Index Tracking Funds: OSC Guidance On Use Of "Index" In Fund Names And Objectives

The Ontario Securities Commission (OSC) recently published guidance on investment funds whose investment objectives are to replicate the performance of an index and that include the word "index" in their names (Index Tracking Funds).  In OSC staff's view, the applicable index should generally (a) not allow for the application of material discretion; and (b) be transparent.  In cases where these conditions are not satisfied, in the course of prospectus reviews, OSC staff will ask that references to the index be removed from the fund's name and investment objectives to avoid potentially misleading investors.

Absence of Discretion: First, the methodology governing the applicable index (Methodology) must not allow for material discretion in respect of administering the index.  OSC staff's view is that replicating the performance of an index is a passive investment strategy.  The ability of the index provider or another party to employ material discretion in