The Ontario Securities Commission granted an exemption to a mutual fund, allowing it to engage in securities lending transactions beyond the standard 50% limit of its net asset value. This decision was made under the authority of section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102), which typically restricts such transactions to prevent excessive risk-taking.
The fund in question, an open-end exchange-traded mutual fund, aims to replicate the performance of the North American Marijuana Index and is managed by a firm that is fully compliant with securities legislation. The fund’s passive investment strategy and the liquidity of its equity securities were key factors in the decision.
The exemption allows the fund to lend up to 100% of its net asset value, provided it adheres to specific conditions regarding the type and valuation of collateral received, the rights of the fund in the event of borrower default, and the quality of borrowers. The collateral must be marked to market daily, and in cases where lending exceeds 50% of the fund’s net asset value, the collateral value must be at least 110% of the loaned securities’ market value.
The fund’s prospectus will disclose this exemption to potential investors, and the fund will continue to conduct its securities lending transactions in accordance with the provisions of NI 81-102, except as modified by the exemption. The decision was made with the view that the exemption is in the best interests of the fund and not prejudicial to the public interest.