BOR 95/13 - Mutual Funds and the Purchases and Sales of Certain Debt Securities From and to the Account of Responsible Persons [Rescinded]

IN THE MATTER OF THE SECURITIES ACT S.B.C. 1985, c. 83

AND

IN THE MATTER OF MUTUAL FUNDS AND THE PURCHASES AND SALES OF CERTAIN DEBT SECURITIES FROM AND TO THE ACCOUNT OF RESPONSIBLE PERSONS

Order Under Section 113 of the Securities Act

WHEREAS section 110.1(1)(b) of the Securities Act, S.B.C. 1985, c. 83 (the "Act") prohibits a mutual fund or responsible person from knowingly causing the mutual fund to purchase or sell the securities of any issuer from or to the account of a responsible person;

AND WHEREAS the Commission recognizes that where there are adequate investor protection safeguards in place to address potential conflicts that may arise between the interests of the holders of securities of a mutual fund and the interests of responsible persons, principal trading transactions between a mutual fund and a responsible person involving certain debt securities may be beneficial to the mutual fund;

AND WHEREAS the Commission considers that to do so would not be prejudicial to the public interest;

IT IS ORDERED under section 113(b) of the Act that the purchase or sale of securities by a mutual fund from or to the account of a responsible person is exempted from section 110.1(1)(b) of the Act provided that:

(a) the securities are

(i) bonds, debentures or other evidences of indebtedness of or guaranteed by the government of Canada or by a province or territory of Canada;

(ii) bonds, debentures or other evidences of indebtedness issued by a municipal corporation, which is incorporated under the laws of the government of Canada or any province or territory of Canada;

(iii) bonds, debentures or other evidences of indebtedness of or guaranteed by a country or political division of a country recognized in an order by the Commission made for the purposes of section 32(a)(i.1) of the Act;

(iv) commercial paper, maturing not more than one year from the date of issue;

(v) non-convertible bonds, debentures or other evidences of indebtedness issued by a corporation; and

(vi) banker's acceptances, maturing not more than one year from the date of issue, which are accepted by a bank listed in Schedule I or II to the Bank Act (Canada);

and, in the case of securities referred to in paragraphs (i) to (v) the rating of the securities meet the specified credit ratings set out in Appendix A, and in the case of securities referred to in paragraph (vi), the rating of the short-term debt of the accepting bank meets the specified credit ratings set out in Appendix A ;

(b) the proposed transaction is in the best interests of the mutual fund and is consistent with the investment objectives of the mutual fund;

(c) the terms of the purchase or sale, including the consideration paid or received, are no less beneficial than terms generally available at the time of the trade to market participants in independent, arm's length transactions;

(d) the price paid or amount received by the mutual fund is the best reasonably available price at the time of the trade, and:

(i) the price paid (inclusive of all transaction costs) by the mutual fund is not more than the price quoted by at least one independent, arm's length purchaser at the time of the trade; or

(ii) the amount received (exclusive of all transaction costs) by the mutual fund is not less than the price quoted by at least one independent, arm's length seller at the time of the trade;

(e) the mutual fund or the responsible person keeps a record of the steps taken to comply with paragraph (d), including the price, quantity, transaction costs and other relevant terms of the quote obtained;

(f) the statement of portfolio transactions of the mutual fund must disclose each purchase or sale of securities from or to a responsible person, setting out the date of the transaction, the name of the issuer of the securities (including any guarantor of the securities), the class or designation of the securities, the amount or number of securities and the consideration paid; and

(g) the intention to engage in principal transactions with responsible persons is disclosed in the prospectus or simplified prospectus of the mutual fund.

DATED at Vancouver, British Columbia, on December 21, 1995.

Douglas M. Hyndman
Chair

APPENDIX A

SPECIFIED CREDIT RATING REQUIREMENTS

The specified credit rating is the credit rating given to the security by a rating agency listed below that is equal to or higher than the level indicated for the type of security as set out below:

unless the mutual fund or responsible person knows or ought reasonably to know that there has been an announcement by the rating agency that the rating may be down-graded to a level below the level so indicated.