The Securities Commission has granted an exemption to investment funds managed by a certain Filer, allowing them to treat certain fixed income securities, known as 144A Securities, as liquid assets. These securities are typically unregistered under the US Securities Act of 1933 and traded under Rule 144A exclusively among qualified institutional buyers (QIBs), which include entities managing at least USD$100 million in securities.
The exemption was sought because, despite the ability for QIBs to trade 144A Securities without holding periods, these securities could be considered restricted and thus illiquid under National Instrument 81-102 Investment Funds (NI 81-102), specifically part (b) of the definition of an illiquid asset. This could limit investment funds’ ability to invest in these securities without breaching illiquid asset restrictions.
The Commission agreed to the exemption on the condition that the purchasing fund is a QIB at the time of purchase, the securities are not illiquid under part (a) of the definition in NI 81-102, they are traded on a mature and liquid market, and that the funds disclose in their prospectus that they have obtained this exemption.
The decision was based on the reasoning that 144A Securities have become more liquid and represent a significant portion of the U.S. corporate bond market. The exemption is intended to enable funds to take advantage of investment opportunities in these securities without being constrained by the illiquid asset restrictions, provided they continue to meet the conditions set by the Commission.