Use Of "Index" In Investment Fund Names And Objectives

The Ontario Securities Commission recently released OSC Staff Notice 81-728 (the Notice), which provides guidance on investment funds that include the word "index" in their names and whose investment objectives are to replicate the performance of an index (Index Tracking Funds). Two factors are relevant when determining if it is appropriate for a fund to market itself as an Index Tracking Fund: (i) absence of discretion, and (ii) transparency.

Absence of discretion

To be considered an Index Tracking Fund by the OSC, the methodology governing the index whose performance is being replicated (the Methodology) should generally not allow for the application of material discretion on the part of the index provider or any other party involved in administering the index. If material discretion is permitted when administering the index, the OSC will (i) generally view the Methodology as being more akin to an active investment strategy, and (ii) take the position that it is