The Securities Commission granted an exemption to alternative mutual funds managed by Horizons ETFs Management (Canada) Inc., allowing them to engage in physical short sales and cash borrowing up to a combined limit of 100% of the fund’s net asset value (NAV). This decision deviates from the standard restrictions set by National Instrument 81-102 Investment Funds (NI 81-102), which typically limit short selling to 50% of a fund’s NAV and cash borrowing to 50% of a fund’s NAV, with a combined limit of 50% for both activities.
The reasoning behind the exemption is to enable the funds to implement absolute return, offsetting, inverse, or shorting strategies more effectively and at a lower cost compared to using derivative instruments. The Commission believes that this flexibility will not increase the overall level of risk to the funds and will allow for more efficient portfolio management, ultimately benefiting investors.
The conditions of the exemption require that any short sale or cash borrowing transaction must be consistent with the fund’s investment objectives and strategies, comply with the relevant sections of NI 81-102, and not exceed the leverage limit of 300% of the fund’s NAV when combined with specified derivatives positions. Additionally, the funds must disclose in their prospectus that they have the ability to engage in these activities beyond the standard NI 81-102 limits and outline the terms of the exemption.
The decision was made under the securities legislation of Ontario, with the Ontario Securities Commission acting as the principal regulator. The exemption is also intended to be relied upon in other Canadian provinces and territories under Multilateral Instrument 11-102 Passport System.