The Securities Commission granted an exemption to an exchange-traded non-redeemable investment fund (the Trust) from certain custodian requirements under National Instrument 81-102 Investment Funds (NI 81-102). The Trust, managed by Sprott Asset Management LP, invests primarily in physical battery metals such as Nickel, Cobalt, and Lithium, which are stored in specialized warehouses across various jurisdictions.
The exemption allows the Trust to use specialized warehouse providers in the Netherlands, Belgium, Singapore, South Korea, Malaysia, the U.S., and Canada as custodians for the battery metals, deviating from the standard custodian qualifications under NI 81-102. This decision is subject to conditions, including:
1. The battery metals must be stored in LME-approved warehouses operated by three specified warehouse providers.
2. The metals must be fully insured against loss, theft, and damage.
3. A single entity, acting as the valuation agent, must complete daily reconciliations among the warehouse providers and the custodian of the fund’s cash before calculating the fund’s net asset value (NAV).
The decision was made considering the unique nature of the Trust’s assets, which are physical commodities rather than securities or cash typically held by custodians under NI 81-102. The exemption was granted on the basis that the Trust’s custodial arrangements would not detract from the objectives of ensuring effective custody of the portfolio assets and would not be prejudicial to the unitholders.
The Trust’s prospectus will disclose the unique risks associated with the investment, including higher transaction and custody costs and risks related to the storage of battery metals with warehouse providers. The decision supports the Trust’s investment objective and strategy, allowing it to provide investors with an alternative means of holding battery metals without the inconvenience of direct investment.