The Ontario Securities Commission (OSC) released its decision to refuse to issue a receipt for a proposed NRIF (see below) investment product called "The Bitcoin Fund" last month. The fund is being put forward by the tenacious team at 3iQ Corp., who on Friday filed an application requesting a hearing about the refusal. The application contains further details about their plans, including the role of Gemini Trust Company, a US trust company, that they intend to act as a sub-custodian to Cidel Trust Company, a Canadian trust company.

3iQ has been trying to establish this fund in Canada since at least 2016 (according to their application). For anyone interested in following in their footsteps, their 26 page filing is required reading. The investment managers (and their lawyers) have put a lot of thought into these issues, and they've included operational details in the application that are interesting notes about the state of the industry in Q1 2019. For example, paragraphs 38-49 discuss their proposed Bitcoin valuation methodology and why, in their view, it conforms to NI 81-106.

3iQ's application is also relevant reading for anyone considering how to respond to the CSA/IIROC consultation launched on Thursday. There is some overlap between the OSC's thinking in why this fund should be denied and why the OSC is looking at becoming more involved in the business of crypto exchanges.

What's An NRIF?

"NRIF" stands for non-redeemable investment fund, and is explained by the OSC, in this context as:

NRIFs may engage in certain investment strategies and invest in asset classes not typically permitted for mutual funds. There are not yet, however, any publicly offered (i.e., prospectus qualified) investment funds in Canada and the United States that invest substantially all of their assets in bitcoin. There are several funds that are not publicly offered in Canada that invest substantially all of their assets in bitcoin, including one managed by the Manager (the 3iQ Pooled Fund). The 3iQ Pooled Fund only offers its securities under exemptions from the prospectus requirement. The Manager has operated the 3iQ Pooled Fund since April 2018.

As an NRIF, the Fund will not be in continuous distribution like a mutual fund or an exchange-traded mutual fund (ETF). It will also have more limited redemption rights relative to a mutual fund. Investors of the Fund will not have the right to redeem their Fund units on demand at the net asset value (NAV). They will have the right to redeem annually at NAV, or monthly at a discount to NAV. NRIFs generally complete public offerings in the same manner as traditional corporate issuers. If a receipt were to be issued for its prospectus, the Fund will engage underwriters to complete an offering and it will list its securities on an exchange to provide its investors with secondary market liquidity.