Mutual Funds

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On October 4, 2018, the Canadian securities administrators published the final version of the amendments that will create a new regime for liquid alternative mutual funds (alt funds).

The regime will come into effect on January 3, 2019 and could provide retail investors with greater access to alternative investment strategies, including leveraged and market neutral portfolios.

Leverage

Key to the regime is the ability of alt funds to use leverage. The leverage limit is effectively set at 4X the alt fund’s net asset value (NAV) and can be achieved through a combination of derivatives (alt funds are not required to hold cover for their derivatives), short selling (alt funds do not need to set aside cash cover for their short sales, and can reinvest their short sale proceeds in additional long positions) and borrowing. There will be a cap set at 50% of NAV for the aggregate amount of exposure through short sales and borrowing, with a further cap of 10% per issuer sold short (other than government securities). These caps are somewhat arbitrary within the overall 4X leverage limit, but are based on the investment restrictions the securities regulators saw in the closed-end fund space. Accordingly, 130/30 funds and other levered funds can be launched as alt funds, but the 50% cap on short sales means that a market neutral fund using a pairs trading strategy will need exemptive relief.

Interestingly, the final amendments include a new feature allowing alt funds to enter into derivatives with counterparties who do not have a designated rating.Continue Reading The New Liquid Alt Funds Regime – and some changes for conventional mutual funds and closed-end funds

On March 26, 2018, the Mutual Fund Dealers Association (MFDA) published proposed MFDA Rules 1.2 Definitions and 1.26 Continuing Education (collectively, Proposed Rules) and Proposed MFDA Policy No. 9 Continuing Education (CE) Requirements (Proposed Policy) for public comment.  The Proposed Rules and Proposed Policy are intended to promote a new CE regime to further enhance MFDA members and Approved Persons’ proficiency, professionalism and industry knowledge (CE Initiative).

An “Approved Person” is an individual who is a partner, director, officer, compliance officer, branch manager or alternate branch manager, employee or agent of an MFDA member firm who:

  • is registered or permitted, where required by applicable securities legislation, by the securities commission having jurisdiction, or
  • submits to the jurisdiction of the MFDA.

Continue Reading MFDA Continuing Education Proposed Rules and Policy

Last month, provincial securities regulators approved Policy No. 8 (Policy) of The Mutual Fund Dealers Association of Canada (MFDA).  The Policy establishes proficiency standards for mutual fund dealing representatives (Representatives) who wish to sell exchange-traded fund (ETFs).

Although Representatives are legally permitted to sell certain types of…

The previously published amendments (Phase 2 amendments) to NI 81-102 as part of the CSA’s fund modernization project are now in effect.

For mutual funds, the changes include:

  • a new prohibition against investing in closed-end funds (subject to an 18-month transition period for existing mutual funds), and
  • new sales communications requirements for mutual funds following

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The Canadian Securities Administrators (CSA) recently released discussion paper 81-407 which examines the mutual fund fee structure in Canada.  The paper provides an overview of the roles of market participants in the mutual fund industry and the current mutual fund fee structure, identifies investor protection and fairness issues arising from the current fee structure,…