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Capital International Asset Management (Canada), Inc.

2021-04-21 | Decision | 81-102 | Investment funds and structured products | https://www.osc.ca/en/securities-law/orders-rulings-decisions/capital-international-asset-management-canada-inc-1

National Instrument 81-102 Investment Funds, ss. 2.8(1)(d), 2.8(1)(f)(i), 19.1.


The Securities Commission has granted an exemption to certain mutual funds managed by a specified investment fund manager from the requirements of National Instrument 81-102 Investment Funds (NI 81-102) paragraphs 2.8(1)(d) and 2.8(1)(f)(i). This exemption allows these funds to use put options or short forward, future, or swap positions as cover for long positions in forward contracts, standardized futures, or swaps, rather than only using cash cover or margin.

The exemption is subject to conditions, including a limit on the funds’ purchase of options (whether for hedging or non-hedging purposes) to no more than 10% of the fund’s net asset value (NAV). The decision acknowledges that the current requirements effectively necessitate overcollateralization, which imposes additional costs on mutual funds. By allowing the use of put options or short positions as cover, the funds can enhance yield and manage exposure more effectively.

The exemption is contingent on the funds maintaining sufficient cover to satisfy their obligations under the specified derivatives without recourse to other assets of the fund. The decision will be void if new securities legislation comes into force addressing the use of cover for these types of derivatives in compliance with section 2.8 of NI 81-102. The exemption is based on the understanding that the funds will disclose the nature of the exemption in their simplified prospectus and annual information form and that the investment fund manager will oversee the use of derivatives in accordance with established policies and procedures.