28 July 1993 External T.I. 9311545 F - Marketable Security - Pooled Fund Trust

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

This is in reply to your letter of April 19, 1993 concerning the term "marketable securities" referred to in clause (a)(i)(A) of the definition of "pooled fund trust" in subsection 5000(7) of the Income Tax Regulations.

In particular, you ask for our opinion on whether or not a unit in an "open end trust" having the characteristics described in your letter would be a marketable security.

Whether or not such a unit is a marketable security is a question of fact. On a number of occasions over the years (since at least 1983), we have opined that the term "marketable securities" refers generally to a security that is capable of reasonably prompt conversion into cash and that is easily traded because a ready market exists and there are no legal or other impediments to its trade. This opinion was initially expressed in reply to a request for assistance and, in the context of a general opinion, we consider it appropriate. We do not consider it to be restrictive, nor was it meant to be, since it is always a question of fact whether or not a particular security is a marketable security. For the most part, this opinion is intended to reflect the following definition of "marketable securities" contained in Black's Law Dictionary - 6th Edition:

     "stocks and bonds held of other companies that can be readily sold on stock exchanges or over-the-counter markets ......".

We note that this definition refers to only two types of markets; i.e., stock exchanges and over-the-counter. In this regard, we agree with you that a market need not be confined to a stock exchange or over-the- counter market. We nevertheless feel that the definition supports the view that the word "market" when used in the context of "marketable securities" refers to a place in which there are buyers and sellers and in which the security can be readily traded, and that it is this meaning which is to be given to the word "market" in the following definitions of "marketable":

(a)     Webster's Third New International Dictionary:

     "fit to be offered for sale in a market......", and

(b)     The Oxford English Dictionary:

     "capable of being marketed......that finds a ready market...."

In respect of the type of unit you are concerned with, we have in the past opined that such a unit does not become a marketable security solely on the basis that it is redeemable on demand; i.e., the redemption feature does not of itself create a market in which the unit can be freely traded. While we appreciate your arguments to the contrary, we remain of that general view. Thus, where such a unit is non-transferable, it would probably not qualify as a marketable security. Where the unit is transferable, it is a question of fact whether or not it is a marketable security.

You mention that the right of a holder to redeem his unit may be suspended for any period during which trading has been suspended on the relevant stock exchange. The right to redeem may also be suspended with the consent of the appropriate securities regulatory authorities for any period during which conditions are such that disposal of the assets of the trust is not reasonably practicable or it is not reasonably practicable to determine fairly the value of the trust's assets. It is our view that the existence of such a possible suspension would not of itself make unmarketable an otherwise marketable unit.

Should you wish us to consider the matter further, we are prepared to do so if the particular unit is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2.

Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

for DirectorFinancial Industries DivisionRulings DirectorateHAA 7234-1