The Securities Commission granted an exemption to a group of exchange-traded funds (ETFs) managed by BlackRock Asset Management Canada Limited, allowing them to invest in U.S.-based ETFs that may allocate more than 10% of their net asset value (NAV) in U.S. money market funds. This decision is based on conditions outlined in National Instrument 81-102 Investment Funds (NI 81-102), specifically sections 2.5(2)(b) and 19.1.
The ETFs in question are structured under Ontario laws and are reporting issuers across Canadian jurisdictions. They aim to replicate the performance of certain U.S. bond market indices and are listed on recognized stock exchanges like the Toronto Stock Exchange. To achieve their investment objectives, these ETFs may invest up to 100% of their NAV in shares of specific U.S. iShares ETFs managed by BlackRock Fund Advisors (BFA), which are regulated by the U.S. Securities and Exchange Commission and comply with the U.S. Investment Company Act of 1940.
The U.S. iShares ETFs may invest in U.S. Money Market Funds that adhere to Rule 2a-7 of the U.S. Investment Company Act, which imposes investment restrictions similar to those for Canadian money market funds under NI 81-102, with some non-material differences.
The exemption was granted under the condition that the investments are consistent with the ETFs’ fundamental investment objectives, the U.S. iShares ETFs are in good standing with the SEC, and they do not hold more than 10% of their NAV in other investment funds, except for U.S. Money Market Funds or funds issuing index participation units. Additionally, the ETFs must disclose in their prospectus the fact that they have obtained the exemption to invest in U.S. iShares ETFs that may exceed the 10% NAV threshold in U.S. Money Market Funds.
The decision was made by the Ontario Securities Commission, acting as the principal regulator, under the Process for Exemptive Relief Applications in Multiple Jurisdictions, with the intention to rely on Multilateral Instrument 11-102 – Passport System in all Canadian provinces and territories outside Ontario.