Overview
NATIONAL INSTRUMENTS 81-101 AND 81-102
Canadian funds fall under the jurisdiction of the securities acts of each province. Securities administrators control the activities of these funds, their managers, and their distributors by means of a number of national and provincial policy statements dealing specifically with mutual funds. Provincial securities legislation governing all issuers and participants in securities markets also imposes certain requirements. Understanding these national instruments and their implications for mutual funds is crucial for anyone involved in the Canadian securities industry.
Relevant Legislation
All About National Instruments 81-101 and 81-102
Two significant pieces of national legislation that apply to mutual funds in Canada are National Instrument 81-101 and National Instrument 81-102.
National Instrument 81-101
National Instrument 81-101 specifically deals with the prospectus and Fund Facts disclosure for mutual funds. The prospectus and Fund Facts are essential documents that provide investors with information about a mutual fund’s objectives, strategy, risks, performance, and fees. Here are some of the key aspects governed under NI 81-101:
- Prospectus Requirements: Comprehensive details about the fund.
- Fund Facts Disclosure: Concise, plain-language summary of key information about the fund.
National Instrument 81-102
National Instrument 81-102 outline requirements and guidelines for the distribution and advertising of mutual funds. Following are the core areas NI 81-102 focuses on:
- Distribution: Rules regarding the sale and distribution of mutual funds.
- Advertising: Guidelines to ensure accurate and non-misleading promotional materials.
Key Takeaways
- NI 81-101 and NI 81-102 play crucial roles in setting the framework for the mutual fund industry in Canada.
- Prospectus and Fund Facts are key documents governed by NI 81-101, providing essential information for investors.
- NI 81-102 sets out guidelines for the fair and transparent distribution and advertising of mutual funds.
FAQs
Q: What is the purpose of National Instrument 81-101?
A: National Instrument 81-101 governs the prospectus and Fund Facts disclosure requirements for mutual funds, ensuring that investors receive key information needed for informed decision-making.
Q: Why is National Instrument 81-102 important?
A: National Instrument 81-102 establishes the rules for distributing and advertising mutual funds, aiming to protect investors by promoting transparency and honesty in the mutual fund industry.
Q: How do these national instruments benefit investors?
A: These instruments safeguard investors by ensuring that they have access to all necessary information about mutual funds (NI 81-101) and by promoting fair marketing practices (NI 81-102).
Glossary
- Prospectus: A legal document issued by companies that are offering securities for sale. It contains most of the relevant details about the mutual fund.
- Fund Facts: A document providing a summary of key information about a mutual fund, written in plain language.
- Securities Legislation: Laws and regulations that govern the issuance and trading of securities.
Chapter 17: Mutual Funds: Structure and Regulation
This section is part of Chapter 17, which covers various aspects of mutual fund structure and regulation.
Next Section: 17.6 The Roles and Responsibilities in the Mutual Fund Industry
Continue to the next section to learn about the roles and responsibilities in the mutual fund industry.
📚✨ Quiz Time! ✨📚
## Which regulatory body has jurisdiction over Canadian mutual funds?
- [x] Provincial securities administrators
- [ ] The Bank of Canada
- [ ] Canada Revenue Agency (CRA)
- [ ] Canadian Investor Protection Fund (CIPF)
> **Explanation:** Canadian mutual funds fall under the jurisdiction of the securities act of each province, and securities administrators control their activities.
## What does National Instrument 81-101 primarily deal with?
- [x] Mutual fund prospectus and Fund Facts disclosure
- [ ] Guidelines for trading derivatives
- [ ] Taxation of mutual funds
- [ ] Governance of hedge funds
> **Explanation:** National Instrument 81-101 deals specifically with mutual fund prospectus and Fund Facts disclosures.
## National Instrument 81-102 provides guidelines for which aspect of mutual funds?
- [ ] Mutual fund accounting practices
- [x] Distribution and advertising
- [ ] Prospectus outline
- [ ] Tax regulations
> **Explanation:** National Instrument 81-102 contains requirements and guidelines for the distribution and advertising of mutual funds.
## What do provincial securities legislation govern in the context of mutual funds?
- [ ] Only the issuance of securities
- [x] All issuers and participants in securities markets
- [ ] Only mutual fund managers
- [ ] Only investment advisors
> **Explanation:** Provincial securities legislation governs all issuers and participants in securities markets, including mutual funds.
## Who controls the activities of mutual funds in Canada?
- [ ] Canadian Stock Exchange
- [ ] Office of the Superintendent of Financial Institutions (OSFI)
- [x] Securities administrators
- [ ] Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
> **Explanation:** Securities administrators control the activities of mutual funds as per legislation.
## What is the role of Fund Facts in relation to National Instrument 81-101?
- [ ] It governs the trading practices of mutual funds
- [ ] It details the management strategies of mutual funds
- [x] It is a disclosure document required under National Instrument 81-101
- [ ] It sets out tax implications for investors
> **Explanation:** Fund Facts is a necessary disclosure document under National Instrument 81-101.
## What is the companion policy to National Instrument 81-102 focused on?
- [x] The distribution and advertising of mutual funds
- [ ] The enforcement of mutual fund rules
- [ ] The taxation of mutual funds
- [ ] The accounting standards for mutual funds
> **Explanation:** The companion policy to National Instrument 81-102 focuses on the distribution and advertising aspects of mutual funds.
## Which document must accompany a mutual fund offering under National Instrument 81-101?
- [ ] Annual report
- [x] Prospectus
- [ ] Trade confirmation
- [ ] Balance sheet
> **Explanation:** The prospectus must accompany a mutual fund offering under National Instrument 81-101.
## What types of disclosure are emphasized in National Instrument 81-101?
- [x] Prospectus and Fund Facts disclosure
- [ ] Financial and quarterly earnings disclosure
- [ ] Asset allocation disclosure
- [ ] Tax disclosure
> **Explanation:** National Instrument 81-101 emphasizes mutual fund prospectus and Fund Facts disclosure.
## Which of the following is NOT a responsibility of provincial securities administrators regarding mutual funds?
- [ ] Controlling the activities of these funds
- [ ] Overseeing fund managers and distributors
- [ ] Enforcing national and provincial policies
- [x] Setting federal tax rates
> **Explanation:** Provincial securities administrators do not set federal tax rates; they enforce national and provincial policies and oversee the activities of funds, managers, and distributors.
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