BOR 96/17 - Mutual Funds and the Purchases and Sales of Certain Debt Securities From and To the Accounts of Responsible Persons [Rescinded]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

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 to address potential conflicts between the interests of its security holders 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 section 110.1(1)(b) of the Act does not apply to the purchase or sale of a security by a mutual fund from or to the account of a responsible person, provided that:

(a) the security is

(i) a bond, debenture or other evidence of indebtedness of or guaranteed by the government of Canada or by a province or territory of Canada,

(ii) a bond, debenture or other evidence 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) a bond, debenture or other evidence 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) a non-convertible bond, debenture or other evidence of indebtedness issued by a corporation, or

(vi) a bankers' acceptance, maturing not more than one year from the date of issue, which is accepted by a bank listed in Schedule I or II to the Bank Act (Canada),

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

(b) the parties to the transaction do not know or ought not reasonably to know that there has been an announcement by the rating agency that the rating of the security may be down-graded to a level below the specified credit rating required in paragraph (a);

(c) the proposed transaction is in the best interests of the mutual fund and the terms of the transaction are no less beneficial than terms generally available at the time of the trade to market participants in arm's length transactions;

(d) at the time of the transaction,

(i) the price paid (inclusive of all transaction costs) by the mutual fund is not more than the independent current market price at the time of the transaction, or

(ii) the amount received (exclusive of all transaction costs) by the mutual fund is not less than the independent current market price at the time of the transaction,

as the case may be, where "current market price" means,

(iii) for a security listed on an exchange,

(A) if there are reported trades for the security on the principal exchange that the security trades on prior to the trade that day, the price of the last trade for the security on the exchange prior to the trade, or

(B) if there is no reported trade for the security on the principal exchange prior to the trade that day, the average of the highest current independent bid and the lowest current independent offer for the security on the exchange prior to the trade that day, or if there is no offer and bid for that security on the exchange prior to the trade that day, on the most recent day when an offer and bid was made for the security,

(iv) for a security not listed on an exchange but quoted on a widely available quotation system, the average of the highest current independent bid and the lowest current independent offer reported for the security prior to the trade that day, or if there is no offer and bid reported for that security prior to the trade that day, on the most recent day when an offer and bid was made, or

(v) for all other securities, the average of the highest current independent bid and the lowest current independent offer for the security prior to the trade that day, determined on the basis of reasonable inquiry, or if there is no offer and bid made for that security prior to the trade that day, on the most recent day when an offer and bid was made, determined on the basis of reasonable inquiry;

(e) the mutual fund or the responsible person keeps a record, for a period of 6 years, of the steps taken to comply with paragraphs (c) and (d), including the current market price, the price paid or amount received, the quantity and transaction costs of the purchase or sale; and

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

DATED at Vancouver, British Columbia, on October 10, 1996.