The Securities Commission has granted an exemption to passive mutual funds from the usual securities lending restrictions outlined in National Instrument 81-102 Mutual Funds (NI 81-102). Typically, funds are limited to lending securities up to 50% of their net asset value. However, under the exemption, the funds in question can lend securities up to 100% of their net asset value, subject to certain conditions.
The decision is based on an application by Horizons ETFs Management (Canada) Inc. on behalf of two specific funds: Horizons US Marijuana Index ETF (HMUS) and Horizons Psychedelic Stock Index ETF (PSYK). These funds aim to replicate the performance of specific indices related to the marijuana and psychedelics industries, respectively, and follow a passive investment strategy.
The conditions for the exemption include that the funds must receive collateral that meets the requirements set out in NI 81-102, the collateral must be marked to market daily, and the funds must retain certain rights in the event of a borrower’s default. Additionally, the funds can only lend securities to borrowers deemed acceptable.
The decision was made with the understanding that the exemption is in the best interests of the funds and is not prejudicial to the public interest. The funds’ prospectuses will disclose that they may engage in securities lending transactions up to 100% of their net asset value pursuant to the granted exemptive relief.