Canada: Marrying The Rules For ETFs And Mutual Funds?

Last Updated: June 26 2015
Article by Carol E. Derk, Erin C. Seed and Whitney Bell

Most Read Contributor in Canada, September 2016

On June 18, 2015, the Canadian Securities Administrators (the CSA) published for comment proposed rule amendments that would introduce a requirement for exchange-traded funds (ETFs) to prepare and file specified "ETF Facts" documents, in addition to the ETF's prospectus. Under the proposed rule amendments dealers will be required to deliver the applicable ETF Facts document to investors within two days of any trade in an ETF. The proposed rule amendments [available here] are to National Instrument 41-101 General Prospectus Requirements and Companion Policy 41-101CP, as well as other related instruments, and create a proposed new disclosure form 41-101F4 Information Required in an ETF Facts Document.

The comment period for the proposals ends on September 16, 2015.

The proposed rule amendments have long been promised by the CSA as a necessary follow-on to their "point of sale" disclosure project for mutual funds. And although the CSA may have successfully achieved a harmonized marriage of the disclosure rules for mutual funds and ETFs, there are some significant elements of disconnect, particularly around delivery of the documents to investors.

Relationship Status between ETF and Mutual Fund Rules  – "It's Complicated"

The proposed ETF disclosure and delivery requirements are intended to mirror the developments in point of sale disclosure that have been introduced for conventional mutual funds, as well as codify regulatory exemptions that were granted to certain ETF managers and dealers in the fall of 2013. The proposed rule amendments will bring the summary disclosure documents for ETFs largely in line with the Fund Facts for conventional mutual funds, with some notable disclosure differences, but do not achieve a harmonized marriage of the delivery requirements for the two types of funds.


Mutual funds


Summary disclosure documents

Fund Facts required since January 2011, with additional information required most recently in January 2014.

Regulatory exemptions granted in the fall of 2013 prescribed the form of summary disclosure document for ETFs, which was largely based off the Fund Facts document for mutual funds that was in force prior to January 2014.

New proposals for standardized and prescribed ETF Facts document. Proposed transition will require all ETFs to have an ETF Facts available within 14 months of the rule's effective date.

Delivery of the summary disclosure documents in lieu of the prospectus (post-trade) by dealers

First permitted pursuant to exemptions granted in the fall of 2011 and required since June 2014.

In the fall of 2013, the CSA granted exemptions that permitted specified dealers to deliver an ETF summary disclosure document instead of the ETF prospectus within two business days after the purchase. Today's legislative requirements to deliver prospectuses to investors are ill-suited to ETFs given their structure, and the proposed rule amendments will achieve greater clarity and will ensure ETF investors receive a written document describing the ETF (post-trade).

Transition proposed - dealers will start delivering ETF Fund Facts (post-trade) 24 months after rule's effective date.

Delivery of the summary disclosure documents to investors at point of sale (pre-trade) by dealers

Required commencing May 30, 2016.

Not proposed in these rule amendments.

Disclosure in ETF Facts – A Marriage with Fund Facts

Something Borrowed

Fund Facts and ETF Facts have the same purpose – they are intended to highlight the key information that is important for investors to consider when they make an investment. The CSA used the Fund Facts form set out in Form 81-101F3 as a starting point in developing the ETF Facts. This is obvious from reviewing the sample ETF Facts document included with the proposed amendment publication. ETF Facts look very similar to Fund Facts in lay-out, and many of the disclosure requirements are substantially similar, including details on what the ETF invests in ("Top 10 Investments" and "Investment Mix" disclosure), performance disclosure (year-by-year, best and worst 3-month and average returns), suitability disclosure and fund expense disclosure. Interestingly, the CSA have included disclosure on trailing commissions that is substantially borrowed from the Fund Facts form; however, unlike conventional mutual funds, trailing commissions are paid only in respect of a small number of ETFs.

The ETF Facts will also include a section on the risk rating of the ETF. Currently, ETF managers are not required to rate and disclose the risk rating of their ETFs in the prospectus or the existing summary documents. Under the proposed amendments this disclosure must be in both the prospectus and the ETF Facts. The CSA explain that they are still working on developing a new risk classification for mutual funds, with proposed rules expected to be published for comment by the end of the year1. We hope that the CSA will align the publication of any final rules on risk classification methodology with any final rules on the proposed amendments, so that ETF managers will be able to adopt the CSA's fund risk classification methodology at its implementation, rather than having to change methodologies and disclosure of same after the first ETF Facts are prepared and filed.

Something New

The ETF Facts provide for some additional ETF-specific information that isn't included in the Fund Facts form or the current ETF summary documents. Most of these additional requirements are intended to highlight that ETFs, unlike conventional mutual funds, are traded on an exchange. For example, the CSA propose the inclusion of additional disclosure on ETF pricing information over a 12 month period ending within 60 days of the date of the ETF Facts, such as the market price, net asset value (NAV), average bid-ask spread and average premium/discount to NAV. Prescribed disclosure on the significance of the difference between the market price and the NAV and a description on the impact of premium/discount of market price to NAV will also be required. It will be interesting to see the comments the CSA receive on this section of the proposed ETF Facts, as it is not clear whether this information will be meaningful or useful to investors. Other ETF‑specific content will include average daily volume and number of days traded over a 12 month period, which is intended to provide investors with information about the liquidity of their investment.

For index-tracking ETFs, the ETF Facts will disclose the name and nature of the ETF's benchmark index in the "What does this ETF invest in?" section. However, the ETF Facts do not permit disclosure of the performance of an ETF's benchmark index. Currently, some ETFs disclose the year-by-year returns and average returns of the benchmark index that the ETF tracks to allow investors to get a sense of how closely the ETF tracks the performance of the benchmark index.

The CSA have also included more prescriptive requirements for what the ETF Facts should disclose in situations where the typical disclosure does not neatly fit the features of the particular ETF. For example, in the section disclosing the past performance of the ETF, the CSA have provided for alternative disclosure for new ETFs or ETFs that have not been distributed under a prospectus for 12 months. This prescribed disclosure is not provided for in the mutual funds Fund Facts form and some managers have adopted their own forms of disclosure where the prescribed disclosure does not fit. Having a consistent approach for ETF Facts will be useful.

Finally, the CSA propose to highlight the risks of certain types of ETFs, including those that track a multiple of the daily performance of a benchmark index, those that track the inverse performance of a benchmark index and those that are commodity pools. The ETF Facts form includes warning language for these types of products that must be displayed prominently as one of the first items in the ETF Facts document.

ETF Investor Rights – something old, but also new

The various rights of rescission and rights associated with misrepresentations have not been modified for ETFs, but will apply to ETFs in respect of ETF Facts in ways that are similar to Fund Facts for mutual funds.

Investors that do not receive the ETF Facts within the prescribed timing will have the right to seek damages or rescind their purchase in the same ways as apply to mutual funds. However, the proposed amendments do not extend to ETF investors the right of withdrawal within two days of purchase that is provided to conventional mutual fund investors (generally investing under a specified amount). This difference may not be intuitive to retail investors, and a comparison of the disclosure in the Fund Facts and the ETF Facts does not provide investors with much help in drawing out this distinction. ETF purchasers will, however, have the same statutory rights of rescission or action that apply with respect to the prospectus for misrepresentations in the ETF Facts, since the ETF Facts will be incorporated by reference into the prospectus. Further, in some jurisdictions, investors will continue to have a right of rescission associated with the delivery of the trade confirmation and may have a right of action for civil liability for misrepresentations in secondary market disclosure.

Delivery of ETF Facts  –  a disconnect ("something blue"?)

The proposed amendments will require a dealer which has received a purchase order for an ETF to deliver or send to the purchaser the most recently filed ETF Facts within two business days after the purchase (unless the dealer has previously done so). This requirement differs from the Fund Facts delivery requirement that will come into force May 30, 2016, which provides that a dealer must deliver the most recently filed Fund Facts to a mutual fund investor before the dealer accepts an instruction for purchase, unless a narrow set of exceptions apply. Curiously, while the CSA explain the differences between ETFs and conventional mutual funds that lead to some of the differences in the form of summary disclosure documents prescribed, they do not provide further details on the rationale for the differing delivery requirement. This has the potential to be operationally complicated for dealers who distribute both mutual funds and ETF and we expect that commenters will request that the CSA justify this difference before publishing a final rule.

Transition Period – something new

The CSA have signalled that they will be working towards publishing final rule amendments by early 2016, with the requirements coming into force three months after the publication date. ETF managers will then be permitted to file ETF Facts beginning 9 months after the publication of the final rule, and all ETF managers must file ETF Facts within 23 months of publication of the final rule. With the proposed ETF Facts transition, the CSA appear (commendably) to be doing their best to avoid the administrative difficulties experienced by mutual funds with 2014's "Stage 2" requirements to refile Fund Facts in the new form by a specific date (not connected with annual prospectus renewals). Although it is still open for comment, this transition period appears to provide ETF managers with enough time to transition their existing summary documents to the new ETF Facts without the need to file ETF Facts between the annual prospectus renewal. Dealers will be required to deliver ETF Facts to purchasers beginning 2 years after the publication of the final rule, which appears to be more generous timing than what was put in place in respect of mutual funds.

It will be important to comment on the proposed amendments before the expiry of the comment period on September 16, 2015, in particular, to comment on the length of the transition period and whether the proposed timelines allow sufficient time for the transition for both ETF managers and dealers. We would be pleased to assist you in preparing a comment letter.  Please contact your usual lawyer in BLG's Investment Management Group, the authors of this Bulletin or one of the leaders of the Investment Management Group. If you would like our assistance or if you have any questions on the proposed rules or how they may affect the disclosure you provide to your investors.


1 Please see Canadian Regulators Propose Standard Deviation as the Mandatory Risk Measurement for Canadian Mutual Funds Investment Management Bulletin January 2014 Borden Ladner Gervais LLP.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.