(1) In this section
(a) “current market price of the security” means,
(i) if the security is an exchange-traded security or a foreign exchange-traded security,
(A) the closing sale price on the day of the transaction as reported on the exchange upon which the security is listed or the quotation trade reporting system upon which the security is quoted, or
(B) if there are no reported transactions for the day of the transaction, the average of the highest current bid and lowest current ask for the security as displayed on the exchange upon which the security is listed or the quotation trade reporting system upon which the security is quoted, or
(C) if the closing sale price on the day of the transaction is outside of the closing bid and closing ask, the average of the highest current bid and lowest current ask for the security as displayed on the exchange upon which the security is listed or the quotation trade reporting system upon which the security is quoted; or
(ii) for all other securities, the average of the highest current bid and lowest current ask determined on the basis of reasonable inquiry; and
(b) “market integrity requirements” means
(i) if the security is an exchange-traded security, the purchase or sale
(A) is printed on a marketplace that executes trades of the security; and
(B) complies with the market conduct and display requirements of the marketplace, its regulation services provider and securities regulatory authorities; or
(ii) if the security is a foreign exchange-traded security, the purchase or sale complies with the requirements that govern transparency and trading of foreign exchange-traded securities on the foreign exchange or foreign quotation and trade reporting system; or
(iii) for all other securities, the purchase or sale is through a dealer, if the purchase or sale is required to be reported by a registered dealer under applicable securities legislation.
(2) The portfolio manager of an investment fund may purchase a security of any issuer from, or sell a security of any issuer to, another investment fund managed by the same manager or an affiliate of the manager, if, at the time of the transaction
(a) the investment fund is purchasing from, or selling to, another investment fund to which this Instrument applies;
(b) the independent review committee has approved the transaction under subsection 5.2(2);
(c) the bid and ask price of the security is readily available;
(d) the investment fund receives no consideration and the only cost for the trade is the nominal cost incurred by the investment fund to print or otherwise display the trade;
(e) the transaction is executed at the current market price of the security;
(f) the transaction is subject to market integrity requirements; and
(g) the investment fund keeps written records, including
(i) a record of each purchase and sale of securities;
(ii) the parties to the trade; and
(iii) the terms of the purchase or sale for five years after the end of the fiscal year in which the trade occurred, the most recent two years in a reasonably accessible place.
(3) The provisions of National Instrument 21-101 Marketplace Operation, and Part 6 and Part 8 of National Instrument 23-101 Trading Rules, do not apply to a portfolio manager or portfolio adviser of an investment fund, or an investment fund, with respect to a purchase or sale of a security referred to in subsection (2) if the purchase or sale is made in accordance with that subsection.
(4) The inter-fund self-dealing investment prohibitions do not apply to a portfolio manager or portfolio adviser of an investment fund, or an investment fund, with respect to a purchase or sale of a security referred to in subsection (2) if the purchase or sale is made in accordance with that subsection.
(5) The dealer registration requirement does not apply to a portfolio manager of an investment fund, with respect to a purchase or sale of a security referred to in subsection (2) if the purchase or sale is made in accordance with that subsection.
(6) In subsection (5), “dealer registration requirement” has the meaning ascribed to that term in National Instrument 14-101 Definitions.
Commentary
1. The term “inter-fund self-dealing investment prohibitions” is defined in section 1.5 of this Instrument. It is intended to capture the prohibitions in the securities legislation and certain regulations of each securities regulatory authority regarding inter-fund trades.
2. This section is intended to exempt investment funds from the prohibitions in the securities legislation and certain regulations that preclude inter-fund trades. It is not intended to apply to securities issued by an investment fund that are purchased by another fund within the same fund family. The CSA are of the view that this section applies to inter-fund trades between fund families of the same manager provided the purchase or sale is made in accordance with subsection (2).
3. This section is also intended to provide a portfolio manager with a dealer registration exemption, where necessary, for inter-fund trades made in accordance with this section, but will not apply to any other activities of the portfolio manager. The exemption is based on compliance with this Instrument and the limitation of its application to prospectus-qualified investment funds. The CSA note that the Registration Reform project may re-examine this exemption.
4. This section sets out the minimum conditions for inter-fund trades to proceed without regulatory exemptive relief. An IRC may consider including in any approval any terms or conditions in prior exemptive relief orders, waivers or approvals obtained from the securities regulatory authorities.
5. This section does not specify the policies and procedures that a manager must have to effect inter-fund trades. However, the CSA expect the manager’s policies to include factors or criteria for
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- allocating securities purchased for or sold by two or more investment funds managed by the manager; and
- ensuring that the terms of purchase or sale will be no less beneficial to the investment fund than those generally available to other market participants in arm’s-length transactions.
6. The CSA expect that the IRC may give its approval in the form of a standing instruction under section 5.4, to give the manager greater flexibility to take advantage of perceived market opportunity.
7. Paragraph (2)(c) requires that the market quotations for the transactions be transparent. The CSA expect that if the price information is publicly available from a marketplace, newspaper or through a data vendor, for example, this will be the price. If the price is not publicly available, the CSA expect the investment fund to obtain at least one quote from an independent, arm’s-length purchaser or seller, immediately before the purchase or sale.
8. The CSA consider the requirement in paragraph (2)(f) to be a way to facilitate price discovery and integrity. The CSA believe this is essential to well-functioning and efficient capital markets. Subparagraph (1)(b)(iii) is intended to capture, for corporate debt securities, the requirement, if applicable, to report the trade to CanPx, and for illiquid securities, the requirement, if applicable, to report the trade to the Canadian Unlisted Board (CUB).
9. Paragraph (2)(g) sets out the minimum expectations regarding the records an investment fund must keep of its inter-fund trades made in reliance on this section. The records should be detailed, and sufficient to establish a proper audit trail of the transactions.