The Securities Commission granted an exemption to mutual funds that are not alternative mutual funds, allowing them to engage in standardized futures, forward contracts, or swaps for the purpose of substituting one currency, interest rate, or duration risk for another without increasing the fund’s exposure to that risk or creating additional leverage. This decision is based on National Instrument 81-102 Investment Funds (NI 81-102), specifically sections 2.8(1)(d), 2.8(1)(e), and 2.8(1)(f), which typically impose derivative cover requirements.
The exemption also permits these funds to create synthetic short positions up to an aggregate limit of 20% of the net asset value of the fund, including both direct and synthetic short positions. Additionally, the funds are allowed to alter their currency exposure provided that the aggregate currency exposure does not exceed the net asset value of the fund.
The decision was made under the securities legislation of Ontario and relies on section 19.1 of NI 81-102. The principal regulator, the Ontario Securities Commission, has determined that the exemption meets the necessary legislative criteria and is not prejudicial to the public interest.
The exemption is subject to several conditions, including consistency with the fund’s investment objectives, compliance with aggregate short exposure limits, maintenance of sufficient cash cover, and steps to be taken if currency or interest rate exposure exceeds certain thresholds. The decision aims to provide mutual funds with greater flexibility in managing their portfolios without introducing unmanaged risks.