MFC Global Investment Management (U.S.), LLC -- s. 80 of the CFA (2024)

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to sub-adviser not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options traded on commodity futures exchanges and cleared through clearing corporations, subject to certain terms and conditions. Relief mirrors exemption available in section 7.3 of OSC Rule 35-502 Non Resident Advisers (Rule 35-502) made under the Securities Act (Ontario).

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am. -- Rule 35-502 Non Resident Advisers.

IN THE MATTER OF

THE COMMODITY FUTURES ACT

R.S.O. 1990, CHAPTER C. 20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

MFC GLOBAL INVESTMENT

MANAGEMENT (U.S.), LLC

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of MFC Global Investment Management (U.S.), LLC (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that the Sub-Adviser (including its directors, officers and employees) be exempt, for a period of five years, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as an adviser for Elliott & Page Limited (the Principal Adviser) in respect of the Funds (as defined below) regarding commodity futures contracts and commodity futures options (collectively, Contracts) traded on commodity futures exchanges and cleared through clearing corporations;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Sub-Adviser having represented to the Commission that:

1. The Sub-Adviser is a limited liability company formed under the laws of the State of Delaware, United States of America.

2. The Sub-Adviser is currently registered as an investment adviser under the Investment Advisers Act of 1940 (U.S.), as amended, and is exempted from registration as a commodity trading adviser or commodity pool operator with the U.S. Commodity Futures Trading Commission (the CFTC). The Sub-Adviser is not registered in any capacity under the securities legislation of any jurisdiction in Canada nor under the CFA.

3. The Principal Adviser is a corporation incorporated under the laws of Ontario and is registered under the Securities Act (Ontario) (the OSA) as a dealer in the category of exempt market dealer, mutual fund dealer and as an adviser in the categories of investment counsel and portfolio manager, and under the CFA as an adviser in the category of commodity trading manager.

4. The Principal Adviser is the investment manager of (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds), (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario and the other provinces and territories of Canada to accredited investors pursuant to prospectus exemptions and registration exemptions (where available) contained in National Instrument 45-106 Prospectus and Registration Exemptions (the Pooled Funds), (iii) managed accounts of institutional clients who have entered into investment management agreements with the Principal Adviser (the Managed Accounts) and (iv) such other Investment Funds, Pooled Funds and Managed Accounts as may established in the future and for which the Principal Adviser engages the Sub-Adviser to provide advisory services (each of the funds and managed accounts in (i), (ii), (iii) and (iv) is referred to individually as a Fund and collectively as the Funds).

See Also

Introducing Manulife Investment Management

5. The Funds may, as part of their investment program, invest in Contracts.

6. The Principal Adviser may, pursuant to a written agreement with each Fund:

(a) act as an adviser (as defined in the OSA) to the Fund in respect of securities; and

(b) act as an adviser (as defined in the CFA) to the Fund in respect of Contracts

by exercising discretionary authority in respect of the investment portfolio of the Funds, with discretionary authority to purchase or sell on behalf of the Funds:

(i) securities; and

(ii) Contracts.

7. In connection with the Principal Adviser acting as an adviser to the Funds in respect of the purchase or sale of securities and Contracts, the Principal Adviser will, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, retain the Sub-Adviser to act as an adviser to it (the Proposed Advisory Services) by exercising discretionary authority on behalf of the Principal Adviser, in respect of the investment portfolio of the Funds, including discretionary authority to buy or sell Contracts for the Funds, provided that:

(a) in each case, the Contract must be cleared through an acceptable clearing corporation; and

(b) such investments are consistent with the investment objectives and strategies of the Funds.

8. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a partner or an officer of a registered adviser and is acting on behalf of a registered adviser. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in "contracts", and "contracts" means commodity futures contracts and commodity futures options.

9. By providing the Proposed Advisory Services, the Sub-Adviser will be acting as an adviser with respect to commodity futures contracts and commodity futures options and, in the absence of being granted the requested relief, would be required to register as an adviser under the CFA.

10. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA for a person or company acting as an adviser in respect of commodity futures contracts and commodity futures options that is similar to the exemption from the adviser registration requirement in section 25(3) of the OSA for acting as an adviser (as defined in the OSA) in respect of securities that is provided under section 7.3 of OSC Rule 35-502 Non Resident Advisers (Rule 35-502).

11. The relationship among the Principal Adviser, the Sub-Adviser and the Funds satisfies the requirements of section 7.3 of Rule 35-502.

12. As would be required under section 7.3 of Rule 35-502:

(a) the duties and obligations of the Sub-Adviser will be set out in a written agreement with the Principal Adviser;

(b) the Principal Adviser will contractually agree with the Funds to be responsible for any loss that arises out of the failure of the Sub-Adviser:

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and the Funds; or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circ*mstances (together with (i), the Assumed Obligations); and

(c) the Principal Adviser cannot be relieved by the Funds from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations.

13. The Sub-Adviser is not resident of any province or territory of Canada.

14. The Sub-Adviser is, or will be, appropriately registered or licensed or is, or will be, entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of its principal jurisdiction.

15. The Sub-Adviser will only provide the Proposed Advisory Services so long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager (or a successor category of registration or exempt from such registration).

16. The prospectus for each Investment Fund will include the following disclosure:

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the Investment Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

17. Prior to purchasing any securities of one or more of the Investment Funds or Pooled Funds directly from the Principal Adviser or entering into an investment management agreement with the Principal Adviser for a managed account, all investors who are Ontario residents will receive written disclosure that includes:

(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed;

IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser (including its directors, officers and employees) is exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA in respect of the Proposed Advisory Services provided to the Principal Adviser, for a period of five years, provided that at the relevant time that such activities are engaged in:

(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;

(b) the Sub-Adviser is appropriately registered or licensed, or is entitled to rely on appropriate exemptions from such registrations or licences, to provide advice for the Funds pursuant to the applicable legislation of its principal jurisdiction;

(c) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;

(d) the Principal Adviser has contractually agreed with the respective Fund to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;

(e) the Principal Adviser cannot be relieved by a Fund or its securityholders from its responsibility for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(f) the prospectus for each Investment Fund will include the following disclosure:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the Investment Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

(g) prior to purchasing any securities of one or more of the Investment Funds or Pooled Funds directly from the Principal Adviser or entering into an investment management agreement with the Principal Adviser for a managed account, all investors who are Ontario residents will receive written disclosure that includes:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or the individual representatives of the Sub-Adviser) advising the relevant Fund, because such entity is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.

November 23, 2009

"Carol S. Perry"

Commissioner

Ontario Securities Commission

"Mary G. Condon"

Commissioner

Ontario Securities Commission