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Capital International Asset Management (Canada), Inc.

2022-07-18 | Decision | 81-102 | Investment funds and structured products | https://www.osc.ca/en/securities-law/orders-rulings-decisions/capital-international-asset-management-canada-inc-3

National Instrument 81-102 Investment Funds, ss. 1.1, 2.4(1), 2.4(2), 2.4(3) and 19.1.


The Securities Commission granted an exemption to certain investment funds, allowing them to invest in unregistered fixed income securities beyond the usual illiquid asset restrictions. These funds, which are qualified institutional buyers under the U.S. Securities Act of 1933, can now invest in securities traded under Rule 144A, provided they meet specific conditions.

The key regulations involved are National Instrument 81-102 Investment Funds (NI 81-102), which sets the standard for illiquid assets, and Rule 144A of the U.S. Securities Act of 1933, which allows certain unregistered securities to be traded among qualified institutional buyers.

The decision was based on the reasoning that the market for Rule 144A securities is mature and liquid, and that these securities can be readily traded among qualified institutional buyers without holding periods. This liquidity aligns with the core principle of mutual funds, which is to allow investors to redeem securities on demand.

The exemption is subject to conditions that include the fund being a qualified institutional buyer at the time of purchase, the securities not being considered illiquid under part (a) of NI 81-102, and the securities being traded on a mature and liquid market. Additionally, the funds must disclose in their prospectus that they have obtained this exemption.

The outcome allows these funds to access a broader range of investment opportunities in the fixed income market, potentially benefiting the funds and their investors without compromising investor protection or market integrity.