[10552]
December 11, 1998
TO: INTERNATIONAL COMMITTEE No. 37-98
RE: ONTARIO ISSUES NOTICE OF PROPOSED RULE RELATING TO
INTERNATIONAL ADVISERS
______________________________________________________________________________
The Ontario Securities Commission has proposed a rule (Rule 35-502) that would reformulate a
prior policy statement (Policy 4.8) governing when a non-resident person will be deemed to be acting as
an adviser in Ontario. A copy of the proposed rule is attached. It is also available on the Internet at
http://www.osc.gov.on.ca.
The proposed rule has significance for Institute members that advise or may advise mutual
funds distributed in Ontario. Currently, the Ontario Securities Commission takes the position that
investors in a fund are acquiring the advisory services of the fund’s adviser and that the shares of the
fund are distributed for the purpose of providing these advisory services. Thus, advisers to funds
offered in Ontario are generally deemed to be providing advice to Ontario investors and are therefore
subject to registration under the Ontario Securities Act.
Policy 4.8 sets forth registration requirements for non-resident advisers who advise only certain
clients, defined as “permitted clients”, primarily with respect to foreign securities. These non-resident
advisers are subject to a reduced level of regulation. “Permitted clients” include most institutional or
sophisticated clients, but do not include mutual funds distributed by affiliates of the fund’s adviser or
principal underwriter.
Among other things, the proposed rule would create a new “international adviser” category for
registration and codify most of the requirements of Policy 4.8. In what we believe may be the most
significant change for Institute members from Policy 4.8, the rule would change the definition of
“permitted client” by striking the exception for mutual funds distributed by affiliates.
Comments on the proposed rule are due to the OSC on December 31, 1998. The Institute is
considering whether to comment on the proposed rule. If there are comments that you would like the
Institute to make, please contact me by phone (202-371-5430), fax (202-326-5841) or e-mail
(rcg@ici.org) no later than December 18, 1998.
Robert C. Grohowski
Assistant Counsel
Attachment