IFSP eNews

IFSP eNews aims to provide timely information about regulatory news and issues to investment fund and structured product issuers and their advisors in the form of articles published on a timely, as-needed basis. IFSP eNews replaces the Investment Funds Practitioner (the Practitioner).

IFSP eNews is prepared by staff of the Investment Funds and Structured Products (IFSP) Branch, and the views that it expresses do not necessarily reflect the views of the Ontario Securities Commission or the Canadian Securities Administrators.

The information contained in IFSP eNews is based on particular factual circumstances. Outcomes may differ as facts change, or as regulatory approaches evolve.

We welcome your feedback, including any suggestions. Please forward your comments to [email protected].

IFSP eNews

As part of our ongoing commitment to strengthening communications with stakeholders, we are informing you about a change that may impact you or your business.

Please note that we, the CSA jurisdictions, intend to update the form of the preliminary and final receipts for investment fund prospectuses moving forward to remove references to the individual series within an investment fund that represent, for example, different fee structures of the fund.

Due to the significant number of funds and series in investment fund prospectuses, we have decided to change the existing practice as the receipts have become unwieldy and often difficult to read. The receipt will continue to make reference to the prospectus being receipted where the series information for each fund is identified for the investor.

We will continue to list classes or series on the receipt that represent different pools of assets, as each such class or series represents a separate issuer.

If you have any specific questions about your investment fund prospectus receipt, please contact the reviewer dealing with the filing.

As part of our ongoing commitment to strengthening communications with stakeholders, we are informing you about a recent exemptive relief decision that may impact you or your business.

The Canadian Securities Administrators (CSA) has granted exemptive relief to a group of investment funds from the fund multi-layering restriction in paragraph 2.5(2)(b) of National Instrument 81-102 Investment Funds (NI 81-102) to permit novel three-tier and four-tier fund structures. The relief is expected to help these funds realize economies of scale and increase the efficiency of portfolio trades, which will reduce costs to the benefit of fund investors.

In the case of a three-tier fund, the top fund in the structure will invest in one or more funds that may themselves each invest in excess of 10% of net assets in one or more underlying funds.

In the case of a four-tier fund, the top fund in the structure will be either a currency neutral fund or wrap fund that will invest all its assets in a single three-tier fund.

There are a number of key conditions associated with this relief that are aimed at ensuring that investor protection concerns are adequately addressed, including that:  

  • All funds at all tiers of the multi-tier structure are under common management and common portfolio management.
  • The funds in the underlying tiers of the multi-tier structure are not alternative mutual funds and do not rely on any discretionary relief permitting leverage exposure beyond the limits prescribed under NI 81-102.
  • There is no duplication of management fees or administrative fees between each tier of a multi-tier structure. The prospectus of a multi-tier structure will disclose the total annual management fees and administrative fees to enable investors to understand the total cost of the product.
  • The investment fund manager maintains investor protection policies and procedures that address liquidity and redemption risk due to cross-ownership of funds within a multi-tier structure, and each fund in a multi-tier structure is managed as a stand-alone investment for the purposes of these policies and procedures.
  • Each multi-tier structure is implemented in a manner that seeks the fair treatment of investors in all funds that are involved in the multi-tier structure by allocating portfolio transaction costs fairly among all of such funds.
  • The investment objective of each currency neutral fund or wrap fund, as stated in its prospectus, will state the name of the corresponding three-tier fund whose performance it is tracking, and the investment strategies of each three-tier fund, as stated in its prospectus, will describe the multi-tier investment strategy.
  • Portfolio holdings disclosure in the Fund Facts and financial statements of each multi-tier structure will look through to the portfolio holdings of the bottom tier funds in the structure.

Other investment funds interested in obtaining similar relief should apply for discretionary relief under NI 81-102.

If there are any questions about this exemptive relief decision, please contact Chantal Mainville, Senior Legal Counsel, Investment Funds and Structured Products Branch at [email protected].

As part of the OSC’s commitment to reducing regulatory burden, we are clarifying the OSC’s views regarding the rehypothecation of portfolio assets (which was item #F-13 in the Reducing Regulatory Burden in Ontario’s Capital Markets report published in November 2019).

Information regarding the rehypothecation of portfolio assets had previously been provided in the April 2015 and March 2018 editions of the Investment Funds Practitioner.

A decision document that was issued in August 2019 included a paragraph clarifying and summarizing the OSC’s updated views regarding the rehypothecation of portfolio assets. This paragraph states that:

  1. notwithstanding statements previously made in the Investment Funds Practitioner, there is no prohibition on rehypothecating portfolio assets in section 6.8 of National Instrument 81-102 Investment Funds (NI 81-102), including subsections 6.8(3), 6.8(3.1) and 6.8(4), and
  2. the use of the term “beneficial owner” in subsection 6.8(4) of NI 81-102 does not preclude the rehypothecation of portfolio assets held by a counterparty or lender.

Background regarding the August 2019 decision:

Approximately a year ago, a fund manager applied for multiple types of exemptive relief in connection with the launch of new alternative mutual funds, including exemptive relief to permit the funds to allow a lender to rehypothecate portfolio assets deposited as part of a cash borrowing transaction. Based on the information from the April 2015 edition of the Investment Funds Practitioner, the filer concluded that relief would be required from subsection 6.8(3.1) of NI 81-102 to permit the rehypothecation. Following discussions with staff, the filer withdrew the request for the relief from subsection 6.8(3.1), and the decision was issued without this relief.

If there are any questions about this matter, please contact Christopher Bent, Senior Legal Counsel, Investment Funds and Structured Products Branch at [email protected].

As part of our ongoing commitment to strengthening communications with stakeholders, we are informing you about a recent exemptive relief decision that may impact you or your business.

The Canadian Securities Administrators (CSA) has granted exemptive relief to a group of money market funds from the requirement in section 2.18 of National Instrument 81-102 Investment Funds (NI 81-102) that certain assets held by a money market fund must have a “designated rating” (as defined in NI 81-102) at all times. The relief will last for a period of 12 months from the decision date.

This relief was granted in response to concerns that current COVID-19-related market disruptions have resulted in a higher number of quality assets being downgraded by the various credit rating agencies, despite the fact that in many cases, these assets are close to their maturity date, and the credit risk is assessed by, and acceptable to, portfolio managers.

Without this relief, the current requirements could result in several funds being forced to sell the same assets at the same time, which could harm their pricing and possibly cause a loss to the funds. This relief provides the portfolio managers of these funds with additional flexibility to address these potential losses, mitigating risks for investors who have assets in these funds.

The key factors of this relief are as follows:

  • The relief does not diminish the portfolio manager’s fiduciary obligations with respect to the fund; the portfolio manager must still make its own determination that a downgraded security remains an appropriate holding for the money market fund.
  • The relief only gives a money market fund the flexibility to continue holding the asset to maturity after it has been downgraded. It does not permit money market funds to buy an asset that does not have a designated rating at the time of purchase.
  • Any downgraded assets will still be investment grade assets.
  • The relief includes requirements for the funds to provide written notice to the regulators regarding their reliance on the relief.

If there are any questions about this exemptive relief decision, please contact Christopher Bent, Senior Legal Counsel, Investment Funds and Structured Products Branch at [email protected].

Investment Funds Practitioner Archive

IFSP Branch staff have reviewed articles from past editions of the Practitioner and removed articles that are no longer relevant.

Past articles from the Practitioner that are still relevant are available in a consolidated format.

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Investment Funds Practitioner Archive Document opens in new tab