The Securities Commission granted an exemption to mutual funds that are not alternative mutual funds from certain derivative cover requirements under National Instrument 81-102 Investment Funds (NI 81-102). The exemption allows these funds to engage in standardized futures, forward contracts, or swaps to substitute the risk of one currency, interest rate, or duration for another without increasing the fund’s exposure to currency risk, interest rate risk, or duration risk, nor creating additional leverage.
The decision permits funds to create synthetic short positions up to an aggregate limit of 20% of the fund’s net asset value, combining direct and synthetic short positions. Additionally, it allows funds to alter currency exposure with the condition that the aggregate currency exposure does not exceed the fund’s net asset value.
The key regulations involved are sections 2.8(1)(d), 2.8(1)(e), and 2.8(1)(f) of NI 81-102, which typically impose cover requirements for derivatives to prevent leveraging. The exemption was granted under section 19.1 of NI 81-102, which allows for exemptive relief under certain conditions.
The decision was based on representations by the Filer, including that the Funds will comply with certain cash cover requirements and that the Funds’ currency and interest rate exposures will not exceed their net asset value. The Filer also has policies and procedures to monitor and manage the use of derivatives by the Funds.
The exemption is subject to conditions ensuring that the use of derivatives is consistent with the Funds’ investment objectives and strategies, and that the Funds maintain appropriate cash cover and exposure limits. The decision is intended to provide the Funds with greater flexibility in managing their portfolios without compromising risk management or increasing leverage beyond permitted limits.