The Securities Commission granted an exemption to Picton Mahoney Asset Management (the Filer) on behalf of the Funds it manages, allowing them to exceed the usual 10% net asset value (NAV) limit on short sales of index participation units (IPUs) of investment funds (IPU Issuers). This exemption permits the Funds to short sell IPUs up to 100% of their NAV, subject to certain conditions.
The exemption is based on the rationale that IPUs represent diversified and liquid portfolios that track market indices, thus mitigating the concentration risk associated with short selling a single issuer. The Filer argued that short selling IPUs is a more efficient and flexible hedging strategy compared to using derivatives and that it reduces settlement and operational risks.
The exemption is subject to the following conditions:
1. Only IPUs of IPU Issuers may be short sold beyond the 50% NAV limit.
2. The Funds must comply with the single issuer short restriction for the securities held by the IPU Issuers.
3. The aggregate market value of securities sold short, combined with cash borrowing, must not exceed 100% of the Fund’s NAV.
4. The Funds must adhere to the aggregate gross exposure limit of 300% of NAV, which includes short selling, cash borrowing, and derivatives.
5. Short sales must align with the Fund’s investment objectives and strategies.
6. Prospectus disclosure must include the ability to short sell IPUs up to 100% of NAV and the terms of the exemption.
The decision is grounded in National Instrument 81-102 — Investment Funds and related policies, with the Ontario Securities Commission acting as the principal regulator. The exemption is intended to enhance market hedging capabilities without compromising investor protection or public interest.