The Securities Commission has granted mutual funds managed by RP Investment Advisors LP (the Filer) an exemption from certain short selling restrictions under National Instrument 81-102 Investment Funds (NI 81-102). This decision allows the funds to increase their short sale exposure to government securities of a single issuer up to 20% of the fund’s net asset value (NAV), exceeding the standard 5% limit. Additionally, the funds are exempt from the requirement to hold cash cover of at least 150% of the market value of short-sold securities, a rule typically applied to manage the risks associated with short selling.
The rationale for the exemption is to enable the funds to effectively hedge interest rate risks associated with their fixed income investments. The decision acknowledges that government securities are highly liquid and not subject to significant price volatility, thus presenting a quantifiable and manageable risk for short selling compared to other securities.
The granted exemptions are subject to conditions that ensure the short sales align with the funds’ investment objectives and strategies, and that they are limited to government securities. The funds must maintain appropriate internal controls and record-keeping for short sales and provide full disclosure of the exemption terms in their prospectus.
The decision includes the revocation of a previous exemption granted to an existing fund, extending the new exemptions to this fund and any future funds managed by the Filer that fall under the same category and for which the Filer acts as investment fund manager.
The legal framework for this decision includes subsections 2.6.1(1)(c)(ii) and 2.6.1(2) of NI 81-102, and section 19.1 of the Securities Act, R.S.O. 1990, c. S.5, as amended. The decision was made under the Process for Exemptive Relief Applications in Multiple Jurisdictions, with the Ontario Securities Commission as the principal regulator.