Pres

ente

d By

IMPL

ICAT

ION

S FO

R

YOU

R B

USI

NES

S

ETF

Reg

ulat

ion

in C

anad

a

Whi

tney

Bel

l

April

30,

201

8

Age

nda

ETF

Reg

ulat

ion

in C

anad

a

2

Poin

t of S

ale

Dis

clos

ure

and

Del

iver

y O

blig

atio

ns

Prof

icie

ncy

Suita

bilit

y

oBa

sic

prof

icie

ncy

requ

irem

ents

for M

FDA

deal

ing

repr

esen

tativ

es•

mus

t not

per

form

an

activ

ity th

at re

quire

s re

gist

ratio

n un

less

you

hav

e th

e ed

ucat

ion,

trai

ning

an

d ex

perie

nce

nece

ssar

y to

per

form

the

activ

ity c

ompe

tent

ly

•m

ust u

nder

stan

d th

e st

ruct

ure,

feat

ures

and

risk

s of

eac

h se

curit

y th

at y

ou re

com

men

d

oM

FDA

Polic

y N

o. 8

Pro

ficie

ncy

Stan

dard

s fo

r App

rove

d Pe

rson

s Se

lling

ETFs

oEs

tabl

ishe

s m

inim

um p

rofic

ienc

y st

anda

rds

for a

ppro

ved

pers

ons

tradi

ng in

ETF

s to

m

eet t

he re

quire

men

ts o

f MFD

A R

ule

1.2.

3 an

d N

atio

nal I

nstru

men

t31-

103

oM

utua

l fun

ds o

f ETF

s•

does

not

requ

ire a

dditi

onal

pro

ficie

ncy

oO

fferin

g ET

Fs d

irect

ly•

requ

ires

addi

tiona

l pro

ficie

ncy

New

MFD

A P

rofic

ienc

y R

equi

rem

ents

3

Con

side

ratio

ns fo

r Mem

ber F

irms

Wan

ting

to O

ffer E

TFs

4

oO

pera

tiona

l cha

lleng

eso

“Cha

nge

of b

usin

ess”

for m

embe

r firm

–m

ust s

ubm

it pr

opos

al to

MFD

A o

Your

firm

mus

t hav

e ap

prop

riate

pol

icie

s an

d pr

oced

ures

in p

lace

rega

rdin

g th

e sa

le o

f ETF

so

Due

dilig

ence

to e

nsur

e al

l ETF

s m

eet t

he d

efin

ition

of a

“mut

ual f

und”

oTr

aini

ng p

rovi

ded

by y

our f

irm m

ust i

nclu

de

•de

taile

d pr

oduc

t inf

orm

atio

n in

resp

ect o

f the

ETF

s ap

prov

ed fo

rsal

e

•ho

w m

arke

t quo

tes

will

be o

btai

ned

•th

e ty

pes

of tr

ades

acc

epte

d an

d th

e in

form

atio

n re

quire

d fo

r eac

h tra

de a

ccep

ted

•th

e di

sclo

sure

info

rmat

ion

requ

ired

for e

ach

trans

actio

n

•ho

w e

vide

nce

of tr

ade

inst

ruct

ions

, whe

ther

exe

cute

d or

une

xecu

ted,

and

dis

clos

ures

will

be m

aint

aine

d

•ho

w tr

ade

orde

rs w

ill be

pro

cess

ed

ETF

Prod

uct T

rain

ing

for D

ealin

g R

epre

sent

ativ

es

5

oO

verla

p w

ith c

ours

es y

ou h

ave

alre

ady

take

n on

the

sale

of c

onve

ntio

nal

mut

ual f

unds

•

But a

dditi

onal

trai

ning

is re

quire

d

oM

FDA

expl

icitl

y re

cogn

ized

cer

tain

cou

rses

that

mee

t the

requ

irem

ents

•Ex

chan

ge T

rade

d Fu

nds

for M

utua

l Fun

d R

epre

sent

ativ

es (C

anad

ian

Secu

ritie

s In

stitu

te)

•Th

e Ex

chan

ge-T

rade

d Fu

nds

Cou

rse

(IFSE

Inst

itute

)

•Ex

chan

ge T

rade

d Fu

nds

for R

epre

sent

ativ

es o

f Mut

ual F

und

Dea

lers

(Sm

arte

n U

p In

stitu

te)

oTh

ere

have

bee

n ot

her c

ours

es s

ince

the

publ

icat

ion

of th

e bu

lletin

that

mee

t th

e re

quire

men

ts

oPr

oduc

t tra

inin

g ca

n al

so b

e of

fere

d by

mem

ber f

irms

•W

here

pro

vide

d by

a m

embe

r firm

, mus

t inc

lude

an

exam

inat

ion

oC

hara

cter

istic

s of

ETF

s •

Activ

e vs

. pas

sive

•W

hat a

re in

dice

s an

d di

ffere

nt m

etho

ds o

f tra

ckin

g in

dice

s•

Cre

atio

n an

d re

dem

ptio

n of

uni

ts•

Rol

e of

des

igna

ted

brok

ers

and

mar

ket m

aker

s•

Ris

ks o

f mar

ket p

rice

dive

rgin

g fro

m N

AV

oEx

chan

ge tr

adin

g •

ETF

pric

ing

•Q

uote

s sy

stem

(bid

and

ask

)•

Mar

ket d

epth

and

liqu

idity

•

Type

s of

ord

ers

and

orde

r ent

ry

oIn

vest

ing

in E

TFs

•KY

C, K

YP a

nd s

uita

bilit

y ob

ligat

ions

Trai

ning

mus

t ad

dres

s al

l m

atte

rs

pres

crib

ed b

y th

e M

FDA

incl

udin

g

6

ETF

Prod

uct T

rain

ing

for D

ealin

g R

epre

sent

ativ

es (c

ontin

ued)

Targ

eted

Ref

orm

s –

Prof

icie

ncy

and

KYP

7

oC

onsu

ltatio

n Pa

per 3

3-40

4 P

ropo

sal t

o E

nhan

ce th

e O

blig

atio

ns o

f Adv

iser

s,

Dea

lers

and

Rep

rese

ntat

ives

Tow

ard

thei

r Clie

nts

(Apr

il 20

16)

oEx

pect

pro

pose

d ru

le to

be

publ

ishe

d on

the

targ

eted

refo

rms

early

this

sum

mer

oN

ew p

rofic

ienc

y re

quire

men

ts m

ay re

quire

all

repr

esen

tativ

es to

gen

eral

ly

unde

rsta

nd th

e ba

sic

stru

ctur

e, fe

atur

es, p

rodu

ct s

trate

gy, c

osta

nd ri

sks

of a

ll ty

pes

of s

ecur

ities

oN

ew K

YP re

quire

men

ts m

ay re

quire

repr

esen

tativ

es to

und

erst

and

and

cons

ider

th

e st

ruct

ure,

pro

duct

stra

tegy

, fea

ture

s, c

osts

and

risk

of e

ach

secu

rity

on th

eir

firm

’s p

rodu

ct li

st

•U

nrea

listic

and

und

uly

oner

ous

•Po

tent

ial c

hillin

g ef

fect

as

it be

com

es ri

sky

to h

ave

a br

oad

prod

uct s

helf

8

oAm

endm

ents

cam

e in

to fo

rce

in S

epte

mbe

r 201

7 re

quiri

ng E

TFs

to fi

le a

sum

mar

y di

sclo

sure

doc

umen

t cal

led

an “E

TF F

acts

”o

Obj

ectiv

e of

the

regu

lato

rs w

as a

pple

s-to

-app

les

com

paris

on to

mut

ual f

unds

o

Dis

clos

ure

look

s ve

ry s

imila

r to

Fund

Fac

ts•

Wha

t doe

s th

e fu

nd in

vest

in?

•R

isk

ratin

g

•Ye

ar-b

y-ye

ar re

turn

s

•Be

st a

nd w

orst

3-m

onth

retu

rns

•Av

erag

e re

turn

ETF

Fact

s –

Poin

t of S

ale

Dis

clos

ure

9

oM

ajor

diff

eren

ces

•Av

erag

e da

ily tr

adin

g vo

lum

e ov

er a

12

mon

th p

erio

d

•N

umbe

r of d

ays

trade

d ou

t of t

he to

tal n

umbe

r of t

radi

ng d

ays

over

a 1

2 m

onth

per

iod

•M

arke

t pric

e –

high

est a

nd lo

wes

t pric

es o

ver a

12

mon

th p

erio

d

•Av

erag

e bi

d-as

k sp

read

(am

ount

by

whi

ch th

e as

k pr

ice

exce

eds

the

bid

pric

e)as

a p

erce

ntag

e of

mar

ket p

rice

over

a 1

2 m

onth

per

iod

•A

desc

riptio

n of

the

diffe

renc

e be

twee

n m

arke

t pric

e an

d N

AV

•A

desc

riptio

n of

mar

ket o

rder

s an

d lim

it or

ders

•A

war

ning

that

ETF

s ca

n be

vol

atile

at t

he s

tart

and

end

of th

e tra

ding

day

and

that

lim

it or

ders

m

ay b

e us

eful

at t

hat t

ime

Diff

eren

ces

from

Fun

d Fa

cts

10

ETF

Fact

s D

eliv

ery

Req

uire

men

t

oN

ew d

eliv

ery

regi

me

requ

iring

a

deal

er th

at re

ceiv

es a

n or

der t

o pu

rcha

se E

TF s

ecur

ities

to d

eliv

er

an E

TF F

acts

to th

e pu

rcha

ser

with

in tw

o da

ys o

f the

pur

chas

e •

Diff

eren

t del

iver

y re

quire

men

t for

Fu

nd F

acts

, whi

ch a

re re

quire

d to

be

deliv

ered

on

a pr

e-sa

le b

asis

•C

SA h

as n

oted

that

it w

ill co

nsid

er th

e fe

asib

ility

of re

quiri

ng p

re-s

ale

deliv

ery

of E

TF F

acts

-

It ha

sn’t

mad

e a

dete

rmin

atio

n on

this

yet

oN

ot re

quire

d to

del

iver

pro

spec

tus

•Th

is is

not

new

, but

now

ther

e is

a s

tatu

tory

ex

empt

ion

rath

er th

an h

avin

g to

rely

on

exem

ptiv

e re

lief

oTh

e de

liver

y re

quire

men

t tak

es e

ffect

on

Dec

embe

r 10,

201

8•

Befo

re D

ecem

ber 2

018

-D

eale

rs re

lyin

g on

relie

f mus

t del

iver

ETF

Fa

ct o

r sum

mar

y do

cum

ent (

if no

ETF

Fa

ct is

file

d)

-D

eale

rs n

ot s

ubje

ct to

exe

mpt

ive

relie

f will

ha

ve to

sta

rt de

liver

ing

ETF

Fac

ts o

n D

ecem

ber 1

0, 2

018

Suita

bilit

y

11

oM

anag

ers

of c

onve

ntio

nal m

utua

l fu

nds

are

now

offe

ring

•ET

Fs w

ith s

trate

gies

that

are

sim

ilar t

o th

eir c

onve

ntio

nal m

utua

l fun

d of

ferin

gs

•ET

F se

ries

of c

onve

ntio

nal m

utua

l fun

ds

oW

hat d

oes

this

mea

n fo

r sui

tabi

lity?

oTh

ings

you

sho

uld

cons

ider

•Pr

icin

g

•N

eed

for i

ntra

day

liqui

dity

•“S

witc

habi

lity”

oR

isk

ratin

gs fo

r ETF

s •

Effe

ctiv

e as

of S

epte

mbe

r 201

7, e

ach

ETF

mus

t cal

cula

te a

risk

ratin

g us

ing

the

CSA

’s m

utua

l fun

d ris

k cl

assi

ficat

ion

met

hodo

logy

•O

nus

of d

eter

min

ing

risk

ratin

g fo

r su

itabi

lity

purp

oses

now

shi

fted

to th

e m

anag

ers

Que

stio

ns?

Que

stio

ns?

For m

ore

info

rmat

ion,

con

tact

:

The

info

rmat

ion

cont

aine

d he

rein

is o

f a g

ener

al n

atur

e an

d is

not

inte

nded

to c

onst

itute

lega

l adv

ice,

a c

ompl

ete

stat

emen

t of t

he la

w, o

r an

opin

ion

on a

ny s

ubje

ct. N

o on

e sh

ould

act

up

on it

or r

efra

in fr

om a

ctin

g w

ithou

t a th

orou

gh e

xam

inat

ion

ofth

e la

w a

fter t

he fa

cts

of a

spe

cific

situ

atio

n ar

e co

nsid

ered

.You

are

urg

ed to

con

sult

your

lega

l adv

iser

in c

ases

of

spec

ific

ques

tions

or c

once

rns.

BLG

doe

s no

t war

rant

or g

uara

ntee

the

accu

racy

, cur

renc

y or

com

plet

enes

s of

this

pre

sent

atio

n. N

o pa

rt of

this

pre

sent

atio

n m

ay b

e re

prod

uced

with

out

prio

r writ

ten

perm

issi

on o

f Bor

den

Ladn

er G

erva

is L

LP.

©20

18 B

orde

n La

dner

Ger

vais

LLP

. Bor

den

Ladn

er G

erva

is is

an

Ont

ario

Lim

ited

Liab

ility

Partn

ersh

ip.

Than

k Yo

u

Whi

tney

Bel

l41

6.36

7.61

51

wbe

ll@bl

g.co

m