The Securities Commission has granted alternative mutual funds managed by YTM Capital Asset Management Ltd. (the Filer) an exemption from certain custodial requirements under National Instrument 81-102 Investment Funds (NI 81-102). The exemption allows these funds to:
1. Appoint multiple custodians, provided each is qualified under Section 6.2 of NI 81-102 and subject to all other custodial requirements, except the prohibition against multiple custodians in subsection 6.1(1).
2. Exclude the proceeds from outstanding short sales when calculating the limit on the market value of portfolio assets that can be held by a borrowing agent (not the custodian or sub-custodian) as collateral, which is capped at 25% of the fund’s net asset value (NAV).
The decision is based on representations by the Filer that engaging multiple custodians, including Prime Brokers as custodians, will increase operational efficiency, reduce execution risk and costs, and potentially increase revenues from securities lending activities. The exemption is conditional upon the funds’ compliance with other relevant subsections of NI 81-102 and the implementation of operational systems for proper asset reconciliation among custodians.
The exemption is subject to the following conditions:
– For Short Sale Collateral Relief, each fund must comply with subsections 6.8.1(2) and (3) of NI 81-102.
– For Custodian Relief, a single entity must reconcile all portfolio assets and provide valuation and recordkeeping services, with daily reconciliations before NAV calculation. The Filer must maintain systems for proper asset reconciliation, and the Additional Custodian will act only for the assets transferred to it.
The decision was made under the securities legislation of Ontario, with the Ontario Securities Commission acting as the principal regulator. The Filer indicated reliance on section 4.7(1) of Multilateral Instrument 11-102 Passport System in multiple Canadian jurisdictions.