The Securities Commission has granted an exemption to BMO Investments Inc. and its affiliates, allowing them to appoint Securities Finance Trust Company (eSecLending) as an agent for administering securities lending transactions for their investment funds. This exemption deviates from subsection 2.15(3) of National Instrument 81-102 Investment Funds (NI 81-102), which typically requires the agent to be a custodian or sub-custodian of the funds.
The exemption was sought because eSecLending, despite not offering custodial services and therefore not qualifying as a custodian or sub-custodian, has specialized expertise in securities lending that could potentially lead to increased revenues for the funds. The Filer believes that eSecLending’s bespoke programs and detailed reporting could improve the funds’ securities lending returns.
Key points in the decision include:
– eSecLending’s substantial experience and management of over USD $6.5 trillion in client assets.
– eSecLending’s inability to meet the equity requirement of $100,000,000 to qualify as a sub-custodian under NI 81-102.
– The funds’ assets and collateral will continue to be held by the funds’ custodian, maintaining operational security.
– The Filer will update the prospectuses of existing funds to reflect the appointment of eSecLending and ensure eSecLending complies with NI 81-102, including the standard of care.
The exemption was granted under the securities legislation of multiple jurisdictions, with the Ontario Securities Commission acting as the principal regulator. The decision was made considering that the exemption aligns with the legislative requirements and is in the best interest of the funds and their securityholders.