LongPoint Asset Management Inc.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exchange traded alternative mutual funds granted exemption from the concentration restriction in subsection 2.1(1.1) of NI 81-102 to permit each fund to enter into purchase and/or specified derivatives transactions to obtain daily investment results that endeavour to correspond to 300% of the daily performance of an index, or 300% of the inverse of the daily performance of an index, in accordance with, and as limited by, its investment objective, subject to conditions.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.1(1.1) and 19.1.

May 20, 2025

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
LONGPOINT ASSET MANAGEMENT INC.
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of each investment fund listed in Schedule A hereto (the Initial ETFs), and any future alternative mutual funds similarly structured that seek to provide daily investment results that endeavour to correspond, before fees and expenses, to up to three times (3X) or three times the inverse (-3X), as applicable, the daily percentage change of the price of an Index (defined below) (the Future ETFs, and together with the Initial ETFs, the ETFs) for a decision under the securities legislation of the Jurisdiction exempting each ETF from subsection 2.1(1.1) (the Concentration Restriction) of National Instrument 81-102 Investment Funds (NI 81-102) to permit each ETF, in accordance with its fundamental investment objective, to purchase a security of an issuer (or enter into a specified derivative transaction or purchase an index participation unit) where, immediately after the transaction, more than 20% of the net asset value of the ETF will be invested in securities of any one issuer (the Exemption Sought).

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(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada and the Jurisdiction (together with the Jurisdiction, the Canadian Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, MI 11-102, National Instrument 41-101 General Prospectus Requirements (NI 41-101) and NI 81-102 have the same meaning when used herein unless otherwise defined herein. In addition:

Absolute Leverage means, with respect to an ETF, the aggregate notional absolute value of the securities and/or financial derivative positions as a ratio of the total assets held by the ETF.

Aggregate Portfolio Exposure means the aggregate market exposure of an investment fund to securities, whether through direct ownership of such securities or exposure to changes in the value of such securities through the use of specified derivatives or short selling.

Constituent Securities means the securities included in an Index.

Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer to perform certain duties in relation to the ETF, including the posting of a liquid two-way market for the trading of the ETF Securities on an Exchange or another Marketplace.

ETF Security means an exchange-traded unit or share of an ETF.

Exchange means the Toronto Stock Exchange or CBOE Canada Inc., as applicable.

Index means the Solactive Equal Weight Canada Banks Index, the Solactive Canadian Gold Miners Index or a market index that is administered by an organization that is not affiliated with any of the Filer, the ETF, its portfolio adviser or its principal distributor.

Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.

Prospectus means the prospectus of each ETF.

Securityholder means a beneficial or registered holders of ETF Securities.

All references herein to sections and subsections are to the provisions of NI 81-102 unless specifically identified otherwise.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation formed and organized under the laws of the Province of Ontario. The head office of the Filer is located in Toronto, Ontario.

2. The Filer is currently registered as a portfolio manager, commodity trading manager and exempt market dealer in Ontario and as an investment fund manager in Ontario, Québec and Newfoundland and Labrador.

3. The Filer will be the investment fund manager and portfolio manager of each ETF.

4. The Filer is not a reporting issuer in any Canadian Jurisdiction and is not in default of securities legislation in any of the Canadian Jurisdictions.

The ETFs

5. Each ETF will be a separate open-ended corporate class of LongPoint ETF Corp., a mutual fund corporation to be established under the federal laws of Canada. Each corporate class will be a separate investment fund with specific investment objectives and a separate portfolio of investments.

6. Each ETF will be a reporting issuer in the Canadian Jurisdiction(s) in which it offers ETF Securities that will be distributed.

7. Each ETF will be an open-ended alternative mutual fund (as defined in NI 81-102).

8. The ETFs will be subject to NI 81-102, subject to any exemptions that may be granted by the applicable securities regulatory authorities.

9. The Filer will file a final long form prospectus in respect of each ETF which will be prepared and filed in accordance with NI 41-101 or National Instrument 81-101 -- Mutual Fund Prospectus Disclosure, subject to any exemptions that may be granted by the applicable securities regulatory authorities.

10. The ETF Securities will be (subject to satisfying the original listing requirements of the applicable Exchange) listed on an Exchange.

11. Designated Brokers will act as intermediaries between investors and the ETFs, performing a market-making function, including by standing in the market with bid and ask prices for the ETF Securities to maintain a liquid market for the ETF Securities. The majority of trading in ETF Securities will occur in the secondary market.

12. The fundamental investment objective of each ETF will be to seek to provide daily investment results that endeavour to correspond, before fees and expenses, to up to three times (3X) or three times the inverse, as applicable, the daily percentage change of the price of an Index.

13. Each ETF will employ Absolute Leverage that will not exceed three times the net asset value of that ETF. Use of leverage by an ETF will be in accordance with NI 81-102, subject to any exemptions that may be granted by the applicable securities regulatory authorities. In order to ensure that a Securityholder's risk is limited to the capital invested, each ETF's Absolute Leverage will be rebalanced daily and when the Absolute Leverage breaches certain bands. Specifically, each ETF's Absolute Leverage will be rebalanced back to 300% of the ETF's net asset value within one business day if the ETF's leverage ratio moves 5% below above its daily target Absolute Leverage of 300% or if it is above 300% Absolute Leverage (i.e., if the Absolute Leverage is less than 295% or if the Absolute Leverage is greater than 300%).

14. In order to achieve its investment objective, each ETF may invest in Constituent Securities, index participation units and/or other financial instruments, including specified derivatives. Each ETF may also gain exposure to Constituent Securities through investment in Canadian Depository Receipts which are linked to Constituent Securities.

15. The Indexes for each Initial ETF will be as follows:

ETF

Index

Description of Constituent Securities

MegaLong (3X) NASDAQ-100® Daily Leveraged Alternative ETFNASDAQ 100® IndexThe NASDAQ-100® Index is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ stock exchange.
MegaLong (3X) S&P 500® Daily Leveraged Alternative ETFS&P 500® IndexThe S&P 500® Index is a stock market index made up of equity securities issued by 500 of the leading industries in leading industries of the U.S. economy. The S&P 500® Index is also the U.S. component of the S&P 500 Global 1200.
MegaLong (3X) US Semiconductors Daily Leveraged Alternative ETFSolactive US Semiconductor 30 Capped IndexThe Solactive US Semiconductor 30 Capped Index is a stock market index made up of U.S. listed companies that design, manufacture and distribute semiconductor products.
MegaLong (3X) 20+ Year US Treasury Daily Leveraged Alternative ETFSolactive US 20+ Year Treasury Bond IndexThe Solactive US 20+ Year Treasury Bond Index is based on the 20+ year maturity point on the U.S. Treasury curve.
MegaLong (3X) Canadian Banks Daily Leveraged Alternative ETFSolactive Equal Weight Canada Banks IndexThe Solactive Equal Weight Canada Banks Index is an equal weight index of Canada's six largest Canadian-domiciled commercial banks.
MegaLong (3X) Canadian Gold Miners Daily Leveraged Alternative ETFSolactive Canadian Gold Miners IndexThe Solactive Canadian Gold Miners Index is intended to track the price movements in shares of Canadian companies which are mainly active in the gold mining industry.
MegaShort (-3X) NASDAQ-100® Daily Leveraged Alternative ETFNASDAQ 100® IndexThe NASDAQ-100® Index is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ stock exchange.
MegaShort (-3X) S&P 500® Daily Leveraged Alternative ETFS&P 500® IndexThe S&P 500® Index is a stock market index made up of equity securities issued by 500 of the leading industries in leading industries of the U.S. economy. The S&P 500® Index is also the U.S. component of the S&P 500 Global 1200.
MegaShort (-3X) US Semiconductors Daily Leveraged Alternative ETFSolactive US Semiconductor 30 Capped IndexThe Solactive US Semiconductor 30 Capped Index is a stock market index made up of U.S. listed companies that design, manufacture and distribute semiconductor products.
MegaShort (-3X) 20+ Year US Treasury Daily Leveraged Alternative ETFSolactive US 20+ Year Treasury Bond IndexThe Solactive US 20+ Year Treasury Bond Index is based on the 20+ year maturity point on the U.S. Treasury curve.
MegaShort (-3X) Canadian Gold Miners Daily Leveraged Alternative ETFSolactive Canadian Gold Miners IndexThe Solactive Canadian Gold Miners Index is intended to track the price movements in shares of Canadian companies which are mainly active in the gold mining industry.

16. The distribution of ETF Securities will be conducted without the knowledge or consent of the issuers of the Constituent Securities and the Filer will, as a general matter, not have direct knowledge or access to material information regarding the issuers of the Constituent Securities other than publicly available information.

Reasons for Exemption Sought

17. In accordance with its investment objective, each ETF will employ Absolute Leverage that will effectively triple its investment exposure to its Index.

18. According to subsections 2.1(3) and 2.1(4), where an ETF obtains exposure to its Index by entering into a specified derivative or by purchasing an index participation unit, the ETF will be considered to hold directly the underlying interest of that specified derivative or its proportionate share of the securities held by the issuer of the index participation unit unless the security represents less than 10% of the index that is the underlying interest of the specified derivative, or of the securities held by the issuer of the index participation unit.

19. A Constituent Security may constitute 10% or more of its Index, in which case subsection 2.1(4) will not apply. In these circumstances, the ETF will be considered to hold directly such Constituent Security and, by the application of its Absolute Leverage, such investment will represent more than 30% of the net asset value of the ETF.

20. Currently, each Constituent Security in the Solactive Equal Weight Canada Banks Index to be used by MegaLong (3X) Canadian Banks ETF and some of the Constituent Securities in the Solactive Canadian Gold Miners Index to be used by MegaLong (3X) Canadian Gold Miners ETF and MegaShort (-3X) Canadian Gold Miners ETF represent more than 10% of their Index as described below:

Solactive Equal Weight Canada Banks Index

Current % of Index

Bank of Montreal

19.2%

Canadian Imperial Bank of Commerce

16.7%

Bank of Nova Scotia, The

16.3%

Toronto-Dominion Bank

16.0%

Royal Bank of Canada

15.9%

National Bank of Canada

15.8%

 

Solactive Canadian Gold Miners Index

Current % of Index

Agnico Eagle Mines Ltd

26.3%

Barrick Gold Corp

21.7%

Kinross Gold Corp

10.2%

Alamos Gold Inc

6.6%

Pan American Silver Corp

6.3%

21. Where the Filer considers it in the best interests of the ETF to do so, the ETF may purchase Constituent Securities directly using borrowed cash. In those circumstances, subsection 2.1(4) will not apply to the investment. Where the Constituent Security constitutes more than 6.67% of its Index and the ETF holds the Constituent Security directly, by the application of its Absolute Leverage, such investment will represent more than 20% of the net asset value of the ETF.

22. The ETFs cannot rely on the exception in subsection 2.1(5) because they may not qualify as "index mutual funds". Specifically, (a) the ETF will seek to leverage the returns of its Index, rather than replicate the returns of its Index on a 1:1 basis, and (b) the ETFs are not expected to include the word "index" in their names.

23. The policy rationale for alternative mutual funds permits them to hold investment portfolios that are less diversified than the investment portfolios of non-alternative mutual funds. An alternative mutual fund may, for example, invest in only five issuers where each issuer represents 20% of the investment portfolio of the alternative mutual fund. The investment portfolios of the ETFs will comply with this policy rationale since no investment by an ETF in a Constituent Security will constitute more than 20% of the ETF's total investment portfolio.

24. The policy rationale for alternative mutual funds also permits them to leverage their returns by up to three times. The investment portfolios of the ETFs will comply with this policy rationale since each ETF will utilize not more than 300% Absolute Leverage.

25. The wording for subsection 2.1(1.1) applicable to alternative mutual funds was derived from the wording of subsection 2.1(1) applicable to non-alternative mutual funds. The latter uses, as its denominator, the net asset value of the non-alternative mutual fund because the Aggregate Portfolio Exposure of a non-alternative mutual fund generally matches its net asset value due to restrictions in NI 81-102 which preclude a non-alternative mutual fund from using leverage. However, subsection 2.1(1.1) does not take into account that the Aggregate Portfolio Exposure of an alternative mutual fund typically is greater than its net asset value due to the use of leverage.

26. Except as described below, each ETF will comply with a requirement that each of its investments in Constituent Securities of an issuer will not exceed 20% of its Aggregate Portfolio Exposure.

27. Similar to index mutual funds, each ETF will have a passively-managed investment portfolio where the composition of its investment portfolio will be determined by the composition of an Index rather than discretionary investment management. Like index mutual funds, each ETF will have investment exposure to an issuer exceeding the limits contemplated by section 2.1 only where such issuer is a large constituent element of its Index.

28. Similar to an index mutual fund, each ETF will have a fundamental investment objective that requires it to invest in the Constituent Securities of its Index in substantially the same proportion as those Constituent Securities are reflected in the Index, or otherwise invest in a manner that causes the performance of the ETF to be derived from the performance of its Index.

29. Index mutual funds are permitted to have excess exposure to an issuer in order to meet their investment objectives of tracking a pre-determined Index. Each ETF should be permitted to exceed its 20% exposure limit where necessary to replicate, on a leveraged basis, the returns of its Index.

30. The ETFs will meet a need for those investors seeking three times investment exposure in a pre-determined Index.

31. Investors will be aware that each ETF utilizes three times leverage through the inclusion of "3X" or "-3X" in its name.

32. Investors will be aware of the Index of each ETF as the Index, together with a brief description of the Index, will be included in the ETF's prospectus and website disclosure. In addition, the fundamental investment objective of the ETF includes the name of its Index, and this information is included in its ETF facts.

33. Investors will expect the returns of each ETF to be derived from its Index, even though those returns (a) will be leveraged three times (positively or inversely), and (b) may include the returns of a constituent issuer constituting more than 10% of the Index.

34. The Prospectus of each ETF will include enhanced disclosure of the features of its investment approach that differentiate it from other alternative mutual funds that do not rely on the Exemption Sought. In particular, the prospectus will disclose:

(a) the name of each ETF using the convention reflected in the Exemption Sought for the ETFs;

(b) the investment objective and investment strategy of each ETF as well as the risk factors associated therewith, including concentration risk;

(c) the fact that the ETF has obtained the Exemption Sought to permit the purchase of, or exposure to, the Constituent Securities on the terms described herein; and

(d) that the ETF's investment in, or exposure to, the Constituent Securities will be passively-managed.

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 in respect of each ETF provided that:

1. the Prospectus of the ETF includes enhanced disclosure of the features of its investment approach that differentiate it from other alternative mutual funds that do not rely on the Exemption Sought. In particular, the Prospectus discloses:

(a) the name of the ETF and includes "3X" or "-3X", as appropriate;

(b) the investment objective and investment strategy of the ETF as well as the risk factors associated therewith, including concentration risk;

(c) the fact that the ETF has obtained the Exemption Sought to permit the purchase of, or exposure to, the Constituent Securities of its Index on the terms described herein; and

(d) that the ETF's investment in, or exposure to, the Constituent Securities of its Index is passively-managed.

"Darren McKall" 
Manager, Investment Management Division 
Ontario Securities Commission 
Application File #: 2025/0166

SEDAR+ File #: 6257440

Schedule A

ETFs

MegaLong (3X) NASDAQ-100® Daily Leveraged Alternative ETF

MegaLong (3X) S&P 500® Daily Leveraged Alternative ETF

MegaLong (3X) US Semiconductors Daily Leveraged Alternative ETF

MegaLong (3X) 20+ Year US Treasury Daily Leveraged Alternative ETF

MegaLong (3X) Canadian Banks Daily Leveraged Alternative ETF

MegaLong (3X) Canadian Gold Miners Daily Leveraged Alternative ETF

MegaShort (-3X) NASDAQ-100® Daily Leveraged Alternative ETF

MegaShort (-3X) S&P 500® Daily Leveraged Alternative ETF

MegaShort (-3X) US Semiconductors Daily Leveraged Alternative ETF

MegaShort (-3X) 20+ Year US Treasury Daily Leveraged Alternative ETF

MegaShort (-3X) Canadian Gold Miners Daily Leveraged Alternative ETF