NI 81-107 – Inter-fund Trades – Market Integrity Requirements for Non-Exchange Traded Securities

This article was originally published in the Investment Funds Practitioner in September 2008.

Sub-paragraph 6.1(1)(b)(iii) of NI 81-107 defines market integrity requirements in that context as: “…the purchase or sale is through a dealer, if the purchase or sale is required to be reported by a registered dealer under applicable securities legislation”. We have received several inquiries regarding the applicability of the market integrity requirement to inter-fund trades in debt or other securities that do not trade on an exchange. The inquiries have generally focused on what applicable securities legislation is sub-paragraph 6.1(1)(b)(iii) referring to and how should that provision be read together with the exemptions codified in sub-sections 6.1(3) and 6.1 (5).

Sub-paragraph 6.1(1)(b)(iii) is intended to refer to the dealer reporting obligations for non-exchange traded securities found in s. 154 of the Regulation in Ontario and Part 8 of National Instrument 21-101 – Marketplace Operation.

The overall intent of the requirement in this context is for these inter-fund trades to be reported in the same manner that a dealer would be required to report them if a dealer were conducting the trade. If a dealer would not be required under applicable securities legislation to report the trade, there is no reporting requirement in connection with the inter-fund trade.