theapplicable Legislation to apply for and maintain membershipin the Mutual Fund Dealers Association of Canada (the "MFDA").
13. The effect of the MFDA's membership rulesis to preclude a mutual fund dealer such as the Registrantfrom conducting its principal business of acting as an investmentcounsel and accepting discretionary portfolio management mandates.
AND WHEREAS pursuant to MRRS, this DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision").
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met.
IT IS THE DECISION of the Decision Makersunder the Legislation that the Dealer Registration Requirementin the Legislation shall not apply to Fund of Fund trades andtrades in shares or units of Mutual Funds to Managed Accountsmade by the Registrant through its officers and employees actingon its behalf (each a "Registrant Representative"),
Provided that:
(A) the Registrant is, at the time of thetrade, registered under the Legislation as an adviser inthe category of "portfolio manager" (or the equivalent);
(B) if the trade is made in a Jurisdictionother than Ontario, it is made by or at the direction ofa Registrant Representative who is, at the time of the trade,registered under the Legislation to act on behalf of theRegistrant as an adviser in the category of "portfoliomanager" (or the equivalent);
(C) if the trade is made in the Jurisdictionof Ontario, the Registrant is, at the time of the trade,registered under the Legislation of the Jurisdiction asa dealer in the category of "limited market dealer",and the trade is made on behalf of the Registrant by a RegistrantRepresentative who is, at the time of the trade, either(i) registered under the Legislation to act on behalf ofthe Registrant as an adviser in the category of "portfoliomanager" (or the equivalent), or (ii) acting underthe direction of such a person and is himself or herselfregistered under the Legislation to trade on behalf of theRegistrant pursuant to its limited market dealer registration;and
(D) for each Jurisdiction, this Decisionshall terminate one year after the coming into force, subsequentto the date of this Decision, of a rule or other regulationunder the Legislation of the Jurisdiction that relates,in whole or part, to any trading by persons or companiesthat are registered under the Legislation as portfolio managers(or the equivalent), in securities of a mutual fund, toan account of a client, in respect of which the person orcompany has full discretionary authority to trade in securitiesfor the account, without obtaining the specific consentof the client to the trade, but does not include any ruleor regulation that is specifically identified by the DecisionMaker for the Jurisdiction as not applicable for these purposes.
AND, IT IS THE DECISION of the DecisionMakers under the Legislation of each Jurisdiction that the DealerRegistration Requirement in the Legislation shall not applyto trades that consists of Marketing or Wholesaling Activitiesin respect of shares or units of Mutual Funds made by the Registrantthrough Registrant Representatives,
Provided that, in the case of each such tradethat is made in the Jurisdiction of Ontario, the Registrantis, at the time of the trade, registered under the Legislationof the Jurisdiction as a dealer in the category of "limitedmarket dealer" and the Registrant Representative thatmakes the trade on behalf of the Registrant is, at the timeof the trade, registered under the Legislation of the Jurisdictionto trade on behalf of the Registrant pursuant to its limitedmarket dealer registration.
July 26, 2002.
"Paul M. Moore" "RobertL. Shirriff"