Securities Law

BCN 2001/83 - Republication for Comment of NI 81-104 Commodity Pools and Proficiency Changes for Sellers of Commodity Pools [BCN - Rescinded]

Published Date: 2001-12-14
Effective Date: 2001-12-14

The Canadian Securities Administrators (CSA) are republishing for comment proposed National Instrument 81-104 Commodity Pools and proposed Companion Policy 81-104CP.

Subject to any comments we receive and the necessary government approvals, we expect that all Canadian jurisdictions will adopt the proposed instrument and policy. If adopted, the proposed instrument will be a rule in British Columbia.

Also, effective today, the Executive Director has amended BCP 31-601 Registration Requirements, to allow certain registrants, including mutual fund dealers or the individuals authorized to trade on behalf of those dealers, to sell securities of commodity pools in B.C. without additional proficiency.

Background
We published for comment earlier versions of these documents in June 1997 (see NIN #97/25) and June 2000 (see NIN #2000/19).  We received eight submissions on the 2000 drafts. Please see the OSC’s notice at www.osc.gov.ca for a list of those who provided comments, details of the comments received, and the CSA’s responses.

After considering the comments and re-examining some proposed requirements in the 2000 draft, the CSA are proposing some significant amendments to the draft and are seeking additional comments.

Substance and purpose
The proposed instrument and policy will regulate “commodity pools”, which are specialized forms of mutual funds.

The proposed instrument sets out rules for commodity pools that are different from the general mutual fund rules and legislation in the following areas:

  • Seed capital requirements for new commodity pools
  • Additional proficiency requirements for salespersons selling commodity pools and their supervisors
  • Payment of incentive fees by commodity pools
  • Redemption of units of commodity pools
  • Net asset value calculations and disclosure
  • Financial statements
  • Prospectus disclosure

Summary of changes from the June 2000 draft instrument and policy
The following are the most significant changes made by the CSA to the June 2000 drafts:

  • The exemption has been narrowed from section 2.7 of NI 81-102 to ensure that commodity pools will only deal with counter-parties who have an ‘approved credit rating’.
  • Section 3.2(2) has been clarified so that only $50,000 of seed capital cannot be redeemed prior to dissolution or termination of the commodity pool.
  • Proficiency requirements have been relaxed to sell or supervise the selling of commodity pools.
  • In B.C., we have gone even further and provide that no additional proficiency is necessary to sell commodity pools in B.C. 
  • The Commission des valeurs mobilières du Québec (CVMQ), will be evaluating potential problems related to implementing additional proficiency requirements in Québec. The CVMQ is concerned with all issues related to the proficiency requirements for industry participants who distribute units of commodity pools in Québec and is asking for specific comments on this issue.
  • The previous Part 5 ‘Termination of Agreements’ has been deleted.
  • The CSA has revised the part dealing with incentive fees (renumbered as Part 5) to permit commodity pools to pay their fund managers an incentive fee that is based on a ‘net new profits’ methodology and is without reference to a benchmark.
  • Section 8.5 has been added and requires a commodity pool to give investors information about the commodity pool’s use of leverage on a quarterly basis in the financial statements.
  • The prospectus requirements have been modified for commodity pools and include new disclosure of leverage limits.

For a more detailed discussion of all of the changes made to the June 2000 drafts, please see the OSC notice relating to the proposed instrument and policy.

British Columbia Carve-outs
In British Columbia, the Commission proposes not to adopt some sections of National Instrument 81-104. These are as follows:

  • The unique seed capital requirements for commodity pools (Part 3) would not apply to a commodity pool if the prospectus relating to it is filed only in British Columbia.
  • Part 4, which would require additional proficiency for those selling or supervising the selling of commodity pools, would not apply in British Columbia.
  • The requirement for quarterly financial statements in Part 8 would not apply to a commodity pool if the prospectus relating to it is filed only in British Columbia.
  • Certain prospectus disclosure requirements in section 9.3(1) and (2) would not apply to a commodity pool if the prospectus relating to it is filed only in British Columbia.

Various sections of BCP 31-601 currently impose additional proficiency requirements on certain registrants wishing to trade in or advise on commodity pools.  We have removed these additional requirements from sections 6.2, 8.4, 8.5, 10.4, 10.5, 16.4 and17.3 of the policy to reflect the proposed carve out in NI 81-104.  Effective today, certain registrants, including mutual fund dealers or the individuals authorized to trade on behalf of those dealers may sell securities of commodity pools in B.C. without additional proficiency.

You can find the full text of the amended policy on our website at www.bcsc.bc.ca.

Comments

We invite you to comment on the proposed national instrument and companion policy.  The CSA will consider submissions received by March 18, 2002.

Please send us two copies of your comments in care of the Ontario Securities Commission and addressed as follows:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Department of Government Services and Lands, Newfoundland and Labrador
Registrar of Securities, Northwest Territories
Registrar of Securities, Yukon
Registrar of Securities, Nunavut

c/o John Stevenson, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
jstevenson@osc.gov.on.ca 

Please also send your comments to the Commission des valeurs mobilières du Québec as follows:

Denise Brosseau, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O.Box 246, 22nd Floor
Montréal, Québec H4Z 1G3
consultation-en-cours@cvmq.com 

We request that you submit a diskette containing the submissions (in DOS or Windows format, preferably WordPerfect).  We cannot keep submissions confidential because securities legislation in certain provinces requires that a summary of the written comments received during the comment period be published.

Questions

Please refer your questions to any of:

Simon Kent
Legal Counsel
British Columbia Securities Commission
Telephone: (604) 899-6870 or 1-800-373-6393 (in B.C. or Alberta)
skent@bcsc.bc.ca 

Patricia Gariepy
Legal Counsel
Alberta Securities Commission
Telephone:  (403) 297-5222
patricia.gariepy@seccom.ab.ca 

Dean Murrison
Deputy Director, Legal
Saskatchewan Securities Commission
Telephone:  (306) 787-5879
dean.murrison@ssc.gov.sk.ca 

Bob Bouchard
Director, Corporate Finance
The Manitoba Securities Commission
Telephone:  (204) 945-2555
bbouchard@gov.mb.ca 

Rebecca Cowdery
Manager, Investment Funds Regulatory Reform
Ontario Securities Commission
Telephone:  416-593-8129
rcowdery@osc.gov.on.ca 

Ann Leduc
Direction de la recherche et du developpement des marchés
Commission des valeurs mobilières du Québec
Telephone:  (514) 873-2150 ext. 4572
ann.leduc@cvmq.com 


December 14, 2001

 

 


Douglas M. Hyndman     Steve Wilson
Chair       Executive Director

Ref: BCP 31-601
 NIN #97/25
 NIN #2000/19
 NI 81-102
 

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.