The Securities Commission has granted an exchange-traded mutual fund (ETF) managed by 3iQ Corp. exemptions from certain regulatory requirements. Specifically, the ETF is exempt from including an underwriter’s certificate in its prospectus, as Authorized Dealers and Designated Brokers involved in distributing the ETF’s Creation Units do not provide typical underwriting services, nor are they involved in the preparation of the prospectus or receive underwriting fees.
Additionally, the ETF is exempt from the take-over bid requirements of Part 2 of National Instrument 62-104, which are deemed impractical due to the continuous issuance and redemption of ETF securities and the inability of securityholders to exercise control over the ETF. The exemptions are intended to facilitate normal course purchases of ETF securities on marketplaces in Canada without triggering take-over bid obligations.
The exemptions are based on the reasoning that the unique structure and operations of ETFs, including the role of Authorized Dealers and Designated Brokers, the continuous flux of outstanding securities, and the pricing mechanism based on net asset value, make certain regulatory requirements inapplicable or burdensome. The outcome is intended to maintain liquidity and competitive parity between ETFs and conventional mutual funds.
The decision is underpinned by subsection 59(1) of the Securities Act (Ontario), which typically requires an underwriter’s certificate in a prospectus, and National Instrument 62-104, which governs take-over bids and issuer bids. The exemptions were granted in accordance with National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.