The Securities Commission granted an exemption to a non-redeemable investment fund from certain short selling restrictions under National Instrument 81-102 Investment Funds (NI 81-102). The fund is allowed to short sell government securities up to 300% of its net asset value (NAV), exceeding the standard limit of 50% of NAV. This exemption is subject to conditions, including compliance with other short selling requirements and the fund’s aggregate exposure not surpassing 300% of NAV.
Additionally, the fund received an exemption to deposit more than the standard limit of 25% of NAV in collateral with a prime broker, excluding the value of short sale proceeds held as collateral. This is also subject to conditions, including compliance with subsections 6.8.1(2) and (3) of NI 81-102.
The exemptions were granted based on the reasoning that using physical short selling of government securities is more effective, less complex, and less risky than using derivatives to achieve similar leverage. The fund’s prospectus will include disclosure of its short selling activities and the material terms of the exemptions.
The decision was made under the securities legislation of Ontario, with the Ontario Securities Commission acting as the principal regulator, and notice was provided for reliance on subsection 4.7(1) of Multilateral Instrument 11-102 Passport System in other Canadian jurisdictions. The exemptions are contingent on the fund’s adherence to the specified conditions and controls, including proper monitoring, risk management, and record-keeping.