Ontario Securities Commission Grants Exemptive Relief to Fidelity Investments Canada ULC

The Ontario Securities Commission has granted a decision to Fidelity Investments Canada ULC, allowing certain of its investment funds to use initial margin of up to 70% of their net asset value in transactions involving standardized derivatives. This decision is subject to conditions, including that the funds only invest in exchange-traded specified derivatives and do not exceed 35% of their net assets in initial margin with any one futures commission merchant.

The Filer, Fidelity Investments Canada ULC, is a Canadian investment fund manager that manages several investment funds, including an exchange-traded fund that aims to provide income and long-term capital growth. The Filer sought relief from Ontario securities legislation to permit its investment funds to deposit up to 70% of their net asset value as initial margin with futures commission merchants in Canada or the United States. This would enable the funds to invest in standardized futures, clearing corporation options, and cleared specified derivatives, such as cleared swaps, traded or cleared on or through a stock exchange or futures exchange.

The Filer represents that it will require each futures commission merchant to segregate all assets held on behalf of the Funds, including in segregated accounts with a reputable bank or trust company, and to provide evidence to the beneficial owner of the initial margin that it is the beneficial owner of such assets. The Filer also represents that it will establish and maintain internal controls and policies to ensure compliance with securities legislation in each jurisdiction and to monitor and control the use of initial margin.

The principal regulator, the Ontario Securities Commission, is satisfied that it would not be prejudicial to the public interest for the requested relief to be granted, subject to the conditions. The decision is based on the facts represented by the Filer and is subject to the test set out in the securities legislation for the principal regulator to make the decision.

Key Takeaways:

• The Ontario Securities Commission (OSC) has granted exemptive relief to Fidelity Investments Canada ULC (Fidelity) to allow its investment funds to use initial margin of up to 70% of their net asset value in transactions involving standardized derivatives.
• The relief is subject to conditions, including that the funds only invest in exchange-traded specified derivatives and do not exceed 35% of their net assets in initial margin with any one futures commission merchant.
• Fidelity is a Canadian investment fund manager that manages several investment funds, including an exchange-traded fund that aims to provide income and long-term capital growth.
• The decision is based on the facts represented by Fidelity, including its representations regarding the establishment and maintenance of internal controls and policies to ensure compliance with securities legislation in each jurisdiction.

Statistics:

• 70% of net asset value (NAV) can be deposited as initial margin with futures commission merchants in Canada or the United States.
• 35% of NAV cannot be exceeded as initial margin with any one futures commission merchant.
• 20+ derivatives positions can be entered into by each fund for hedging purposes and to comply with NI 81-102 derivative provisions and restrictions.
• $50 million is the minimum net worth of U.S. Dealers, determined from their most recent audited financial statements.
• 50+ members are exchanges, clearing agencies, or swap execution facilities that are primary traders of exchange-traded specified derivatives.

Sources:

• Ontario Securities Commission (OSC) - In the Matter of Fidelity Investments Canada ULC and Fidelity Equity Premium Yield ETF, a new covered call ETF, and other existing and future investment funds subject to NI 81-102 managed by the Filer or an affiliate or successor of the Filer (collectively, Funds).
• Multilateral Instrument 11-102 Passport System (MI 11-102).
• National Instrument 14-101 Definitions (NI 14-101).
• National Instrument 81-102 Investment Funds (NI 81-102).