The Securities Commission has granted an exemption to Horizons Equal Weight Canadian Bank Covered Call ETF (BKCC), Horizons Enhanced Equal Weight Banks Index ETF (BNKL), and Horizons Enhanced Equal Weight Canadian Banks Covered Call ETF (BKCL) from the concentration restrictions outlined in subsections 2.1(1) and 2.1(1.1) of National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows the funds to invest more than the standard limit of 10% (for BKCC) or 20% (for BNKL and BKCL) of their net asset value in securities of any single issuer, specifically the six constituent banks of the Solactive Equal Weight Canada Banks Index.
The decision is based on the funds’ investment objectives, which include exposure to the performance of an equal-weighted index of Canadian banks and, in some cases, the generation of income through covered call options and leverage. The funds are managed by Horizons ETFs Management (Canada) Inc. and are subject to the conditions that the investments align with the funds’ objectives and strategies, and that the funds’ prospectuses disclose the exemption and associated concentration risks.
The exemption is conditional upon the funds maintaining their investment strategies and rebalancing their portfolios in line with the index’s rebalancing dates. The rationale for the exemption is that the funds’ strategies are transparent, passive, and fully disclosed, and that the units of the funds are highly liquid. The exemption is also consistent with the nature of alternative mutual funds, which are permitted higher levels of concentration under NI 81-102.
The decision is supported by the Ontario Securities Commission, which is the principal regulator, and relies on Multilateral Instrument 11-102 Passport System for application in multiple Canadian jurisdictions. The funds are not in default of any securities legislation obligations, except for BKCC in relation to the exemption sought.