Mulvihill Capital Management Inc. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exchange traded mutual funds granted exemption from the concentration restriction in sections 2.1(1) and (1.1) of NI 81-102 to permit each ETF to invest in accordance with its fundamental investment objective of seeking to provide long-term capital appreciation through purchasing and holding the NASDAQ or New York Stock Exchange (NYSE)-listed and traded equity securities of the single US public issuer specified in the ETF's investment objectives, including, in the case of alternative mutual funds, by using leverage in accordance with NI 81-102, of up to 25% of the ETF's unlevered net asset value solely through cash borrowing for purchasing the specified securities, subject to conditions.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.1(1), (1.1) and 19.1.

October 31, 2022

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 MULVIHILL CAPITAL MANAGEMENT INC. (MULVIHILL) AND ITS AFFILIATES (together with Mulvihill, the Filer) AND IN THE MATTER OF MULVIHILL TSLAY ENHANCED YIELD ETF, MULVIHILL AMZNY ENHANCED YIELD ETF AND MULVIHILL GOOGY ENHANCED YIELD ETF (the Proposed ETFS) AND SIMILAR FUTURE ETFS MANAGED BY THE FILER (the Future ETFS, together with the Proposed ETFS, the ETFS)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the ETFs for exemptive relief from sections 2.1(1) and (1.1) of National Instrument 81-102 Investment Funds (NI 81-102) (the Concentration Restriction) to permit each ETF to invest in excess of the Concentration Restriction to invest in accordance with its fundamental investment objective of seeking to provide long-term capital appreciation through purchasing and holding the NASDAQ or New York Stock Exchange (NYSE)-listed and traded equity securities of the single US Public Issuer (as defined below) specified in the ETF's investment objectives (referred to below as the Specified Securities and the Specified US Public Issuer, respectively), including, in the case of alternative mutual funds, by using leverage in accordance with NI 81-102, of up to 25% of the ETF's unlevered net asset value (NAV) solely through cash borrowing for purchasing the Specified 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 this 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 other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions (NI 14-101), NI 41-101 General Prospectus Requirements (NI 41-101) or in NI 81-102 have the same meaning if used in this decision unless otherwise defined herein:

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 (as defined below) or another Marketplace.

ETF Security means a listed security of an ETF.

Exchange means the Toronto Stock Exchange or Neo Exchange Inc., as applicable.

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

US means United States of America.

US Public Issuer means a public company that satisfies the following capitalization and liquidity standards for a Specified US Public Issuer and its Specified Securities: (a) any Specified US Public Issuer must: (i) be incorporated in the US, (ii) be listed in the S&P 500 Index, and (iii) have a market capitalization in excess of US$20 billion; (b) the Specified Securities must be listed on the NASDAQ or the NYSE; and (c) the average daily trading volume of the Specified Securities in the month before the date that the ETF Securities are listed on an Exchange must exceed US$100 million (collectively, the Capitalization and Liquidity Standards).

Securityholders means beneficial or registered holders of ETF Securities.

Representations

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

The Filer and the ETFs

1. Mulvihill is a corporation incorporated under the laws of Canada, with its head office located at 121 King Street West, Suite 2600, Toronto, Ontario.

2. Mulvihill is registered as (a) an adviser in the category of portfolio manager under the securities legislation of each of the Provinces of Canada, (b) a dealer in the category of exempt market dealer and an investment fund manager in the Provinces of Ontario, Québec and Newfoundland and Labrador and (c) a dealer in the category of mutual fund dealer in the Provinces of Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Ontario, Prince Edward Island and Saskatchewan.

3. The Filer will be the registered investment fund manager and registered portfolio manager of the ETFs. The Filer will apply to list the ETF Securities on an Exchange.

4. The Filer and the Proposed ETFs are not in default of securities legislation in any of the Jurisdictions.

5. Each Proposed ETF will be an exchange-traded mutual fund that is a separate class of shares of Mulvihill Fund Corp., a mutual fund corporation incorporated under the laws of the Province of Ontario. Each Future ETF will be an exchange-traded mutual fund that is a trust, corporation or separate class of shares of a mutual fund corporation governed by the laws of a Jurisdiction.

6. Each Proposed ETF will be an open-ended alternative mutual fund (as defined in NI 81-102) and each Future ETF will be an open-ended alternative mutual fund or non-alternative mutual fund.

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

8. The Filer will file a final long form prospectus in respect of each of the ETFs which will be prepared and filed in accordance with NI 41-101, subject to any exemptions that may be granted by the applicable securities regulatory authorities.

9. Each ETF will be a reporting issuer under the laws of one or more of the Jurisdictions.

10. 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:

(a) long-term capital appreciation through purchasing and holding the Specified Securities of the Specified US Public Issuer, including, in the case of alternative mutual funds, by using leverage in accordance with NI 81-102, of up to 25% of the ETF's unlevered NAV through cash borrowing to purchase Specified Securities;

(b) monthly distributions by writing call and put options on a portion of the ETF's portfolio; and, may also include,

(c) hedging of substantially all of the ETF's US dollar currency back to the Canadian dollar.

13. Specifically, the Specified Securities and the Specified US Public Issuer for each of the Proposed ETFs will be as follows:

ETF Name	Specified Securities	Specified US Public Issuer
Mulvihill TSLAy Enhanced Yield ETF	Common stock	Tesla, Inc.
Mulvihill AMZNy Enhanced Yield ETF	Common stock	Amazon.com, Inc.
Mulvihill GOOGy Enhanced Yield ETF	Class C common stock and/or Class A common stock	Alphabet Inc.

 
14. Each ETF will use a ticker symbol the Filer believes is unlikely to be confused with the ticker symbol for the Specified Securities and the Specified US Public Issuer for the ETF.

15. Distribution of ETF Securities (Distribution) will be conducted without the knowledge or consent of the Specified US Public Issuers and the Filer will as a general matter not have direct knowledge of or access to material information regarding the Specified US Public Issuers or Specified Securities other than publicly available information.

Disclosure

16. The prospectus of each ETF (the Prospectus) will disclose:

(a) the name of each ETF using the convention reflected in this decision for the Proposed 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 Concentration Relief to permit the purchase of the Specified Securities on the terms described in this decision;

(d) the ways in which, and the extent to which, purchasing and holding the ETF Securities can be expected to be different from directly purchasing and holding the Specified Securities and the factors influencing these differences (such as the ETF's cash-borrowing, option-writing and currency-hedging strategies), including in respect of performance, returns and securityholder rights;

(e) that the ETF's investment in the Specified Securities will be a passive investment; and

(f) the Filer's specific policies and procedures for making proxy voting and tender decisions in respect of the Specified US Public Issuer and the expected outcomes for the ETF of such decisions in potential scenarios, such as merger or other restructuring of the Specified US Public Issuer, a sale of part or all of its business, or bankruptcy of the Specified US Public Issuer and other scenarios.

17. In the manner similarly contemplated for equity linked notes under CSA Staff Notice 44-304Linked Notes Distributed under Shelf Prospectus System (SN 44-304), the Prospectus will provide only abbreviated disclosure in respect of the Specified Securities and the Specified US Public Issuer based on publicly available information.

18. The Filer intends to meet the full, true and plain disclosure requirement of the Legislation in connection with the ETF Securities without having responsibility for the accuracy of disclosure issued by the Specified US Public Issuer in respect of the Specified Securities. As similarly contemplated for equity linked notes under SN 44-304, the Prospectus will direct investors to public disclosure made available by the Specified US Public Issuer in respect of the Specified Securities in accordance with applicable US legislation. The Prospectus will also clarify that such disclosure and other information made publicly available about the Specified Securities and the Specified US Public Issuer on the Filer's website and otherwise cannot be expected to contemplate the Distribution. The Prospectus will clearly state that the Filer is not the source of disclosure relating to the Specified Securities and the Specified US Public Issuer and will clearly disclaim the Filer's responsibility both for verifying the accuracy of such disclosure and for updating such disclosure.

19. As similarly contemplated for equity linked notes under SN 44-304, to meet the full, true and plain disclosure requirement, the Prospectus will disclose that the Specified US Public Issuer will not receive a direct or indirect financing benefit from the Distribution.

Reasons for the Exemption Sought

20. The ETFs cannot pursue their fundamental investment objectives without the Concentration Relief.

21. The Filer submits that each ETF's strategy to acquire Specified Securities will be transparent, passive and fully disclosed to investors. An ETF will not invest in securities other than Specified Securities.

22. The Filer submits that an ETF that relies on the Concentration Relief would be analogous to an investment fund that relies on the exception to the Concentration Restriction in section 2.1(2) of NI 81-102 for purchases of equity securities by a "fixed portfolio investment fund", as defined in NI 81-102, in accordance with its investment objectives. The Filer submits that the only difference would be that the ETFs are in continuous distribution and the ETF Securities are redeemable on each trading day, accordingly, the ETFs will buy and sell Specified Securities as may be required in connection with subscription and redemption requests received by the ETF. However, the Filer submits that the existence of the ETF's Designated Broker should mean that the ETF Securities will not trade at a discount to the NAV per ETF Security which may more likely be the case for a "fixed portfolio investment fund".

23. The Specified US Public Issuers will be among the largest public issuers in the US. The Specified Securities will be some of the most liquid equity securities listed on the NASDAQ or NYSE and will be less likely to be subject to liquidity concerns than the securities of other issuers.

24. The Filer believes that any risks associated with an investment in only a single Specified US Public Issuer in reliance on the Concentration Relief will be mitigated by the fact that the Specified Securities are highly liquid and that there is a robust liquid options market for these securities.

25. The Filer submits that, given the market price per publicly listed security of the US Public Issuers, many investors would be unable to achieve meaningful exposure to these US Public Issuers through direct investment. The ETFs would provide investors with the ability to get access and obtain meaningful exposure to the Specified Securities given the ETF size.

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 is that the Concentration Relief is granted, provided that:

(a) but for the fact that ETF Securities may be subscribed for or redeemed on each trading day (i.e. the ETFs being in continuous distribution), the ETF otherwise meets the definition of "fixed portfolio investment fund" in NI 81-102;

(b) any purchase by the ETF of the Specified Securities is in accordance with the investment objectives of the ETF;

(c) at the time that the ETF Securities are listed on an Exchange, the Specified US Public Issuer and its Specified Securities satisfy the Capitalization and Liquidity Standards;

(d) the ETF will not purchase Specified Securities if the ETF would, as a result of such purchase, become an insider of the Specified US Public Issuer;

(e) the ETF's prospectus contains the disclosure referred to in representations 16 through 19 above; and

(f) the Filer will not permit the ETFs to be used as a financing vehicle by a Specified US Public Issuer or to permit an indirect offering of Specified Securities into a jurisdiction of Canada.