Cyberbulletin du Fonds d’investissement et produits structurés (FIPS)

Le cyberbulletin du FIPS vise à fournir des informations opportunes sur les nouvelles et les questions réglementaires aux émetteurs de fonds d’investissement et de produits structurés, et à leurs conseillers, sous forme d’articles publiés en temps opportun, selon les besoins. Le cyberbulletin du FIPS remplace l‘Investment Funds Practitioner (the Practitioner) [disponible en anglais seulement].

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Cyberbulletin du Fonds d’investissement et produits structurés (FIPS)

As part of our ongoing commitment to transparency, we are providing additional information about the prospectus pre-file process available to investment fund issuers.

The prospectus pre-file process provides issuers with greater flexibility and more certainty in planning their prospectus offerings. It also supports innovation in the capital markets by providing a mechanism for issuers to develop new products and seek staff’s feedback without publicly disclosing details of those new products before the products are ready for launch.

Process

The regulatory review process for investment fund prospectuses typically begins when an issuer publicly files its preliminary prospectus. However, investment fund managers in Ontario are permitted to use the pre-file process to submit prospectuses and exemptive relief applications on a confidential basis prior to publicly filing the preliminary prospectus or application. While the pre-file process may be used in connection with the filing of any prospectus or application, it is primarily used for prospectuses relating to complex or novel products, and applications involving complex or novel products and scenarios. The Ontario Securities Commission reviews pre-filings in coordination with other CSA jurisdictions.

Fees charged in connection with a prospectus pre-filing are applied to those due upon the filing of the preliminary prospectus.

Timelines

We understand that investment fund issuers are motivated to be the first to launch a novel type of product in the market and, as such, are interested in understanding pre-file process timelines.

Review timelines for pre-filings vary, depending on several factors. These include: the initial filing date, the completeness and quality of the materials submitted, the complexity or novelty of the issues raised in the filing, the responsiveness of the issuer to staff’s comments, and discussions with staff from other CSA jurisdictions. All else being equal, filings are reviewed on a first-in, first-out basis, and staff work to ensure that all concurrent filings are dealt with fairly based on these factors, whether filed by way of a pre-filing or preliminary prospectus. During the pre-file review process, staff provide regular touchpoints to advise the issuer of their progress.

Once all issues identified during staff’s review of an issuer’s pre-filing have been resolved and the preliminary prospectus has been publicly filed, staff may be in a position to issue a ‘no comment’ comment letter and clear the issuer to file its final prospectus after a review of the preliminary prospectus to ensure that there have been no substantive changes made to the prospectus between the conclusion of the pre-file review and the filing of the preliminary prospectus. The review of the preliminary prospectus in such a scenario will be streamlined if clear blacklines are provided to reflect that no substantive changes have been made, as there is no minimum time required between the issuance of the receipt for a preliminary prospectus and the issuance of the receipt for a final prospectus. We note that issuers have the option of filing the preliminary prospectus before the pre-file review is completed.

Recently, staff dealt with several concurrent prospectus pre-filings and filings in connection with the launch of exchange-traded mutual funds that hold substantially all of their assets in bitcoin. To provide additional transparency to that process, the following are the timelines associated with three of those filings:


Name of Fund

Name of Investment Fund Manager

Date of Pre-Filing

Date of Preliminary Prospectus Filing

Date of Issuance of Receipt for Final Prospectus

Purpose Bitcoin ETF

Purpose Investments Inc.

September 22, 2020

February 10, 2021

February 11, 2021

Bitcoin ETF

Evolve Funds Group Inc.

November 30, 2020

January 29, 2021

February 16, 2021

CI Galaxy Bitcoin ETF

CI Investments Inc.

N/A

February 18, 2021

March 5, 2021


In the future, staff may share the timelines of complex and novel prospectus pre-filings and filings after they have been completed in order to provide added transparency to market participants.

If there are any questions about this issue, please contact Nick Hawkins, Legal Counsel, Investment Funds and Structured Products Branch at [email protected]

As part of our ongoing commitment to strengthening communications with stakeholders, we are providing information for investment fund issuers that may be experiencing challenges with meeting the deadlines for filing their December 31, 2020 annual financial statements during the ongoing COVID-19 pandemic.

Ontario’s Stay-at-Home order came into effect on January 14, 2021 and was only recently lifted in certain regions. Staff of the Ontario Securities Commission Investment Funds and Structured Products (IFSP) Branch understand that the work-from-home environment may have created difficulties for investment fund issuers and their staff in meeting the filing deadlines for December 31, 2020 annual financial statements.

At this time, the Ontario Securities Commission is not providing filing deadline extensions by way of a general order as was previously done for filing deadlines of investment funds during the period from March 23, 2020 to September 30, 2020 in Ontario Instrument 81-503 Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds and Ontario Instrument 81-505 Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds with Deadlines during the period from June 2 to September 30, 2020.

However, IFSP Branch staff will consider requests for filing deadline extensions on a case-by-case basis. If an investment fund issuer is unable to meet its filing requirements, we encourage them to contact IFSP Branch staff to discuss their unique circumstances, including providing detailed submissions about why an extension is required and the length of the extension needed.

Requests for a filing extension may be considered novel and may require consultations with the other members of the Canadian Securities Administrators.

If there are any questions about this issue, please contact Sovener Yu, Senior Accountant, 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 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].

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