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Securities Law

NIN 95/58 - Blanket Order #95/13 - Mutual Funds and the Purchases and Sales of Certain Debt Securities From and To the Account of Responsible Persons [NIN - Rescinded]

Published Date: 1995-12-22
Effective Date: 1995-12-21
The Commission is issuing Blanket Order #95/13 that provides relief from the recently enacted section 110.1 of the Securities Act, to permit certain related party transactions between mutual funds and responsible persons. This notice provides background to the issuance of the blanket order.

Under NIN#95/11, the Commission requested comment on a proposed blanket order that would provide relief from section 110.1(1)(b) of the Securities Act. As noted in that NIN, the Commission recognizes that where there are adequate investor protection safeguards in place to address potential conflicts with respect to quality of the securities traded and fair pricing, related party transactions between the mutual fund and the responsible person with respect to certain securities may be beneficial to the mutual fund, on the basis that such trading may

(a) increase the market available to the mutual fund for its purchases or sales of securities, and (b) facilitate access to trading strategies formulated by related parties that may enhance the performance of the mutual fund. The Commission has determined that it would be appropriate to provide relief from section 110.1(1)(b) of the Securities Act to permit certain principal transactions between mutual funds and responsible persons with respect to certain debt securities.

The proposed blanket order has been revised to incorporate certain comments received and further review of the conditions imposed. In particular, the relief has been expanded to include the debt securities set out in the request for comment issued by the Canadian Securities Administrators with respect to proposed relief from certain provisions of National Policy Statement No. 39 ("NP 39"). (See NIN#92/30). The relief under BOR#95/13 covers the following securities:

(i) bonds, debentures and other evidences of indebtedness issued or guaranteed by the federal governement or a provincial or municipal government of Canada, (ii) bonds, debentures and other evidences of indebtedness issued or guaranteed by those governments recognized by the Commission for the purposes of section 32(a)(i.1) of the Securities Act, (iii) commercial paper, maturing not more than one year from the date of issue; (iv) non-convertible bonds, debentures or other evidences of indebtedness issued by a corporation; and (v) 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);

provided the securities meets specified credit rating requirements.

The relief under BOR#95/13 is subject to number of other conditions, including conditions related to pricing. Notwithstanding the relief granted under BOR#95/13, the purchase or sale of securities by the mutual fund continues to be subject to the applicable investment restrictions and practices set out in NP 39. Responsible persons are also reminded of the front running prohibitions set out in section 111 of the Securities Act and equivalent provisions in certain other Canadian provincial jurisdictions.

The Commission is considering additional relief for transactions between mutual funds and responsible persons with respect to certain mortgages.

Although section 110.1 of the Securities Act is effective January 1, 1996, BOR#95/8 provides transitional relief for a period of 3 months to allow time for the industry to become aware of the new prohibitions and to put systems in place to address the conditions of the relief proposed under BOR#95/13.

The Commission encourages industry participants to comment on BOR#95/13 during the transitional period. Comment letters should be submitted by March 1, 1996 to:

Brenda Benham
Director, Policy & Legislation
British Columbia Securities Commission
1100 - 865 Hornby Street
Vancouver, British Columbia
V6Z 2H4

Comment letters submitted in response to Requests for Comment are placed on the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the public file, freedom of information legislation may require the Commission to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.
DATED at Vancouver, British Columbia, on December 21, 1995.

Douglas M. Hyndman

REF: BOR#95/8