The Securities Commission has granted an exemption to a series of exchange-traded mutual funds (ETFs) from the concentration restriction in subsections 2.1(1) and 2.1(1.1) of National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows the ETFs to invest more than the normally permitted amount in a single U.S. public issuer, in line with their fundamental investment objective of long-term capital appreciation by purchasing and holding equity securities of that issuer, which are listed on the NASDAQ or New York Stock Exchange. For alternative mutual funds, this includes the use of leverage through cash borrowing up to 25% of the ETF’s unlevered net asset value.
The decision is based on the ETFs’ commitment to transparency, passive investment strategy, and full disclosure to investors. The ETFs will not invest in securities other than those of the specified U.S. public issuer, which will be among the largest and most liquid in the U.S., mitigating associated risks. The ETFs will provide investors with access to these securities, which might otherwise be unattainable due to high market prices per share.
The exemption is subject to conditions, including that the ETFs meet the definition of a fixed portfolio investment fund (except for being in continuous distribution), the purchase of securities aligns with the ETFs’ investment objectives, the U.S. public issuer meets certain requirements regarding size and liquidity, and the ETFs do not become insiders of the issuer. Additionally, the ETFs’ prospectus must contain specific disclosures, and the ETFs must not be used as a financing vehicle for the U.S. public issuer.
The decision was made by the Ontario Securities Commission, acting as the principal regulator under the Process for Exemptive Relief Applications in Multiple Jurisdictions, and is applicable across Canadian jurisdictions.