CI Mutual Funds Inc., now known as CI Investment Inc., has received an exemption from the Ontario Securities Commission, broadening its funds’ freedom to short stocks.
According to a decision reported in the latest OSC bulletin, various funds offered by CI Mutual Funds, Clarica Mutual Funds and Signature Income & Growth Corporate Class are to be exempted from the short selling prohibition from engaging in short selling of securities up to 10% of net assets, subject to certain conditions and requirements.
CI applied for the relief by letter dated March 10, and supplemented by letter dated April 8, for a decision of the regulators that its funds be permitted to sell securities short, provide a security interest over the fund assets in connection with short sales and deposit fund assets with borrowing agents as security, subject to certain conditions.
On June 30, 2004, the regulators granted permission for a handful of Synergy, Clarica and Signature funds to engage in a limited amount of short selling, subject to certain conditions. The firm also sought to have that earlier decision amended for these funds, “to provide more flexibility when engaging in short selling”.
The regulators granted the relief with a variety of conditions, including:
- the aggregate market value of all securities sold short by the fund does not exceed 10% of the total net assets of the fund on a daily marked-to-market basis;
- the fund holds “cash cover” that is at least 150% of the aggregate market value of all securities sold short;
- the funds must maintains appropriate internal controls regarding its short sales including written policies and procedures, risk management controls and proper books and records;
- the funds must disclose their short selling strategies and its risks in a prospectus; and
- CI must disclose its control policies in its annual information form.