State Street Global Advisors, Ltd. and SSgA Funds Management, Inc. - s. 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to sub-advisers headquartered in foreign jurisdictions in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions -- Relief mirrors exemption available in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations made under the Securities Act (Ontario) -- Relief is subject to a sunset clause.
Applicable Legislative Provisions
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 1(1), 22(1)(b), 80.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.26.1.
Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.11.
Applicable Orders
In the Matter of State Street Global Advisors, Ltd. and SSgA Funds Management, Inc., dated May 3, 2013.
IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C. 20, AS AMENDED (THE CFA) AND IN THE MATTER OF STATE STREET GLOBAL ADVISORS, LTD. AND SSGA FUNDS MANAGEMENT, INC.
ORDER (SECTION 80 OF THE CFA)
UPON the application (the Application) of State Street Global Advisors, Ltd. (the Principal Adviser) and SSgA Funds Management, Inc. (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order (the Order) pursuant to section 80 of the CFA, that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services (as defined below) (the Representatives) be exempt, for a specified period of time, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser for the benefit of the Clients (as defined below) regarding commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges 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 Sub-Adviser having represented to the Commission that:
1. The Principal Adviser is a corporation incorporated under the laws of Canada with its head office located in Montreal, Québec.
2. The Principal Adviser is an indirect wholly owned subsidiary of State Street Corporation.
3. The Principal Adviser is registered (a) as a portfolio manager, exempt market dealer and investment fund manager under the securities legislation of all the provinces of Canada, and (b) under the CFA, as commodity trading counsel and as commodity trading manager, as an adviser under the Commodity Futures Act (Manitoba) in Manitoba and as a derivatives portfolio manager under the Québec Derivatives Act in Québec.
4. The Principal Adviser provides discretionary portfolio management services to segregated accounts and pooled funds. The portfolio management services provided by the Principal Adviser to its clients (the Clients) include acting as an adviser with respect to both securities and Contracts where such investments are part of the investment program of such Clients.
5. The Sub-Adviser is a corporation incorporated under the laws of the Commonwealth of Massachusetts with its head office located in Boston, Massachusetts, United States of America (the U.S.). The Sub-Adviser does not have any offices or physical presence in any jurisdictions of Canada.
6. The Sub-Adviser is an indirect wholly owned subsidiary of State Street Corporation.
7. The Sub-Adviser is not registered in any capacity under the securities legislation of Ontario or any other jurisdiction in Canada or under the CFA.
8. The Sub-Adviser relies on the investment fund manager registration exemption in Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers in Ontario, Québec and Newfoundland and Labrador. The Sub-Adviser was also (a) granted relief from the adviser registration requirement in paragraph 22(1)(b) of the CFA in Ontario on May 3, 2013 (the Prior Order), (b) granted relief from the adviser registration requirement in paragraph 24(2) of the Commodity Futures Act (Manitoba) in Manitoba on May 8, 2013 and (d) granted relief from the adviser registration requirements in sections 54 and 56 of the Québec Derivatives Act in Québec on August 11, 2017.
9. The Sub-Adviser is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 and as a commodity trading adviser under the U.S. Commodity Exchanges Act with the United States Commodity Futures Trading Commission. As such, the Sub-Adviser is authorized and permitted to carry on the Sub-Advisory Services (as defined below) in its principal jurisdiction.
10. The Sub-Adviser provides trading advice services in respect of futures, options on futures and swaps to its clients generally traded on a U.S. Exchange and/or with a U.S. counterparty to certain of its clients. As such, the Sub-Adviser engages in the business of an adviser in respect of Contracts in its principal jurisdiction.
11. Neither the Principal Adviser, nor the Sub-Adviser, is in default of any requirements of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada. The Sub-Adviser is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws in the jurisdiction in which its head office or principal place of business is located.
12. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser, unless such person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or as an officer of a registered adviser and is acting on behalf of such adviser.
13. By providing the Sub-Advisory Services (as defined below), the Sub-Adviser and its Representatives will be engaging in, or holding himself, herself or itself out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser, or a representative of an adviser, as the case may be, under the CFA.
14. There is presently no rule or regulation under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in subsection 25(3) of the Securities Act (Ontario) provided under section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
15. In connection with the Principal Adviser acting as an adviser to Clients in respect of the purchase or sale of Contracts, the Principal Adviser has retained the Sub-Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, to act as a sub-adviser to the Principal Adviser by exercising discretionary investment authority on behalf of the Principal Adviser, in respect of all or a portion of the assets of the investment portfolio of the respective Clients, including discretionary authority to buy or sell Contracts for the Client, (the Sub-Advisory Services), provided that:
a) in each case, the Contracts are cleared through an "acceptable clearing corporation" (as defined in National Instrument 81-102 Investment Funds (NI 81-102)) or a clearing corporation that clears and settles transactions made on a futures exchange listed in Appendix A of NI 81-102; and
b) such investments are consistent with the investment objectives and strategies of the applicable Clients.
16. The Sub-Adviser will only provide the Sub-Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.
17. The relationship among the Principal Adviser, the Sub-Adviser and any Client is, or will be, consistent with the requirements of section 8.26.1 of NI 31-103. As would be required under section 8.26.1 of NI 31-103:
a) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;
b) the Principal Adviser has entered into a written agreement with Client agreeing to be responsible for any loss that arises out of the failure of the Sub-Adviser:
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 each Client, 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 Client from its responsibility for any loss that arises out of the failure of the relevant Sub-Adviser to meet the Assumed Obligations.
18. The agreement between the Principal Adviser and the Sub-Adviser sets out the obligations and duties of each party in connection with the Sub-Advisory Services and permits the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the applicable Sub-Adviser in respect of the Sub-Advisory Services.
19. The Principal Adviser will deliver to the Clients all required reports and statements under applicable securities, commodity futures and derivatives legislation.
20. Any offering document (an Offering Document) of a Client that is a pooled fund, and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services, will include the following disclosure (the Required Disclosure):
a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and
b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or a substantial portion of its assets are situated outside of Canada.
21. Prior to purchasing any securities of a Client that is a pooled fund directly from the Principal Adviser, each investor in any of these pooled funds who is an Ontario resident has received, or will receive, the Required Disclosure in writing (which may be in the form of an Offering Document).
22. Each Client that is a segregated account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services has received, or will receive, the Required Disclosure in writing prior to the purchasing of any Contracts for such Client.
23. The Sub-Adviser obtained substantially similar relief in the Prior Order, pursuant to which the Sub-Adviser provided Sub-Advisory Services to the Principal Adviser in respect of the Clients.
24. The expiry of the Prior Order, pursuant to the terms of the Prior Order, has triggered the need for the requested Order.
AND UPON the Commission being of the opinion that to do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the adviser registration requirement of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services provided that at the 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) the Sub-Adviser's head office or principal place of business is in a jurisdiction outside of Canada;
c) the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodity futures or other applicable legislation of its principal jurisdiction that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario;
d) the Sub-Adviser engages in the business of an adviser in respect of Contracts in the jurisdiction outside of Canada in which its head office or principal place of business is located;
e) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;
f) the Principal Adviser has entered into a written agreement with each Client, agreeing to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;
g) the Offering Document of each Client that is a pooled fund and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services includes the Required Disclosure;
h) prior to purchasing any securities of a Client that is a pooled fund directly from the Principal Adviser, each investor in any of these pooled funds who is an Ontario resident receives the Required Disclosure in writing (which may be in the form of an Offering Document); and
i) each Client that is a segregated account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services receives the Required Disclosure in writing prior to the purchasing of any Contracts for such Client.
IT IS FURTHER ORDERED that this Order will terminate on the earliest of:
a) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;
b) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the Securities Act (Ontario)) that affects the ability of any Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services; and
c) five years after the date of this Order.
Dated at Toronto this 11th day of May, 2018