BCN 2000/65 - Fully Managed Accounts and Trades to Trust Companies, Insurers and Portfolio Managers outside British Columbia [BCN - Rescinded]

The Commission has made BC Instrument 45-504 providing exemptions for trades to trust companies, insurers and portfolio managers outside British Columbia and has issued BC Interpretation Note 45-701 on the meaning of “fully managed” account.

On March 4, 1997, the Commission issued BOR#97/4, NIN#97/10 and NIN#97/11.  Based on comments subsequently received, the Commission has concluded that the interpretation of “fully managed” contained in NIN#97/11 is too restrictive.  BCI#45-504 and BCIN#45-701 replace BOR#97/4 and NIN#97/11, respectively.  NIN#97/10 will be eliminated effective the date of this Notice.

Background

Sections 45(2)(5) and 74(2)(4) of the Securities Act and sections 89(a), 128(a), 89(b) and 128(b) of the Securities Rules provide exemptions from the registration and prospectus requirements of the Securities Act where a purchaser purchases as principal and the trade otherwise complies with the requirements of those sections (the “$97,000”, “50 purchaser” and “$25,000” exemptions, respectively).

Sections 43(1)(a) and 74(1)(a) of the Securities Act deem a trust company or insurer to be acting as principal when it purchases or sells a security as an agent or trustee for accounts that are fully managed by it.  Similarly, sections 43(1)(b) and 74(1)(b) of the Securities Act deem a portfolio manager to be acting as principal when it purchases or sells a security for accounts that are fully managed by it. 

Under section 29 of the Interpretation Act (British Columbia), the terms trust company and insurance company refer to those authorized to carry on business in British Columbia under the Financial Institutions Act (British Columbia).  The Commission likewise interprets “portfolio manager” in sections 43(1) and 74(1) of the Securities Act as a portfolio manager that carries on business in British Columbia (either registered or exempted from registration as a portfolio manager under the Securities Act). 

Accordingly, the $97,000, 50 purchaser and $25,000 exemptions are not available where a trust company or insurer authorized to carry on business, or a portfolio manager registered or exempted from registration, under the laws of a province other than British Columbia, purchases for fully managed accounts.  The exemptions are also not available where a foreign trust company, insurer or portfolio manager purchases a security on behalf of fully managed accounts. 

BC Instrument 45-504

BCI#45-504 replaces BOR#97/4 and continues similar relief with the following changes:

(a) section references have been updated,

(b) Schedule “A” has been amended to reflect the Commission’s current interpretation of the meaning of “fully managed”,

(c) the requirement contained in Schedule “A” that the portfolio manager does not believe that any resident of British Columbia has a beneficial interest in any of the managed accounts for which it is purchasing has been eliminated to reflect the Commission’s view that registration issues, which this condition was intended to address, should be dealt with outside of this order,

(d) exemptive relief similar to that contained in section 74(2)(19) of the Securities Act and section 139(5) of the Securities Rules, that relates to trades in securities of a mutual fund that were initially made under the $97,000 exemption, has been added, and

(e) a Form 20 filing requirement has been added to each of the exemptions.

The Instrument provides that a foreign portfolio manager may file either the “Certification by Foreign Portfolio Manager” Form attached as Schedule “A” to BCI#45-504, or the Canadian Venture Exchange Form 4D2 “Portfolio Manager: Additional Undertaking and Certification”.  The Canadian Venture Exchange Form 4D2 is currently being amended to reflect the changes made to Schedule “A”.

BC Interpretation Note 45-701

BCIN#45-701 replaces NIN#97/11 and sets out the Commission’s current interpretation of the meaning of “fully managed” in sections 43(1) and 74(1) of the Securities Act and in BCI#45-504.

The Interpretation Note no longer states that for an account to be “fully managed” the trust company, insurer or portfolio manager must have “absolute” discretion or receive “no instructions” as to purchasing and selling for the account.

BCIN#45-701 provides that an account is “fully managed” only where the trust company, insurer or portfolio manager makes the investment decisions for the account and has full discretion to purchase or sell securities for the account without requiring the client’s express consent to a transaction.

These changes were made to recognize that, in practice, clients often provide general instructions to a trust company, insurer or portfolio manager to invest in a certain manner or certain industry. 

DATED at Vancouver, British Columbia, on December 20, 2000.

Douglas M. Hyndman
Chair

Ref: BCI#45-504
BCIN#45-701
BOR#97/4
NIN#97/10
NIN#97/11
Securities Act, sections 43(1)(a) and (b), 45(2)(5), 74(1)(a) and (b), 74(2)(4), 74(2)(19)
Securities Rules, sections 89(a) and (b), 128(a) and (b), 139(5)
Interpretation Act, section 29
Form 20
Canadian Venture Exchange Form 4D2 “Portfolio Manager: Additional Undertaking and Certification”

This Notice may refer to other documents.  These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.